Jack In The Box 2006 Annual Report Download - page 38

22
Interest expense, net was $12.1 million, $13.4 million, and $25.4 million in 2006, 2005 and 2004, respectively,
and includes interest income $7.5 million, $3.7 million and $1.9 million, respectively. The increase in interest
income reflects higher cash balances and increased interest rates on invested cash. In 2006, the increase in interest
income was partially offset by higher average interest rates incurred on the Company’ s credit facility compared with
2005. 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.
The income tax provisions reflect effective annual tax rates of 35.7%, 33.8% and 36.4% of earnings before
income taxes and cumulative effect of an accounting change in 2006, 2005 and 2004, 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.
Net earnings were $108.0 million or $3.01 per diluted share, in 2006; $91.5 million, or $2.48 per diluted share,
in 2005; and $74.7 million, or $2.02 per diluted share, in 2004. Each year includes the following after-tax items. In
2006, net earnings included a net benefit of approximately $8.9 million, or $.25 per diluted share, due primarily to
gains from the sale of the Company’ s 25 restaurants in Hawaii, stock option expense of $4.4 million, or $.12 per
diluted share, and a charge of $1.0 million, or $.03 per diluted share, for the cumulative effect of an accounting
change, net. In 2005, net earnings included a $2.0 million 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.
Liquidity and Capital Resources
General. Cash and cash equivalents increased $130.2 million to $233.9 million at October 1, 2006 from $103.7
million at the beginning of the fiscal year. This increase is primarily due to cash flows provided by operating
activities and proceeds from sales of restaurants to franchisees, assets held for sale and leaseback and the issuance of
common stock, which offset the Company’ s stock repurchase program and property and equipment expenditures.
We generally reinvest available cash flows from operations to develop new or enhance existing restaurants, to
repurchase shares of our common stock, as well as to reduce borrowings under the revolving credit agreement.
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.
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 $268.1 million term
loan maturing on January 8, 2011 with a rate of LIBOR plus 1.50%. The credit facility requires the payment of an
annual commitment fee of 0.375% of 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 also requires prepayments of the term loan based on an excess cash flow calculation as defined in the credit
agreement. At October 1, 2006, the excess cash flow calculation requires a payment of $29.1 million which has been
classified as current in the Company’ s consolidated balance sheet. The Company and certain of its subsidiaries
granted liens in substantially all personal property assets to secure our respective obligations under the credit
facility. The credit agreement may also require certain of the Company’ s real property assets to be pledged as
collateral in the event of a ratings downgrade as defined in the credit agreement. Additionally, certain of our real and
personal property secure other indebtedness of the Company. At October 1, 2006, 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.