SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 15, 2001 -------------- 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 - ---------------------------------------- -------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (858) 571-2121 -------------- 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 22, 2001 - 38,932,091. 1
JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) April 15, October 1, 2001 2000 ----------- ---------- (Unaudited) ASSETS Current assets: Cash and cash equivalents........................ $ 6,321 $ 6,836 Accounts receivable, net......................... 18,309 13,667 Inventories...................................... 29,496 25,722 Prepaid expenses................................. 15,078 19,329 Assets held for sale and leaseback............... 38,667 33,855 ---------- ---------- Total current assets........................... 107,871 99,409 ---------- ---------- Property and equipment, at cost..................... 1,030,179 967,832 Accumulated depreciation and amortization........ (313,237) (288,474) ---------- ---------- Property and equipment, net.................... 716,942 679,358 ---------- ---------- Trading area rights, net............................ 70,847 71,565 Lease acquisition costs, net........................ 13,087 13,746 Other assets, net................................... 43,346 42,750 ---------- ---------- TOTAL.......................................... $ 952,093 $ 906,828 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt............. $ 2,152 $ 2,034 Accounts payable................................. 37,401 53,082 Accrued expenses................................. 162,282 153,356 ---------- --------- Total current liabilities...................... 201,835 208,472 ---------- --------- Deferred income taxes............................... 13,125 12,468 Long-term debt, net of current maturities........... 286,585 282,568 Other long-term liabilities......................... 88,303 86,968 Stockholders' equity: Common stock..................................... 420 415 Capital in excess of par value................... 298,494 294,380 Retained earnings................................ 104,090 61,817 Treasury stock................................... (40,759) (40,260) ---------- --------- Total stockholders' equity..................... 362,245 316,352 ---------- --------- TOTAL.......................................... $ 952,093 $ 906,828 ========== ========= See accompanying notes to consolidated financial statements. 2
JACK IN THE BOX INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) <TABLE> <CAPTION> Twelve Weeks Ended Twenty-Eight Weeks Ended ---------------------- ------------------------ April 15, April 16, April 15, April 16, 2001 2000 2001 2000 --------- --------- --------- --------- <S> <C> <C> <C> <C> Revenues: Restaurant sales............................... $ 389,290 $ 347,449 $ 895,827 $ 795,675 Distribution and other sales................... 14,852 13,381 34,144 28,909 Franchise rents and royalties.................. 9,956 9,304 23,318 21,944 Other.......................................... 1,471 361 3,022 773 --------- --------- --------- --------- 415,569 370,495 956,311 847,301 --------- --------- --------- --------- Costs and expenses: Costs of revenues: Restaurant costs of sales.................... 120,190 108,076 276,357 248,064 Restaurant operating costs................... 196,542 170,425 448,595 391,694 Costs of distribution and other sales........ 14,365 13,034 33,165 28,315 Franchised restaurant costs.................. 4,719 4,680 10,924 10,817 Selling, general and administrative............ 45,542 42,589 106,312 96,143 Interest expense............................... 5,877 6,006 13,885 14,291 --------- --------- --------- --------- 387,235 344,810 889,238 789,324 --------- --------- --------- --------- Earnings before income taxes...................... 28,334 25,685 67,073 57,977 Income taxes...................................... 10,100 9,600 24,800 21,500 --------- --------- --------- --------- Net earnings...................................... $ 18,234 $ 16,085 $ 42,273 $ 36,477 ========= ========= ========= ========= Net earnings per share: Basic.......................................... $ .47 $ .42 $ 1.10 $ .95 Diluted........................................ $ .46 $ .41 $ 1.07 $ .93 Weighted-average shares outstanding: Basic.......................................... 38,756 38,218 38,569 38,240 Diluted........................................ 39,837 39,223 39,648 39,321 </TABLE> See accompanying notes to consolidated financial statements. 3
JACK IN THE BOX INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Twenty-Eight Weeks Ended ------------------------ April 15, April 16, 2001 2000 ----------- ---------- Cash flows from operations: Net earnings....................................... $ 42,273 $ 36,477 Non-cash items included above: Depreciation and amortization................... 33,956 29,812 Deferred finance cost amortization.............. 899 898 Deferred income taxes........................... 657 600 Decrease (increase) in receivables................. (4,642) 511 Increase in inventories............................ (3,774) (1,571) Decrease in prepaid expenses....................... 4,251 1,134 Decrease in accounts payable....................... (15,681) (5,950) Increase in other liabilities...................... 11,661 3,155 -------- -------- Cash flows provided by operations............... 69,600 65,066 -------- -------- Cash flows from investing activities: Additions to property and equipment................ (72,535) (48,144) Dispositions of property and equipment............. 3,196 1,965 Increase in trading area rights.................... (1,549) (1,060) Increase in other assets........................... (1,951) (2,071) Increase in assets held for sale and leaseback..... (4,812) (11,642) -------- -------- Cash flows used in investing activities......... (77,651) (60,952) -------- -------- Cash flows from financing activities: Borrowings under revolving bank loans.............. 282,000 206,000 Principal repayments under revolving bank loans.... (277,000) (205,500) Proceeds from issuance of long-term debt........... - 825 Principal payments on long-term debt, including current maturities.............................. (1,084) (916) Repurchase of common stock......................... (499) (5,797) Proceeds from issuance of common stock............. 4,119 539 -------- -------- Cash flows provided by (used in)financing activities.................................... 7,536 (4,849) -------- -------- Net decrease in cash and cash equivalents............ $ (515) $ (735) ======== ======== See accompanying notes to consolidated financial statements. 4
JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying unaudited consolidated financial statements of Jack in the Box Inc. (the "Company") and its subsidiaries do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In our opinion, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of financial condition and results of operations for the interim periods have been included. Operating results for any interim period are not necessarily indicative of the results for any other interim period or for the full year. We report results quarterly with the first quarter having 16 weeks and each remaining quarter having 12 weeks. Certain financial statement reclassifications have been made in the prior year to conform to the current year presentation. These financial statements should be read in conjunction with the fiscal year 2000 financial statements. 2. The 2001 income tax provision reflects the projected annual tax rate of 37% of earnings before income taxes. In the second quarter, we reduced our estimated annual tax rate to 37% of earnings before income taxes from our previous estimate of 38%. The income tax provisions for the 16- and 28-week periods ended April 16, 2000 were 37% of earnings before income taxes. In the fourth quarter of last fiscal year, the effective annual rate was adjusted to 18% of pre-tax earnings, primarily due to a $22.9 million income tax benefit recognized as a result of the favorable settlement with the U.S. Internal Revenue Service of a tax case related to the disposition in November 1995 of our interest in Family Restaurants, Inc. The favorable income tax rates result from our ability to realize previously unrecognized tax benefits. The 2001 annual tax rate cannot be determined until the end of the fiscal year; thus the actual rate could differ from our current estimations. 3. Contingent Liabilities We are subject to normal and routine litigation. We cannot determine with certainty the amount of liability from the claims and actions against us. In the opinion of management, however, the ultimate liability from all pending legal proceedings, asserted legal claims and known potential and probable legal claims should not materially affect our operating results or liquidity. 5
JACK IN THE BOX INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- All comparisons under this heading between 2001 and 2000 refer to the 12-week ("quarter") and 28-week ("year-to-date") periods ended April 15, 2001 and April 16, 2000, respectively, unless otherwise indicated. Company-operated restaurant sales increased $41.9 million and $100.1 million, respectively, to $389.3 million and $895.8 million in 2001 from $347.4 million and $795.7 million in 2000, reflecting increases in both the number of Company-operated restaurants and in per store average ("PSA") sales. The number of Company-operated restaurants increased 9.2% to 1,371 at the end of the quarter from 1,255 a year ago. PSA sales for comparable Company-operated restaurants, those open more than one year, grew 4.1% in the quarter and 4.2% year-to-date compared with the same periods in 2000. PSA sales growth resulted from higher average check amounts of 3.7% and 3.5% in the respective 2001 periods and the balance of the increases from a higher average number of transactions. We believe that the sales growth is due to price increases, effective advertising, promotions and strategic initiatives, including our ongoing focus on food quality and guest service, especially speed of service. Distribution and other sales increased $1.5 million and $5.2 million, respectively, to $14.9 million and $34.1 million in 2001 from $13.4 million and $28.9 million in 2000, primarily due to an increase in distribution sales to franchises to $8.7 million and $20.2 million in 2001 from $6.6 million and $15.1 million in 2000. Other sales from fuel and convenience store operations declined $.5 million in the quarter due to our revised fuel pricing strategy and increased $.1 million year-to-date. Franchise rents and royalties increased $.7 million and $1.4 million, respectively, to $10.0 million and $23.3 million in 2001 from $9.3 million and $21.9 million in 2000, which represent approximately 10.7% of franchise restaurant sales in 2001 and 10.4% in 2000. Franchise restaurant sales grew to $92.8 million and $217.2 million, respectively, in 2001 from $89.5 million and $210.1 million in 2000, benefiting from our strategic initiatives described above. Franchise rents and royalties grew as a percentage of sales in 2001 primarily due to increases in rents at certain franchised restaurants. Other revenues, typically interest income from investments and notes receivable, increased to $1.5 million and $3.0 million, respectively, in 2001 from $.4 million and $.8 million in 2000. In 2001, other revenues also included franchising gains of $.9 million and $1.9 million, respectively, which result from the sale of Company-operated restaurants to franchises. Restaurant costs of sales and operating costs increased with sales and the addition of Company-operated restaurants. Restaurant costs of sales, which include food and packaging costs, increased to $120.2 million and $276.4 million, respectively, in 2001 from $108.1 million and $248.1 million in 2000. As a percent of restaurant sales, costs of sales declined to 30.9% and 30.8%, respectively, in 2001 from 31.1% and 31.2% in 2000, primarily due to lower ingredient costs, especially beef, cheese, shortening and poultry. 6
Restaurant operating costs grew to $196.5 million and $448.6 million, respectively, in 2001 from $170.4 million and $391.7 million in 2000. As a percent of restaurant sales, operating costs increased to 50.5% and 50.1%, respectively, in 2001 from 49.1% and 49.2% in 2000, reflecting significantly higher utility costs and to a lesser extent, higher percentages of labor-related expenses and other operating cost increases. Costs of distribution and other sales increased to $14.4 million and $33.2 million, respectively, in 2001 from $13.0 million and $28.3 million in 2000, reflecting an increase in the related sales. As a percent of distribution and other sales, these costs improved to 96.7% and 97.1%, respectively, in 2001 from 97.4% and 97.9% a year ago primarily due to improved margins from our fuel and convenience store operations. Franchised restaurant costs, which consist principally of rents and depreciation on properties leased to franchisees and other miscellaneous costs, were essentially unchanged from the prior year at $4.7 million in the quarter and $10.9 million year-to-date. Selling, general and administrative costs increased to $45.5 million and $106.3 million, respectively, in 2001 from $42.6 million and $96.1 million in 2000. Advertising and promotion costs increased to $20.2 million and $46.0 million, respectively, in 2001 from $17.8 million and $40.6 million in 2000, slightly over 5% of restaurant sales in all periods. General, administrative and other costs improved to 6.1% and 6.3% of revenues, respectively, in 2001 compared with 6.7% and 6.6% of revenues in 2000 primarily due to improved percentages of employee benefit-related expenses and lower pre-opening costs. Interest expense declined $.1 million and $.4 million, respectively, to $5.9 million and $13.9 million in 2001 from $6.0 million and $14.3 million in 2000, primarily reflecting a reduction in total average debt compared to a year ago. The 2001 income tax provision reflects the projected annual tax rate of 37% of earnings before income taxes. In the second quarter, we reduced our estimated annual tax rate to 37% of earnings before income taxes from our previous estimate of 38%. The income tax provisions for the 16- and 28-week periods ended April 16, 2000 were 37% of earnings before income taxes. In the fourth quarter of last fiscal year, the effective annual rate was adjusted to 18% of pre-tax earnings, primarily due to a $22.9 million income tax benefit recognized as a result of the favorable settlement with the U.S. Internal Revenue Service of a tax case related to the disposition in November 1995 of our interest in Family Restaurants, Inc. The favorable income tax rates result from our ability to realize previously unrecognized tax benefits. The 2001 annual tax rate cannot be determined until the end of the fiscal year; thus the actual rate could differ from our current estimations. Net earnings in the quarter improved 13% to $18.2 million, or $.46 per diluted share, in 2001 from $16.1 million, or $.41 per diluted share, in 2000. Year-to-date net earnings grew nearly 16% to $42.3 million, or $1.07 per diluted share, in 2001 from $36.5 million or $.93 per diluted share, in 2000. The improvement in earnings primarily reflects restaurant sales growth. 7
LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash and cash equivalents decreased slightly to $6.3 million at April 15, 2001 from $6.8 million at the beginning of the fiscal year. We expect to maintain low levels of cash and cash equivalents, reinvesting available cash flows from operations to develop new or enhance existing restaurants, and to reduce borrowings under the revolving credit agreement. Our working capital deficit decreased $15.1 million to $94.0 million at April 15, 2001 from $109.1 million at October 1, 2000, primarily due to an increase in accounts receivable and assets held for sale and leaseback and a decline in accounts payable. The Company and the restaurant industry in general maintain relatively low levels of accounts receivable and inventories and vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. Our revolving bank credit agreement provides for a credit facility expiring in 2003 of up to $175 million, including letters of credit of up to $25 million. At April 15, 2001, we had borrowings of $71.0 million and approximately $91.8 million of availability under the agreement. Total debt outstanding increased slightly to $288.7 million at April 15, 2001 from $284.6 million at the beginning of the fiscal year. We are subject to a number of covenants under our various debt instruments including limitations on additional borrowings, capital expenditures, lease commitments and dividend payments, and requirements to maintain certain financial ratios, cash flows and net worth. In September 1999, the collateral securing the bank credit facility was released. However, the real and personal property previously held as collateral for the bank credit facility cannot be used to secure other indebtedness of the Company. In addition, certain of our real and personal property secure other indebtedness. We require capital principally to grow the business through new restaurant construction, as well as to maintain, improve and refurbish existing restaurants, and for general operating purposes. Our primary sources of liquidity are expected to be cash flows from operations, the revolving bank credit facility, and the sale and leaseback of restaurant properties. Additional potential sources of liquidity include financing opportunities and the conversion of Company-operated restaurants to franchised restaurants. Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with other financing alternatives available, will be sufficient to meet debt service, capital expenditure and working capital requirements. Although we cannot determine with certainty the amount of liability from claims and actions against us, we believe the ultimate liability of such claims and actions should not materially affect our operating results and liquidity. On December 3, 1999, our Board of Directors authorized the purchase of our outstanding common stock in the open market for an aggregate amount not to exceed $10 million. Through April 15, 2001, we had acquired 330,800 shares in connection with this authorization for an aggregate cost of $6.3 million. 8
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ---------------------------------------------------------- Our primary exposure relating to financial instruments is to changes in interest rates. We use interest rate swap agreements to reduce exposure to interest rate fluctuations. We have in place a $25 million notional amount interest rate swap agreement which expires in June 2001. This agreement effectively converts a portion of our variable rate bank debt to fixed rate debt and has a pay rate of approximately 6.4%. Our credit facility bears interest at an annual rate equal to the prime rate or the London Interbank Offered Rate ("LIBOR") plus an applicable margin based on a financial leverage ratio. As of April 15, 2001, our applicable margin was set at .625%. During the second quarter of fiscal year 2001, the average interest rate on the credit facility was approximately 6.7%, including the impact of the interest rate swap. At April 15, 2001, a hypothetical one percentage point increase in short-term interest rates would result in a reduction of $.5 million in annual pre-tax earnings. The estimated reduction is based on holding the unhedged portion of bank debt at its April 15, 2001 level. We are also exposed to the impact of commodity price fluctuations. From time-to-time we enter into commodity futures and option contracts to manage these fluctuations. Open commodity futures and option contracts were not significant as of April 15, 2001. At April 15, 2001, we had no other material financial instruments subject to significant market exposure. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS - ---------------------------------------------------------- This Quarterly Report on Form 10-Q contains forward-looking statements including, but not limited to, our expectations regarding our effective tax rate, our continuing investment in new restaurants and refurbishment of existing facilities and sources of liquidity. Forward-looking statements are generally identifiable by the use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" and similar expressions. Forward-looking statements are subject to known and unknown risks and uncertainties which may cause actual results to differ materially from expectations. The following is a discussion of some of those factors. Our tax provision is highly sensitive to expected earnings and as expectations change our income tax provision may vary more significantly from quarter to quarter and year to year than companies which have been continuously profitable. However, our effective tax rates are expected to increase in the future. There can be no assurances that growth objectives in the regional domestic markets in which we operate will be met or that capital will be available for refurbishment of existing facilities. Multi-unit food service business such as JACK IN THE BOX restaurants can be materially and adversely affected by publicity about allegations of poor food quality, foreign objects in food, illness, injury or other health concerns with respect to the nutritional value of certain foods. Our results of operations can also be affected by ingredient cost increases or shortages. We have experienced an increase in utility costs due to deregulation. We have also experienced power outages in certain areas and are uncertain if they will continue or spread to other areas. The deregulation of utilities and the continuation of power shortages or interruptions may adversely affect the profitability of our business in the areas in which they occur. Additional risk factors associated with our business are detailed in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. 9
NEW ACCOUNTING STANDARDS - ------------------------ In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101 ("SAB101"), Revenue Recognition in Financial Statements, summarizing their views for applying generally accepted accounting principles to revenue recognition in financial statements. Although we have determined that the adoption of SAB101 should not have a material effect on our annual results of operations, it will impact the reporting of our franchise percentage rent between quarters within the year. As permitted by SAB101, we plan to adopt the new standard in the fourth quarter of the fiscal year 2001 at which time we will restate the earlier quarters within the year. PART II - OTHER INFORMATION There is no information required to be reported for any items under Part II, except as follows: Item 4. Submission of Matters to a Vote of Security Holders. The results of our annual meeting, held February 23, 2001, were reported in the Quarterly report on Form 10-Q for the quarter ended January 21, 2001. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized and in the capacities indicated. JACK IN THE BOX INC. By: DARWIN J. WEEKS --------------- Darwin J. Weeks Vice President, Controller and Chief Accounting Officer (Duly Authorized Signatory) Date: May 30, 2001 10