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 9, 2000
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Commission file no. 1-9390
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JACK IN THE BOX INC.
(Exact name of registrant as specified in its charter)
DELAWARE 5-2698708
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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 15, 2000 - 38,324,861.
1
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JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 9, October 3,
2000 1999
--------------------------------------------------- --------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents...................... $ 7,268 $ 10,925
Accounts receivable, net....................... 10,665 9,156
Inventories.................................... 25,303 20,159
Prepaid expenses............................... 15,121 15,387
Assets held for sale........................... 52,326 41,607
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Total current assets......................... 110,683 97,234
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Trading area rights............................... 72,413 73,033
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Lease acquisition costs........................... 14,038 15,352
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Other assets...................................... 42,713 40,741
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Property and equipment, at cost................... 923,950 858,685
Accumulated depreciation and amortization...... (280,502) (251,401)
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643,448 607,284
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TOTAL........................................ $ 883,295 $ 833,644
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........... $ 1,983 $ 1,695
Accounts payable............................... 33,530 44,180
Accrued expenses................................ 184,390 183,151
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Total current liabilities.................... 219,903 229,026
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Deferred income taxes............................. 8,955 8,055
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Long-term debt, net of current maturities......... 299,918 303,456
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Other long-term liabilities....................... 84,078 75,270
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Stockholders' equity:
Common stock................................... 414 411
Capital in excess of par value................. 291,449 290,336
Retained earnings (deficit).................... 18,838 (38,447)
Treasury stock................................. (40,260) (34,463)
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Total stockholders' equity................... 270,441 217,837
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TOTAL........................................ $ 883,295 $ 833,644
========== ==========
See accompanying notes to consolidated financial statements.
2
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JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Twelve Weeks Ended Forty Weeks Ended
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July 9, July 4, July 9, July 4,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues:
Restaurant sales.............................. $ 364,314 $ 323,727 $ 1,159,989 $ 1,011,833
Distribution and other sales.................. 14,599 9,175 43,508 28,365
Franchise rents and royalties................. 9,740 9,086 31,684 29,686
Other......................................... 1,658 460 2,431 1,671
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390,311 342,448 1,237,612 1,071,555
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Costs and expenses:
Costs of revenues:
Restaurant costs of sales.................. 111,638 100,133 359,702 320,906
Restaurant operating costs................. 177,599 156,779 569,221 473,372
Costs of distribution and other sales...... 14,318 9,038 42,738 27,919
Franchised restaurant costs................ 4,606 5,003 15,448 17,943
Selling, general and administrative........... 43,009 37,574 139,094 117,385
Interest expense.............................. 6,133 6,344 20,424 21,815
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357,303 314,871 1,146,627 979,340
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Earnings before income taxes..................... 33,008 27,577 90,985 92,215
Income taxes..................................... 12,200 10,200 33,700 34,100
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Net earnings..................................... $ 20,808 $ 17,377 $ 57,285 $ 58,115
========= ========= =========== ===========
Net earnings per share:
Basic......................................... $ .54 $ .45 $ 1.50 $ 1.53
Diluted....................................... $ .53 $ .44 $ 1.46 $ 1.48
Weighted average shares outstanding:
Basic......................................... 38,269 38,209 38,249 38,104
Diluted....................................... 39,371 39,446 39,336 39,229
</TABLE>
See accompanying notes to consolidated financial statements.
3
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JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Forty Weeks Ended
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July 9, July 4,
2000 1999
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Cash flows from operations:
Net earnings........................................ $ 57,285 $ 58,115
Non-cash items included above:
Depreciation and amortization.................... 44,427 35,491
Deferred income taxes............................ 900 1,800
Decrease (increase) in receivables.................. (1,509) 3,369
Increase in inventories............................. (5,144) (2,563)
Decrease (increase) in prepaid expenses............. 266 (4,737)
Decrease in accounts payable........................ (10,650) (17,384)
Increase in other liabilities....................... 9,807 12,728
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Cash flows provided by operations................ 95,382 86,819
-------- --------
Cash flows from investing activities:
Additions to property and equipment................. (77,156) (81,939)
Dispositions of property and equipment.............. 3,286 4,776
Increase in trading area rights..................... (2,541) (1,910)
Increase in other assets............................ (3,665) (2,665)
Increase in assets held for sale.................... (10,719) (2,777)
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Cash flows used in investing activities.......... (90,795) (84,515)
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Cash flows from financing activities:
Borrowings under revolving bank loans............... 338,000 256,500
Principal repayments under revolving bank loans..... (341,000) (267,000)
Proceeds from issuance of long-term debt............ 825 3,375
Principal payments on long-term debt, including
current maturities............................... (1,385) (2,308)
Repurchase of common stock.......................... (5,797) -
Proceeds from issuance of common stock.............. 1,116 2,407
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Cash flows used in financing activities.......... (8,241) (7,026)
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Net decrease in cash and cash equivalents............... $ (3,654) $ (4,722)
========= ========
See accompanying notes to consolidated financial statements.
4
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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 generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring
adjustments, considered necessary for a fair presentation of financial
condition and results of operations for the interim periods have been
included. Operating results for any interim period are not necessarily
indicative of the results for any other interim period or for the full
year. The Company reports results quarterly with the first quarter having
16 weeks and each remaining quarter having 12 weeks. Certain financial
statement reclassifications have been made in the prior year to conform to
the current year presentation. These financial statements should be read in
conjunction with the 1999 financial statements.
2. The income tax provisions reflect the projected annual tax rate of 37% of
earnings before income taxes in 2000 and the actual tax rate of 37% of
pretax earnings in 1999. The favorable income tax rates result from the
Company's ability to realize previously unrecognized tax benefits. The
Company cannot determine with certainty the 2000 annual tax rate until the
end of the fiscal year; thus the rate could differ from expectations.
3. Contingent Liabilities
On February 2, 1995, an action by Concetta Jorgensen was filed against the
Company in the U.S. District Court in San Francisco, California alleging
that restrooms at a Jack in the Box restaurant failed to comply with laws
regarding disabled persons and seeking damages in unspecified amounts,
punitive damages, injunctive relief, attorneys' fees and prejudgment
interest. In an amended complaint, damages were also sought on behalf of
all physically disabled persons who were allegedly denied access to
restrooms at the restaurant. In February 1997, the Court ordered that the
action for injunctive relief proceed as a nationwide class action on behalf
of all persons in the United States with mobility disabilities. The Company
has reached agreement on settlement terms both as to the individual
plaintiff Concetta Jorgensen and the claims for injunctive relief, and the
settlement agreement has been approved by the U.S. District Court. The
settlement requires the Company to make access improvements at
Company-operated restaurants to comply with the standards set forth in the
Americans with Disabilities Act ("ADA") Access Guidelines. The settlement
requires compliance at Company-operated restaurants by October 2005. The
Company has begun to make modifications to its restaurants to improve
accessibility and anticipates investing an estimated $24 million in capital
improvements in connection with these modifications, including
approximately $11 million spent through July 9, 2000. Similar claims have
been made against Jack in the Box franchisees and the Company relating to
franchised locations which may not be in compliance with the ADA. A
settlement agreement has been reached which provides for injunctive relief
requiring franchisees to bring their franchised restaurants into compliance
with the ADA and requiring payment by the Company of monitoring expenses to
ensure compliance and attorney's fees.
The Company is also subject to normal and routine litigation. The amount of
liability from the claims and actions against the Company cannot be
determined with certainty, but in the opinion of management, the ultimate
liability from all pending legal proceedings, asserted legal claims and
known potential legal claims which are probable of assertion should not
materially affect the results of operations and liquidity of the Company.
5
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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 2000 and 1999 refer
to the 12-week and 40-week periods ended July 9, 2000 and July 4, 1999,
respectively, unless otherwise indicated.
Restaurant sales increased $40.6 million and $148.2 million, respectively,
to $364.3 million and $1,160.0 million in 2000 from $323.7 million and $1,011.8
million in 1999, reflecting increases in both the number of Company-operated
restaurants and in per store average ("PSA") sales. The average number of
Company-operated restaurants for the 40-week period increased 11.0% to 1,228 in
2000 from 1,106 restaurants in 1999. PSA sales for comparable Company-operated
restaurants, those open more than one year, grew 2.6% and 3.9%, respectively, in
the 12-week and 40-week periods of 2000 compared with the same periods in 1999.
Sales growth resulted from increases in the average transaction amounts of 2.3%
and 2.0% in the respective 2000 periods and the remainder from higher average
number of transactions. Management believes that the sales growth is
attributable to effective advertising and strategic initiatives, including the
Assemble-To-Order program in which sandwiches are made when customers order
them, new menu boards that showcase combo meals and an order confirmation system
at drive-thru windows.
Distribution and other sales increased $5.4 million and $15.1 million,
respectively, to $14.6 million and $43.5 million in 2000 from $9.2 million and
$28.4 million in 1999, primarily due to an increase in other sales at fuel and
convenience stores to $7.0 million and $20.8 million in 2000 from $2.0 million
and $5.6 million in 1999. At July 9, 2000, the Company had seven fuel and
convenience store locations compared with two a year ago.
Franchise rents and royalties increased $.6 million and $2.0 million,
respectively, to $9.7 million and $31.7 million in 2000 from $9.1 million and
$29.7 million in 1999, which represent slightly over 10.5% of franchise
restaurant sales in 2000 and a slightly lower percentage in 1999. Franchise
restaurant sales grew to $91.1 million and $301.1 million, respectively, in 2000
from $88.3 million and $286.2 million in 1999, benefiting from the Company's
strategic initiatives described above.
Other revenues, primarily franchise fees and interest income from
investments and notes receivable, increased to $1.7 million and $2.4 million,
respectively, in 2000 from $.5 million and $1.7 million in 1999. The increase is
principally due to $1.2 million received in the quarter for additional franchise
fees from refranchising 13 restaurants and fees that franchisees paid to extend
the term of their franchises for three years.
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 $111.6 million and $359.7
million in 2000 from $100.1 million and $320.9 million in 1999. As a percent of
restaurant sales, costs of sales declined to 30.6% and 31.0%, respectively, in
2000 from 30.9% and 31.7% in 1999, primarily due to lower ingredient costs,
especially dairy, shortening and bakery, partially offset by higher beef and
pork costs.
Restaurant operating costs increased to $177.6 million and $569.2 million,
respectively, in 2000 from $156.8 million and $491.4 million in 1999, excluding
an unusual adjustment. In the second quarter of 1999, the Company reduced
accrued expenses and restaurant operating costs by $18.0 million, primarily due
to a change in estimates resulting from improvements to its loss prevention and
risk management programs, which have been more successful than anticipated. As a
percent of restaurant sales, operating costs increased to 48.7% and 49.1%,
respectively, in 2000 from 48.4% and 48.6% in 1999 excluding the unusual
adjustment, reflecting cost increases related to initiatives described above
which are designed to improve the overall guest experience and slightly higher
percentages of labor-related expenses.
Costs of distribution and other sales increased to $14.3 million and $42.7
million, respectively, in 2000 from $9.0 million and $27.9 million in 1999,
reflecting an increase in the related sales. As a percent of distribution and
other sales, these costs were 98.1% and 98.2%, respectively, in 2000 compared to
98.5% and 98.4% a year ago.
6
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Franchised restaurant costs, which consist principally of rents and
depreciation on properties leased to franchisees and other miscellaneous costs,
declined to $4.6 million and $15.4 million, respectively, in 2000 from $5.0
million and $17.9 million in 1999, primarily due to lower franchise-related
legal expenses.
Selling, general and administrative costs increased to $43.0 million and
$139.1 million, respectively, in 2000 from $37.6 million and $117.4 million in
1999. Advertising and promotion costs increased to $18.6 million and $59.1
million, respectively, in 2000 from $16.6 million and $52.0 million in 1999,
slightly over 5% of restaurant sales in all periods. General, administrative and
other costs were 6.3% and 6.5% of revenues, respectively, in 2000 compared to
6.1% of revenues in both periods of 1999, primarily due to a decision to
increase staffing levels in the field to accommodate the growth program and
other costs to support restaurant and revenue growth.
Interest expense declined $.2 million and $1.4 million, respectively, to
$6.1 million and $20.4 million in 2000 from $6.3 million and $21.8 million in
1999, reflecting a reduction in total average debt compared to a year ago.
The income tax provisions reflect the projected annual tax rate of 37% of
earnings before income taxes in 2000 and the actual tax rate of 37% of pretax
earnings in 1999. The favorable income tax rates result from the Company's
ability to realize previously unrecognized tax benefits. The Company cannot
determine with certainty the 2000 annual tax rate until the end of the fiscal
year; thus the rate could differ from expectations.
In 2000, net earnings were $20.8 million, or $.53 per diluted share, in the
12-week period and $57.3 million, or $1.46 per diluted share, in the 40-week
period. In 1999, net earnings were $17.4 million, or $.44 per diluted share, in
the 12-week period and $58.1 million, or $1.48 per diluted share, in the 40-week
period. Excluding the unusual adjustment to restaurant operating costs and
related tax effects, net earnings in 1999 were $46.8 million, or $1.19 per
diluted share, in the 40-week period. Net earnings increased 19.7% and 22.5%,
respectively, in 2000 compared to the same periods in 1999, excluding this
unusual item, reflecting the impact of sales growth and improved margins.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased slightly to $7.3 million at July 9,
2000 from $10.9 million at the beginning of the fiscal year. The Company expects
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.
The Company's working capital deficit decreased $22.6 million to $109.2
million at July 9, 2000 from $131.8 million at October 3, 1999, primarily due to
an increase in assets held for sale and a decline in current liabilities. The
Company and the restaurant industry in general maintain relatively low levels of
accounts receivable and inventories and vendors grant trade credit for purchases
such as food and supplies. The Company also continually invests in its 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.
In 1998, the Company entered into a revolving bank credit agreement which
provides for a credit facility expiring in 2003 of up to $175 million, including
letters of credit of up to $25 million. At July 9, 2000, the Company had
borrowings of $83.0 million and approximately $83.0 million of availability
under the agreement. Total debt outstanding decreased slightly to $301.9 million
at July 9, 2000 from $305.2 million at the beginning of the fiscal year.
The Company is subject to a number of covenants under its 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. The bank credit
facility is secured by a first priority security interest in certain assets and
properties of the Company. In addition, certain of the Company's real estate and
equipment secure other indebtedness.
7
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The Company requires 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. The Company's 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, the Company expects that
cash flows from operations, combined with other financing alternatives
available, will be sufficient to meet debt service, capital expenditure and
working capital requirements.
The Company is subject to normal and routine litigation. Although the
amount of liability from claims and actions against the Company cannot be
determined with certainty, management believes the ultimate liability of such
claims and actions should not materially affect the results of operations and
liquidity of the Company.
On December 3, 1999, the Company's Board of Directors authorized the
purchase of the Company's outstanding common stock in the open market for an
aggregate amount not to exceed $10 million. At July 9, 2000, the Company had
acquired 305,800 shares under this authorization for an aggregate cost of $5.8
million.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary exposure relating to financial instruments is to
changes in interest rates. The Company uses interest rate swap agreements to
reduce exposure to interest rate fluctuations. At July 9, 2000, the Company had
a $25 million notional amount interest rate swap agreement expiring in June
2001. This agreement effectively converts a portion of the Company's variable
rate bank debt to fixed rate debt and has a pay rate of 6.38%.
The Company's 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 9, 2000, the Company's
applicable margin was set at .625%. During the third quarter of fiscal year
2000, the average interest rate on the credit facility was 7.0%.
At July 9, 2000, a hypothetical one percentage point increase in short-term
interest rates would result in a reduction of $.6 million in annual pre-tax
earnings. The estimated reduction is based on holding the unhedged portion of
bank debt at its July 9, 2000 level.
At July 9, 2000, the Company had no other material financial instruments
subject to significant market exposure.
8
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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
including, but not limited to, the Company's expectations regarding its
effective tax rate, its 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. The
Company's tax provision is highly sensitive to expected earnings and as
expectations change the Company's income tax provision may vary more
significantly from quarter to quarter and year to year than companies which have
been continuously profitable. However, the Company's 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 the Company operates 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.
The deregulation of utilities and power shortages or interruptions may adversely
affect the profitability of businesses, including the Company's business in the
areas in which they occur. Additional risk factors associated with the Company's
business are detailed in the Company's most recent Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This Statement was amended by SFAS 137 which defers the effective date to all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133, as
amended, is effective for the Company's first quarter in the fiscal year ending
September 30, 2001. Management has not yet addressed the effect of this standard
on the Company's current reporting and disclosures.
9
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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 1. Legal Proceedings - See Note 3 to the Unaudited Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
10.1 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.
27 Financial Data Schedule (included only with
electronic filing)
(b) Reports on Form 8-K - None
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 21, 2000
