e10vq
UNITED STATES
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 13, 2008
Commission File Number: 1-9390
JACK IN THE BOX INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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95-2698708 |
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(State of Incorporation)
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(I.R.S. Employer Identification No.) |
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9330 BALBOA AVENUE, SAN DIEGO, CA
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92123 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants 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):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
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, $.01 par value, outstanding as of the close of business
May 12, 2008 58,759,137.
JACK IN THE BOX INC. AND SUBSIDIARIES
INDEX
2
PART I.
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
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April 13, |
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September 30, |
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2008 |
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2007 |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
16,400 |
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$ |
15,702 |
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Accounts and other receivables, net |
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50,124 |
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41,091 |
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Inventories |
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46,805 |
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46,933 |
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Prepaid expenses |
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24,831 |
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29,311 |
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Deferred income taxes |
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47,063 |
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47,063 |
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Assets held for sale and leaseback |
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43,398 |
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42,583 |
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Other current assets |
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5,859 |
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5,383 |
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Total current assets |
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234,480 |
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228,066 |
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Property and equipment, at cost |
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1,608,266 |
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1,586,577 |
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Less accumulated depreciation and amortization |
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(658,035 |
) |
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(634,409 |
) |
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Property and equipment, net |
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950,231 |
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952,168 |
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Other assets, net |
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201,516 |
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202,588 |
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$ |
1,386,227 |
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$ |
1,382,822 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
3,925 |
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$ |
5,787 |
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Accounts payable |
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67,918 |
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97,489 |
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Accrued liabilities |
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234,018 |
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223,540 |
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Total current liabilities |
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305,861 |
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326,816 |
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Long-term debt, net of current maturities |
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425,970 |
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427,516 |
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Other long-term liabilities |
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172,156 |
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168,722 |
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Deferred income taxes |
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41,530 |
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45,211 |
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Stockholders equity: |
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Preferred stock $.01 par value, 15,000,000 authorized, none issued |
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Common stock $.01 par value, 175,000,000 authorized, 73,348,119 and
72,515,171 issued, respectively |
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733 |
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725 |
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Capital in excess of par value |
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149,506 |
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132,081 |
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Retained earnings |
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744,318 |
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681,350 |
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Accumulated other comprehensive loss, net |
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(29,388 |
) |
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(25,140 |
) |
Treasury stock, at cost, 14,635,109 and 12,779,609 shares, respectively |
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(424,459 |
) |
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(374,459 |
) |
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Total stockholders equity |
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440,710 |
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|
414,557 |
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$ |
1,386,227 |
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$ |
1,382,822 |
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See accompanying notes to condensed consolidated financial statements.
3
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
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Twelve Weeks Ended |
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Twenty-Eight Weeks Ended |
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April 13, |
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April 15, |
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April 13, |
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April 15, |
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2008 |
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2007 |
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2008 |
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2007 |
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Revenues: |
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Restaurant sales |
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$ |
490,810 |
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$ |
500,445 |
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$ |
1,138,525 |
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$ |
1,151,853 |
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Distribution and other sales |
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167,126 |
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129,807 |
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375,462 |
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293,557 |
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Franchised restaurant revenues |
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35,578 |
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30,415 |
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84,469 |
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71,949 |
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693,514 |
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660,667 |
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1,598,456 |
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1,517,359 |
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Operating costs and expenses: |
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Restaurant costs of sales |
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161,971 |
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155,509 |
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374,734 |
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358,066 |
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Restaurant operating costs |
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247,790 |
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253,446 |
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572,302 |
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582,653 |
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Distribution and other costs of sales |
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166,660 |
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128,359 |
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374,063 |
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291,154 |
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Franchised restaurant costs |
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14,892 |
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12,923 |
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33,840 |
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29,343 |
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Selling, general and administrative expenses |
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65,760 |
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69,552 |
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156,359 |
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|
158,904 |
|
Gains on sale of company-operated restaurants |
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(11,942 |
) |
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(7,244 |
) |
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(28,747 |
) |
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(14,401 |
) |
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|
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|
645,131 |
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|
612,545 |
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1,482,551 |
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1,405,719 |
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Earnings from operations |
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|
48,383 |
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|
48,122 |
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|
|
115,905 |
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|
111,640 |
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|
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Interest expense |
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|
6,783 |
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|
|
8,337 |
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|
15,870 |
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|
18,115 |
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Interest income |
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|
(42 |
) |
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|
(3,056 |
) |
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|
(293 |
) |
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|
(7,340 |
) |
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Interest expense, net |
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6,741 |
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|
5,281 |
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15,577 |
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|
10,775 |
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Earnings before income tax expense |
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|
41,642 |
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|
42,841 |
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|
100,328 |
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|
100,865 |
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Income tax expense |
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|
15,213 |
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|
15,632 |
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|
37,360 |
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36,302 |
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Net earnings |
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$ |
26,429 |
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$ |
27,209 |
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$ |
62,968 |
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$ |
64,563 |
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Net earnings per share: |
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|
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|
|
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Basic |
|
$ |
.45 |
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$ |
.41 |
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$ |
1.06 |
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$ |
.94 |
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Diluted |
|
$ |
.44 |
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|
$ |
.40 |
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$ |
1.04 |
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$ |
.92 |
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Weighted-average shares outstanding: |
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Basic |
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|
58,833 |
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|
66,121 |
|
|
|
59,229 |
|
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|
68,498 |
|
Diluted |
|
|
59,953 |
|
|
|
67,888 |
|
|
|
60,488 |
|
|
|
70,426 |
|
See accompanying notes to condensed consolidated financial statements.
4
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
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|
Twenty-Eight Weeks Ended |
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April 13, |
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April 15, |
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2008 |
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2007 |
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|
Cash flows from operating activities: |
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Net earnings |
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$ |
62,968 |
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$ |
64,563 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
53,908 |
|
|
|
49,736 |
|
Deferred finance cost amortization |
|
|
837 |
|
|
|
726 |
|
Provision for deferred income taxes |
|
|
(1,182 |
) |
|
|
(8,353 |
) |
Share-based compensation expense for equity classified awards |
|
|
5,385 |
|
|
|
6,270 |
|
Pension and postretirement expense |
|
|
7,797 |
|
|
|
9,030 |
|
Losses (gains) on cash surrender value of company-owned life insurance |
|
|
3,883 |
|
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|
(4,793 |
) |
Gains on the sale of company-operated restaurants |
|
|
(28,747 |
) |
|
|
(14,401 |
) |
Losses on the disposition of property and equipment, net |
|
|
8,967 |
|
|
|
6,065 |
|
Loss on early retirement of debt |
|
|
|
|
|
|
1,939 |
|
Impairment charges and other |
|
|
1,461 |
|
|
|
383 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in receivables |
|
|
(9,032 |
) |
|
|
(12,067 |
) |
Decrease (increase) in inventories |
|
|
128 |
|
|
|
(4,293 |
) |
Decrease (increase) in prepaid expenses and other current assets |
|
|
5,491 |
|
|
|
(1,098 |
) |
Decrease in accounts payable |
|
|
(13,986 |
) |
|
|
(2,026 |
) |
Pension and postretirement contributions |
|
|
(9,201 |
) |
|
|
(7,329 |
) |
Increase (decrease) in other liabilities |
|
|
17,563 |
|
|
|
(753 |
) |
|
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|
|
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|
Cash flows provided by operating activities |
|
|
106,240 |
|
|
|
83,599 |
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Cash flows from investing activities: |
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|
Purchases of property and equipment |
|
|
(91,322 |
) |
|
|
(68,697 |
) |
Proceeds from the sale of company-operated restaurants |
|
|
36,053 |
|
|
|
19,292 |
|
Proceeds from (purchase of) assets held for sale and leaseback, net |
|
|
(1,362 |
) |
|
|
1,878 |
|
Purchase of investments, net |
|
|
(4,138 |
) |
|
|
(4,275 |
) |
Other |
|
|
1,166 |
|
|
|
97 |
|
|
|
|
|
|
|
|
Cash flows used in investing activities |
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|
(59,603 |
) |
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|
(51,705 |
) |
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Cash flows from financing activities: |
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|
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|
Borrowings on revolving credit facility |
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|
248,000 |
|
|
|
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|
Principal payments on revolving credit facility |
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|
(248,000 |
) |
|
|
|
|
Borrowings under term loan |
|
|
|
|
|
|
475,000 |
|
Principal payments on debt |
|
|
(3,408 |
) |
|
|
(331,373 |
) |
Payment of debt costs |
|
|
|
|
|
|
(7,357 |
) |
Change in book overdraft |
|
|
(4,382 |
) |
|
|
|
|
Repurchase of common stock |
|
|
(50,000 |
) |
|
|
(363,303 |
) |
Excess tax benefits from share-based compensation arrangements |
|
|
4,202 |
|
|
|
14,374 |
|
Proceeds from issuance of common stock |
|
|
7,649 |
|
|
|
23,972 |
|
|
|
|
|
|
|
|
Cash flows used in financing activities |
|
|
(45,939 |
) |
|
|
(188,687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
698 |
|
|
|
(156,793 |
) |
Cash and cash equivalents at beginning of period |
|
|
15,702 |
|
|
|
233,906 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
16,400 |
|
|
$ |
77,113 |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations Founded in 1951, Jack in the Box Inc. (the Company) operates and
franchises Jack in the Box® quick-service restaurants and Qdoba Mexican
Grill® (Qdoba) fast-casual restaurants in 43 states. The following summarizes the
number of restaurants:
|
|
|
|
|
|
|
|
|
|
|
April 13, |
|
Sept. 30, |
|
|
2008 |
|
2007 |
|
Jack in the Box: |
|
|
|
|
|
|
|
|
Company-operated |
|
|
1,393 |
|
|
|
1,436 |
|
Franchised |
|
|
749 |
|
|
|
696 |
|
|
|
|
|
|
|
|
|
|
Total system |
|
|
2,142 |
|
|
|
2,132 |
|
|
|
|
|
|
|
|
|
|
Qdoba: |
|
|
|
|
|
|
|
|
Company-operated |
|
|
97 |
|
|
|
90 |
|
Franchised |
|
|
326 |
|
|
|
305 |
|
|
|
|
|
|
|
|
|
|
Total system |
|
|
423 |
|
|
|
395 |
|
|
|
|
|
|
|
|
|
|
The Company also operates 61 proprietary convenience stores called Quick Stuff®,
which include a major-branded fuel station developed adjacent to a full-size Jack in the
Box restaurant.
References to the Company throughout these notes to the condensed consolidated financial
statements are made using the first person notations of we, us and our.
Basis of presentation The accompanying condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission (SEC). In our opinion, all adjustments
considered necessary for a fair presentation of financial condition and results of operations
for these interim periods have been included. Operating results for one interim period are not
necessarily indicative of the results for any other interim period or for the full year.
The condensed consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and the accounts of any variable interest entities where we are deemed
the primary beneficiary. All significant intercompany transactions are eliminated.
These financial statements should be read in conjunction with the consolidated financial
statements and related notes contained in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2007. The accounting policies used in preparing these condensed
consolidated financial statements are the same as those described in our Form 10-K, with the
exception of new accounting pronouncements adopted in fiscal 2008.
Reclassifications and adjustments Certain prior year amounts in the condensed consolidated
financial statements have been reclassified to conform to the fiscal 2008 presentation. All
historical share and per share data, except for treasury stock, in our condensed consolidated
financial statements and notes thereto have been restated to give retroactive recognition of our
two-for-one stock split effected on October 15, 2007. Refer to Note 6, Stockholders Equity,
for additional information regarding the stock split.
Fiscal year Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30.
Fiscal years 2008 and 2007 include 52 weeks. Our first quarter includes 16 weeks and all other
quarters include 12 weeks. 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.
Use of estimates In preparing the condensed consolidated financial statements in conformity
with U.S. generally accepted accounting principles, management is required to make certain
assumptions and estimates that affect reported amounts of assets, liabilities, revenues,
expenses and the disclosure of contingencies. In making these assumptions and estimates,
management may from time to time seek advice and consider information provided by actuaries and
other experts in a particular area. Actual amounts could differ materially from these
estimates.
Company-owned life insurance We have purchased company-owned life insurance (COLI) policies
to support our non-qualified benefit plans. The cash surrender values of these policies were
$66.1 million and $66.8 million as of April 13, 2008 and September 30, 2007, respectively, and
are included in other assets, net in the accompanying condensed consolidated balance sheets.
These policies reside in an umbrella trust for use only to pay plan benefits to participants or
to pay creditors if the Company becomes insolvent. As of April 13, 2008 and
September 30, 2007, the trust also included cash of $1.5 million and $0.7 million, respectively.
6
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franchise arrangements Franchise arrangements generally provide for initial franchise fees,
which are included in franchised restaurant revenues in the accompanying condensed consolidated
statements of earnings. In addition to initial franchise fees, we also recognize gains on the
sale of company-operated restaurants to franchisees. Gains on the sale of restaurant businesses
to franchisees are recorded when the sales are consummated, cash proceeds are received or
collection is reasonably assured, and we have no continuing involvement other than normal
franchisor franchisee contractual obligations. The following is a summary of these
transactions (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended |
|
|
Twenty-Eight Weeks Ended |
|
|
|
April 13, |
|
|
April 15, |
|
|
April 13, |
|
|
April 15, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Number of
restaurants sold to franchisees |
|
|
23 |
|
|
|
15 |
|
|
|
51 |
|
|
|
30 |
|
Number of new restaurants opened by franchisees |
|
|
7 |
|
|
|
17 |
|
|
|
32 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial franchise fees received |
|
$ |
1,105 |
|
|
$ |
1,275 |
|
|
$ |
3,228 |
|
|
$ |
2,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of company-operated restaurants |
|
$ |
14,118 |
|
|
$ |
9,631 |
|
|
$ |
36,053 |
|
|
$ |
19,292 |
|
Net assets sold (primarily property and equipment) |
|
|
(2,176 |
) |
|
|
(2,387 |
) |
|
|
(7,306 |
) |
|
|
(4,891 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on the sale of company-operated restaurants |
|
$ |
11,942 |
|
|
$ |
7,244 |
|
|
$ |
28,747 |
|
|
$ |
14,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New accounting pronouncements adopted We adopted the provisions of Financial Accounting
Standards Board (FASB) Interpretation 48 (FIN 48), Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109, on October 1, 2007. FIN 48 clarifies the
accounting for income taxes by prescribing a minimum probability threshold that a tax position
must meet before a financial statement benefit is recognized. The minimum threshold is defined
in FIN 48 as a tax position that is more likely than not to be sustained upon examination by the
applicable taxing authority, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. The adoption of this statement did
not have a material impact on our condensed consolidated financial statements. Refer to Note 3,
Income Taxes, for additional information regarding our adoption of FIN 48.
2. RESTAURANT CLOSING, IMPAIRMENT CHARGES AND OTHER
In 2008, we recorded impairment charges of $1.5 million primarily related to the write-down of
the carrying value of two Jack in the Box restaurants which we continue to operate. We
also recognized losses on the disposition of property and equipment of $9.0 million primarily
related to our restaurant re-image program, which includes a major renovation of our restaurant
facilities, a kitchen enhancement project and normal ongoing capital maintenance activities.
In 2007, losses on the disposition of property and equipment of $6.1 million were recognized
primarily relating to our re-image program and capital maintenance activity.
These impairment charges and disposition losses are included in selling, general and
administrative expenses in the accompanying condensed consolidated statements of earnings.
Total accrued restaurant closing costs, included in accrued expenses and other long-term
liabilities, changed as follows during 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended |
|
|
Twenty-Eight Weeks Ended |
|
|
|
April 13, |
|
|
April 15, |
|
|
April 13, |
|
|
April 15, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Balance at beginning of period |
|
$ |
5,415 |
|
|
$ |
4,888 |
|
|
$ |
5,451 |
|
|
$ |
5,004 |
|
Additions and adjustments |
|
|
113 |
|
|
|
132 |
|
|
|
399 |
|
|
|
254 |
|
Cash payments |
|
|
(385 |
) |
|
|
(238 |
) |
|
|
(707 |
) |
|
|
(476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
5,143 |
|
|
$ |
4,782 |
|
|
$ |
5,143 |
|
|
$ |
4,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions and adjustments primarily relate to revisions to certain sublease assumptions and the
closure of two Jack in the Box restaurants in 2008.
7
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. INCOME TAXES
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.
As of the date of our adoption of FIN 48, our gross unrecognized tax benefits for income taxes
associated with uncertain tax positions totaled $11.0 million. Of this total, $10.4 million
represented the amount of unrecognized tax benefits that, if recognized, would favorably affect
the effective income tax rate in future periods. Also as of the adoption date, we had accrued
interest related to the unrecognized tax benefits of $1.2 million (exclusive of tax benefits).
As of the date of adoption, we recognize interest and, when applicable, penalties related to
uncertain tax positions in income tax expense. Prior to the adoption of FIN 48, interest
expense related to tax uncertainties was accrued as a component of pre-tax income.
As of April 13, 2008, the gross unrecognized tax benefits for income taxes associated with
uncertain tax positions decreased to $7.0 million of which
$6.3 million represented the amount of
unrecognized tax benefits that, if recongnized, would favorably affect the effective income tax
rate in future periods. Also as of April 13, 2008, we had accrued interest related to the
unrecognized tax benefits of $0.4 million. The majority of these changes from the previous
quarter are due to a re-classification between long-term taxes payable and current income taxes
payable based upon the Notice of Deficiency received from the Internal Revenue Service (IRS)
for tax years 2004-2005. The Company considers these two years to be effectively settled within
the meaning of FIN 48 and has re-classified the portion of its FIN 48 liability from these years
related to the assessment, to current income taxes payable as the amount will be paid within the
next twelve months. With respect to tax years 2002-2003, the IRS is still in the final stages
of completion and the Company does not yet consider these years to be effectively settled.
It is reasonably possible that material changes to the gross unrecognized tax benefits will be
required within the next twelve months. In addition to the anticipated completion of the IRS
audit for 2002-2003, these changes relate to the possible settlement of an IRS audit of the
Companys 2006 tax year that is currently in progress and the California Franchise Tax Boards
continuing audit of requested claims for refund, all of which are expected to be completed
within the next twelve months. In addition, the statute of limitations in various state taxing
jurisdictions will expire within the next twelve months. Though the Company expects these items
may result in a net reduction of its unrecognized tax benefits, an estimate of the expected
change cannot be made at this time.
The federal statute of limitations for all tax years beginning with 2001 remains open at this
time. Generally, the statutes of limitations for the state jurisdictions where there would be a
material impact have not expired for tax years 1998 and forward. In the state of California,
the statute of limitations is limited to certain items for tax years 1998-2001, and remains
fully open for tax years 2002 and forward.
4. RETIREMENT PLANS
Defined benefit pension plans We sponsor defined benefit pension plans covering substantially
all full-time employees. We also sponsor an unfunded supplemental executive retirement plan
(SERP), which provides certain employees additional pension benefits. Effective January 1,
2007, the SERP was closed to any new participants. Benefits under these plans are based on the
employees years of service and compensation over defined periods of employment.
Postretirement healthcare plans We also sponsor healthcare plans that provide postretirement
medical benefits to certain employees who meet minimum age and service requirements. The plans
are contributory; with retiree contributions adjusted annually, and contain other cost-sharing
features such as deductibles and coinsurance.
8
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Net periodic benefit cost The components of net periodic benefit cost were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended |
|
|
Twenty-Eight Weeks Ended |
|
|
|
April 13, |
|
|
April 15, |
|
|
April 13, |
|
|
April 15, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Defined benefit pension plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
2,592 |
|
|
$ |
2,200 |
|
|
$ |
6,047 |
|
|
$ |
6,181 |
|
Interest cost |
|
|
3,944 |
|
|
|
3,276 |
|
|
|
9,203 |
|
|
|
9,049 |
|
Expected return on plan assets |
|
|
(3,925 |
) |
|
|
(2,998 |
) |
|
|
(9,160 |
) |
|
|
(8,544 |
) |
Amortization
of actuarial loss |
|
|
346 |
|
|
|
465 |
|
|
|
810 |
|
|
|
1,326 |
|
Amortization of unrecognized prior service cost |
|
|
209 |
|
|
|
304 |
|
|
|
487 |
|
|
|
723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
3,166 |
|
|
$ |
3,247 |
|
|
$ |
7,387 |
|
|
$ |
8,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement health plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
51 |
|
|
$ |
49 |
|
|
$ |
120 |
|
|
$ |
115 |
|
Interest cost |
|
|
271 |
|
|
|
250 |
|
|
|
633 |
|
|
|
582 |
|
Amortization
of actuarial gain |
|
|
(189 |
) |
|
|
(216 |
) |
|
|
(442 |
) |
|
|
(501 |
) |
Amortization of unrecognized prior service cost |
|
|
43 |
|
|
|
43 |
|
|
|
99 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
176 |
|
|
$ |
126 |
|
|
$ |
410 |
|
|
$ |
295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows Our policy is to fund our plans at or above the minimum required by law. Details
regarding 2008 contributions are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Defined benefit |
|
Postretirement |
|
|
pension plans |
|
health plans (1) |
|
Net contributions during the twenty-eight weeks ended April 13, 2008
|
|
$ |
8,912 |
|
|
$ |
289 |
|
Remaining estimated net contributions during fiscal 2008
|
|
$ |
14,400 |
|
|
$ |
500 |
|
|
|
|
(1) |
|
Net of Medicare Part D Subsidy. |
5. SHARE-BASED EMPLOYEE COMPENSATION
Compensation expense We offer share-based compensation plans to attract, retain, and motivate
key officers, non-employee directors, and employees to work toward the financial success of the
Company. The components of share-based compensation expense recognized in each period are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended |
|
|
Twenty-Eight Weeks Ended |
|
|
|
April 13, |
|
|
April 15, |
|
|
April 13, |
|
|
April 15, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Stock options |
|
$ |
1,441 |
|
|
$ |
1,096 |
|
|
$ |
3,475 |
|
|
$ |
4,338 |
|
Performance-vested stock awards |
|
|
578 |
|
|
|
530 |
|
|
|
1,342 |
|
|
|
1,251 |
|
Nonvested stock awards |
|
|
187 |
|
|
|
198 |
|
|
|
429 |
|
|
|
461 |
|
Deferred compensation for directors equity classified |
|
|
59 |
|
|
|
80 |
|
|
|
139 |
|
|
|
220 |
|
Deferred compensation for directors liability classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
2,265 |
|
|
$ |
1,904 |
|
|
$ |
5,385 |
|
|
$ |
6,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. STOCKHOLDERS EQUITY
Stock split On August 3, 2007, our Board of Directors approved a two-for-one split of our
common stock, that was effected in the form of a 100% stock dividend on October 15, 2007. In
connection with the stock split, our shareholders approved, on September 21, 2007, an amendment
to our Certificate of Incorporation to increase the number of authorized common shares from 75.0
million to 175.0 million.
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.
9
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Comprehensive income Our total comprehensive income, net of taxes, was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended |
|
|
Twenty-Eight Weeks Ended |
|
|
|
April 13, |
|
|
April 15, |
|
|
April 13, |
|
|
April 15, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Net earnings |
|
$ |
26,429 |
|
|
$ |
27,209 |
|
|
$ |
62,968 |
|
|
$ |
64,563 |
|
Net unrealized gains (losses) related to cash flow hedges |
|
|
(1,367 |
) |
|
|
743 |
|
|
|
(7,701 |
) |
|
|
135 |
|
Tax effect |
|
|
508 |
|
|
|
(286 |
) |
|
|
2,943 |
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(859 |
) |
|
|
457 |
|
|
|
(4,758 |
) |
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains reclassified into net earnings on liquidation of
interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(371 |
) |
Tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of amortization of unrecognized net actuarial losses and
prior service cost |
|
|
409 |
|
|
|
|
|
|
|
954 |
|
|
|
|
|
Tax effect |
|
|
(234 |
) |
|
|
|
|
|
|
(444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175 |
|
|
|
|
|
|
|
510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
25,745 |
|
|
$ |
27,666 |
|
|
$ |
58,720 |
|
|
$ |
64,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive loss, net of taxes, were as follows at the end
of each period (in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 13, |
|
|
Sept. 30, |
|
|
|
2008 |
|
|
2007 |
|
|
Unrecognized periodic benefit costs, net of taxes of ($14,704) and ($15,148), respectively |
|
$ |
(23,739 |
) |
|
$ |
(24,249 |
) |
Net unrealized losses related to cash flow hedges, net of taxes of ($3,499) and ($556), respectively |
|
|
(5,649 |
) |
|
|
(891 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(29,388 |
) |
|
$ |
(25,140 |
) |
|
|
|
|
|
|
|
7. AVERAGE SHARES OUTSTANDING
Our basic earnings per share calculation is computed based on the weighted-average number of
common shares outstanding. Our diluted earnings per share calculation is computed based on the
weighted-average number of common shares outstanding adjusted by the number of additional shares
that would have been outstanding had the potentially dilutive common shares been issued.
Potentially dilutive common shares include stock options, nonvested stock awards, non-management
director stock equivalents and shares issuable under our employee stock purchase plan.
Performance-vested stock awards are included in the average diluted shares outstanding each
period if the performance criteria have been met at the end of the respective periods.
The following table reconciles basic weighted-average shares outstanding to diluted
weighted-average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended |
|
|
Twenty-Eight Weeks Ended |
|
|
|
April 13, |
|
|
April 15, |
|
|
April 13, |
|
|
April 15, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Weighted-average shares outstanding basic |
|
|
58,833 |
|
|
|
66,121 |
|
|
|
59,229 |
|
|
|
68,498 |
|
Assumed additional shares issued upon exercise of stock
options, net of shares reacquired at the average market price |
|
|
888 |
|
|
|
1,511 |
|
|
|
1,020 |
|
|
|
1,675 |
|
Assumed vesting of nonvested stock, net of shares reacquired at
the average market price |
|
|
213 |
|
|
|
256 |
|
|
|
220 |
|
|
|
253 |
|
Performance-vested stock awards issuable |
|
|
19 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding diluted |
|
|
59,953 |
|
|
|
67,888 |
|
|
|
60,488 |
|
|
|
70,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options excluded (1) |
|
|
1,397 |
|
|
|
518 |
|
|
|
1,303 |
|
|
|
602 |
|
Performance-vested awards excluded (2) |
|
|
348 |
|
|
|
422 |
|
|
|
348 |
|
|
|
422 |
|
|
|
|
(1) |
|
Excluded from diluted weighted-average shares outstanding because their exercise prices,
unamortized compensation and tax benefits exceeded the average market price of common stock for
the period. |
|
(2) |
|
Excluded from diluted weighted-average shares outstanding because the number of shares
issued is contingent on achievement of performance goals at the end of a three-year performance
period. |
10
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8. CONTINGENCIES AND LEGAL MATTERS
Legal matters We are 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 or liquidity.
9. SEGMENT REPORTING
In the first quarter of fiscal 2008, reflecting our vision of being a national restaurant
company and the information currently being used in managing the Company as a two-branded
restaurant operations business, we revised the composition of our segments to include results
related to system restaurant operations for our Jack in the Box and
Qdoba brands. This segment reporting structure reflects the Companys current management
structure, internal reporting method, and financial information used in deciding how to allocate
Company resources. Based upon certain quantitative thresholds, both operating segments are
considered reportable segments.
We measure and evaluate our segments based on segment earnings from operations. Summarized
financial information concerning our reportable segments follows (in thousands). All amounts
for the fiscal year ended September 30, 2007 have been revised to conform to the new
segment reporting as previously described.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended |
|
|
Twenty-Eight Weeks Ended |
|
|
|
April 13, |
|
|
April 15, |
|
|
April 13, |
|
|
April 15, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Revenues by Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack
in the Box restaurant operations |
|
$ |
500,633 |
|
|
$ |
510,898 |
|
|
$ |
1,163,854 |
|
|
$ |
1,178,529 |
|
Qdoba restaurant operations |
|
|
25,755 |
|
|
|
19,962 |
|
|
|
59,140 |
|
|
|
45,273 |
|
Other |
|
|
167,126 |
|
|
|
129,807 |
|
|
|
375,462 |
|
|
|
293,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
693,514 |
|
|
$ |
660,667 |
|
|
$ |
1,598,456 |
|
|
$ |
1,517,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Operations by Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack
in the Box restaurant operations |
|
$ |
46,845 |
|
|
$ |
45,122 |
|
|
$ |
110,797 |
|
|
$ |
105,961 |
|
Qdoba restaurant operations |
|
|
1,515 |
|
|
|
1,998 |
|
|
|
4,434 |
|
|
|
4,228 |
|
Other |
|
|
23 |
|
|
|
1,002 |
|
|
|
674 |
|
|
|
1,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated earnings from operations |
|
$ |
48,383 |
|
|
$ |
48,122 |
|
|
$ |
115,905 |
|
|
$ |
111,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other includes distribution and Quick Stuff operating results. Interest income and
expense and income taxes are not reported for our segments, in accordance with our
method of internal reporting.
10. SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION
Additional information related to cash flows is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Twenty-Eight Weeks Ended |
|
|
April 13, |
|
April 15, |
|
|
2008 |
|
2007 |
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized |
|
$ |
15,966 |
|
|
$ |
14,718 |
|
Income tax payments |
|
|
31,942 |
|
|
|
60,755 |
|
Capital lease obligations incurred |
|
|
|
|
|
|
464 |
|
11. FUTURE APPLICATION OF ACCOUNTING PRINCIPLES
In September 2006, the FASB issued Statement of Financial Accounting Standards (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.
11
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 companys 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.
12
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |
GENERAL
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 Managements 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:
|
|
|
Overview a general description of our business, the quick-service dining segment of
the restaurant industry and fiscal 2008 highlights. |
|
|
|
|
Financial reporting changes a summary of significant financial statement
reclassifications, adjustments and new accounting pronouncements adopted. |
|
|
|
|
Results of operations an analysis of our consolidated statements of earnings for the
periods presented in our condensed consolidated financial statements. |
|
|
|
|
Liquidity and capital resources an analysis of cash flows including capital
expenditures, aggregate contractual obligations, share repurchase activity, known trends
that may impact liquidity, and the impact of inflation. |
|
|
|
|
Discussion of critical accounting estimates a discussion of accounting policies that
require critical judgments and estimates. |
|
|
|
|
New accounting pronouncements a discussion of new accounting pronouncements, dates of
implementation and impact on our consolidated financial position or results of operations,
if any. |
|
|
|
|
Cautionary statements regarding forward-looking statements a discussion of the
forward-looking statements used by management. |
OVERVIEW
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 the
Jack in the Box brand through menu innovation, upgrading guest service and re-imaging
Jack in the Box restaurant facilities to reflect the personality of Jack the chains
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
13
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:
|
|
|
Restaurant Sales. Jack in the Box company-operated
restaurants open more than one year (same-store) sales increased 0.8% year-to-date, on
top of an increase of 5.9% a year ago. System same-store sales at Qdoba restaurants
increased 3.5% year-to-date, on top of an increase of 3.8% a year ago. |
|
|
|
|
New Market Expansion. We expanded into a new contiguous company market in Denver,
Colorado, opening two Jack in the Box restaurants and we opened
our third restaurant in Corpus Christi, a new market we entered at the end of last fiscal
year. Franchisees are also expanding into new contiguous markets in
Texas. In 2008, franchisees
opened one Jack in the Box restaurant in Midland/Odessa and
remain on track to open additional
Jack in the Box
restaurants in Abilene and San
Angelo. |
|
|
|
|
Re-Image Program. We continued to re-image our Jack in the
Box restaurants with a comprehensive program that includes a complete redesign of
the dining room and common areas. In 2008, the Company and franchisees re-imaged 133
restaurants bringing the total number of re-imaged restaurants to nearly 500 since the
current program was adopted in 2006. The entire Jack in the Box system, including
franchised locations, is expected to be re-imaged over the next 3-4 years. |
|
|
|
|
Franchising Program. We continued to execute our strategic initiative to
expand franchising through new restaurant development and sales of company-operated
restaurants to franchisees. In 2008, we refranchised 51 Jack in the Box
restaurants, and Qdoba and Jack in the Box franchisees opened 32 new restaurants.
At April 13, 2008, approximately 35% of our Jack in the Box restaurants were
franchised. Our long-term goal is to grow the percentage of franchise ownership of the
Jack in the Box system by approximately 5% annually and move
toward an ultimate goal of 70%-80%, which is more closely aligned with that of the QSR
industry. |
|
|
|
|
Treasury Highlights. Pursuant to a stock repurchase program authorized by our Board of
Directors, we repurchased 1.9 million shares of our common stock for an aggregate of $50.0
million. |
FINANCIAL REPORTING CHANGES
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.
14
RESULTS OF OPERATIONS
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended |
|
Twenty-Eight Weeks Ended |
|
|
April 13, |
|
April 15, |
|
April 13, |
|
April 15, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales |
|
|
70.8 |
% |
|
|
75.7 |
% |
|
|
71.2 |
% |
|
|
75.9 |
% |
Distribution and other sales |
|
|
24.1 |
|
|
|
19.7 |
|
|
|
23.5 |
|
|
|
19.4 |
|
Franchised restaurant revenues |
|
|
5.1 |
|
|
|
4.6 |
|
|
|
5.3 |
|
|
|
4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant costs of sales (1) |
|
|
33.0 |
% |
|
|
31.1 |
% |
|
|
32.9 |
% |
|
|
31.1 |
% |
Restaurant operating costs (1) |
|
|
50.5 |
|
|
|
50.6 |
|
|
|
50.3 |
|
|
|
50.6 |
|
Distribution and other costs of sales (1) |
|
|
99.7 |
|
|
|
98.9 |
|
|
|
99.6 |
|
|
|
99.2 |
|
Franchised restaurant costs (1) |
|
|
41.9 |
|
|
|
42.5 |
|
|
|
40.1 |
|
|
|
40.8 |
|
Selling, general and administrative expenses |
|
|
9.5 |
|
|
|
10.5 |
|
|
|
9.8 |
|
|
|
10.5 |
|
Gains on sale of company-operated restaurants |
|
|
(1.7 |
) |
|
|
(1.1 |
) |
|
|
(1.8 |
) |
|
|
(0.9 |
) |
Earnings from operations |
|
|
7.0 |
|
|
|
7.3 |
|
|
|
7.3 |
|
|
|
7.4 |
|
|
|
|
(1) |
|
As a percentage of the related sales and/or revenues. |
The following table summarizes the number of systemwide restaurants:
SYSTEMWIDE RESTAURANT UNITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 13, |
|
|
Sept. 30, |
|
|
April 15, |
|
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
Jack in the Box: |
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated |
|
|
1,393 |
|
|
|
1,436 |
|
|
|
1,456 |
|
Franchised |
|
|
749 |
|
|
|
696 |
|
|
|
642 |
|
|
|
|
|
|
|
|
|
|
|
Total system |
|
|
2,142 |
|
|
|
2,132 |
|
|
|
2,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qdoba: |
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated |
|
|
97 |
|
|
|
90 |
|
|
|
73 |
|
Franchised |
|
|
326 |
|
|
|
305 |
|
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
Total system |
|
|
423 |
|
|
|
395 |
|
|
|
353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated: |
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated |
|
|
1,490 |
|
|
|
1,526 |
|
|
|
1,529 |
|
Franchised |
|
|
1,075 |
|
|
|
1,001 |
|
|
|
922 |
|
|
|
|
|
|
|
|
|
|
|
Total system |
|
|
2,565 |
|
|
|
2,527 |
|
|
|
2,451 |
|
|
|
|
|
|
|
|
|
|
|
Since April 15, 2007, we opened 41 company-operated Jack in the Box
restaurants (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.
Revenues
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 the
Box 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 in
the 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 the
Box 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
15
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.
Operating Costs and Expenses
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 Companys 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 Companys 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 the
Jack 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.
16
Interest Expense
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
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.
Income Taxes
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
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.
LIQUIDITY AND CAPITAL RESOURCES
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:
|
|
|
working capital; |
|
|
|
|
capital expenditures for new restaurant construction, restaurant renovations and
upgrades of our management information systems; |
|
|
|
|
income tax payments; |
|
|
|
|
debt service requirements; and |
|
|
|
|
obligations related to our benefit plans. |
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.
17
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):
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Total cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
106,240 |
|
|
$ |
83,599 |
|
Investing activities |
|
|
(59,603 |
) |
|
|
(51,705 |
) |
Financing activities |
|
|
(45,939 |
) |
|
|
(188,687 |
) |
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
$ |
698 |
|
|
$ |
(156,793 |
) |
|
|
|
|
|
|
|
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 selling
Jack 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 facilitys 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
18
accumulated other comprehensive loss in
the Companys 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 Companys 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.
DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES
We have identified the following as our most critical accounting estimates, which are those
that are most important to the portrayal of the Companys financial condition and results and
require managements 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 awards 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
19
that takes into consideration a restaurants 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 Taxesan 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.
NEW ACCOUNTING PRONOUNCEMENTS
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
20
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 companys 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.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
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 Managements 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
managements 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.
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|
Any widespread negative publicity, whether or not based in fact, which affects consumer
perceptions about the health, safety or quality of food and beverages served at our
restaurants may adversely affect our results. |
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|
Costs may exceed projections, including costs for food ingredients, labor (including
increases in minimum wage, workers compensation and other insurance and healthcare), fuel,
utilities, real estate, insurance, equipment, technology, and construction of new and
remodeled restaurants. Inflationary pressures affecting the cost of commodities, including
speculation and increasing demand for soybeans, corn and other feed grains for use in
producing agro fuels and other purposes, may adversely affect our food costs and our operating
margins. |
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|
There can be no assurances that new interior and exterior designs, kitchen enhancements or
new equipment will foster increases in sales at remodeled restaurants and yield the desired
return on investment. |
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|
There can be no assurances that our growth objectives in the regional markets in which we
operate restaurants will be met or that the new facilities will be profitable. Anticipated and
unanticipated delays in development, sales softness and restaurant closures may have a
material adverse effect on our results of operations. The development and profitability of
restaurants can be adversely affected by many factors, including the ability of the Company
and its franchisees to select and secure suitable sites on satisfactory terms, costs of
construction, and general business and economic conditions. In addition, the availability,
cost and terms of financing can impact the ability of franchisees to fulfill their restaurant
development commitments. |
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|
There can be no assurances that we will be able to effectively respond to aggressive
competition from numerous and varied competitors (some with significantly greater financial
resources) in all areas of business, including new concepts, facility design, competition for
labor, new product introductions, promotions, (including value promotions) and discounting.
Additionally, the trend toward convergence in grocery, deli, convenience store and other types
of food services may increase the number of our competitors. |
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|
The realization of gains from the sale of company-operated restaurants to existing and new
franchisees depends upon various factors, including sales trends, cost trends, and economic
conditions. The financing market, including the cost of availability of borrowed funds and
the terms required by lenders, can impact the ability of
franchisee candidates to purchase franchises and can potentially impact the sales prices and
number of franchises |
21
|
|
sold. The number of franchises sold and the amount of gain realized from
the sale of an on-going business may not be consistent from quarter-to-quarter and may not meet
expectations. |
|
|
The costs related to legal claims such as class actions involving employees, franchisees,
shareholders or consumers, including costs related to potential settlement or judgments may
adversely affect our results. |
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|
Changes in accounting standards, policies or practices or related interpretations by
auditors or regulatory entities, including changes in tax accounting or tax laws may adversely
affect our results. |
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|
The costs or exposures associated with maintaining the security of information and the use
of cashless payments may exceed expectations. Such risks include increased investment in
technology and costs of compliance with consumer protection and other laws. |
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|
Significant demographic changes, adverse weather, pressures on consumer spending, economic
conditions such as inflation or recession or political conditions such as terrorist activity
or the effects of war, or other significant events, particularly in California and Texas where
nearly 60% of our restaurants are located; new legislation and governmental regulation;
changes in accounting standards; the possibility of unforeseen events affecting the food
service industry in general and other factors over which we have no control can each adversely
affect our results of operation. |
This discussion of uncertainties is not exclusive. Additional risk factors associated with
our business are described in Managements 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 loans 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
Conclusion Regarding the Effectiveness of Disclosure 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,
22
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.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in the Companys 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 Companys
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 Managements 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 managements 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:
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(c) |
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Total number of |
|
(d) |
|
|
(a) |
|
(b) |
|
shares purchased as |
|
Maximum dollar |
|
|
Total number |
|
Average |
|
part of publicly |
|
value that may yet |
|
|
of shares |
|
price paid |
|
announced |
|
be purchased under |
|
|
purchased |
|
per share |
|
programs |
|
the programs |
January 21, 2008 February 17, 2008 |
|
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|
|
|
|
|
|
|
|
|
|
|
$ |
177,892,705 |
|
February 18, 2008 March 16, 2008 |
|
|
1,053,500 |
|
|
$ |
26.45 |
|
|
|
1,053,500 |
|
|
|
150,000,455 |
|
March 17, 2008 April 13, 2008 |
|
|
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|
150,000,455 |
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|
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|
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|
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Total |
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|
1,053,500 |
|
|
$ |
26.45 |
|
|
|
1,053,500 |
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23
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:
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For |
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Withheld |
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Abstain |
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1. |
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Election of the following
directors to serve until the
next annual meeting of
stockholders and until their
successors are elected and
qualified. |
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Michael E. Alpert |
|
|
54,266,763 |
|
|
|
1,139,966 |
|
|
|
|
|
|
|
|
|
George Fellows |
|
|
55,078,149 |
|
|
|
328,580 |
|
|
|
|
|
|
|
|
|
Anne B. Gust |
|
|
55,080,337 |
|
|
|
326,392 |
|
|
|
|
|
|
|
|
|
Murray H. Hutchison |
|
|
55,080,837 |
|
|
|
325,892 |
|
|
|
|
|
|
|
|
|
Linda A. Lang |
|
|
54,502,679 |
|
|
|
904,050 |
|
|
|
|
|
|
|
|
|
Michael W. Murphy |
|
|
55,080,637 |
|
|
|
326,092 |
|
|
|
|
|
|
|
|
|
David M. Tehle |
|
|
55,078,216 |
|
|
|
328,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker |
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
Non-Votes |
|
2. |
|
|
Ratification of
appointment of KPMG
LLP as independent
registered public
accountants |
|
|
54,498,653 |
|
|
|
900,864 |
|
|
|
7,212 |
|
|
|
|
|
24
ITEM 6. EXHIBITS
|
|
|
Number |
|
Description |
|
|
|
3.1
|
|
Restated Certificate of Incorporation, as amended, which is
incorporated herein by reference from the registrants Annual
Report on Form 10-K for the fiscal year ended October 3, 1999. |
|
|
|
3.1.1
|
|
Certificate of Amendment of Restated Certificate of Incorporation,
which is incorporated herein by reference from the registrants
Current Report on Form 8-K dated September 21, 2007. |
|
|
|
3.2
|
|
Amended and Restated Bylaws, which are incorporated herein by
reference from the registrants Current Report on Form 8-K dated
August 7, 2007. |
|
|
|
10.1
|
|
Credit Agreement dated as of December 15, 2006 by and among Jack
in the Box Inc. and the lenders named therein, which is
incorporated herein by reference from the registrants Current
Report on Form 8-K dated December 15, 2006. |
|
|
|
10.2
|
|
Collateral Agreement dated as of December 15, 2006 by and among
Jack in the Box Inc. and the lenders named therein, which is
incorporated herein by reference from the registrants Current
Report on Form 8-K dated December 15, 2006. |
|
|
|
10.3
|
|
Guaranty Agreement dated as of December 15, 2006 by and among Jack
in the Box Inc. and the lenders named therein, which is
incorporated herein by reference from the registrants Current
Report on Form 8-K dated December 15, 2006. |
|
|
|
10.4*
|
|
Amended and Restated 1992 Employee Stock Incentive Plan, which is
incorporated herein by reference from the registrants
Registration Statement on Form S-8 (No. 333-26781) filed May 9,
1997. |
|
|
|
10.5*
|
|
Jack in the Box Inc. 2002 Stock Incentive Plan, which is
incorporated herein by reference from the registrants Definitive
Proxy Statement dated January 18, 2002 for the Annual Meeting of
Stockholders on February 22, 2002. |
|
|
|
10.5.1*
|
|
Form of Restricted Stock Award for certain executives under the
2002 Stock Incentive Plan, which is incorporated herein by
reference from the registrants Quarterly Report on Form 10-Q for
the quarter ended January 19, 2003. |
|
|
|
10.6*
|
|
Supplemental Executive Retirement Plan, which is incorporated
herein by reference from registrants Annual Report on Form 10-K
for the fiscal year ended September 30, 2001. |
|
|
|
10.6.1*
|
|
First Amendment dated as of August 2, 2002 to the Supplemental
Executive Retirement Plan, which is incorporated herein by
reference from registrants Annual Report on Form 10-K for the
fiscal year ended September 29, 2002. |
|
|
|
10.6.2*
|
|
Second Amendment dated as of November 9, 2006 to the Supplemental
Executive Retirement Plan, which is incorporated herein by
reference from the registrants Annual Report on Form 10-K for the
year ended October 1, 2006. |
|
|
|
10.6.3*
|
|
Third Amendment dated as of February 15, 2007 to the Supplemental
Executive Retirement Plan, which is incorporated herein by
reference from the registrants Quarterly Report on Form 10-Q for
the quarter ended April 15, 2007. |
|
|
|
10.6.4*
|
|
Fourth and Fifth Amendments dated as of September 14, 2007 and
November 8, 2007, respectively, to the Supplemental Executive
Retirement Plan, which is incorporated herein by reference from
the registrants Annual Report on Form 10-K for the year ended
September 30, 2007. |
|
|
|
10.7*
|
|
Amended and Restated Performance Bonus Plan effective October 2,
2000, which is incorporated herein by reference from the
registrants Definitive Proxy Statement dated January 13, 2006 for
the Annual Meeting of Stockholders on February 17, 2006. |
|
|
|
10.7.1*
|
|
Bonus Program for Fiscal 2008 Under the Performance Bonus Plan,
which is incorporated herein by reference from the registrants
Current Report on Form 8-K dated September 19, 2007. |
|
|
|
10.8*
|
|
Deferred Compensation Plan for Non-Management Directors, which is
incorporated herein by reference from the registrants Definitive
Proxy Statement dated January 17, 1995 for the Annual Meeting of
Stockholders on February 17, 1995. |
|
|
|
10.8.1*
|
|
Amended and Restated Deferred Compensation Plan for Non-Management
Directors effective November 9, 2006, which is incorporated herein
by reference from the registrants Annual Report on Form 10-K for
the year ended October 1, 2006. |
25
|
|
|
Number |
|
Description |
|
|
|
10.9*
|
|
Amended and Restated Non-Employee Director Stock Option Plan, which is incorporated herein by
reference from the registrants Annual Report on Form 10-K for the fiscal year ended Oct. 3, 1999. |
|
|
|
10.10*
|
|
Form of Compensation and Benefits
Assurance Agreement for Executives, which is incorporated herein by
reference from the registrants Quarterly Report on
Form 10-Q for the quarter ended January 20, 2008. |
|
|
|
10.10.1*
|
|
Qdoba Form of Compensation and Benefits Assurance Agreement for Executives. |
|
|
|
10.11*
|
|
Form of Indemnification Agreement between Jack in the Box Inc. and certain officers and directors,
which is incorporated herein by reference from the registrants Annual Report on Form 10-K for the
fiscal year ended September 29, 2002. |
|
|
|
10.13*
|
|
Executive Deferred Compensation Plan, which is incorporated herein by reference from the
registrants Quarterly Report on Form 10-Q for the quarter ended January 19, 2003. |
|
|
|
10.13.1*
|
|
First amendment dated September 14, 2007 to the Executive Deferred Compensation Plan, which is
incorporated herein by reference from the registrants Annual Report on Form 10-K for the year
ended September 30, 2007. |
|
|
|
10.14*
|
|
Qdoba Performance Unit Award Agreement. |
|
|
|
10.16*
|
|
Amended and Restated 2004 Stock Incentive Plan, which is incorporated herein by reference from the
registrants Current Report on Form 8-K dated February 24, 2005. |
|
|
|
10.16.1*
|
|
Form of Restricted Stock Award for certain executives under the 2004 Stock Incentive Plan, which
is incorporated herein by reference from the registrants Quarterly Report on Form 10-Q for the
quarter ended July 8, 2007. |
|
|
|
10.16.1(a)*
|
|
Form of Restricted Stock Award for officers and certain members of management under the 2004 Stock
Incentive Plan, which is incorporated herein by reference from the registrants Quarterly Report
on Form 10-Q for the quarter ended July 8, 2007. |
|
|
|
10.16.2*
|
|
Form of Stock Option Awards under the 2004 Stock Incentive Plan, which is incorporated herein by
reference from the registrants Quarterly Report on Form 10-Q for the quarter ended July 8, 2007. |
|
|
|
10.16.3*
|
|
Jack in the Box Inc. Non-Employee Director Stock Option Award Agreement under the 2004 Stock
Incentive Plan, which is incorporated herein by reference from the registrants Current Report on
Form 8-K dated November 10, 2005. |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Management contract or compensatory plan. |
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.
26
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: |
/s/ JERRY P. REBEL
|
|
|
|
Jerry P. Rebel |
|
|
|
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
(Duly Authorized Signatory) |
|
|
Date:
May 14, 2008
27