SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 16, 2000
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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
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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 [ ]
Number of shares of common stock, $.01 par value, outstanding as of the close of
business May 19, 2000 - 38,263,660.
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
April 16, October 3,
2000 1999
--------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 10,190 $ 10,925
Accounts receivable, net ........................... 8,563 9,156
Inventories ........................................ 21,730 20,159
Prepaid expenses ................................... 14,253 15,387
Assets held for sale ............................... 53,331 41,607
--------- ---------
Total current assets ............................. 108,067 97,234
--------- ---------
Trading area rights ................................... 71,883 73,033
--------- ---------
Lease acquisition costs ............................... 14,416 15,352
--------- ---------
Other assets .......................................... 41,625 40,741
--------- ---------
Property and equipment, at cost ....................... 896,835 858,685
Accumulated depreciation and amortization .......... (270,088) (251,401)
--------- ---------
626,747 607,284
--------- ---------
TOTAL ............................................ $ 862,738 $ 833,644
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ............... $ 1,827 $ 1,695
Accounts payable.................................... 38,230 44,180
Accrued expenses.................................... 178,863 183,151
--------- ---------
Total current liabilities......................... 218,920 229,026
--------- ---------
Deferred income taxes.................................. 8,655 8,055
--------- ---------
Long-term debt, net of current maturities.............. 303,950 303,456
--------- ---------
Other long-term liabilities............................ 82,157 75,270
--------- ---------
Stockholders' equity:
Common stock........................................ 413 411
Capital in excess of par value...................... 290,873 290,336
Accumulated deficit................................. (1,970) (38,447)
Treasury stock...................................... (40,260) (34,463)
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Total stockholders' equity........................ 249,056 217,837
--------- ---------
TOTAL ............................................ $ 862,738 $ 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 Twenty-Eight Weeks Ended
----------------------- ------------------------
April 16, April 11, April 16, April 11,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues:
Restaurant sales........................... $ 347,449 $ 303,666 $ 795,675 $ 688,106
Distribution and other sales............... 13,381 8,893 28,909 19,190
Franchise rents and royalties.............. 9,304 8,899 21,944 20,600
Other...................................... 361 515 773 1,211
---------- --------- ---------- ---------
370,495 321,973 847,301 729,107
---------- --------- ---------- ---------
Costs and expenses:
Costs of revenues:
Restaurant costs of sales............... 108,076 97,177 248,064 220,773
Restaurant operating costs.............. 170,388 129,252 391,622 316,593
Costs of distribution and other sales... 13,088 8,711 28,420 18,881
Franchised restaurant costs............. 4,700 5,786 10,842 12,940
Selling, general and administrative........ 42,552 34,906 96,085 79,811
Interest expense........................... 6,006 6,454 14,291 15,471
---------- --------- ---------- ---------
344,810 282,286 789,324 664,469
---------- --------- ---------- ---------
Earnings before income taxes.................. 25,685 39,687 57,977 64,638
Income taxes.................................. 9,600 14,700 21,500 23,900
---------- --------- ---------- ---------
Net earnings.................................. $ 16,085 $ 24,987 $ 36,477 $ 40,738
========== ========= ========== =========
Net earnings per share:
Basic...................................... $ .42 $ .66 $ .95 $ 1.07
Diluted.................................... $ .41 $ .64 $ .93 $ 1.04
Weighted average shares outstanding:
Basic...................................... 38,218 38,138 38,240 38,059
Diluted.................................... 39,223 39,329 39,321 39,136
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Twenty-Eight Weeks Ended
------------------------
April 16, April 11,
2000 1999
--------------------------------------------------------------------------------
Cash flows from operations:
Net earnings....................................... $ 36,477 $ 40,738
Non-cash items included above:
Depreciation and amortization................... 30,710 24,131
Deferred income taxes........................... 600 800
Decrease (increase) in receivables................. 593 (4,401)
Increase in inventories............................ (1,571) (3,964)
Decrease (increase) in prepaid expenses............ 1,134 (314)
Decrease in accounts payable....................... (5,950) (9,050)
Increase in other liabilities...................... 3,155 5,828
---------- --------
Cash flows provided by operations............... 65,148 53,768
---------- --------
Cash flows from investing activities:
Additions to property and equipment................ (48,144) (57,139)
Dispositions of property and equipment............. 1,965 2,137
Increase in trading area rights.................... (1,060) (1,510)
Increase in other assets........................... (2,071) (1,776)
Increase in assets held for sale................... (11,724) (1,480)
--------- --------
Cash flows used in investing activities......... (61,034) (59,768)
--------- --------
Cash flows from financing activities:
Borrowings under revolving bank loans.............. 206,000 193,000
Principal repayments under revolving bank loans.... (205,500) (194,000)
Proceeds from issuance of long-term debt........... 825 1,925
Principal payments on long-term debt, including
current maturities.............................. (916) (921)
Repurchase of common stock......................... (5,797) -
Proceeds from issuance of common stock............. 539 1,756
--------- --------
Cash flows provided by (used in)
financing activities......................... (4,849) 1,760
--------- --------
Net decrease in cash and cash equivalents.............. $ (735) $ (4,240)
========= =========
See accompanying notes to consolidated financial statements.
4
<PAGE>
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 Company adopted Statement of Position ("SOP") 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use, in 2000.
SOP 98-1 requires that certain costs related to the development or purchase
of internal use software be capitalized and amortized over the estimated
useful life of the software. The Statement also requires that costs related
to the preliminary project stage and the post-implementation/operations
stage of an internal use computer software development project be expensed
as incurred. The adoption of SOP 98-1 did not result in a material impact
in the financial position or results of operations of the Company.
3. 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.
4. 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 $10 million spent through April 16, 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 in principle subject to definitive
documentation. The proposed settlement 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.
5
<PAGE>
On November 5, 1996, an action was filed by the National JIB Franchisee
Association, Inc. (the "Franchisee Association") and several of the
Company's franchisees in the Superior Court of California, County of San
Diego in San Diego, California, against the Company and others. The lawsuit
alleged that certain Company policies are unfair business practices and
violate sections of the California Corporations Code regarding material
modifications of franchise agreements and interfere with franchisees' right
of association. It sought injunctive relief, a declaration of the rights
and duties of the parties, unspecified damages and rescission of alleged
material modifications of plaintiffs' franchise agreements. The complaint
contained allegations of fraud, breach of a fiduciary duty and breach of a
third party beneficiary contract in connection with certain payments that
the Company received from suppliers and sought unspecified damages,
interest, punitive damages and an accounting. However, on August 31, 1998,
the Court granted the Company's request for summary judgment on all claims
regarding an accounting, conversion, fraud, breach of fiduciary duty and
breach of third party beneficiary contracts. On March 10, 1999, the Court
granted motions by the Company, ruling, in essence, that the franchisees
would be unable to prove their remaining claims. On April 22, 1999, the
Court entered an order granting the Company's motion to enforce a
settlement with the Franchisee Association covering various aspects of the
franchise relationship, but involving no cash payments by the Company. In
accordance with that order, the Franchisee Association's claims were
dismissed with prejudice. On June 10, 1999, a final judgment was entered in
favor of the Company and against those plaintiffs with whom the Company did
not settle. The Franchisee Association and certain individual plaintiffs
filed an appeal on August 13, 1999. The Company has settled with all
franchisees. Settlements have involved no cash payments by the Company.
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.
6
<PAGE>
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 2000 and 1999 refer to the
12-week and 28-week periods ended April 16, 2000 and April 11, 1999,
respectively, unless otherwise indicated.
Restaurant sales increased $43.7 million and $107.6 million, respectively,
to $347.4 million and $795.7 million in 2000 from $303.7 million and $688.1
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 28-week period increased 11.3% to 1,215 in
2000 from 1,092 restaurants in 1999. PSA sales for comparable Company-operated
restaurants, those open more than one year, grew 3.0% and 4.5%, respectively, in
the 12-week and 28-week periods of 2000 compared with the same periods in 1999.
Sales growth resulted from increases in the average number of transactions of
1.4% and 2.5% in the respective 2000 periods and the balance of the increases
from higher average transaction amounts. 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 $4.5 million and $9.7 million,
respectively, to $13.4 million and $28.9 million in 2000 from $8.9 million and
$19.2 million in 1999, primarily due to an increase in other sales at fuel and
convenience stores to $6.7 million and $13.8 million in 2000 from $1.9 million
and $3.7 million in 1999. At quarter-end, the Company had seven fuel and
convenience store locations compared with two a year ago.
Franchise rents and royalties increased $.4 million and $1.3 million,
respectively, to $9.3 million and $21.9 million in 2000 from $8.9 million and
$20.6 million in 1999, which represent approximately 10.4% of franchise
restaurant sales in all periods. Franchise restaurant sales grew to $89.5
million and $210.1 million, respectively, in 2000 from $85.3 million and $197.9
million in 1999, benefiting from the Company's strategic initiatives described
above.
Other revenues, primarily interest income from investments and notes
receivable, declined slightly to $.4 million and $.8 million, respectively, in
2000 from $.5 million and $1.2 million in 1999.
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 $108.1 million and $248.1
million in 2000 from $97.2 million and $220.8 million in 1999. As a percent of
restaurant sales, costs of sales declined to 31.1% and 31.2%, respectively, in
2000 from 32.0% and 32.1% in 1999, primarily due to lower ingredient costs,
especially cheese, shortening and produce.
Restaurant operating costs increased to $170.4 million and $391.6 million,
respectively, in 2000 from $147.3 million and $334.6 million in 1999, excluding
an unusual adjustment. In the 12-week period in 1999, the Company reduced
accrual liabilities 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 49.0% and 49.2%,
respectively, in 2000 from 48.5% and 48.6% in 1999 excluding the unusual
adjustment reflecting cost increases related to initiatives designed to improve
the overall guest experience and slightly higher percentages of labor-related
expenses.
7
<PAGE>
Costs of distribution and other sales increased to $13.1 million and $28.4
million, respectively, in 2000 from $8.7 million and $18.9 million in 1999,
reflecting an increase in the related sales. As a percent of distribution and
other sales, these costs were 97.8% and 98.3%, respectively, in 2000 compared to
98.0% and 98.4% a year ago.
Franchised restaurant costs, which consist principally of rents and
depreciation on properties leased to franchisees and other miscellaneous costs,
declined to $4.7 million and $10.8 million, respectively, in 2000 from $5.8
million and $12.9 million in 1999, primarily due to lower franchise-related
legal expenses.
Selling, general and administrative costs increased to $42.6 million and
$96.1 million, respectively, in 2000 from $34.9 million and $79.8 million in
1999. Advertising and promotion costs increased to $17.8 million and $40.6
million, respectively, in 2000 from $15.6 million and $35.4 million in 1999,
slightly over 5% of restaurant sales in all periods. General, administrative and
other costs were 6.7% and 6.6% of revenues, respectively, in 2000 compared to
6.0% and 6.1% of revenues in 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 $.5 million and $1.2 million, respectively, to
$6.0 million and $14.3 million in 2000 from $6.5 million and $15.5 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 $16.1 million, or $.41 per diluted share, in the
12-week period and $36.5 million, or $.93 per diluted share, in the 28-week
period. In 1999, net earnings were $25.0 million, or $.64 per diluted share, in
the 12-week period and $40.7 million, or $1.04 per diluted share, in the 28-week
period. Excluding the unusual adjustment to restaurant operating costs, and
related tax effects net earnings in 1999 were $13.6 million, or $.35 per diluted
share, in the 12-week period and $29.4 million, or $.75 per diluted share in the
28-week period. Net earnings increased 18% and 24%, 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 $10.2 million at April 16,
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 $20.9 million to $110.9
million at April 16, 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.
8
<PAGE>
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 April 16, 2000, the Company had
borrowings of $86.5 million and approximately $80.8 million of availability
under the agreement. Total debt outstanding increased slightly to $305.8 million
at April 16, 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.
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.
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 April 16, 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 April 16, 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%.
9
<PAGE>
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 April 16, 2000, the Company's
applicable margin was set at .625%. During the second quarter of fiscal year
2000, the average interest rate on the credit facility was 6.8%.
At April 16, 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 April 16, 2000 level.
At April 16, 2000, the Company had no other material financial instruments
subject to significant market exposure.
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. 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 is
effective for the Company's first quarter in the fiscal year ending
September 30, 2001 and is not expected to have a material effect on the
Company's financial position or results of operations.
10
<PAGE>
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 4 to the Unaudited Consolidated
Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders.
The results of the Company's annual meeting, held February 18, 2000,
were reported in the Quarterly report on Form 10-Q for the quarter ended
January 23, 2000.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
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
---------------
Darwin J. Weeks
Vice President, Controller
and Chief Accounting Officer
(Duly Authorized Signatory)
Date: May 31, 2000
11
