Jack In The Box 2005 Annual Report Download - page 35

in 2004 versus 36-weeks in 2003, and additional costs for the 53rd week, partially offset by Profit Improvement Program
initiatives.
Interest expense was $17.1 million, $27.3 million, and $24.8 million in 2005, 2004, and 2003, respectively. In 2004,
interest expense included a charge of $9.2 million for the payment of a call premium and the write-off of deferred financing fees
resulting from the refinancing of the Company’ s term loan and the early redemption of its senior subordinated notes. In an effort
to manage its exposure to rising interest rates, in 2005 and 2004, the Company repriced its credit facility, thereby reducing the
applicable margin, and in 2005, converted $130 million of floating rate term loan debt to fixed rates for the next three years. In
2004, the increase in interest expense primarily relates to the refinancing of the Company’ s term loan and the early redemption of
its senior subordinated notes, which was partially offset by favorable interest rates from the refinancing and subsequent repricing
of the Company’ s credit facility in 2004.
The income tax provisions reflect effective annual tax rates of 33.8%, 36.4%, and 36.1% of pre-tax earnings in 2005,
2004, and 2003, respectively. The lower tax rate in 2005 relates primarily to the resolution of a prior year’ s tax position, the
retroactive reinstatement of the Work Opportunity Tax Credit and continued tax-planning strategies. In 2004, the favorable tax
rate resulted from additional tax credits obtained.
Net earnings were $91.5 million or $2.48 per diluted share, in 2005, $74.7 million, or $2.02 per diluted share, in 2004,
and $70.1 million, or $1.90 per diluted share, in 2003. Each year includes special items as described above. In 2005, net
earnings included a $2.0 million after-tax charge, or $.05 per diluted share, related to the cancellation of the Company’ s fast-
casual concept called JBX Grill offset by an income tax benefit in the amount of $2.1 million, or $.06 per diluted share, related to
the resolution of a prior year’ s tax position. In 2004, net earnings included an after-tax charge of $5.7 million, or $.15 per diluted
share, for costs related to refinancing the Company’ s credit facility and a benefit of approximately $1.1 million, or $.03 per
diluted share, for an extra week in the fiscal year. In 2003, net earnings included a $1.7 million charge, or $.05 per diluted share,
for lease obligations assumed in connection with the Chi-Chi’ s bankruptcy.
Liquidity and Capital Resources
General. Cash and cash equivalents decreased $28.0 million to $103.7 million at October 2, 2005 from $131.7 million
at the beginning of the fiscal year, primarily due to the Company’ s stock repurchase program and pension contributions, which
were partially offset by cash flows provided by operating activities and proceeds from sales of restaurants to franchisees and the
issuance of common stock. We generally reinvest available cash flows from operations to develop new or enhance existing
restaurants, to reduce borrowings under the revolving credit agreement, as well as to repurchase shares of our common stock.
Financial Condition. 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.
Credit Facility. Our credit facility is comprised of: (i) a $200 million revolving credit facility maturing on January 8,
2008 with a rate of London Interbank Offered Rate (“LIBOR”) plus 2.25% and (ii) a $271 million term loan maturing on January
8, 2011 with a rate of LIBOR plus 1.75%. The 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. The credit facility may also require prepayments of the term loan based on an
excess cash flow calculation as defined in the credit agreement. The Company and certain of its subsidiaries granted liens in
substantially all personal property assets and certain real property assets to secure our respective obligations under the credit
facility. Additionally, certain of our real and personal property secure other indebtedness of the Company. At October 2, 2005,
we had no borrowings under our revolving credit facility and had letters of credit outstanding against our credit facility of $0.3
million.
Effective October 6, 2005, the Company amended its credit agreement to achieve a 25 basis point reduction in the term
loan’ s applicable margin, to expand the categories of investments allowable under the credit agreement, and to provide for an
aggregate amount of $200 million for the acquisition of our common stock or the potential payment of cash dividends.
Letter of Credit Agreement. To reduce the Company’ s letter of credit fees incurred under the credit facility, the
Company entered into a separate cash-collateralized letter of credit agreement. At October 2, 2005, the Company had letters of
credit outstanding under this agreement of $40.6 million, which were collateralized by approximately $45.6 million of cash and
cash equivalents. Although the Company intends to continue this agreement, it has the ability to terminate the cash-collateralized
letter of credit agreement thereby eliminating restrictions on the $45.6 million restricted cash and cash equivalent balance.
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