Back to GetFilings.com
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 January 19, 2003
----------------
Commission file no. 1-9390
JACK IN THE BOX INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2698708
- ---------------------------------------- --------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
9330 BALBOA AVENUE, SAN DIEGO, CA 92123
- ---------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (858) 571-2121
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
----- -----
Number of shares of common stock, $.01 par value, outstanding as of the close of
business February 27, 2003 - 36,527,653.
JACK IN THE BOX INC. AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets............................... 3
Unaudited Consolidated Statements of Earnings............. 4
Unaudited Consolidated Statements of Cash Flows........... 5
Notes to Unaudited Consolidated Financial Statements....... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 14
Item 4. Controls and Procedures ................................... 14
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders........ 15
Item 6. Exhibits and Reports on Form 8-K........................... 16
Signature........................................................... 18
Certifications...................................................... 19
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
January 19, September 29,
2003 2002
- -------------------------------------------- ------------------ ---------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.................. $ 16,884 $ 5,620
Accounts receivable, net................... 20,426 26,176
Inventories................................ 32,107 29,975
Prepaid expenses and other current assets.. 11,816 38,108
Assets held for sale and leaseback......... 17,302 12,626
------------ ------------
Total current assets..................... 98,535 112,505
------------ ------------
Property and equipment, at cost............... 1,221,487 1,219,487
Accumulated depreciation and amortization.. 391,566 372,556
------------ -------------
Property and equipment, net.............. 829,921 846,931
------------ -------------
Trading area rights, net...................... - 64,628
Goodwill...................................... 66,616 1,988
Other assets, net............................. 43,027 37,392
------------ -------------
TOTAL.................................... $ 1,038,099 $ 1,063,444
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt....... $ 2,394 $ 106,265
Accounts payable........................... 42,638 59,212
Accrued expenses........................... 163,871 167,900
------------ ------------
Total current liabilities................ 208,903 333,377
------------ ------------
Deferred income taxes......................... 28,283 25,861
Long-term debt, net of current maturities..... 249,726 143,364
Other long-term liabilities................... 101,910 96,727
Stockholders' equity:
Common stock............................... 432 429
Capital in excess of par value............. 324,476 319,810
Retained earnings.......................... 248,224 227,064
Accumulated other comprehensive loss, net.. (8,882) (8,882)
Unearned compensation...................... (4,442) -
Treasury stock............................. (110,531) (74,306)
------------ ------------
Total stockholders' equity............... 449,277 464,115
------------ ------------
TOTAL.................................... $ 1,038,099 $ 1,063,444
============ ============
See accompanying notes to consolidated financial statements.
3
JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Sixteen Weeks Ended
-----------------------------------
January 19, January 20,
2003 2002
- -------------------------------------------- ------------------- ---------------
Revenues:
Restaurant sales...................... $ 559,431 $ 552,548
Distribution and other sales.......... 28,142 21,152
Franchise rents and royalties......... 17,500 16,639
Other.................................. 8,261 3,841
----------- -----------
613,334 594,180
----------- -----------
Costs of revenues:
Restaurant costs of sales............. 171,270 170,118
Restaurant operating costs............ 294,028 281,549
Costs of distribution and other sales. 27,492 20,685
Franchised restaurant costs........... 7,440 6,641
----------- -----------
500,230 478,993
----------- -----------
Gross profit............................ 113,104 115,187
Selling, general and administrative..... 70,717 65,876
----------- -----------
Earnings from operations................ 42,387 49,311
Interest expense........................ 8,258 7,305
----------- -----------
Earnings before income taxes............. 34,129 42,006
Income taxes............................. 12,969 15,332
----------- -----------
Net earnings............................. $ 21,160 $ 26,674
=========== ===========
Earnings per share:
Basic................................. $ .57 $ .68
Diluted............................... $ .56 $ .67
Weighted-average shares outstanding:
Basic................................. 37,216 39,271
Diluted............................... 37,651 39,995
See accompanying notes to consolidated financial statements.
4
JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Sixteen Weeks Ended
------------------------------------
January 19, January 20,
2003 2002
- ------------------------------------------- ----------------- ------------------
Cash flows from operating activities:
Net earnings............................. $ 21,160 $ 26,674
Non-cash items included in operations:
Depreciation and amortization......... 21,182 21,107
Amortization of unearned compensation. 117 -
Deferred finance cost amortization.... 915 514
Deferred income taxes................. 2,422 3,040
Gains on the conversion of
Company-operated restaurants........... (7,270) (3,029)
Decrease in receivables.................. 4,488 7,504
Increase in inventories.................. (2,132) (1,563)
Decrease in prepaid expenses and other
current assets......................... 10,003 7,026
Decrease in accounts payable............. (15,671) (5,390)
Increase (decrease) in other liabilities. 3,453 (20,222)
-------- --------
Cash flows provided by
operating activities................ 38,667 35,661
-------- --------
Cash flows from investing activities:
Additions to property and equipment...... (22,371) (30,017)
Dispositions of property and equipment... 15,300 1,414
Proceeds from the conversion of
Company-operated restaurants........... 849 3,766
Decrease (increase) in assets held for
sale and leaseback..................... (4,676) 1,220
Collections on notes receivable.......... 4,302 1,666
Other.................................... (1,584) (1,389)
-------- --------
Cash flows used in investing
activities.......................... (8,180) (23,340)
-------- --------
Cash flows from financing activities:
Borrowings under revolving bank loans.... 361,500 125,500
Principal repayments under revolving
bank loans............................. (288,500) (138,500)
Principal payments on long-term debt,
including current maturities........... (54,905) (647)
Debt issuance and debt repayment costs... (1,203) -
Repurchase of common stock............... (36,225) -
Proceeds from issuance of common stock... 110 514
-------- --------
Cash flows used in financing
activities.......................... (19,223) (13,133)
-------- --------
Net increase (decrease) in cash and
cash equivalents........................... $ 11,264 $ (812)
======== ========
See accompanying notes to consolidated financial statements.
5
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. GENERAL
The accompanying unaudited consolidated financial statements of Jack in the
Box Inc. (the "Company") and its subsidiaries have been prepared in
accordance with accounting principles generally accepted in the United
States of America 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 the interim periods have been included. Operating results
for any interim period are not necessarily indicative of the results for
any other interim period or for the full year. We report results quarterly
with the first quarter having 16 weeks and each remaining quarter having 12
weeks.
Certain financial statement reclassifications have been made in the prior
year to conform to the current year presentation. These financial
statements should be read in conjunction with the notes to the fiscal year
2002 consolidated financial statements contained in our Annual Report on
Form 10-K filed with the SEC.
2. ACCOUNTING CHANGES
In the first quarter of fiscal year 2003, we adopted Statement of Financial
Accounting Standards ("SFAS") 142, Goodwill and Other Intangible Assets,
which establishes accounting and reporting standards for goodwill and
separable intangible assets. For more information regarding the adoption of
this Statement, refer to Note 3, Intangible Assets.
In the first quarter of fiscal year 2003, we adopted the provisions of SFAS
143, Accounting for Asset Retirement Obligations, which addresses
accounting and reporting standards for legal obligations associated with
the retirement of tangible long-lived assets and the associated asset
retirement costs. The adoption did not have a material impact on our
results of operations or financial position.
In the first quarter of fiscal year 2003, we adopted the provisions of SFAS
144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
Statement retains the fundamental provisions of SFAS 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, but addresses its significant implementation issues. The
adoption did not have a material impact on our results of operations or
financial position.
In the first quarter of fiscal year 2003, we adopted the provisions of SFAS
145, Rescission of FASB Statements 4, 44, and 64, Amendment of FASB
Statement 13, and Technical Corrections. SFAS 145 addresses inconsistencies
in accounting for sale-leaseback transactions and amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
adoption did not have a material impact on our results of operations or
financial position.
In the first quarter of fiscal year 2003, we adopted the provisions of SFAS
146, Accounting for Costs Associated with Exit or Disposal Activities. This
Statement requires that costs associated with exit or disposal activities
be recognized when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The adoption impacts exit
liabilities recorded by the Company subsequent to December 31, 2002.
In the first quarter of fiscal year 2003, we adopted the interim disclosure
requirements of Financial Accounting Standards Board ("FASB")
Interpretation 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others, which
provides guidance on the recognition and disclosures to be made by a
guarantor in its interim and annual financial statements about its
obligations under certain guarantees. Effective December 31, 2002, we
adopted the initial recognition and measurement provisions of this
Interpretation. The adoption did not have a material impact on our results
of operations or financial position.
6
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
3. INTANGIBLE ASSETS
SFAS 141, Business Combinations, requires that all business combinations be
accounted for using the purchase method of accounting and specifies the
criteria to use in determining whether intangible assets identified in
purchase accounting must be recorded separately from goodwill. We
determined that our trading area rights, which represent the amounts
allocated under purchase accounting to reflect the value of operating
existing restaurants within each specific trading area, do not meet the
separability criteria of SFAS 141. Therefore, effective September 30, 2002,
our trading area rights have been reclassified to goodwill.
Under SFAS 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are tested at least annually for impairment. Separable
intangible assets with definite lives will continue to be amortized over
their estimated useful lives. In accordance with the provisions of SFAS
142, we ceased amortizing goodwill effective September 30, 2002. We also
performed the transitional impairment test for goodwill in the quarter,
which indicated there was no impairment upon our adoption of SFAS 142.
Amortized and unamortized intangible assets consist of the following as of
January 19, 2003:
Gross
Carrying Accumulated Net Carrying
Amount Amortization Amount
------------------------------ ------------- --------------- --------------
Amortized intangible assets.... $ 52,345 $ 39,228 $ 13,117
========
Unamortized intangible assets:
Goodwill................................................. $ 66,616
========
The change in the carrying amount of goodwill during the quarter ended
January 19, 2003 was as follows:
Balance at September 29, 2002........................... $ 1,988
Reclassification of trading area rights ................ 64,628
--------
Balance at January 19, 2003............................. $ 66,616
========
Had the provisions of SFAS 142 been adopted prior to September 30, 2002,
the Company would have reported net earnings and basic and diluted per
share amounts as follows:
Sixteen Weeks Ended
-----------------------------
January 19, January 20,
2003 2002
--------------------------------------------------------- ----------------
Net earnings, as reported........... $ 21,160 $ 26,674
Goodwill and trading area rights
amortization, net of taxes........ - 845
--------- ---------
Net earnings, adjusted ............. $ 21,160 $ 27,519
========= =========
Net earnings per share - basic:
Net earnings, as reported........... $ .57 $ .68
Goodwill and trading area rights
amortization, net of taxes........ - .02
--------- ---------
Net earnings, adjusted ............. $ .57 $ .70
========= =========
Net earnings per share - diluted:
Net earnings, as reported........... $ .56 $ .67
Goodwill and trading area rights
amortization, net of taxes........ - .02
--------- ---------
Net earnings, adjusted ............. $ .56 $ .69
========= =========
7
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
3. INTANGIBLE ASSSETS (continued)
Total intangibles amortization expense was $.7 million for the quarter
ended January 19, 2003 and the estimated intangibles amortization expense
for each fiscal year through fiscal year 2007 is $2.2 million. The
estimated intangibles amortization expense does not take into consideration
any intangible assets that may result from the Company's acquisition of
Qdoba Restaurant Corporation as described in Note 8, Subsequent Events.
4. DEBT EXTINGUISHMENT
In January 1994, we entered into financing lease arrangements with two
limited partnerships (the "Partnerships"), in which we sold interests in 76
restaurants for a specified period of time. The acquisition of the
properties, including costs and expenses, was funded through the issuance
of $70 million in 10.3% senior secured notes by a special purpose
corporation acting as agent for the Partnerships. On August 29, 2002, we
entered into an agreement to repurchase the interests in the restaurant
properties that had been encumbered by the financing lease obligations for
a consent fee of $1.3 million. On January 2, 2003 we used borrowings under
our credit facility and previous sinking fund payments to reacquire the
interests in the restaurant properties and retire the high interest rate
bearing financing lease obligations.
5. INCOME TAXES
The income tax provisions in the quarter reflect the projected annual tax
rates for 2003 and 2002 of 38.0% and 36.5% of pretax earnings,
respectively. The fiscal 2002 income tax provision was subsequently
adjusted to the effective annual rate of 33.9% of pretax earnings. The
favorable income tax rate in 2002 resulted from our ability to realize
previously unrecognized tax benefits. The final 2003 annual tax rate cannot
be determined until the end of the fiscal year; therefore, the actual rate
could differ from our current estimates.
6. STOCKHOLDERS' EQUITY
As part of the Company's long term incentive program, the Company awarded
217,600 shares of restricted stock to certain executives during the quarter
ended January 19, 2003. These restricted stock awards have been recognized
as unearned compensation in Stockholders' Equity based upon the fair value
of the Company's common stock on the award date. Unearned compensation is
amortized to compensation expense over the estimated vesting period.
Pursuant to our stock repurchase program, as authorized by our Board of
Directors, the Company repurchased 1,700,400 shares of our common stock for
approximately $36.2 million during the quarter ended January 19, 2003. At
the end of the quarter we had approximately $13.9 million of repurchase
availability remaining.
7. AVERAGE SHARES OUTSTANDING
Net earnings per share for each quarter is based on the weighted-average
number of shares outstanding during the quarter, determined as follows:
Sixteen Weeks Ended
--------------------------------
January 19, January 20,
2003 2002
----------------------------------------- --------------- ----------------
Shares outstanding, beginning of period .. 38,558,036 39,248,168
Effect of common stock issued........ 4,289 23,254
Effect of common stock reacquired.... (1,346,647) -
----------- -----------
Weighted-average shares outstanding -
basic.............................. 37,215,678 39,271,422
Assumed additional shares issued upon
exercise of stock options, net of
shares reacquired at the average
market price....................... 294,991 723,704
Effect of restricted stock issued..... 139,886 -
----------- -----------
Weighted-average shares outstanding -
diluted............................. 37,650,555 39,995,126
=========== ===========
8
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
7. AVERAGE SHARES OUTSTANDING (continued)
Diluted weighted-average shares outstanding exclude options to purchase
3,271,253 and 1,427,411 shares of common stock in 2003 and 2002,
respectively, because their exercise prices exceeded the average market
price of common stock for the period.
8. CONTINGENCIES AND LEGAL MATTERS
On April 18, 2001, an action was filed by Robert Bellmore and Jeffrey
Fairbairn, individually and on behalf of all others similarly situated,
in the Superior Court of the State of California, San Diego County, seeking
class action status in alleging violations of California wage and hour
laws. The Company settled the action in fiscal year 2002 for approximately
$9.3 million without admission of liability and the court approved the
settlement on February 10, 2003.
The Company is also 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 other pending legal proceedings, asserted
legal claims and known potential legal claims should not materially affect
our operating results and liquidity.
9. SUBSEQUENT EVENTS
Acquisition. On January 21, 2003 we acquired Qdoba Restaurant Corporation
("Qdoba"), operator and franchiser of Qdoba Mexican Grill(R) for $45
million in cash. The purchase was financed by our revolving credit
facility. Qdoba operates in the fast-casual segment of the restaurant
industry and, as of the acquisition date, operated or franchised 85
restaurants in 16 states. This acquisition is consistent with the Company's
long-term strategy to grow from a regional quick-service restaurant chain
to a national restaurant company.
New Financing. On January 22, 2003, we secured a new senior credit facility
which provides borrowings in the aggregate amount of $350 million and is
comprised of: (i) a $200 million revolving credit facility maturing on
January 22, 2006 and (ii) a $150 million term loan maturing on July 22,
2007. This new credit facility replaces our prior $175 million credit
facility, which was due to expire March 31, 2003.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JACK IN THE BOX INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
All comparisons under this heading between 2003 and 2002 refer to the
16-week periods ended January 19, 2003 and January 20, 2002, respectively,
unless otherwise indicated.
Company-operated restaurant sales increased $6.9 million, or 1.2%, to
$559.4 million in 2003 from $552.5 million in 2002, reflecting an increase in
the number of Company-operated restaurants offset in part by a decline in per
store average sales. The number of Company-operated restaurants increased 3.6%
to 1,515 at the end of the quarter from 1,462 restaurants a year ago. Sales at
Company-operated restaurants open more than one fiscal year declined 2.6% in
2003 compared with 2002 due primarily to continued economic weakness in certain
key markets and aggressive price discounting by competitors, offset in part by
modest price increases.
Distribution and other sales, representing distribution sales to
franchisees and sales from our fuel and convenience stores ("QUICK STUFF(R)"),
increased $7.0 million to $28.1 million in 2003 from $21.2 million in 2002.
Other sales from our QUICK STUFF locations increased $5.5 million primarily due
to an increase in the number of QUICK STUFF locations to twelve at the end of
the quarter from ten a year ago. Distribution sales grew $1.5 million in 2003
compared with 2002, due to an increase in the number of franchised restaurants
using our distribution services.
Franchise rents and royalties increased $.9 million to $17.5 million in
2003 from $16.6 million in 2002, primarily reflecting an increase in the number
of franchised restaurants to 365 at the end of the quarter from 335 a year ago.
As a percentage of franchise restaurant sales, franchise rents and royalties
declined slightly to 13.0% in 2003 from 13.1% in 2002 primarily due to a decline
in sales at franchise-operated restaurants.
Other revenues, principally gains and fees from the conversion of
Company-operated restaurants, as well as interest income from notes receivable
and investments, increased to $8.3 million in 2003 from $3.8 million in 2002,
primarily due to our continued strategy of selectively converting
Company-operated restaurants to franchises. Franchise gains and fees increased
$4.5 million to $7.7 million in 2003 from $3.2 million in 2002 due to an
increase in the number of restaurants converted to nine in the quarter compared
with three a year ago.
Restaurant costs of sales and operating costs increased with sales
growth and the addition of Company-operated restaurants. Restaurant costs of
sales, which include food and packaging costs, increased to $171.3 million in
2003 from $170.1 million in 2002. Restaurant costs of sales improved to 30.6% of
restaurant sales in 2003 from 30.8% in 2002, primarily due to the favorable
impact of lower food ingredient costs, certain margin improvement initiatives
and modest selling price increases in 2003.
Restaurant operating costs grew to $294.0 million, or 52.6% of
restaurant sales, in 2003 from $281.5 million, or 51.0% in 2002. The percentage
increase in 2003 reflects higher occupancy costs on newer stores whose sales
have not yet matured, increased costs related to our new point of sale system,
higher insurance expenses and reduced leverage on fixed costs due to a decline
in average sales at Company-operated restaurants.
Costs of distribution and other sales increased to $27.5 million, or
97.7% of the related sales, in 2003 from $20.7 million, or 97.8% in 2002,
primarily reflecting an increase in the related sales.
10
Franchise restaurant costs, which consist principally of rents and
depreciation on properties leased to franchisees and other miscellaneous costs,
increased to $7.4 million in 2003 from $6.6 million in 2002, primarily
reflecting an increase in the number of franchised restaurants. As a percentage
of franchise restaurant sales, franchise restaurant costs increased to 5.5% in
2003 from 5.2% in 2002, as increases in fixed costs, primarily rents, exceeded
the overall sales growth at franchise-operated restaurants.
Selling, general and administrative expenses increased to $70.7
million, or 11.5% of revenues, in 2003 from $65.9 million, or 11.1% of revenues,
in 2002, primarily due to higher pension costs and the reduced leverage from
softer sales, which were offset in part by higher other revenues. Pension costs
have increased due to declines in interest rates and in the return on plan
assets.
Interest expense increased to $8.3 million in 2003 from $7.3 million in
2002, primarily due to costs associated with the early retirement of our high
interest rate financing lease obligations. Increases in total average debt
outstanding were offset by lower average interest rates during the quarter.
The income tax provisions in the quarter reflect the projected annual
tax rates for 2003 and 2002 of 38.0% and 36.5% of pretax earnings, respectively.
The fiscal 2002 income tax provision was subsequently adjusted to the effective
annual rate of 33.9% of pretax earnings. The favorable income tax rate in 2002
resulted from our ability to realize previously unrecognized tax benefits. The
final 2003 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 decreased to $21.2 million, or $.56 per diluted share, in
2003 from $26.7 million, or $.67 per diluted share, in 2002.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
General. Cash and cash equivalents increased $11.3 million to $16.9
million at January 19, 2003 from $5.6 million at the beginning of the fiscal
year. The higher cash balance at January 19, 2003 resulted from the receipt of
proceeds related to the closing of several sale and leaseback transactions at
the end of the quarter. These proceeds were used to repay borrowings under our
credit facility immediately following the end of the quarter. We expect to
maintain low levels of cash and cash equivalents, reinvesting available cash
flows from operations to develop new or enhance existing restaurants, and to
reduce borrowings under the revolving credit facility.
Our working capital deficit decreased $110.5 million to $110.4 million
at January 19, 2003 from $220.9 million at September 29, 2002, primarily due to
the reclassification of our revolving credit facility to long-term debt and the
repayment of our financing lease obligations in January 2003. The Company and
the restaurant industry in general maintain relatively low levels of accounts
receivable and inventories and vendors grant trade credit for purchases such as
food and supplies. We also continually invest in our business through the
addition of new units and refurbishment of existing units, which are reflected
as long-term assets and not as part of working capital. At the end of the
quarter, our current ratio increased to .5 to 1 compared with .3 to 1 at the
beginning of the year, primarily due to the revolving credit facility
reclassification and financing lease obligations repayment discussed above.
At January 19, 2003, we had borrowings of $107 million and letters of
credit outstanding of $19.7 million under our revolving credit facility. On
January 22, 2003, we replaced our existing credit facility, due to expire March
31, 2003, with borrowings under a new senior credit facility.
Our new credit facility provides borrowings in the aggregate amount of
$350 million and is comprised of: (i) a $200 million revolving credit facility
maturing on January 22, 2006 with an initial rate of London Interbank Offered
Rate ("LIBOR") plus 2.25% and (ii) a $150 million term loan maturing on July 22,
2007 with an initial rate of LIBOR plus 3.25%. This new credit facility requires
the payment of an annual commitment fee based on the unused portion of the
credit facility. The annual commitment rate and the credit facility's interest
rates are based on a financial leverage ratio, as defined in the credit
agreement. To secure our respective obligations under the new credit facility,
the Company and certain of its subsidiaries granted liens in substantially all
of their personal property assets. Under certain circumstances, the Company and
each of its certain subsidiaries will be required to grant liens in certain real
property assets to secure their respective obligations under the new credit
facility. Additionally, certain of our real and personal property secure other
indebtedness of the Company.
11
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 and dividend payments,
as well as requirements to maintain certain financial ratios, cash flows and net
worth. As of January 19, 2003, we were in compliance with the covenants in
effect.
Total debt outstanding increased to $252.1 million at January 19, 2003
from $249.6 million at the beginning of the fiscal year.
Other Transactions. In January 1994, we entered into financing lease
arrangements with two limited partnerships (the "Partnerships"), in which we
sold interests in 76 restaurants for a specified period of time. The acquisition
of the properties, including costs and expenses, was funded through the issuance
of $70 million in 10.3% senior secured notes by a special purpose corporation
acting as agent for the Partnerships. On August 29, 2002, we entered into an
agreement to repurchase the interests in the restaurant properties that had been
encumbered by the financing lease obligations for a consent fee of $1.3 million.
On January 2, 2003 we used borrowings under our credit facility and previous
sinking fund payments to reacquire the interests in the restaurant properties
and retire the high interest rate bearing financing lease obligations.
In December 1999 and fiscal 2002, our Board of Directors authorized the
repurchase of our outstanding common stock in the open market for an aggregate
amount not to exceed $90 million. Through January 19, 2003, we had acquired
3,250,200 shares in connection with this authorization at an aggregate cost of
$76.1 million. At the end of the quarter we had approximately $13.9 million of
repurchase availability remaining. The stock repurchase program is intended to
increase shareholder value and offset the dilutive effect of stock option
exercises.
Capital Expenditures. Capital expenditures decreased $7.6 million to
$22.4 million in 2003 from $30.0 million in 2002, primarily due to a $5.8
million decrease in new restaurant expenditures reflecting a reduction in the
number of new restaurant openings to 22 in 2003 from 35 a year ago. Capital
expenditures in 2003 included $15.1 million for new restaurant expenditures,
$5.8 million for existing restaurant improvements and $1.5 million for other
additions.
We plan to spend approximately $155 million during fiscal year 2003 on
capital expenditures compared with the $182 million originally disclosed in our
2002 Annual Report on Form 10-K filed with the SEC. The projected estimate
decrease reflects our plan to lease a greater portion of our new stores rather
than purchase them.
Future Liquidity. We require capital principally to grow the business
through new restaurant construction, as well as to maintain, improve and
refurbish existing restaurants, and for general operating purposes. Our primary
short-term and long-term sources of liquidity are expected to be cash flows from
operations, the revolving bank credit facility, and the sale and leaseback of
certain restaurant properties. Additional potential sources of liquidity include
financing opportunities and the conversion of Company-operated restaurants to
franchised restaurants. Based upon current levels of operations and anticipated
growth, we expect that cash flows from operations, combined with other financing
alternatives available, will be sufficient to meet debt service, capital
expenditure and working capital requirements.
We do not have material related party transactions or off-balance sheet
arrangements, other than our operating leases. We do not enter into commodity
contracts for which market price quotations are not available. Furthermore, we
are not aware of any other factors, which are reasonably likely to affect our
liquidity, other than those disclosed as risk factors in our Form 10-K filed
with the SEC. While we have noted that certain operating expenses, including
pension, insurance and occupancy costs, are rising and the economy has slowed
down, we believe that there are sufficient funds available from operations, our
existing credit facility and the sale and leaseback of restaurant properties to
accommodate the Company's future growth.
12
DISCUSSION OF CRITICAL ACCOUNTING POLICIES
- ------------------------------------------
The Company's critical accounting policies, which are those that are
most important to the portrayal of the Company's financial condition and results
and require management's most subjective and complex judgements, are detailed in
our most recent Annual Report on Form 10-K filed with the SEC.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
- ------------------------------------------
In November 2002, the FASB's Emerging Issues Task Force ("EITF")
discussed Issue 02-16, Accounting by a Customer (including a Reseller) for Cash
Consideration Received from a Vendor. Issue 02-16 provides guidance on how a
customer should account for cash consideration received from a vendor. This
Issue is effective for fiscal periods beginning after December 15, 2002. We will
adopt the provisions of Issue 02-16 in the first quarter of fiscal year 2004 and
expect that the adoption will not have a material impact on our results of
operations or financial position.
In December 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS") 148, Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of FASB Statement No. 123. This Statement provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee consideration. Additionally, the
Statement amends the disclosure requirements of SFAS 123, Accounting for
Stock-Based Compensation, to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
transition guidance and annual disclosure provisions are effective for financial
statements issued for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. We will adopt
the interim disclosure provisions of SFAS 148 in the second quarter of fiscal
year 2003.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
- ----------------------------------------------------------
This Quarterly Report on Form 10-Q 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
Unaudited Consolidated Financial Statements and Liquidity and Capital Resources.
Statements regarding our continuing investment in new restaurants and
refurbishment of existing facilities, expectations regarding our effective tax
rate, expectations regarding any liability that may result from claims and
actions filed against us, our future financial performance, our sources of
liquidity, uses of cash and sufficiency of our cash flows are forward-looking
statements. Forward-looking statements are generally identifiable by the use of
the words "anticipate," "assume," "believe," "estimate," "seek," "expect,"
"intend," "plan," "project," "may," "will" "would," and similar expressions.
Forward-looking statements are based on management's current plans and
assumptions and are subject to known and unknown risks and uncertainties which
may cause actual results to differ materially from expectations. The following
is a discussion of some of those factors.
There is intense competition in the quick service restaurant industry
with respect to market share, restaurant locations, labor, menu and product
development. The Company competes primarily on the basis of quality, variety and
innovation of menu items, service, brand, convenience and price against several
larger national and international chains with potentially significantly greater
financial resources. The Company's results depend upon the effectiveness of its
strategies as compared to its competitors, and can be adversely affected by
aggressive competition from numerous and varied competitors in all areas of
business, including new product introductions, promotions and discounting. In
addition, restaurant sales can be affected by factors, including but not limited
to, demographic changes, consumer preferences, tastes and spending patterns,
perceptions about the health and safety of food products and severe weather
conditions. With approximately 40% of its restaurants in California, Jack in the
Box restaurant sales can be significantly affected by demographic changes,
adverse weather, economic and political conditions and other significant events
in California. The national economy continues in a downturn and is a significant
contributor to soft sales trends experienced by the Company and several of its
competitors; there can be no assurance as to when the trends can be reversed or
that earnings will not be materially affected. The quick service restaurant
industry is mature, with significant chain penetration. There can be no
assurances that the Company's growth objectives in the regional domestic markets
in which it operates restaurants and convenience stores 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 the Company's results of operations. The development and profitability
of restaurants can be adversely affected by many factors including the ability
13
of the Company and its franchisees to select and secure suitable sites on
satisfactory terms, the availability of financing and general business and
economic conditions. The realization of gains from our program of selective
sales of Company-operated restaurants to existing and new franchisees depends
upon various factors, including sales trends at Jack in the Box restaurants and
the financing market and economic conditions referred to above. The ongoing
success of our selective sale and leaseback of restaurant properties is subject
to changes in the economy, credit market, real estate market and the ability of
the Company to obtain acceptable prices and terms. Our results of operations can
also be adversely affected by changes in commodity prices or supply, increasing
utility, occupancy and insurance costs, interest rates, inflation, recession and
other factors over which the Company has no control, including the possibility
of increased pension expense and contributions resulting from continued declines
in interest rates and stock market returns. In January 2003, the Company
completed its acquisition of Qdoba Restaurant Corporation, a fast-casual
restaurant chain. The Company may not successfully integrate or fully realize
the potential benefits or synergies of this or other acquisition transactions.
Other factors that can cause actual results to differ materially from
expectations include the unpredictable nature of litigation, including
strategies and settlement costs; changes in accounting standards, policies and
practices; new legislation and governmental regulation; potential variances
between estimated and actual liabilities; and the possibility of unforeseen
events affecting the industry in general.
Our income tax provision is sensitive to expected earnings and, as
expectations change, our income tax provision may vary from quarter-to-quarter
and year-to-year. In addition, from time-to-time, we may take positions for
filing our tax returns which differ from the treatment for financial reporting
purposes. Our effective tax rate for fiscal 2003 is expected to be higher than
our fiscal 2002 rate.
This discussion of uncertainties is not exhaustive. Additional risk
factors associated with our business are detailed in our most recent Annual
Report on Form 10-K filed with the SEC. Jack in the Box Inc. assumes no
obligation and does not intend to update these forward-looking statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Our primary exposure relating to financial instruments is to changes in
interest rates. Our credit facility bears interest at an annual rate equal to
the prime rate or the LIBOR plus an applicable margin based on a financial
leverage ratio. As of January 19, 2003, our applicable margin was set at .625%.
A hypothetical 100 basis point increase in short-term interest rates, based on
the outstanding balance of our revolving credit facility at January 19, 2003,
would result in a reduction of $1.07 million in annual pretax earnings.
Changes in interest rates also impact our pension expense. 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 obligations
when due. A hypothetical 30 basis point reduction in the assumed discount rate
would result in an estimated increase of $1.2 million in our fiscal 2003 pension
expense.
We are also exposed to the impact of commodity price fluctuations
related to unpredictable factors such as weather and various other market
conditions outside our control. From time-to-time we enter into commodity
futures and option contracts to manage these fluctuations. Open commodity
futures and option contracts were not significant at January 19, 2003.
At January 19, 2003, we had no other material financial instruments
subject to significant market exposure.
ITEM 4. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures, as such term is defined under Rule 13a-14(c)
promulgated under the Securities Exchange Act of 1934, as amended, within the 90
days prior to the filing date of this report. Based on their evaluation, our
principal executive officer and principal financial officer concluded that our
disclosure controls and procedures were effective as of the date of the
evaluation.
14
(b) There have been no significant changes, including corrective
actions with regard to significant deficiencies or material weaknesses, in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referenced in paragraph (a)
above.
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
On April 18, 2001, an action was filed by Robert Bellmore and Jeffrey
Fairbairn, individually and on behalf of all others similarly situated, in the
Superior Court of the State of California, San Diego County, seeking class
action status in alleging violations of California wage and hour laws. The
Company settled the action in fiscal year 2002 for approximately $9.3 million
without admission of liability and the court approved the settlement on
February 10, 2003.
The Company is also 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 other pending legal proceedings, asserted legal
claims and known potential legal claims should not materially affect our
operating results and liquidity.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders in the first
quarter ended January 19, 2003. Our annual meeting of stockholders was held
February 14, 2003, at which the following matters were voted as indicated:
For Withheld Abstain
----- -------- --------
1. Election of the following directors
to serve until the next annual
meeting of stockholders and until
their successors are elected and
qualified.
Michael E. Alpert.................32,914,847 1,161,649 -
Jay W. Brown......................33,786,778 289,718 -
Edward W. Gibbons.................33,799,881 276,615 -
Anne B. Gust......................33,790,832 285,664 -
Alice B. Hayes, Ph.D..............33,032,526 1,043,970 -
Murray H. Hutchison...............33,676,688 399,808 -
Michael W. Murphy.................33,565,975 510,521 -
Robert J. Nugent..................33,847,523 228,973 -
L. Robert Payne...................33,685,367 391,129 -
For Against Abstain
----- -------- --------
2. Ratification of the appointment
of KPMG LLP as independent
accountants.......................33,388,659 665,301 22,536
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
ITEM 6 (a). Exhibits
--------
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation, as amended(9)
3.2 Restated Bylaws
4.1 Indenture for the 8 3/8% Senior Subordinated Notes due 2008(6)
(Instruments with respect to the registrant's long-term debt
not in excess of 10% of the total assets of the registrant and
its subsidiaries on a consolidated basis have been omitted. The
registrant agrees to furnish supplementally a copy of any such
instrument to the Commission upon request.)
4.2 Shareholder Rights Agreement(3)
4.3 Credit Agreement dated as of January 22, 2003 by and among
Jack in the Box Inc. and the lenders named therein (17)
10.1.1 Revolving Credit Agreement dated as of April 1, 1998 by and
between Foodmaker, Inc. and the Banks named therein(6)
10.1.2 First Amendment dated as of August 24, 1998 to the
Revolving Credit Agreement dated as of April 1, 1998 by
and between Foodmaker, Inc. and the Banks named therein(7)
10.1.3 Second Amendment dated as of February 27, 1999 to the
Revolving Credit Agreement dated as of April 1, 1998 by
and between Foodmaker, Inc. and the Banks named therein(8)
10.1.4 Third Amendment dated as of September 17, 1999 to the
Revolving Credit Agreement dated as of April 1, 1998 by
and between Foodmaker, Inc. and the Banks named therein(9)
10.1.5 Fourth Amendment dated as of December 6, 1999 to the Revolving
Credit Agreement dated as of April 1, 1998 by and between
Foodmaker, Inc. and the Banks named therein(10)
10.1.6 Fifth Amendment dated as of May 3, 2000 to the Revolving
Credit Agreement dated as of April 1, 1998 by and between
Jack in the Box Inc. and the Banks named therein(11)
10.1.7 Sixth Amendment dated as of November 17, 2000 to the Revolving
Credit Agreement dated as of April 1, 1998 by and between
Jack in the Box Inc. and the Banks named therein(12)
10.1.8 Seventh Amendment dated as of August 23, 2002 to the Revolving
Credit Agreement dated as of April 1, 1998 by and between
Jack in the Box Inc. and the Banks named therein(16)
10.1.9 Eighth Amendment dated as of September 27, 2002 to the
Revolving Credit Agreement dated as of April 1, 1998 by and
between Jack in the Box Inc. and the Banks named therein(16)
10.1.10 Waiver dated as of November 15, 2002 to the Revolving Credit
Agreement dated as of April 1, 1998 by and between
Jack in the Box Inc. and the Banks named therein(16)
10.2 Purchase Agreements dated as of January 22, 1987 between
Foodmaker, Inc. and FFCA/IIP 1985 Property Company and
FFCA/IIP 1986 Property Company(1)
10.3 Land Purchase Agreements dated as of February 18, 1987
by and between Foodmaker, Inc. and FFCA/IPI 1984
Property Company and FFCA/IPI 1985 Property Company
and Letter Agreement relating thereto(1)
10.4.1 Amended and Restated 1992 Employee Stock Incentive Plan(4)
10.4.2 Jack in the Box Inc. 2002 Stock Incentive Plan(15)
10.5 Capital Accumulation Plan for Executives(14)
10.5.1 First Amendment dated as of August 2, 2002 to the Capital
Accumulation Plan for Executives(16)
10.6 Supplemental Executive Retirement Plan(14)
10.6.1 First Amendment dated as of August 2, 2002 to the Supplemental
Executive Retirement Plan(16)
10.7 Performance Bonus Plan(13)
10.8 Deferred Compensation Plan for Non-Management Directors(2)
10.9 Amended and Restated Non-Employee Director Stock Option Plan(9)
10.10 Form of Compensation and Benefits Assurance Agreement for
Executives(5)
10.11 Form of Indemnification Agreement between
Jack in the Box Inc. and certain officers and
directors(16)
10.12 Consent Agreement(16)
10.14 Executive Deferred Compensation Plan
10.15 Form of Restricted Stock Award for certain executives
10.15(a) Schedule of Restricted Stock Awards
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
16
- ----------
(1) Previously filed and incorporated herein by reference from registrant's
Registration Statement on Form S-1 (No. 33-10763) filed
February 24, 1987.
(2) Previously filed and incorporated herein by reference from registrant's
Definitive Proxy Statement dated January 17, 1995 for the Annual
Meeting of Stockholders on February 17, 1995.
(3) Previously filed and incorporated by reference from registrant's
current report on Form 8-K dated July 26, 1996.
(4) Previously filed and incorporated herein by reference from registrant's
Registration Statement on Form S-8 (No. 333-26781) filed May 9, 1997.
(5) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 28,
1997.
(6) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended April 12, 1998.
(7) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 27,
1998.
(8) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended April 11, 1999.
(9) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended October 3, 1999.
(10) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended January 23, 2000.
(11) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended July 9, 2000.
(12) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended January 21, 2001.
(13) Previously filed and incorporated herein by reference from registrant's
Definitive Proxy Statement dated January 19, 2001 for the Annual
Meeting of Stockholders on February 23, 2001.
(14) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
2001.
(15) Previously filed and incorporated herein by reference from the
registrant's Definitive Proxy Statement dated January 18, 2002 for the
Annual Meeting of Stockholders' on February 22, 2002.
(16) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 29,
2002.
(17) Previously filed and incorporated by reference from registrant's
current report on Form 8-K dated January 22, 2003.
ITEM 6(b). Form 8-K.
--------
We did not file any reports on Form 8-K with the Securities and
Exchange Commission during the first quarter ended January 19, 2003.
17
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/ JOHN F. HOFFNER
-----------------------------------
John F. Hoffner
Executive Vice President,
and Chief Financial Officer
(Principal Financial Officer)
(Duly Authorized Signatory)
Date: March 4, 2003
18
CERTIFICATION
I, Robert J. Nugent, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of
Jack in the Box Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Quarterly Report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
c. presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
Quarterly Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /S/ ROBERT J. NUGENT
--------------------
Robert J. Nugent
Chief Executive Officer
and Chairman of the Board
Date: March 4, 2003
19
CERTIFICATION
I, John F. Hoffner, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of
Jack in the Box Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Quarterly Report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
Quarterly Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /S/ JOHN F. HOFFNER
-------------------
John F. Hoffner
Executive Vice President
and Chief Financial Officer
Date: March 4, 2003
20