Jack in the Box - 10-Q quarterly report FY

 

 

(Exact name of registrant as specified in its charter)

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 þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

Number of shares of common stock, $.01 par value, outstanding as of the close of business
May 12, 2008 – 58,759,137.

 

 

PART I.FINANCIAL INFORMATION

     ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

     All comparisons between 2008 and 2007 refer to the 12-week (“quarter”) and 28-week (“year-to-date”) periods ended April 13, 2008 and April 15, 2007, respectively, unless otherwise indicated.

     For an understanding of the significant factors that influenced our performance during the two quarterly periods ended April 13, 2008 and April 15, 2007, we believe our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes included in this Quarterly Report as indexed on page two.

     Our MD&A consists of the following sections:

     As of April 13, 2008, Jack in the Box Inc. (the “Company”) operated and franchised 2,142 Jack in the Box quick-service restaurants and 423 Qdoba Mexican Grill (“Qdoba”) fast-casual restaurants, primarily in the western and southern United States.

     Our primary source of revenue is from retail sales at company-operated restaurants. We also derive revenue from sales of food and packaging to Jack in the Box and Qdoba franchised restaurants, retail sales from fuel and convenience stores (“Quick Stuff”),and revenue from franchisees including royalties, based upon a percent of sales, franchise fees and rents. In addition, we recognize gains from the sale of company-operated restaurants to franchisees, which are presented as a reduction of operating costs and expenses in the accompanying condensed consolidated statements of earnings.

     The quick-service restaurant industry is complex and challenging. Challenges presently facing the sector include higher levels of consumer expectations, intense competition with respect to market share, restaurant locations, labor, menu and product development, trends for healthier eating, and changes in the economy, including costs of commodities and changes in consumer spending which have been impacted by, among other factors, an unstable housing market, higher fuel prices and higher unemployment rates in certain markets.

     To address these challenges and others, management has a strategic plan focused on four key initiatives. The first initiative is a growth strategy that includes opening new restaurants and increasing same-store sales. The second initiative is a holistic reinvention of theJack in the Box brand through menu innovation, upgrading guest service and re-imagingJack in the Box restaurant facilities to reflect the personality of Jack – the chain’s fictional founder and popular spokesman. The third strategic initiative is to expand franchising – through new restaurant development and the sales of company-operated restaurants to franchisees – to generate higher returns and higher

margins, while mitigating business-cost and investment risks. The fourth initiative is to improve our business model to improve restaurant profitability, margins and returns, reduce operating costs and increase the long-term value of our business.

     The following summarizes the most significant events occurring in fiscal 2008:

     Historical share and per share data for 2007 in our Quarterly Report on Form 10-Q have been restated to give retroactive recognition of our two-for-one stock split that was effected in the form of a 100% stock dividend on October 15, 2007, with the exception of treasury share data as no stock dividend was paid with respect to treasury shares. Refer to Note 6, Stockholders’ Equity, in the notes to the condensed consolidated financial statements for additional information regarding the stock split.

     The following table sets forth, unless otherwise indicated, the percentage relationship to total revenues of certain items included in our condensed consolidated statements of earnings.

     The following table summarizes the number of systemwide restaurants:

     Since April 15, 2007, we opened 41 company-operated Jack in the Boxrestaurants (along with four new Quick Stuff convenience stores) and 15 company-operated Qdoba restaurants. Franchisees opened 13 Jack in the Box and 64 Qdoba restaurants since a year ago.

     Restaurant sales decreased $9.6 million, or 1.9%, in the quarter and $13.3 million, or 1.2%, year-to-date primarily due to a decrease in the number of Jack in theBox company-operated restaurants reflecting the sale of company-operated restaurants to franchisees. This decrease was partially offset by increases in per store average (“PSA”) sales at Jack in the Box and Qdoba company-operated restaurants, as well as an increase in the number of Qdoba company-operated restaurants. Same-store sales at Jack inthe Box company-operated restaurants decreased 0.1% in the quarter and increased 0.8% year-to-date compared with a year ago, reflecting price increases of approximately 2.5% year-to-date. Our restaurants in Texas, the Southeast and other key markets continue to perform well, but we have seen a slowdown in certain western markets, such as some of those in California, due to the downturn in the housing market, higher fuel prices and unemployment.

     Distribution and other sales, representing distribution sales to Jack in theBox and Qdoba franchisees, as well as Quick Stuff fuel and convenience store sales, grew to $167.1 million and $375.5 million, respectively in 2008 from $129.8 million and $293.6 million in 2007. Sales from our Quick Stuff locations increased $24.6 million and $51.0

million, respectively, compared with a year ago due to increases in PSA fuel sales and the number of locations to 61 at the end of the quarter from 57 a year ago. The increase in PSA fuel sales reflects higher retail prices offset in part by a decrease in year-to-date gallons sold. Distribution sales to Jack in the Box and Qdoba franchisees increased $12.7 million and $30.9 million, respectively, in 2008 compared with the same periods in 2007 reflecting an increase in the number of franchised restaurants serviced by our distribution centers.

     Franchised restaurant revenues, which includes rents, royalties and fees from restaurants operated by franchisees, increased $5.2 million and $12.5 million, respectively, in 2008 to $35.6 million and $84.5 million, primarily due to an increase in the number of franchised restaurants. The number of franchised restaurants increased to 1,075 at the end of the quarter from 922 a year ago, reflecting the franchising of Jack in the Box company-operated restaurants and new restaurant development by Qdoba and Jack in the Box franchisees.

     Restaurant costs of sales, which include food and packaging costs, increased to $162.0 million and $374.7 million, respectively, in 2008 from $155.5 million and $358.1 million in 2007. Restaurant costs of sales increased to 33.0% and 32.9% of sales, respectively, in 2008 compared with 31.1% in both periods of 2007 as higher commodity costs, primarily cheese, shortening, dairy and eggs, as well as product mix changes were partially offset by selling price increases and lower packaging costs.

     Restaurant operating costs decreased to $247.8 million and $572.3 million, respectively, in 2008 from $253.4 million and $582.7 million in 2007. Restaurant operating costs improved to 50.5% and 50.3% of sales, respectively, in 2008 compared with 50.6% in both periods of 2007 due primarily to a 40-basis-points decline in labor costs in both periods, as effective labor management more than offset increased minimum wages in several states in which we operate. In both periods, the benefit provided by declining labor costs was partially offset by higher depreciation expense related to increased capital spending associated with the Company’s on-going comprehensive re-image program and kitchen enhancement project, and higher costs for utilities.

     Costs of distribution and other sales increased to $166.7 million and $374.1 million, respectively, in 2008 from $128.4 million and $291.2 million in 2007, primarily reflecting an increase in the related sales. As a percentage of the related sales, these costs increased to 99.7% and 99.6% in 2008 from 98.9% and 99.2% in 2007, due primarily to higher retail prices per gallon of fuel.

     Franchised restaurant costs, principally rents and depreciation on properties leased to Jack in the Box franchisees, increased to $14.9 million and $33.8 million, respectively in 2008 from $12.9 million and $29.3 million in 2007, due primarily to an increase in the number of franchised restaurants. As a percentage of franchised restaurant revenues, franchised restaurant costs decreased to 41.9% and 40.1%, respectively, in 2008 from 42.5% and 40.8% in 2007 due primarily to the leverage provided by higher franchise revenues.

     Selling, general and administrative expenses (“SG&A”) decreased $3.8 million and $2.5 million, respectively, in 2008 to $65.8 million and $156.4 million. The decrease is primarily due to effective management of field general and administrative expenses as well as lower salaries and related benefits associated with the Company’s refranchising strategy reducing expenses by $1.7 million and $4.5 million, respectively, in 2008 compared with a year ago. Additionally, compensation and benefit costs, including pension expense, share-based and incentive compensation and offsetting changes in the cash surrender value of our COLI policies and our non-qualified deferred compensation obligation supported by these policies, decreased $1.5 million and $0.5 million, respectively, in 2008 compared to a year ago. A $1.2 million charge recorded in the second quarter of fiscal 2007 related to a legal matter also contributed to the decrease in 2008. These SG&A decreases were partially offset by higher general and administrative expenses at Qdoba of $0.9 million and $1.9 million, respectively, in support of their continued growth and a $1.6 million year-to-date increase in facility charges primarily related to theJack in the Box re-image program, a Jack in the Box kitchen enhancement project and the impairment of two restaurants we continue to operate. As a percent of revenues, SG&A improved to 9.5% and 9.8% of revenues in 2008 compared with 10.5% in both periods a year ago due primarily to the leverage from higher revenues and lower costs in the quarter.

     Gains on sale of company-operated restaurants to franchisees were $11.9 million and $28.7 million, respectively, from the sale of 23 and 51 Jack in the Box restaurants, in 2008 compared with $7.2 million and $14.4 million, from the sale of 15 and 30 Jack in the Box restaurants, in 2007. The change in gains relates to the number of restaurants sold and the specific sales and cash flows of those restaurants.

     Interest expense decreased $1.5 million and $2.2 million, respectively, in 2008 to $6.8 million and $15.9 million from $8.3 million and $18.1 million in 2007, which included a $1.9 million charge in the first quarter to write-off deferred financing fees in connection with the replacement of our credit facility. The decrease in interest expense exclusive of the charge in the prior year relates to lower average interest rates, and in the quarter lower average bank borrowings, compared with a year ago.

     Interest income decreased $3.0 million and $7.0 million, respectively, in 2008 to $0.04 million and $0.3 million from $3.1 million and $7.3 million in 2007 primarily reflecting lower average cash balances.

     The income tax provisions reflect effective tax rates of 37.2% in 2008 and 36.0% in 2007. We expect the annual tax rate for fiscal year 2008 to be 37.0%-38.0%. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual rate could differ from our current estimates.

     Net earnings in the quarter were $26.4 million, or $.44 per diluted share, in 2008 compared to $27.2 million, or $.40 per diluted share, in 2007. Year-to-date net earnings were $63.0 million, or $1.04 per diluted share, in 2008 compared to $64.6 million, or $.92 per diluted share, in 2007.

     General. Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations, the revolving bank credit facility, the sale of company-operated restaurants to franchisees and the sale and leaseback of certain restaurant properties.

     Our cash requirements consist principally of:

     Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with other financing alternatives in place or available, will be sufficient to meet our capital expenditure, working capital and debt service requirements.

     As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories, and our 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. As a result, we typically maintain current liabilities in excess of current assets which result in a working capital deficit.

     Cash and cash equivalents increased $0.7 million to $16.4 million at April 13, 2008 from $15.7 million at the beginning of the fiscal year. This increase is primarily due to cash flows provided by operating activities and proceeds from the sale of restaurants to franchisees, which were offset in part by property and equipment expenditures and the use of cash to repurchase our common stock. We generally reinvest available cash flows from operations to develop new restaurants or enhance existing restaurants, to repurchase shares of our common stock and to reduce debt.

     Cash Flows. The following table summarizes our cash flows from operating, investing and financing activities for the 28-weeks ended April 13, 2008 and April 15, 2007 (in thousands):

     Operating Activities. In 2008, operating cash flows increased $22.6 million compared with a year ago primarily as a result of the timing of payments made for income taxes.

     Investing Activities. Cash flows used in investing activities increased $7.9 million in 2008 compared with a year ago primarily due to higher capital expenditures offset in part by an increase in proceeds from the sale of company-operated restaurants to franchisees.

     Capital Expenditures. Our capital expenditure program includes, among other things, investments in new locations, restaurant remodeling, and information technology enhancements. We used cash of $91.3 million for purchases of property and equipment in 2008 compared with $68.7 million in 2007. The increase in capital expenditures primarily relates to a kitchen enhancement project and our on-going comprehensive re-image program.

     In fiscal year 2008, capital expenditures are expected to be approximately $175-$185 million, including investment costs related to the Jack in the Box restaurant re-image program and kitchen enhancements. We plan to open approximately 22-28 new company-operated Jack in the Box restaurants, and under our brand reinvention strategy, plan to re-image approximately 250 company-operated restaurants.

     Sale of Company-Operated Restaurants. We continued our strategy of selectively sellingJack in the Box company-operated restaurants to franchisees. In 2008, we generated proceeds of $36.1 million from the sale of 51 restaurants compared with $19.3 million in 2007 from the sale of 30 restaurants. In fiscal year 2008, we expect cash flows of $65-$75 million from the sale of approximately 100 company-operated restaurants to franchisees.

     Financing Activities. Cash used in financing activities decreased $142.7 million compared with a year ago primarily attributable to proceeds received in 2007 related to our new credit facility, offset in part by a decrease in debt related payments, share repurchases and proceeds from the issuance of common stock. Share repurchases, up to the limit authorized by the Board of Directors, are at the discretion of management and depend on market conditions, capital requirements and other factors.

     Credit Facility. Our credit facility is comprised of (i) a $150.0 million revolving credit facility maturing on December 15, 2011 and (ii) a term loan of $415.0 million maturing on December 15, 2012, both bearing interest at London Interbank Offered Rate (“LIBOR”) plus 1.125%.

     As part of the credit agreement, we may also request the issuance of up to $75.0 million in letters of credit, the outstanding amount of which reduces the net borrowing capacity under the agreement. The credit facility requires the payment of an annual commitment fee based on the unused portion of the credit facility. The credit facility’s interest rates and the annual commitment rate are based on a financial leverage ratio, as defined in the credit agreement. Our obligations under the credit facility are secured by first priority liens and security interests in the capital stock, partnership and membership interests owned by us and (or) our subsidiaries, and any proceeds thereof, subject to certain restrictions set forth in the credit agreement. Additionally, the credit agreement includes a negative pledge on all tangible and intangible assets (including all real and personal property) with customary exceptions.

     Interest Rate Swaps. To reduce our exposure to rising interest rates under our new credit facility, in March 2007, we entered into two interest rate swaps that effectively converted $200.0 million of our variable rate term loan borrowings to a fixed-rate basis for three years. These agreements have been designated as cash flow hedges under the terms of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, with effectiveness assessed on changes in the present value of the term loan interest payments. There was no hedge ineffectiveness in 2008. Accordingly, changes in the fair value of the interest rate swap contracts were recorded, net of taxes, as a component of

accumulated other comprehensive loss in the Company’s condensed consolidated balance sheet as of April 13, 2008.

     Debt Covenants. We are subject to a number of covenants under our various debt instruments, including limitations on additional borrowings, acquisitions, loans to franchisees, capital expenditures, lease commitments, stock repurchases and dividend payments, as well as requirements to maintain certain financial ratios, cash flows and net worth. As of April 13, 2008, we were in compliance with all debt covenants.

     Debt Outstanding. At April 13, 2008, we had $415.0 million outstanding under the term loan and letters of credit outstanding of $40.3 million. Total debt outstanding decreased to $429.9 million at April 13, 2008 from $433.3 million at the beginning of the fiscal year due to scheduled debt repayments.

     Repurchases of Common Stock. In November 2007, the Board approved a program to repurchase up to $200.0 million in shares of our common stock over three years expiring November 9, 2010. We repurchased 1.9 million shares at an aggregate cost of $50.0 million during the first two quarters of fiscal 2008. As of April 13, 2008, the total remaining amount authorized for repurchase was $150.0 million.

     Share-based Compensation. Proceeds from the issuance of common stock decreased $16.3 million in 2008 reflecting a decline in the exercise of employee stock options compared with 2007, which also resulted in a corresponding decrease in tax benefits from share based compensation. As options granted are exercised, the Company will continue to receive proceeds and a tax deduction, but the amount and the timing of these cash flows cannot be reliably predicted as option holders’ decisions to exercise options will be largely driven by movements in the Company’s stock price.

     Off-Balance Sheet Arrangements. Other than operating leases, we are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources. We finance a portion of our new restaurant development through sale-leaseback transactions. These transactions involve selling restaurants to unrelated parties and leasing the restaurants back.

     We have identified the following as our most critical accounting estimates, 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 our other significant accounting estimates and policies are disclosed in Note 1 of our most recent Annual Report on Form 10-K filed with the SEC.

     Share-based Compensation — We account for share-based compensation in accordance with SFAS 123R. Under the provisions of SFAS 123R, share-based compensation cost is estimated at the grant date based on the award’s fair-value as calculated by an option pricing model and is recognized as expense ratably over the requisite service period. The option pricing models require various highly judgmental assumptions including volatility, forfeiture rates, and expected option life. If any of the assumptions used in the model change significantly, share-based compensation expense may differ materially in the future from that recorded in the current or prior periods.

     Retirement Benefits — We sponsor pension and other retirement plans in various forms covering those 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 us using specified guidelines. In addition, our outside actuarial consultants also use certain statistical factors such as turnover, retirement and mortality rates to estimate our future benefit obligations. The actuarial assumptions used may 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 affect the amount of pension expense we record.

     Self Insurance — We are self-insured for a portion of our losses related to workers’ compensation, general liability, automotive, medical and dental programs. In estimating our self-insurance accruals, we utilize independent actuarial estimates of expected losses, which are based on statistical analysis of historical data. These assumptions are closely monitored and adjusted when warranted by changing circumstances. Should a greater amount of claims occur compared to what was estimated or medical costs increase beyond what was expected, accruals might not be sufficient, and additional expense may be recorded.

     Long-lived Assets — Property, equipment and certain other assets, including amortized intangible assets, are reviewed for impairment when indicators of impairment are present. This review includes a restaurant-level analysis

that takes into consideration a restaurant’s operating cash flows, the period of time since a restaurant has been opened or remodeled, and the maturity of the related market. When indicators of impairment are present, we perform an impairment analysis on a restaurant-by-restaurant basis. If the sum of undiscounted future cash flows is less than the net carrying value of the asset, we recognize an impairment loss by the amount which the carrying value exceeds the fair value of the asset. Our estimates of future cash flows may differ from actual cash flows due to, among other things, economic conditions or changes in operating performance.

     Goodwill and Other Intangibles — We also evaluate goodwill and intangible assets not subject to amortization annually or more frequently if indicators of impairment are present. If the determined fair values of these assets are less than the related carrying amounts, an impairment loss is recognized. The methods we use to estimate fair value include future cash flow assumptions, which may differ from actual cash flows due to, among other things, economic conditions or changes in operating performance. During the fourth quarter of fiscal 2007, we reviewed the carrying value of our goodwill and indefinite life intangible assets and determined that no impairment existed as of September 30, 2007.

     Allowances for Doubtful Accounts — Our trade receivables consist primarily of amounts due from franchisees for rents on subleased sites, royalties and distribution sales. We continually monitor amounts due and maintain an allowance for doubtful accounts for estimated losses. This estimate is based on our assessment of the collectibility of specific accounts, as well as a general allowance based on historical trends, the financial condition of our franchisees, consideration of the general economy and the aging of such receivables. We have good relationships with our franchisees and high collection rates; however, if the future financial condition of our franchisees were to deteriorate, resulting in their inability to make specific required payments, we may be required to increase the allowance for doubtful accounts.

     Legal Accruals — The Company is subject to claims and lawsuits in the ordinary course of its business. A determination of the amount accrued, if any, for these contingencies is made after analysis of each matter. We continually evaluate such accruals and may increase or decrease accrued amounts as we deem appropriate.

     Income Taxes — We estimate certain components of our provision for income taxes. These estimates include, among other items, depreciation and amortization expense allowable for tax purposes, allowable tax credits, effective rates for state and local income taxes and the tax deductibility of certain other items. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available.

     Our estimates are based on the best available information at the time that we prepare the income tax provision. We generally file our annual income tax returns several months after our fiscal year-end. Income tax returns are subject to audit by federal, state and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws.

     Effective October 1, 2007, we adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 requires that a position taken or expected to be taken in a tax return be recognized or derecognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

     In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. This statement applies under other accounting pronouncements that currently require or permit fair value measurements and is effective for fiscal years beginning after November 15, 2007, and interim periods within those years. However, the effective date of SFAS 157 as it relates to fair value measurement requirements for nonfinancial assets and liabilities that are not remeasured at fair value on a recurring basis is deferred to fiscal years beginning after December 15, 2008 and interim periods within those years. We are currently in the process of assessing the impact that SFAS 157 will have on our consolidated financial statements.

     In September 2006, the FASB issued SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). In fiscal 2007, we adopted the recognition provisions of SFAS 158 which requires recognition of the overfunded or underfunded status of a defined benefit plan as an asset or liability. SFAS 158 also requires that companies measure their plan assets and benefit

obligations at the end of their fiscal year. The measurement provision of SFAS 158 is effective for fiscal years ending after December 15, 2008. We will not be able to determine the impact of adopting the measurement provision of SFAS 158 until the end of the fiscal year when such valuation is completed.

     In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 permits entities to voluntarily choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently in the process of determining whether to elect the fair value measurement options available under this standard.

     In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities, which amends SFAS 133 and expands disclosures to include information about the fair value of derivatives, related credit risks and a company’s strategies and objectives for using derivatives. SFAS 161 is effective for fiscal periods beginning on or after November 15, 2008. We are currently in the process of assessing the impact that SFAS 161 will have on the disclosures in our consolidated financial statements.

     Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

     This report contains forward-looking statements within the meaning of the federal securities law. These forward-looking statements are principally contained in the sections captioned, Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements use such words as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “will,” “would,” and similar expressions. These statements are based on management’s current expectations and are subject to known and unknown risks and uncertainties, which may cause actual results to differ materially from expectations. You should not rely unduly on forward-looking statements. The following are some of the factors that could materially affect our results.

     This discussion of uncertainties is not exclusive. Additional risk factors associated with our business are described in Management’s Discussion and Analysis in this Form 10-Q and in our Annual Report on Form 10-K for fiscal year 2007 filed with the SEC. We do not intend to update these forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our primary exposure to risks relating to financial instruments is changes in interest rates. Our credit facility, which is comprised of a revolving credit facility and a term loan, bears interest at an annual rate equal to the prime rate or LIBOR plus an applicable margin based on a financial leverage ratio. As of April 13, 2008, the applicable margin for the LIBOR-based revolving loans and term loan was set at 1.125%.

     We use interest rate swap agreements to reduce exposure to interest rate fluctuations. At April 13, 2008, we had two interest rate swap agreements having an aggregate notional amount of $200.0 million expiring April 1, 2010. These agreements effectively convert a portion of our variable rate bank debt to fixed-rate debt and have an average pay rate of 4.875%, yielding a fixed-rate of 6.00% including the term loan’s applicable margin of 1.125%.

     A hypothetical 100 basis point increase in short-term interest rates, based on the outstanding unhedged balance of our revolving credit facility and term loan at April 13, 2008 would result in an estimated increase of $2.2 million in annual interest expense.

     Changes in interest rates also impact our pension expense, as do changes in the expected long-term rate of return on our pension plan assets. 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 obligation when due. Additionally, an assumed long-term rate of return on plan assets is used in determining the average rate of earnings expected on the funds invested or to be invested to provide the benefits to meet our projected benefit obligation. A hypothetical 25 basis point reduction in the assumed discount rate and expected long-term rate of return on plan assets would result in an estimated increase of $1.9 million and $0.1 million, respectively, in our future annual pension expense.

     We are also exposed to the impact of commodity and utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs through higher prices is limited by the competitive environment in which we operate. From time to time, we enter into futures and option contracts to manage these fluctuations. There were no open commodity futures and option contracts at April 13, 2008.

     At April 13, 2008, we had no other material financial instruments subject to significant market exposure.

ITEM 4. CONTROLS AND PROCEDURES

     We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded,

processed, summarized, and reported within the time periods specified in the rules of the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

     Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act Rules 13a-15(e). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

     There have been no significant changes in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

     The Company is 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, financial position and liquidity.

ITEM 1A. RISK FACTORS

     There have been no material changes to the risk factors previously disclosed in the Company’s Form 10-K for the year ended September 30, 2007. You should review the brief discussion of some of those risk factors appearing under the heading “Cautionary Statements Regarding Forward-Looking Statements” and throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     Dividends. We did not pay any cash or other dividends during the last two fiscal years with the exception of a stock split that was effected in the form of a stock dividend on October 15, 2007, with shareholders receiving an additional share of stock for each share held. We do not anticipate paying any other dividends in the foreseeable future. Our credit agreement provides for a remaining aggregate amount of $147.4 million for the potential repurchase of our common stock and $50.0 million for the potential payment of cash dividends.

     Stock Repurchases. On November 9, 2007, the Board of Directors authorized a $200.0 million program to repurchase shares of our common stock at prevailing market prices, in the open market or in private transactions, from time to time at management’s discretion, over the next three years. This program was announced November 16, 2007. The following table summarizes shares repurchased pursuant to this program during the quarter ended April 13, 2008:

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Our annual meeting of stockholders was held February 15, 2008, at which the following matters were voted as indicated:

ITEM 6. EXHIBITS

ITEM 15(b) All required exhibits are filed herein or incorporated by reference as described in Item 15(a)(3).

ITEM 15(c) All supplemental schedules are omitted as inapplicable or because the required information is included in the consolidated financial statements or notes thereto.

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.

Date: May 14, 2008