UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 2, 2005
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) |
Registrant’s telephone number, including area code (858) 571-2121
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
Common Stock, $.01 par value
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Name of each exchange on which registered
New York Stock Exchange, Inc. |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer as defined in Rule
405 of the Securities Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act.
Yes o No þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act).
Yes þ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).
Yes
o No þ
The aggregate market value of the common stock held by non-affiliates of the registrant, computed
by reference to the closing price reported in the New York Stock Exchange — Composite Transactions
as of April 17, 2005, was approximately $997.4 million.
Number of shares of common stock, $.01 par value, outstanding as of the close of business December
5, 2005 — 35,634,073.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in
connection with the 2006 Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.
JACK IN THE BOX INC.
TABLE OF CONTENTS
2
PART I
ITEM 1. BUSINESS
The Company
Overview. Jack in the Box Inc. (the “Company”) owns, operates and franchises Jack
in the Box® quick-service hamburger
restaurants and Qdoba Mexican Grill® (“Qdoba”) fast-casual restaurants. In fiscal 2005,
we generated total revenues of $2.5 billion. As of the end of our fiscal year on October 2, 2005,
the Jack in the Box system included 2,049
restaurants, of which 1,534 were company-operated and 515 were franchise-operated. Jack
in the Box restaurants are located primarily in the
western and southern United States. Based on the number of units,
Jack in
the Box is the second or third largest quick-service hamburger
chain in most of its major markets. As of October 2, 2005, the Qdoba Mexican Grill system included
250 fast-casual restaurants in 37 states, of which 57 were company-operated and 193 were
franchise-operated.
Background.
The first Jack in the Box
restaurant, which offered only drive-thru service, opened in 1951. By 1968, the Jack
in the Box chain had expanded its operations to
approximately 300 restaurants. After the Company was purchased in 1968 by Ralston Purina Company,
a major expansion program was initiated in an effort to penetrate the eastern and midwestern
markets, and by 1979 business had grown to over 1,000 units. In 1979, the Company decided to
divest 232 restaurants in the east and midwest to concentrate its efforts and resources in the
western and southwestern markets, which were believed to offer the greatest growth and profit
potential at that time. In 1985, a group of private investors acquired the Company and, in 1987, a
public offering of common stock was completed. In 1988, the outstanding publicly-held shares were
acquired by private investors through a tender offer. In 1992, a recapitalization was completed
that included a public offering of common stock and indebtedness. Since that time, we have
continued to grow, primarily through the addition of new company-operated restaurants, and we
entered new markets in the Southeast beginning in 1999. In addition, to supplement our core growth
and balance the risk associated with growing solely in the highly competitive hamburger segment of
the quick-service restaurant (“QSR”) industry, on January 21, 2003, we acquired Qdoba Restaurant
Corporation, operator and franchisor of Qdoba Mexican Grill, expanding our growth opportunities
into the fast-casual restaurant segment.
Strategic Plan. Our goal is to become a national restaurant company by focusing on three key
strategic initiatives: profitably growing the business, reinventing the Jack in the Box
brand, and driving product innovation and building customer loyalty for all of our brands. Our
multifaceted growth strategy includes growing our restaurant base, increasing our franchising
activities, continuing to grow Qdoba and expanding our proprietary Quick
Stuff® convenience store concept. Reinvention of the Jack
in the Box brand encompasses upgrades to our menu, guest
service and restaurant facilities. Our third strategic initiative focuses on developing a pipeline
of relevant and differentiated products and continuing to build customer loyalty.
Strategic Plan — Growth Strategy. Our growth strategy is multifaceted and includes the
following components: (i) developing new company-operated restaurants; growing sales at existing
restaurants and expanding our unique convenience store concept, Quick Stuff, a
full-service convenience store on a site shared with a full-sized
Jack in
the Box restaurant and a branded fuel station; (ii) expanding our franchising
activities, and (iii) growing Qdoba, our fast-casual subsidiary.
| (i) |
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Company Restaurant Growth. We opened 38 new
Jack in
the Box company-operated restaurants in fiscal 2005, including 15
restaurants on a shared site with a Quick Stuff store and fuel station, and 12 new
Qdoba company-operated restaurants. We believe our convenience store concept provides a
strong unit economic model and allows for increased penetration of existing and new contiguous
markets by providing additional site development flexibility in unique locations where
development costs are shared among the restaurant, convenience store and fuel station. Fiscal
year 2005 restaurant growth was in existing markets, as we continue to see opportunities to
increase our market penetration, and intend to leverage media, supervision, and food delivery
costs. Our fiscal year 2006 growth strategy includes entering new contiguous markets which we
will be able to support with our existing operations and distribution infrastructure. |
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| (ii) |
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Franchise Restaurant Growth. To improve margins and returns on capital over
time, our business model includes increasing the use of franchising as we grow the Company.
We will continue expanding franchising activities, including the selective sale of certain
Jack in the Box company-operated restaurants to
franchisees. In fiscal 2005, we sold 58
Jack in the
Box restaurants to franchisees and franchisees developed 11 new Jack
in the Box and 65 new Qdoba restaurants. Through
continued sales and the development of new franchised restaurants, we intend to increase the
percentage of franchised restaurants in the system to approximately 35% in fiscal 2008 with
additional growth in franchising beyond 35% after fiscal 2008. |
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| (iii) |
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Expansion of Qdoba. We will continue to actively grow our fast-casual
subsidiary through aggressive franchise growth. With a substantial number of new stores in
its development pipeline and, in 2005, an 11.8% increase in sales at company-operated
restaurants open more than one year (“same-store sales”), Qdoba is well on its way to becoming
a national brand and a leader in the fastest-growing segment of the restaurant industry. |
3
Strategic Plan — Brand Reinvention. We believe that brand reinvention will clearly
differentiate us from our competition and make
Jack in the
Box a preferred brand by offering customers a better restaurant experience than typically
found in the QSR segment today. We intend to continue to use the learnings from our JBX Grill
test, which was cancelled in fiscal 2005, as a catalyst for developing innovative new menu items,
service initiatives and creative restaurant design elements for use across the more than 2,000
existing restaurants comprising our core Jack in the Box brand. Brand reinvention will
include changes to the following aspects of the restaurant experience:
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Menu Innovation. We believe that product innovation and our focus
on higher-quality products will further differentiate our menu
from competitors, strengthen our brand and appeal to a broader
consumer audience. In support of these initiatives, in fiscal
2005, we successfully introduced our new line of Ciabatta
sandwiches, including the Bruschetta Chicken Ciabatta and the
Bacon ‘n’ Cheese Ciabatta burger. Additional premium-quality
products are in various stages of test and development as we
continue to enhance product quality and innovation as a means to
differentiate our menu from other quick-service chains. |
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Improved Service. A second major aspect of brand reinvention
involves enhancements to the quality of our service. Fiscal year
2005 service initiatives included a more comprehensive program for
evaluating customer service directly from the guest’s perspective
and a new benefit plan for crew members which is expected to
contribute a higher and more consistent level of guest service by
improving retention and reducing training costs. Other recent
enhancements include the implementation of computer-based training
(“CBT”) in our restaurants, an English-as-a-second-language
program for our Spanish-speaking employees designed to improve
their English skills, and the rollout of our point-of-sale (“POS”)
system which permits credit card purchases, resulting in higher
check averages. Our POS system reduces transaction processing
times, while providing our customers with more convenient payment
alternatives. Also, we completed the rollout of “Jack Cash”,
reloadable stored-value cards, to company and franchised
restaurants. |
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Re-Imaged Restaurants. The third important element of brand
reinvention is the renovation of the restaurant facility. We are
testing unique and proprietary, interior and exterior, design
schemes that will more fully incorporate our fictional founder
“Jack”, into the restaurant experience. We believe it is
important to create a “destination dining” experience for guests
and remain consistent with our goals of upgrading the quality of
our food and guest service. We began testing the new interior and
exterior designs for the restaurants at several locations in
fiscal 2005, and plan on re-imaging 100-150 restaurants in fiscal
2006 at an average restaurant cost of approximately $100,000. |
Strategic Plan — Product Innovation and Customer Loyalty Strategy. Added in the current year,
this strategic initiative focuses on driving product innovation and building customer loyalty for
each of the Company’s brands.
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Product Innovation. Developing a new pipeline of relevant and
differentiated products that our guests crave is critical to drive
incremental traffic, increase the average check at Jack
in the Box and
Qdoba restaurants and improve customer loyalty. The extensive
resources available at our Innovation Center, from test kitchens
to consumer research facilities, continue to allow us to
efficiently develop new products and enhance our existing
products. |
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Customer Loyalty. Customer loyalty programs are also an important
part of our long-term strategic plan. We intend to continue to
develop and expand our loyalty programs currently in various
stages of implementation. In November 2004, we rolled out our
reloadable stored-value cards to company and franchised
restaurants. Our Jack cash card was the first such reloadable
gift card among major QSR chains. Qdoba also offers a similar
stored-value card, as well as a loyalty program that enables
guests to accumulate points with every purchase, ultimately
rewarding frequent users with free entrees. Our instant win
promotions including “Win Jack’s Stuff” and “Q up the Fun” may
also be used to build loyalty by rewarding customers with prizes
ranging from food prizes and music downloads to a motorcycle or
free airfare for a year and other vacation packages. |
4
Restaurant Concepts
Jack
in the Box. Jack in
the Box restaurants offer a broad selection of distinctive,
innovative products targeted primarily at the adult fast-food consumer. The Jack
in the Box menu features a variety of hamburgers,
salads, specialty sandwiches, tacos, drinks and side items. Hamburger products include our
signature Jumbo
Jack®, Sourdough
Jack® and Ultimate Cheeseburger. Jack
in the Box restaurants also offer premium entrée
salads and sandwiches, to appeal to a broader customer base, including more women and consumers
older than the traditional QSR target market of men 18-34 years old. Furthermore, Jack
in the Box restaurants offer value-priced products,
known as “Jack’s Value Menu,” to compete against price-oriented competitors and because value is
important to certain fast-food customers. In addition to offering high quality products,
Jack in the Box restaurants offer customers
the ability to customize their meals. Our customers may also elect to forgo the bun and sauce in
favor of a low-carb burger, or substitute ingredients to create a mix of flavors suited to their
personal tastes. In addition, our customers can order any product, including breakfast items,
anytime of the day. We believe that our distinctive menu has been instrumental in developing brand
loyalty and is appealing to customers with a broad range of food preferences. Furthermore, we believe
that, as a result of our diverse menu, our restaurants are less dependent than other quick-service
chains on the commercial success of one or a few products.
The Jack in the Box restaurant chain
was the first major hamburger chain to develop and expand the concept of drive-thru restaurants.
In addition to drive-thru windows, most of our restaurants have seating capacities ranging from 20
to 100 persons and are open 18-24 hours a day. Drive-thru sales currently account for nearly 70%
of sales at company-operated restaurants.
The following table summarizes the changes in the number of company-operated and franchised
Jack in the Box restaurants since the
beginning of fiscal 2001:
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Fiscal Year |
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2001 |
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2002 |
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2003 |
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2004 |
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2005 |
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Company-operated restaurants: |
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Opened |
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126 |
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100 |
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90 |
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56 |
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38 |
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Sold to franchisees |
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(13 |
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(22 |
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(36 |
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(49 |
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(58 |
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Closed |
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(2 |
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(3 |
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(8 |
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(2 |
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(5 |
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Acquired from franchisees |
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9 |
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1 |
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— |
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— |
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1 |
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End of period total |
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1,431 |
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1,507 |
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1,553 |
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1,558 |
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1,534 |
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Franchised restaurants: |
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Opened |
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4 |
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3 |
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3 |
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5 |
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11 |
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Acquired from Company |
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13 |
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22 |
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36 |
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49 |
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58 |
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Sold to Company |
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(9 |
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(1 |
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— |
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— |
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(1 |
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Closed |
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— |
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— |
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— |
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— |
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(1 |
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End of period total |
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331 |
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355 |
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394 |
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448 |
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515 |
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System end of period total |
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1,762 |
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1,862 |
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1,947 |
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2,006 |
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2,049 |
|
Qdoba. Qdoba restaurants offer a broad selection of fresh, high quality “Nouveau-Mexican”
food with unique bold tastes. The Qdoba menu fuses traditional Mexican flavors with
popular flavors from other cuisines and features a variety of signature burritos, the “Naked
Burrito” (a burrito served in a bowl without the tortilla), non-traditional taco salads, 3-cheese
nachos and five signature salsas. Qdoba’s broad menu allows it to satisfy multiple meal occasions,
both dine-in and take-out, for a wide variety of customers. Qdoba restaurants also offer a
Q-to-Go® Hot Taco Bar catering alternative, tailored to feeding 20-100, or more. The
Q-to-Go Hot Taco Bar comes with everything from serving utensils to grilled steak and chicken,
tortillas, three unique salsas, toppings and dessert. The seating capacity at Qdoba restaurants
ranges from 60 to 80 persons, including outdoor patio seating availability.
Restaurant Expansion and Site Selection and Design
Restaurant Expansion. Our long-term growth strategy includes continued restaurant expansion.
We opened 49 new Jack in the Box
company-operated and franchised restaurants in fiscal 2005. In fiscal 2006, we plan to open
45-55 new Jack in the Box restaurants, including
franchised units. Fiscal year 2006 restaurant growth will primarily be in existing markets,
however, we do plan to enter new contiguous markets using our Quick Stuff brand.
Of
the new Jack in the Box restaurants
forecasted in 2006, we plan to combine 13-15 with our branded convenience store concept, Quick
Stuff. By operating a full-service Quick Stuff store and a major branded fuel
station with a full size Jack in the Box restaurant on
one site, we are able to generate multiple revenue streams and
profits, and grow our Jack
in the Box brand using locations that would
otherwise be too costly for a typical stand-alone QSR restaurant. In fiscal 2006, our
convenience store concept will serve as a tool to enter new, contiguous markets, as we can benefit
from the combined revenues and shared development costs for three separate businesses while
securing the best possible locations in high traffic areas. In addition to providing site
development flexibility, our branded convenience store concept also provides us with a solid unit
economic model, while retaining operating characteristics similar to our core business. As of October 2,
2005, we owned and operated 44 Quick Stuff stores, and over the next five years, we expect
to grow this unique co-branded convenience store concept, in both existing and contiguous markets.
5
In fiscal year 2005, we opened 77 new Qdoba company-operated and franchised restaurants,
representing unit growth of more than 40% over the prior year. Qdoba’s growth is expected to come
primarily from increasing the number of franchise-developed locations. In fiscal 2006, we plan to
open 85-95 new Qdoba restaurants, including franchised units. We remain committed to growing our
fast-casual subsidiary and believe that Qdoba has significant expansion potential.
Site Selection and Design. Site selections for all new restaurants are made after an economic
analysis and a review of demographic data and other information relating to population density,
traffic, competition, restaurant visibility and access, available parking, surrounding businesses
and opportunities for market penetration. Restaurants developed by franchisees are built to our
specifications on sites which have been approved by us.
We have developed multiple restaurant prototypes to help reduce costs and improve our
flexibility in locating restaurants. Management believes that the flexibility provided by the
alternative configurations enables us to match the restaurant configuration with specific economic,
demographic, geographic and physical characteristics of a particular site. Typical development
costs for a traditional Jack in the Box and
Quick Stuff average $1.6 million and $3.0 million, respectively. Qdoba restaurant
development costs range from $0.4 million to $0.5 million. We use lease financing and other means
to lower our cash investment in a typical Jack in the
Box and Quick Stuff to approximately $0.8 million and $1.3 million, respectively.
Franchising Program
Jack in the Box. Our long-term growth strategy
also includes the selective expansion of our franchising operations. As of October 2, 2005,
franchisees operated 515 Jack in the Box
restaurants. We will continue to expand our franchising activities, including the sale of
Jack in the Box company-operated restaurants
to franchisees and the development of new restaurants by franchisees. By the end of fiscal 2008,
we expect to increase the percentage of franchised Jack in
the Box units to approximately 35% with continued expansion beyond 35% after
fiscal 2008. We offer development agreements for construction of one or more new restaurants over
a defined period of time and in a defined geographic area. Developers are required to pay a fee, a
portion of which may be credited against franchise fees due when restaurants open in the future.
Developers may forfeit such fees and lose their rights to future development if they do not
maintain the required schedule of openings.
The current Jack in the Box franchise
agreement provides for an initial franchise fee of $50,000 per restaurant, royalties of 5% of gross
sales, marketing fees of 5% of gross sales and, in most instances, a 20-year term. Some existing
agreements provide for royalties and marketing fees at rates as low as 4%. In connection with the
sale of a company-operated restaurant, the restaurant equipment and the right to do business at
that location are sold to the franchisee. The aggregate price is equal to the negotiated fair
market value of the restaurant as a going concern, which depends on various factors, including the
history of the restaurant, its location and its cash flow potential. In addition, the land and
building are leased or subleased to the franchisee at a negotiated rent, generally equal to the
greater of a minimum base rent or a percentage of gross sales. The franchisee is usually required
to pay property taxes, insurance and maintenance costs.
We view our non-franchised Jack in the Box
units as a potential resource which, on a selected basis, can be sold to a franchisee,
generating additional current cash flows and revenues while still generating future cash flows and
earnings through franchise rents and royalties.
Qdoba Mexican Grill. We plan to continue to grow the Qdoba brand, primarily through increased
franchising activities. We offer area development agreements for the construction of five to 20
new restaurants over a defined period of time and in a defined geographic area for a development
fee, a portion of which may be credited against franchise fees due for restaurants to be opened in
the future. If the developer does not maintain the required schedule of openings, they may forfeit
such fee and lose their rights to future development. The current franchise agreement provides for
an initial franchise fee of $25,000 per restaurant, royalties of 5% of gross sales, marketing fees
of up to 2% of gross sales and, in most instances, a 10-year term with a 10-year option to extend.
Restaurant Operations
Restaurant Management. Each restaurant is operated by a company-employed manager or a
franchisee who is directly responsible for the operations of the restaurant, including product
quality, service, food handling safety, cleanliness, inventory, cash control and the conduct and
appearance of employees. Our restaurant managers attend extensive management training classes
involving a combination of classroom instruction and on-the-job training in specially designated
training restaurants. Restaurant managers and supervisory personnel train other restaurant
employees in accordance with detailed procedures and guidelines using training aids available at
each location. To enhance the effectiveness of our training, in 2004 we introduced a new,
interactive system of computer-based training, which replaced videotapes with a
touch-screen computer terminal.
The CBT technology incorporates audio, video and text, all of which are updated on the
computer via satellite technology. CBT is also designed to reduce the administrative demands on
restaurant managers.
6
Regional vice presidents or regional directors supervise area coaches who supervise restaurant
managers. Under our performance system, regional vice presidents, regional directors, area coaches
and restaurant managers are eligible for periodic bonuses based on achievement of location profit,
profit improvement and/or certain other operational performance standards.
Customer Satisfaction. We devote significant resources toward ensuring that all restaurants
offer quality food and good service. Emphasis is placed on ensuring that ingredients are delivered
timely to the restaurants. Restaurant food production systems are continuously developed and
improved, and we train our employees to be dedicated to delivering consistently good service.
Through our network of distribution, quality assurance, facilities services and restaurant
management personnel, we standardize specifications for food preparation and service, employee
conduct and appearance, and the maintenance and repair of our premises. Operating specifications
and procedures are documented in on-line reference manuals and CBT presentations. During fiscal
year 2005, most Jack in the Box restaurants
received approximately four quality, food safety and cleanliness inspections. The “Voice of the
Customer” program was rolled out in fiscal year 2005 and provides restaurant managers with several
guest surveys each week regarding their Jack in the
Box experience.
Quality Assurance
Our “farm-to-fork” food safety and quality assurance program is designed to maintain high
standards for the food products and food preparation procedures used by company-operated and
franchised restaurants. We maintain product specifications and approve product sources. We have a
comprehensive, restaurant-based Hazard Analysis & Critical Control Points (“HACCP”) system for
managing food safety and quality. HACCP combines employee training, testing by suppliers, and
detailed attention to product quality at every stage of the food preparation cycle. Our HACCP
program has been recognized as a leader in the industry by the USDA, FDA and the Center for Science
in the Public Interest. For example, in 2004, we won the Black Pearl Award, presented annually by
the International Association of Food Protection to the company that most successfully advances
food safety and quality in the world.
In
addition, our HACCP system uses ServSafe®, a
nationally recognized food-safety training and certification program administered in partnership
with the National Restaurant Association. All restaurant managers and grill employees receive
special grill certification training and are certified annually.
Purchasing and Distribution
We provide purchasing, warehouse and distribution services for all Jack
in the Box company-operated and nearly 64% of our
franchise-operated restaurants. The remaining Jack in the
Box franchisees participate in a purchasing cooperative they formed in 1996 and
contract with another supplier for distribution services. As of October 2, 2005, we also provided
these services to approximately 45% of Qdoba’s company and franchise-operated restaurants. The
remaining Qdoba restaurants purchase product from approved suppliers and distributors. Some
products, primarily dairy and bakery items are delivered directly by approved suppliers to both
company-operated and franchised restaurants.
Regardless of whether we provide distribution services to a restaurant or not, we require that
all suppliers meet our strict HACCP program standards previously discussed. The primary
commodities purchased by the restaurants are beef, poultry, pork, cheese and produce. We
monitor the primary commodities we purchase in order to minimize the impact of fluctuations in
price and availability, and make advance purchases of commodities when considered to be
advantageous. However, certain commodities still remain subject to price fluctuations. All
essential food and beverage products are available, or can be made available, upon short notice
from alternative qualified suppliers.
Information Systems
We have centralized financial and accounting systems for company-operated restaurants, which
we believe are important in analyzing and improving profit margins and accumulating marketing
information for analysis. Our restaurant satellite-enabled software allows for daily, weekly and
monthly polling of sales, inventory and labor data from the restaurants. Jack in the Box
restaurants use a standardized windows based touch screen POS platform among all company and
franchised restaurants, which allows us to accept credit cards and Jack’s Cash re-loadable gift
cards. We have also developed several systems to assist restaurant managers in overseeing the
daily operations of their restaurants. We use an interactive computer-based training system in our
Jack in the Box restaurants as the standard training tool for new hire training and periodic
workstation re-certifications, and have a labor scheduling system to assist in managing labor hours
based on forecasted sales volumes. We also have a highly reliable inventory management system,
which provides consistent deliveries to our restaurants with excellent control over food safety,
and, to support order accuracy and speed of service, our drive-thru restaurants use order
confirmation screens. We are currently in the process of updating our order confirmation screens
with new larger, color screens. Qdoba restaurants use POS software with touch screens, accept
debit and credit cards at all company-owned locations and use back-of-the-restaurant software to
control purchasing, inventory, food and labor costs. These software products have been customized
to meet Qdoba’s operating standards.
7
Advertising and Promotion
The Company builds brand awareness through its marketing and advertising programs and
activities. These activities are supported primarily by contractual contributions from all company
and franchised restaurants based on a percentage of sales. We use regional and local campaigns on
television, national cable television, radio and print media, as well as Internet advertising on
specific sites and broad-reach Web portals, to advertise restaurant products, promote brand
awareness and attract customers.
Employees
At
October 2, 2005, we had approximately 44,600 employees, of whom 42,700 were restaurant
employees, 800 were corporate personnel, 500 were distribution employees and 600 were field
management and administrative personnel. Employees are paid on an hourly basis, except most
restaurant managers, operations and corporate management, and certain administrative personnel. A
majority of our restaurant employees are employed on a part-time, hourly basis to provide the
flexibility necessary during peak periods of restaurant operations.
Our vision is to build an organization of people who are passionate about creating a superior
restaurant experience for our guests by engaging our employees
through providing them with great internal
service. We have not experienced any significant work stoppages and believe
our labor relations are good. In fact, over the last few years we have realized improvements in
our hourly restaurant employee retention rate and in 2005 we received the first annual Spirit
Award, an honor awarded by Nation’s Restaurant News and the National Restaurant Association
Educational Foundation to the restaurant companies with the most innovative workforce programs for
enhancing employee satisfaction. We support our employees, including part-time workers, by
offering competitive wages, competitive benefits, including a pension plan and medical insurance
for all of our employees meeting certain requirements, and discounts on dining. Furthermore, in
September 2004, Jack in the Box began offering all
hourly employees access to health coverage, including vision and dental benefits. As an additional
incentive to crew members with more than a year of service, the Company will pay a portion of their
premiums. Late in fiscal 2005, we also introduced a program called “Sed de Saber” (Thirst for
Knowledge), an electronic home study program to assist Spanish-speaking restaurant employees in
improving their English skills. We expect these programs will further reduce turnover, as well as
training costs and workers’ compensation claims. We also attempt to motivate and retain our
employees by providing them with opportunities for increased responsibilities and advancement, as
well as performance-based cash incentives tied to sales, profitability and certain qualitative
measures.
Executive Officers
The following table sets forth the name, age (as of December 31, 2005) and position of each
person who is an executive officer of Jack in the Box Inc.:
| |
|
|
|
|
|
|
| Name |
|
Age |
|
Positions |
Linda A. Lang
|
|
|
47 |
|
|
Chairman of the Board and Chief Executive Officer |
Paul L. Schultz
|
|
|
51 |
|
|
President and Chief Operating Officer |
Jerry P. Rebel
|
|
|
48 |
|
|
Executive Vice President and Chief Financial Officer |
Lawrence E. Schauf
|
|
|
60 |
|
|
Executive Vice President and Secretary |
Carlo E. Cetti
|
|
|
61 |
|
|
Senior Vice President, Human Resources and Strategic Planning |
David M. Theno, Ph.D.
|
|
|
55 |
|
|
Senior Vice President, Quality and Logistics |
Pamela S. Boyd
|
|
|
50 |
|
|
Vice President, Financial Planning and Analysis |
Stephanie E. Cline
|
|
|
60 |
|
|
Vice President, Chief Information Officer |
Terri F. Graham
|
|
|
40 |
|
|
Vice President, Chief Marketing Officer |
Paul D. Melancon
|
|
|
49 |
|
|
Vice President, Controller |
Harold L. Sachs
|
|
|
60 |
|
|
Vice President, Treasurer |
Gary J. Beisler
|
|
|
49 |
|
|
Chief Executive Officer and President, Qdoba Restaurant Corporation |
Ms. Lang assumed the positions of Chairman of the Board and Chief Executive Officer effective
October 3, 2005 from Robert Nugent upon his retirement from the Company. She was President and Chief
Operating Officer from November 2003 to October 2005, Executive Vice President from July 2002 to
November 2003, Senior Vice President, Marketing from May 2001 to July 2002, Vice President and
Regional Vice President, Southern California Region from April 2000 to May 2001, Vice President,
Marketing from March 1999 to April 2000 and Vice President, Products, Promotions and Consumer
Research from February 1996 until March 1999. Ms. Lang has 18 years of experience with the Company
in various marketing, finance and operations positions.
8
Mr. Schultz was promoted to President and Chief Operating Officer effective October 3, 2005.
He was Executive Vice President, Operations and Franchising from November 2004 to October 2005,
Senior Vice President, Operations and Franchising from August 1999 to November 2004, and was Vice
President from May 1988 to August 1999. Mr. Schultz has 32 years of experience with the Company in
various operations positions.
Mr. Rebel was promoted to Executive Vice President and Chief Financial Officer on October 3,
2005. He was Senior Vice President and Chief Financial Officer from January 2005 to October 2005
and Vice President, Controller from September 2003 to January 2005. Prior to joining the Company
he was Vice President, Controller of Fleming Companies Inc. from February 2002 to September 2003.
From January 1991 to February 2002, he held various accounting and finance positions with CVS
Corporation, including Executive Vice President and Chief Financial Officer of the ProCare division
from September 2000 to February 2002, and Vice President Finance from July 1995 to September 2000.
Mr. Schauf has been Executive Vice President and Secretary since August 1996. Prior to
joining the Company he was Senior Vice President, General Counsel and Secretary of Wendy’s
International, Inc. from February 1991 to August 1996.
Mr. Cetti has been Senior Vice President, Human Resources and Strategic Planning since July
2002. From October 1995 to July 2002, he was Vice President, Human Resources and Strategic
Planning. Mr. Cetti has 25 years of experience with the Company in various human resources and
training positions.
Dr. Theno has been Senior Vice President, Quality and Logistics since May 2001. He was Vice
President, Technical Services from April 1994 to May 2001. Dr. Theno has 13 years of experience
with the Company in various quality assurance and product safety positions.
Ms. Boyd has been a Vice President of the Company since November 2001. She was Division Vice
President, Planning and Analysis from October 1997 to November 2001 and Director, Planning and
Analysis from November 1992 to October 1997. Ms. Boyd has 18 years of experience with the Company
in various finance positions.
Ms. Cline has been a Vice President of the Company since August 2000 and Chief Information
Officer since May 2000. She was Division Vice President of Systems Development from August 1993 to
May 2000. Ms. Cline has 28 years of experience with the Company in various management information
systems positions.
Ms. Graham has been a Vice President of the Company since July 2002. She was Division Vice
President, Marketing Services and Regional Marketing from April 2000 to July 2002, and Director of
Marketing Services from October 1998 to July 2002. Ms. Graham has 15 years of experience with the
Company in various marketing positions.
Mr. Melancon has been a Vice President of the Company since July 2005. Prior to joining the
Company, he was Vice President and Corporate Controller of Guess?, Inc. from March 2002 to July
2005. From August 1998 to June 2001 he held various accounting and finance positions with Sony
Development Co., a subsidiary of Sony Corporation of America including Vice President and Chief
Financial Officer from August 1998 to January 2000 and Senior Vice President and Chief Financial
Officer from January 2000 to June 2001. He held various accounting
and finance positions with Sears, Roebuck and Co. from July 1989
to August 1998.
Mr. Sachs has been Vice President, Treasurer since November 1999. He was Treasurer from
January 1986 to November 1999. Mr. Sachs has 27 years of experience with the Company in various
finance positions.
Mr. Beisler has been Chief Executive Officer of Qdoba Restaurant Corporation since November
2000 and President since January 1999. He was Chief Operating Officer from April 1998 to December
1998.
Trademarks and Service Marks
The Jack in the Box, Quick Stuff, JBX Grill
and Qdoba Mexican Grill names are of material importance to us and each is a registered
trademark and service mark in the United States. In addition, we have registered numerous service
marks and trade names for use in our businesses, including the Jack in
the Box logo, the Qdoba logo and various product names and designs.
Seasonality
Our restaurant sales and profitability are subject to seasonal fluctuations and are
traditionally higher during the spring and summer months because of factors such as increased
travel and improved weather conditions, which affect the public’s dining habits.
9
Competition and Markets
The restaurant business is highly competitive and is affected by the competitive changes in a
geographic area, changes in the public’s eating habits and preferences, local and national economic
conditions affecting consumer spending habits, population trends and traffic patterns. Key
elements of competition in the industry are the quality and value of the food products offered,
price, quality and speed of service, advertising, name identification, restaurant location and
attractiveness of facilities.
Each Jack in the Box and Qdoba
restaurant competes directly and indirectly with a large number of national and regional
restaurant chains, as well as with locally owned quick-service restaurants and the fast casual
segment. In selling franchises, we compete with many other restaurant franchisers, some of whom
have substantially greater financial resources and higher total sales volume.
Regulation
Each restaurant is subject to regulation by federal agencies, as well as licensing and
regulation by state and local health, sanitation, safety, fire and other departments. Difficulties
or failures in obtaining any required licensing or approval could result in delays or cancellations
in the opening of new restaurants.
We are also subject to federal and state laws regulating the offer and sale of franchises.
Such laws impose registration and disclosure requirements on franchisors in the offer and sale of
franchises and may also apply substantive standards to the relationship between franchisor and
franchisee, including limitations on the ability of franchisers to terminate franchisees and alter
franchise arrangements. We believe we are operating in compliance with applicable laws and
regulations governing our operations.
We are subject to the Fair Labor Standards Act and various state laws governing such matters
as minimum wages, exempt status classification, overtime and other working conditions. A
significant number of our food service personnel are paid at rates related to the federal and state
minimum wage, and, accordingly, increases in the minimum wage increase our labor costs. Federal
and state laws may also require us to provide paid and unpaid leave to our employees, which could
result in significant additional expense to us.
We are subject to certain guidelines under the Americans with Disabilities Act of 1990 (“ADA”)
and various state codes and regulations, which require restaurants to provide full and equal access
to persons with physical disabilities. To comply with such laws and regulations, the cost of
remodeling and developing restaurants has increased, principally due to the need to provide certain
older restaurants with ramps, wider doors, larger restrooms and other conveniences.
We are also subject to various federal, state and local laws regulating the discharge of
materials into the environment. The cost of developing restaurants has increased to comply with
these laws. Additional costs relate primarily to the necessity of obtaining more land, landscaping
and below surface storm drainage and the cost of more expensive equipment necessary to decrease the
amount of effluent emitted into the air and ground.
Our Quick Stuff convenience stores sell alcoholic beverages which require licensing.
The regulations governing licensing may impose requirements on licensees including minimum age of
employees, hours of operation, advertising and handling of alcoholic beverages. The failure of a
Quick Stuff convenience store to obtain or retain a license could adversely affect the
store’s results of operations. We believe we are operating in compliance with applicable laws and
regulations governing alcoholic beverages.
Company Website
The Company’s primary website can be found at www.jackinthebox.com. The Company makes
available free of charge at this website (under the caption
“Investors – SEC Filings – SEC Filings by Jack
in the Box Inc.”) all of its reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, including its Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q and its Current Reports on Form 8-K and amendments to those reports. These
reports are made available on the website as soon as reasonably practicable after their filing
with, or furnishing to, the Securities and Exchange Commission. Furthermore, we also make
available on our website, and in print to any shareholder who requests it, the Company’s Corporate
Governance Guidelines, the Committee Charters for Audit, Compensation, and Nominating and
Governance Committees, as well as the Code of Ethics that applies to all directors, officers and
employees of the Company. Amendments to these documents or waivers related to the Code of Ethics
will be made available on the Company’s website as soon as reasonably practicable after their
execution.
10
Forward-Looking Statements
From time-to-time the Company makes oral and written statements that reflect the Company’s
current expectations regarding future results of operations, economic performance, financial
condition and achievements of the Company. We try, whenever possible, to identify these
forward-looking statements by using words such as “anticipate,” “assume,” “believe,” “estimate,”
“expect,” “intend,” “plan,” “project,” “may,” “will,” “would,” and similar expressions. Certain
forward-looking statements are included in this Form 10-K, principally in the sections captioned
“Business,” “Legal Proceedings,” the “Consolidated Financial Statements” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” including statements
regarding our strategic plans and operating strategies. Although we believe that the expectations
reflected in our forward-looking statements are based on reasonable assumptions, such expectations
may prove to be materially incorrect due to known and unknown risks and uncertainties.
In some cases, information regarding certain important factors that could cause actual results
to differ materially from any forward-looking statement appears together with such statement. In
addition, the factors described under Critical Accounting Policies and Risk Factors,
as well as other possible factors not listed, could cause actual results to differ materially from
those expressed in forward-looking statements; weather conditions and related events such as floods
that may adversely affect the level of customer traffic, damage our restaurants or otherwise
disrupt operations; changes in accounting standards policies and practices or related
interpretations by auditors or regulatory entities; assumptions relating to pension costs,
including the possibility of increased pension expense and contributions; the practical or
psychological effects of terrorist acts or government responses; the on-going conflict in Iraq; war
or the risk of war; the costs and other effects of legal claims by employees, franchisees,
customers, vendors, stockholders and others, including settlement of those claims; and the
effectiveness of management strategies and decisions.
ITEM 1A. RISK FACTORS
Risks Related to the Food Service Industry. Food service businesses may be affected by changes
in consumer tastes, national, regional and local economic and political conditions, demographic
trends, and the impact on consumer eating habits of new information regarding diet, nutrition and
health. The performance of individual restaurants may be adversely affected by factors such as
traffic patterns, demographics and the type, number and location of competing restaurants.
Multi-unit food service businesses such as ours can also be materially and adversely affected
by widespread negative publicity of any type, but particularly regarding food quality, illness,
obesity, injury or other health concerns with respect to certain foods. To minimize the risk of
food-borne illness, we have implemented a HACCP system for managing food safety and quality.
Nevertheless, the risk of food-borne illness cannot be completely eliminated. Any outbreak of such
illness attributed to our restaurants or within the food service industry or any widespread
negative publicity regarding our brands or the restaurant industry in general could have a material
adverse effect on our financial condition and results of operations.
Dependence on frequent deliveries of fresh produce and groceries subjects food service
businesses, such as ours, to the risk that shortages or interruptions in supply, caused by adverse
weather or other conditions, could adversely affect the availability, quality and cost of
ingredients. In addition, unfavorable trends or developments concerning factors such as inflation,
increased cost of food, labor, fuel, utilities, technology, insurance and employee benefits
(including increases in hourly wage, and workers’ compensation and other insurance premiums),
increases in the number and locations of competing restaurants, regional weather conditions and the
availability of experienced management and hourly employees, may also adversely affect the food
service industry in general. Because our restaurants are predominantly company-operated, we may
have greater exposure to operating cost issues than chains that are primarily franchised. Changes
in economic conditions affecting our customers could reduce traffic in some or all of our
restaurants or impose practical limits on pricing, either of which could have a material adverse
effect on our financial condition and results of operations. Our continued success will depend in
part on our ability to anticipate, identify and respond to changing conditions.
Risks Associated with Development. We intend to grow primarily by developing additional
company-owned restaurants and through new restaurants to be developed by franchisees. Development
involves substantial risks, including the risk of (i) the availability of financing for the Company
and to franchisees at acceptable rates and terms, (ii) development costs exceeding budgeted or
contracted amounts, (iii) delays in completion of construction, (iv) the inability to identify, or
the unavailability of suitable sites, both traditional and nontraditional, on acceptable leasing or
purchase terms, (v) developed properties not achieving desired revenue or cash flow levels once
opened, (vi) competition for suitable development sites; (vii) incurring substantial unrecoverable
costs in the event a development project is abandoned prior to completion, (viii) the inability to
obtain all required governmental permits, including, in appropriate cases, liquor licenses; (ix)
changes in governmental rules, regulations, and interpretations (including interpretations of the
requirements of the American with Disabilities Act, (ADA) and (x) general economic and business
conditions.
Although we intend to manage our development to reduce such risks, we cannot assure you that
present or future development will perform in accordance with our expectations. We cannot assure
you that we will complete the development and construction of the facilities, or that any such
development will be completed in a timely manner or within budget, or that any restaurants will
generate our expected returns on investment. Our inability to expand in accordance with our plans
or to manage our growth could have a material adverse effect on our results of operations and
financial condition.
11
Risks Associated with Growth. Our plans to increase our franchising activities, and accelerate
development of Qdoba and our convenience store/gas station/restaurant co-brand will require the
implementation of enhanced operational and financial systems and will require additional
management, operational, and financial resources. For example, we will be required to recruit
franchise sales and administrative personnel; and to recruit and train managers and other personnel
for each new company-owned restaurant, as well as additional development and accounting personnel.
We cannot assure you that we will be able to manage our expanding operations effectively to
continue to recognize value from franchising and co-branding. The failure to implement such
systems and add such resources on a cost-effective basis could have a material adverse effect on
our results of operations and financial condition.
Reliance on Certain Geographic Markets. Because our business is regional, with nearly 65% of
our restaurants located in the states of California and Texas, the economic conditions, state and
local government regulations and weather conditions affecting those states may have a material
impact upon our results.
Risks Related to Entering New Markets. We cannot assure you that we will be able to
successfully expand or acquire critical market presence for our brands in new geographical markets,
as we may encounter well-established competitors with substantially greater financial resources. We
may be unable to find attractive locations, acquire name recognition, successfully market our
products and attract new customers. Competitive circumstances and consumer characteristics in new
market segments and new geographical markets may differ substantially from those in the market
segments and geographical markets in which we have substantial experience. We cannot assure you
that we will be able to profitably operate new company-operated or franchised restaurants in new
geographical markets. Management decisions to curtail or cease investment in certain locations or
markets may result in impairment charges.
Competition. The restaurant industry is highly competitive with respect to price, service,
location, personnel and the type and quality of food, and there are many well-established
competitors. Each of our restaurants competes directly and indirectly with a large number of
national and regional restaurant chains, as well as with locally-owned quick-service restaurants,
fast-casual restaurants, sandwich shops and similar types of businesses. The trend toward
convergence in grocery, deli and restaurant services may increase the number of our competitors.
Such increased competition could have a material adverse effect on our financial condition and
results of operations. Some of our competitors have substantially greater financial, marketing,
operating and other resources than we have, which may give them a competitive advantage. Certain of
our competitors have introduced a variety of new products and engaged in substantial price
discounting in recent years and may continue to do so in the future. We plan to take various steps
in connection with our “brand re-invention” strategy, including introducing new, higher quality
products, discontinuing certain menu items, testing new service and training initiatives, and
making improvements to facility image at our restaurants. However, there can be no assurance of the
success of our new products, initiatives or our overall strategies or that competitive product
offerings, pricing and promotions will not have an adverse effect upon our results of operations
and financial condition.
Risks Related to Increased Labor Costs. We have a substantial number of employees who are paid
wage rates at or slightly above the minimum wage. As federal and state minimum wage rates increase,
we may need to increase not only the wages of our minimum wage employees but also the wages paid to
the employees at wage rates which are above minimum wage. If competitive pressures or other factors
prevent us from offsetting the increased costs by increases in prices, our profitability may
decline. In addition, various proposals that would require employers to provide health insurance
for all of their employees are being considered from time-to-time in Congress and various states.
We offer access to healthcare benefits to our restaurant crew members. If our crew members do not
find the opportunity to obtain this insurance attractive, we may not see the reductions in
turnover, training costs and workers’ compensation claims that we expect. The imposition of any
requirement that we provide health insurance to all employees on terms materially different from
our existing programs would have a material adverse impact on the results of operations and
financial condition of the Company.
Risks Related to Advertising. Some of our competitors have greater financial resources which
enable them to purchase significantly more television and radio advertising than we are able to
purchase. Should our competitors increase spending on advertising and promotion, should the cost of
television or radio advertising increase, or our advertising funds decrease for any reason,
including implementation of reduced spending strategies, or should our advertising and promotion be
less effective than our competitors’, there could be a material adverse effect on our results of
operations and financial condition.
Taxes. Our income tax provision is sensitive to expected earnings and, as expectations change,
our income tax provisions 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. The ultimate outcome of such positions could have an adverse impact
on our effective tax rate. Our effective tax rate for fiscal 2006 is expected to be higher than our
fiscal 2005 rate.
Risks Related to Franchise Operations. At October 2, 2005, approximately 25% of the Jack in
the Box restaurants were franchised. Our plan is to increase the percentage of franchised
restaurants. Our ability to sell franchises and to realize gains from such sales is uncertain. The
opening and success of franchised restaurants depends on various factors, including the demand for
our franchises and the selection of appropriate franchisee candidates, the availability of suitable
sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and
regulatory compliance, the ability to meet construction schedules, the availability of financing,
and the financial and other capabilities of our franchisees and developers. We cannot assure you
that developers planning the opening of franchised restaurants will have the business abilities or
sufficient access to
12
financial resources necessary to open the restaurants required by their agreements. We cannot
assure you that franchisees will successfully participate in our strategic initiatives or operate
their restaurants in a manner consistent with our concept and standards. In addition, certain
federal and state laws govern our relationships with our franchisees. See “Risks Related to
Government Regulations” below.
Risks Related to Government Regulations. See “Business — Regulation”. The restaurant industry
is subject to extensive federal, state and local governmental regulations, including those relating
to the preparation and sale of food and those relating to building and zoning requirements. We and
our franchisees are also subject to licensing and regulation by state and local departments
relating to health, sanitation and safety standards, and liquor licenses and to laws governing our
relationships with employees, including minimum wage requirements, overtime, working conditions and
citizenship requirements. See “Risks Related to Increased Labor Costs” above. The inability to
obtain or maintain such licenses or publicity resulting from actual or alleged violations of such
laws could have an adverse effect on our results of operations. We are also subject to federal
regulation and certain state laws, which govern the offer and sale of franchises. Many state
franchise laws impose substantive requirements on franchise agreements, including limitations on
noncompetition provisions and on provisions concerning the termination or nonrenewal of a
franchise. Some states require that certain materials be registered before franchises can be
offered or sold in that state. The failure to obtain or retain licenses or approvals to sell
franchises could adversely affect us and our franchisees. Changes in, and the cost of compliance
with, government regulations could have a material adverse effect on our operations.
Risks Related to the Failure of Internal Controls. The Company maintains a documented system
of internal controls which is reviewed and monitored by an Internal Controls Committee and tested
by the Company’s full time Internal Audit Department. The Internal Audit Department reports to the
Audit Committee of the Board of Directors. The Company believes it has a well-designed system to
maintain adequate internal controls on the business. However, there can be no assurance that there
won’t be any control deficiencies in the future. Should we become aware of any significant control
deficiencies, the Internal Controls Committee would recommend prompt remediation and report them to
the Audit Committee. We have devoted significant resources to document, test, monitor and improve
our internal controls and will continue to do so; however, we cannot be certain that these measures
will ensure that our controls are adequate in the future or that adequate controls will be
effective in preventing fraud. If we fail to maintain an effective system of internal controls, we
may not be able to accurately report our financial results or prevent fraud. Any failures in the
effectiveness of our internal controls could have a material adverse effect on our operating
results or cause us to fail to meet reporting obligations.
Environmental Risks and Regulations. As is the case with any owner or operator of real
property, we are subject to a variety of federal, state and local governmental regulations relating
to the use, storage, discharge, emission and disposal of hazardous materials. Failure to comply
with environmental laws could result in the imposition of severe penalties or restrictions on
operations by governmental agencies or courts of law, which could adversely affect operations. We
do not have environmental liability insurance; nor do we maintain a reserve to cover such events.
We have engaged and may engage in real estate development projects and own or lease several parcels
of real estate on which our restaurants are located. We are unaware of any significant hazards on
properties we own or have owned, or operate or have operated, the remediation of which would result
in material liability for the Company. In the event of the determination of contamination on such
properties, the Company, as owner or operator, could be held liable for severe penalties and costs
of remediation. We also operate motor vehicles and warehouses and handle various petroleum
substances and hazardous substances, and are not aware of any current material liability related
thereto.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
13
ITEM 2. PROPERTIES
Of our 2,049 Jack in the Box and 250 Qdoba restaurants, we owned
776 restaurant buildings, including 560 located on leased land. In addition, we leased both the
land and building for 1,240 restaurants, including 258 restaurants operated by franchisees. At
October 2, 2005, franchisees directly owned or leased 283 restaurants.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of restaurants at October 2, 2005 |
| |
|
Company- |
|
|
|
|
| |
|
operated |
|
Franchised |
|
Total |
| |
Company-owned restaurant buildings: |
|
|
|
|
|
|
|
|
|
|
|
|
On Company-owned land |
|
|
154 |
|
|
|
62 |
|
|
|
216 |
|
On leased land |
|
|
455 |
|
|
|
105 |
|
|
|
560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
609 |
|
|
|
167 |
|
|
|
776 |
|
Company-leased restaurant buildings on leased land |
|
|
982 |
|
|
|
258 |
|
|
|
1,240 |
|
Franchise directly-owned or directly-leased
restaurant buildings |
|
|
— |
|
|
|
283 |
|
|
|
283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restaurant buildings |
|
|
1,591 |
|
|
|
708 |
|
|
|
2,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our leases generally provide for fixed rental payments (with cost-of-living index adjustments)
plus real estate taxes, insurance and other expenses. In addition, many of the leases provide for
contingent rental payments of between 2% and 10% of the restaurant’s gross sales once certain
thresholds are met. We have generally been able to renew our restaurant leases as they expire at
then-current market rates. The remaining terms of ground leases range from approximately one year
to 49 years, including optional renewal periods. The remaining lease terms of our other leases
range from approximately one-year to 42 years, including optional renewal periods. At October 2,
2005, our leases had initial terms expiring as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Number of restaurants |
| |
|
Ground |
|
Land and |
| |
|
leases |
|
building leases |
| |
2006 - 2010 |
|
|
29 |
|
|
|
56 |
|
2011 - 2015 |
|
|
189 |
|
|
|
365 |
|
2016 - 2020 |
|
|
56 |
|
|
|
243 |
|
2021 and later |
|
|
286 |
|
|
|
576 |
|
Our principal executive offices are located in San Diego, California in an owned facility of
approximately 150,000 square feet. We also own our 70,000 square foot Innovation Center and
approximately 4 acres of undeveloped land directly next to it. Qdoba’s corporate support center is
located in a leased facility in Wheat Ridge, Colorado. We also own one distribution center and
lease six centers, with remaining terms ranging from one to 19 years, including optional renewal
periods.
Certain of our real and personal property are pledged as collateral for various components of
our long-term debt.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth fiscal quarter ended
October 2, 2005.
14
PART II
|
|
|
| ITEM 5. |
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES |
Market Information. The following table sets forth the high and low closing sales prices for
our common stock during the fiscal quarters indicated, as reported on the New York Stock Exchange -
Composite Transactions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
16 weeks ended |
|
12 weeks ended |
| |
|
Jan. 23, 2005 |
|
Apr. 17, 2005 |
|
July 10, 2005 |
|
Oct. 2, 2005 |
| |
High |
|
$ |
38.84 |
|
|
$ |
38.28 |
|
|
$ |
41.58 |
|
|
$ |
38.52 |
|
Low |
|
|
32.00 |
|
|
|
32.96 |
|
|
|
35.07 |
|
|
|
27.70 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
16 weeks ended |
|
12 weeks ended |
|
13 weeks ended |
| |
|
Jan. 18, 2004 |
|
Apr. 11, 2004 |
|
July 4, 2004 |
|
Oct. 3, 2004 |
| |
High |
|
$ |
23.15 |
|
|
$ |
28.87 |
|
|
$ |
30.00 |
|
|
$ |
32.31 |
|
Low |
|
|
17.50 |
|
|
|
23.26 |
|
|
|
26.02 |
|
|
|
27.20 |
|
Dividends. We did not pay any cash or other dividends during the last two fiscal years and do
not anticipate paying dividends in the foreseeable future. Our credit agreement prohibits our
right to declare or pay dividends or make other distributions with respect to shares of our capital
stock. However, subsequent to the end of the fiscal year, we amended our credit agreement to
provide for an aggregate amount of $200 million for the acquisition of our common stock or the
potential payment of cash dividends.
Holders. As of October 2, 2005, there were 512 stockholders of record.
Securities Authorized for Issuance Under Equity Compensation Plans. The following table
summarizes the equity compensation plans under which Company Common Stock may be issued as of
October 2, 2005. Stockholders of the Company approved all plans.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
(c) |
| |
|
|
|
|
|
|
|
|
|
Number of securities |
| |
|
|
|
|
|
|
|
|
|
remaining for future |
| |
|
(a) |
|
(b) |
|
issuance under equity |
| |
|
Number of securities to be |
|
Weighted-average |
|
compensation plans |
| |
|
issued upon exercise of |
|
exercise price of |
|
(excluding securities |
| |
|
outstanding options |
|
outstanding options |
|
reflected in column (a)) |
| |
Equity compensation
plans approved by
security holders |
|
|
4,473,700 |
|
|
$ |
23.56 |
|
|
|
2,263,128 |
|
15
ITEM 6. SELECTED FINANCIAL DATA
Our fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30. Fiscal year
2004 includes 53 weeks; all other years include 52 weeks. The following selected financial data of
Jack in the Box Inc. for each fiscal year was extracted or derived from financial statements which
have been audited by KPMG LLP, our independent registered public accountants.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year |
|
| |
|
2005 |
|
|
2004 |
|
|
2003(1) |
|
|
2002 |
|
|
2001 |
|
| |
|
(Dollars in thousands, except per share data) |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales |
|
$ |
2,045,400 |
|
|
$ |
2,033,482 |
|
|
$ |
1,864,180 |
|
|
$ |
1,822,902 |
|
|
$ |
1,714,126 |
|
Distribution and other sales |
|
|
348,482 |
|
|
|
197,762 |
|
|
|
108,738 |
|
|
|
77,445 |
|
|
|
66,565 |
|
Franchise rents and royalties |
|
|
80,390 |
|
|
|
66,653 |
|
|
|
54,371 |
|
|
|
45,936 |
|
|
|
43,825 |
|
Other |
|
|
32,966 |
|
|
|
24,467 |
|
|
|
31,001 |
|
|
|
20,077 |
|
|
|
9,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
2,507,238 |
|
|
|
2,322,364 |
|
|
|
2,058,290 |
|
|
|
1,966,360 |
|
|
|
1,833,576 |
|
Costs of revenues |
|
|
2,078,121 |
|
|
|
1,913,285 |
|
|
|
1,695,709 |
|
|
|
1,589,090 |
|
|
|
1,480,643 |
|
Selling, general and
administrative expenses (2) |
|
|
273,821 |
|
|
|
264,257 |
|
|
|
228,141 |
|
|
|
233,345 |
|
|
|
201,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations |
|
|
155,296 |
|
|
|
144,822 |
|
|
|
134,440 |
|
|
|
143,925 |
|
|
|
151,338 |
|
Interest expense (3) |
|
|
17,092 |
|
|
|
27,318 |
|
|
|
24,838 |
|
|
|
22,914 |
|
|
|
24,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and
cumulative effect of accounting
change |
|
|
138,204 |
|
|
|
117,504 |
|
|
|
109,602 |
|
|
|
121,011 |
|
|
|
126,885 |
|
Income taxes (4) |
|
|
46,667 |
|
|
|
42,820 |
|
|
|
39,518 |
|
|
|
40,791 |
|
|
|
45,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of
accounting change (6) |
|
$ |
91,537 |
|
|
$ |
74,684 |
|
|
$ |
70,084 |
|
|
$ |
80,220 |
|
|
$ |
81,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share before cumulative
effect of accounting change: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.57 |
|
|
$ |
2.06 |
|
|
$ |
1.92 |
|
|
$ |
2.04 |
|
|
$ |
2.11 |
|
Diluted (5) |
|
$ |
2.48 |
|
|
$ |
2.02 |
|
|
$ |
1.90 |
|
|
$ |
2.00 |
|
|
$ |
2.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,337,986 |
|
|
$ |
1,324,666 |
|
|
$ |
1,142,481 |
|
|
$ |
1,035,845 |
|
|
$ |
1,006,952 |
|
Long-term debt |
|
|
290,213 |
|
|
|
297,092 |
|
|
|
290,746 |
|
|
|
143,364 |
|
|
|
279,719 |
|
Stockholders’ equity |
|
|
565,372 |
|
|
|
553,399 |
|
|
|
450,434 |
|
|
|
447,761 |
|
|
|
400,002 |
|
|
|
|
| (1) |
|
Fiscal year 2003 includes Qdoba results of operations since January 21, 2003, representing
approximately 36 weeks. |
| |
| (2) |
|
Fiscal year 2005 includes a charge of approximately $3.0 million related to the
cancellation of the Company’s test of a fast-casual concept called JBX Grill. Fiscal year
2003 includes $2.6 million related to lease-assumption obligations on five sites arising from
the bankruptcy of the Chi Chi’s restaurant chain, previously owned by the Company. Fiscal year 2002 includes $9.3 million
for costs associated with the settlement of a class action lawsuit and $6.3 million for costs
related to the closure of eight under-performing restaurants. |
| |
| (3) |
|
Fiscal year 2004 includes a $9.2 million charge related to the refinancing of the Company’s
term loan and the early redemption of its senior subordinated notes. |
| |
| (4) |
|
Fiscal year 2005 includes a $2.1 million benefit related to the resolution of a prior
year’s tax position. |
| |
| (5) |
|
Fiscal year 2004 earnings per diluted share include approximately $0.03 per share related
to an additional week. |
| |
| (6) |
|
In 2001, we adopted Staff Accounting Bulletin (“SAB”) 101 which requires that we recognize
certain franchise percentage rents, which are contingent upon certain annual sales levels, in
the period in which the contingency is met instead of being accrued for ratably. As a result
of adopting SAB 101, we recorded a one-time after-tax cumulative effect from this accounting
change of $1.9 million related to the deferral of franchise percentage rents not yet earned
as of the beginning of fiscal year 2001. |
16
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
All comparisons under this heading among 2005, 2004, and 2003 refer to the 52-week periods
ended October 2, 2005 and September 28, 2003 and to the 53-week period ended October 3, 2004,
unless otherwise indicated.
The Company acquired Qdoba Restaurant Corporation (“Qdoba”), operator and franchisor of Qdoba
Mexican Grill, on January 21, 2003. Qdoba’s operations are included since the date of acquisition,
which includes 36 weeks of operations in fiscal year 2003.
Overview
As of October 2, 2005, Jack in the Box Inc. (the “Company”) owned, operated, and franchised
2,049 Jack in the Box quick-service restaurants and 250 Qdoba Mexican
Grill (“Qdoba”) fast-casual restaurants, primarily in the western and southern United States.
The Company’s primary source of revenue is from the sale of food and beverages at
company-operated restaurants. The Company also derives revenue from distribution sales to Jack
in the Box and Qdoba franchises, retail sales from fuel and convenience
stores (“Quick Stuff”), royalties from franchised restaurants, rents from real estate
leased to certain franchisees, franchise fees, and the sale of company-operated restaurants to
franchisees.
The quick-service restaurant industry has become more complex and challenging in recent years.
Challenges presently facing the sector include higher levels of consumer expectations, intense
competition with respect to market share, restaurant locations, labor, and menu and product
development, the emergence of the fast-casual restaurant segment, changes in the economy and trends
for healthier eating.
To
address these challenges and others, and support our goal of becoming a national
restaurant company, management has developed a three-part strategic plan centered on multifaceted
growth, reinvention of the Jack in the Box brand and product innovation
and customer loyalty. Our multifaceted growth strategy includes
growing our restaurant base by continuing to grow through new units and increased sales at
existing restaurants, and increasing franchising activities. Brand reinvention initiatives include product innovations with a focus on
higher-quality products, enhancements to the quality of service and renovations to the restaurant
facilities. We believe that brand reinvention will differentiate us from our competition and that
our growth strategy will support us in our objective to become a national restaurant company.
The following summarizes the most significant events occurring in fiscal year 2005:
| |
• |
|
Company-operated Restaurant Sales. New product introductions contributed to sales
growth at Jack in the Box restaurants. This positive sales
momentum resulted in an increase in same-store sales of 2.4% at Jack in the
Box restaurants and 11.8% at Qdoba restaurants. |
| |
| |
• |
|
New Restaurant Designs. As planned, the Company continues testing new
interior and exterior designs for its Jack in the Box restaurants. The design
enhancements are intended to create a more contemporary atmosphere and promote more
in-restaurant dining. |
| |
| |
• |
|
Reloadable Gift Cards. We introduced reloadable gift cards at virtually all of our
restaurants in November 2004. The “Jack Cash” gift cards are available in any amount
from $5 to $100. |
| |
| |
• |
|
Health-Care Program. We began offering all Jack in the Box
restaurant hourly employees a health-care program, including vision and dental
benefits. As an additional incentive to crew members with more than a year of service,
Jack in the Box will pay a portion of their premiums. We
believe this program will help reduce turnover, as well as training costs and workers’
compensation claims. |
| |
| |
• |
|
JBX Grill. We decided to end our test of JBX Grill as a stand alone restaurant
concept. We believe that the innovative menu, service initiatives and creative design
elements of JBX Grill can be best leveraged across the existing 2,049 restaurants of
our core Jack in the Box brand rather than as a separate concept. |
| |
| |
• |
|
Repurchase of Common Stock. Pursuant to stock repurchase programs authorized by our
Board of Directors, the Company repurchased approximately 2.6 million shares of its
common stock in 2005. In September 2005, the Company’s Board of Directors authorized
an additional $150 million program to repurchase shares of the Company’s common stock
over the next three years. |
| |
| |
• |
|
Interest Rate Swaps. To reduce exposure to rising interest rates, we converted
$130 million of our $275 million term loan at floating rates to a fixed
interest rate for the next three years by entering into two-interest rate swap
contracts. |
17
| |
• |
|
Pension Contributions. In the third quarter of 2005, based on an annual actuarial
review of the Company’s qualified pension plans, we elected to utilize available cash
to make discretionary contributions of $22.2 million to our qualified pension plans. |
| |
| |
• |
|
Effective Tax Rate. The resolution of a prior year’s tax position and certain tax
planning initiatives contributed to the lower tax rate in 2005 compared with 2004. |
The following table sets forth, unless otherwise indicated, the percentage relationship to
total revenues of certain items included in the Company’s consolidated statements of earnings.
CONSOLIDATED STATEMENTS OF EARNINGS DATA
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year |
| |
|
Oct. 2, |
|
Oct. 3, |
|
Sept. 28, |
| |
|
2005 |
|
2004 |
|
2003 |
| |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales |
|
|
81.6 |
% |
|
|
87.6 |
% |
|
|
90.6 |
% |
Distribution and other sales |
|
|
13.9 |
|
|
|
8.5 |
|
|
|
5.3 |
|
Franchised rents and royalties |
|
|
3.2 |
|
|
|
2.9 |
|
|
|
2.6 |
|
Other |
|
|
1.3 |
|
|
|
1.0 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant costs of sales (1) |
|
|
31.6 |
% |
|
|
31.0 |
% |
|
|
30.8 |
% |
Restaurant operating costs (1) |
|
|
51.4 |
|
|
|
51.9 |
|
|
|
53.1 |
|
Costs of distribution and other sales (1) |
|
|
98.7 |
|
|
|
98.2 |
|
|
|
97.5 |
|
Franchised restaurant costs (1) |
|
|
43.9 |
|
|
|
47.9 |
|
|
|
47.8 |
|
Total costs of revenues |
|
|
82.9 |
|
|
|
82.4 |
|
|
|
82.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
10.9 |
|
|
|
11.4 |
|
|
|
11.1 |
|
Earnings from operations |
|
|
6.2 |
|
|
|
6.2 |
|
|
|
6.5 |
|
|
|
|
| (1) |
|
As a percentage of the related sales and/or revenues. |
The following table summarizes the number of restaurants at each fiscal year-end:
SYSTEMWIDE RESTAURANT UNITS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Oct. 2, |
|
Oct. 3, |
|
Sept. 28, |
| |
|
2005 |
|
2004 |
|
2003 |
| |
Jack in the Box: |
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated |
|
|
1,534 |
|
|
|
1,558 |
|
|
|
1,553 |
|
Franchised |
|
|
515 |
|
|
|
448 |
|
|
|
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total system |
|
|
2,049 |
|
|
|
2,006 |
|
|
|
1,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qdoba: |
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated |
|
|
57 |
|
|
|
47 |
|
|
|
34 |
|
Franchised |
|
|
193 |
|
|
|
130 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total system |
|
|
250 |
|
|
|
177 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated: |
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated |
|
|
1,591 |
|
|
|
1,605 |
|
|
|
1,587 |
|
Franchised |
|
|
708 |
|
|
|
578 |
|
|
|
471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total system |
|
|
2,299 |
|
|
|
2,183 |
|
|
|
2,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Company-operated restaurant sales were $2,045.4 million, $2,033.5 million, and $1,864.2
million, in 2005, 2004, and 2003, respectively. In 2005, this sales growth primarily reflects an
increase 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 increased 2.4% in 2005 compared with 4.6% in 2004, primarily due to the success
of new product introductions and promotional support. Same-store sales at Qdoba increased 11.8% in
2005 on top of a 9.3% increase in 2004. The PSA sales growth in 2005 was partially offset by a
decrease in the number of Jack in the Box
company-operated restaurants primarily reflecting the sale of company-operated restaurants to
franchisees. The sales growth in 2004 compared with 2003, primarily reflects an increase in PSA
sales at Jack in the Box and Qdoba
company-operated restaurants, an increase in the number of company-operated restaurants, additional
sales from Qdoba for the full year in 2004 versus three quarters in 2003 and additional sales from
the 53rd
week in 2004.
18
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 $348.5 million in 2005 from $197.8
million in 2004 and $108.7 million in 2003. Sales from our Quick Stuff locations
increased primarily due to an increase in the number of locations to 44 at the end of the fiscal
year from 29 in 2004 and 18 in 2003, as well as higher retail prices per gallon of fuel.
Distribution sales grew primarily due to an increase in the number of Jack in the Box and
Qdoba franchised restaurants serviced by our distribution centers. Additional sales from the
53rd week also contributed to the overall increase in 2004.
Franchise rents and royalties increased to $80.4 million in 2005 from $66.7 million in 2004
and $54.4 million in 2003, primarily reflecting an increase in the number of Jack in the
Box franchised restaurants, and to a lesser extent an increase in same-store sales at
franchised restaurants. The number of Jack in the Box
franchised restaurants increased to 515 at the end of the fiscal year from 448 in 2004 and 394
in 2003, primarily reflecting the sale of company-operated restaurants to franchisees.
Other revenues include gains and fees from the sale of company-operated restaurants to
franchisees, as well as interest income from notes receivable and investments, and were $33.0
million, $24.5 million, and $31.0 million in 2005, 2004, and 2003, respectively. We continued our
strategy of selectively converting Jack in the Box
company-operated restaurants to franchises with the goal of improving operating margins and
accelerating cash flows which enables us to develop new restaurants, reinvest in our restaurant
re-image program and repurchase the Company’s common stock without incurring additional debt or
diluting equity. Franchise gains were $23.3 million, $17.9 million, and $26.6 million, in 2005,
2004 and 2003, respectively, primarily from the sale of 58 Jack in the Box
company-operated restaurants in 2005 compared with 49 in 2004 and 36 in 2003. The increase in
other revenues in 2005 compared with 2004 primarily reflects an increase in the number of
company-operated restaurants sold and an increase in interest income related to the Company’s cash
position. The decrease in other revenues in 2004 is primarily due to lower average gains recognized
from these transactions compared with 2003 reflecting differences in the specific sales volumes and
cash flows of the restaurants sold.
Costs and Expenses
Restaurant costs of sales, which include food and packaging costs, increased to $646.7 million
in 2005 from $630.9 million in 2004 and $573.8 million in 2003. As a percentage of restaurant
sales, costs of sales increased to 31.6% in 2005 compared with 31.0% in 2004, and 30.8% in 2003,
primarily due to higher commodity costs. Beef costs were approximately 11% higher compared
with a year ago and produce costs were up approximately 9% in
fiscal 2005 versus last year. The cost increases in all years were offset in part by modest selling price
increases.
Restaurant operating costs decreased to $1,052.3 million in 2005 from $1,056.2 million in
2004 and $990.0 million in 2003. As a percentage of restaurant sales, operating costs were 51.4%
in 2005, 51.9% in 2004, and 53.1% in 2003. The percentage improvements in each year are primarily
due to effective labor management related to continued Profit Improvement Program initiatives, as
well as to increased leverage provided by higher sales in each year. Also contributing to the
favorable trends were lower occupancy costs related to our Profit Improvement Program which was
partially offset by a non-recurring expense recorded in the second quarter of fiscal 2005 related
to an arbitration award in connection with the cancellation of a utility contract.
Costs of distribution and other sales increased to $343.8 million in 2005 from $194.3 million
in 2004 and $106.0 million in 2003, primarily reflecting an increase in the related sales. As a
percentage of distribution and other sales, these costs increased to 98.7% in 2005 from 98.2% in
2004, and 97.5% in 2003. The percentage increase is due primarily to higher distribution delivery
costs, as well as higher retail prices per gallon of fuel at our Quick Stuff locations,
which have proportionately higher costs, but yield stable penny profits.
Franchised restaurant costs, principally rents and depreciation on properties leased to
Jack in the Box franchisees, increased to
$35.3 million in 2005 from $31.9 million in 2004 and $26.0 million in 2003, primarily reflecting an
increase in the number of franchised restaurants. As a percentage of franchise rents and
royalties, franchise restaurant costs were 43.9% in 2005, 47.9% in 2004, and 47.8% in 2003. The
percentage decrease in 2005 compared to 2004 is primarily due to the leverage provided by higher
franchise revenues. The percentage increase in 2004 compared with 2003 primarily relates to a ramp
up in franchise services to support our strategy of achieving a 35% ratio of franchised restaurants
in the system by the end of fiscal 2008.
Selling, general, and administrative (“SG&A”) expenses were $273.8 million, $264.3 million,
and $228.1 million in 2005, 2004, and 2003, respectively. These expenses were approximately 10.9%
of revenues in 2005, 11.4% in 2004, and 11.1% in 2003. The percentage improvement in 2005 is
primarily due to increased leverage from higher revenues and lower pension costs, which offset
higher salaries and related expenses, higher costs associated with Sarbanes-Oxley compliance and a
fourth quarter charge of approximately $3.0 million to
write-off assets as a result of the cancellation of the JBX Grill test. SG&A costs
increased in 2004 compared with 2003 primarily due to higher pension and incentive accruals, Qdoba overhead for the full year in
2004 versus 36-weeks in 2003, and additional costs for the 53rd week, partially offset
by Profit Improvement Program initiatives.
19
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.
20
Interest Rate Swaps. To reduce the Company’s exposure to rising interest rates, in March
2005, the Company entered into two interest rate swap agreements that effectively converted $130
million of its variable rate term loan borrowings to a fixed rate basis through March 2008. The
agreements have been designated as cash flow hedges under the terms of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities. Accordingly, changes in the fair value of the
interest rate swap contracts are recorded, net of taxes, as a component of accumulated other
comprehensive income in the accompanying condensed consolidated balance sheet as of October 2,
2005. These agreements effectively convert a portion of the Company’s variable rate bank debt to
fixed rate bank debt and have an average pay rate of 4.28%, yielding a fixed rate of 6.03%
including the term loan’s 1.75% applicable margin.
Covenants. We are subject to a number of customary covenants under our various credit
agreements, including limitations on additional borrowings, acquisitions, loans to franchisees,
capital expenditures, lease commitments and dividend payments, and requirements to maintain certain
financial ratios, cash flows and net worth. As of October 2, 2005, we were in compliance with all
debt covenants.
Total debt outstanding decreased to $298.0 million at October 2, 2005 from $305.3 million at
October 3, 2004, due to scheduled repayments made during the year, including payments made on
capital lease obligations.
Other Transactions. During fiscal year 2005, we exercised our purchase option under certain
lease arrangements and purchased approximately 31 Jack in the Box
restaurant properties. By year-end, we had subsequently sold and leased back 7 of these
properties at more favorable rental rates. We anticipate selling and leasing back the remaining
sites during fiscal 2006 which are included in assets held for sale and leaseback at October 2,
2005.
Sale of Company-Operated Restaurants. During the last three years we have continued our
strategy of selectively selling Jack in the Box company-operated
restaurants to franchisees, selling 58, 49 and 36 restaurants in 2005, 2004 and 2003,
respectively. Proceeds from the sale of company-operated restaurants and collections on notes
receivable, primarily related to such sales, were $34.1 million, $43.4 million and $23.8 million,
respectively.
Common Stock Repurchase Programs. In fiscal years 2002, 2004 and 2005 our Board of Directors
authorized the repurchase of our outstanding common stock in the open market. Under these
authorizations, the Company repurchased 2,578,801, 228,400 and 2,566,053 shares of Jack in the Box
common stock at a cost of $92.9 million, $7.1 million and $50.2 million during fiscal years 2005,
2004 and 2003, respectively. On September 15, 2005, the Board of Directors approved an additional
$150 million share repurchase program which was not utilized as of October 2, 2005. These stock
repurchase programs are intended to increase shareholder value and offset the dilutive effect of
stock option exercises.
Acquisition. On January 21, 2003, we acquired Qdoba, operator and franchisor of Qdoba Mexican
Grill, for approximately $45 million in cash. The primary assets acquired include $8.2 million in
net property and equipment and other long-term assets, $18.0 million in intangible assets and $23.6
million in goodwill. Qdoba operates in the fast-casual segment of the restaurant industry and, as
of October 2, 2005, operated or franchised 250 restaurants in 37 states.
21
Contractual Obligations and Commitments. The following is a summary of the Company’s
contractual obligations and commercial commitments as of October 2, 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period (in thousands) |
|
| |
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
After |
|
| |
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
5 years |
|
| |
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facility term loan (1) |
|
$ |
342,106 |
|
|
$ |
16,944 |
|
|
$ |
33,454 |
|
|
$ |
159,909 |
|
|
$ |
131,799 |
|
Revolving credit facility |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Capital lease obligations (1) |
|
|
37,097 |
|
|
|
6,685 |
|
|
|
12,942 |
|
|
|
5,215 |
|
|
|
12,255 |
|
Other
long-term debt obligations (1) |
|
|
847 |
|
|
|
367 |
|
|
|
398 |
|
|
|
82 |
|
|
|
— |
|
Operating lease obligations |
|
|
1,706,014 |
|
|
|
178,829 |
|
|
|
325,382 |
|
|
|
270,267 |
|
|
|
931,536 |
|
Guarantee (2) |
|
|
982 |
|
|
|
464 |
|
|
|
276 |
|
|
|
242 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
2,087,046 |
|
|
$ |
203,289 |
|
|
$ |
372,452 |
|
|
$ |
435,715 |
|
|
$ |
1,075,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial Commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stand-by
letters of credit (3) |
|
$ |
40,960 |
|
|
$ |
40,960 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Obligations related to the Company’s credit facility term loan, capital lease obligations, and other
long-term debt obligations include interest expense estimated at interest rates in effect on October 2, 2005. |
| |
| (2) |
|
Consists of a guarantee associated with one Chi-Chi’s property. Due to the bankruptcy
of the Chi-Chi’s restaurant chain, previously owned by the Company, we are obligated to
perform in accordance with the terms of the guarantee agreement. |
| |
| (3) |
|
Consists primarily of letters of credit for workers’ compensation and general liability
insurance. Letters of credit outstanding against our credit facility totaled $.3 million.
Letters of credit outstanding under our cash-collateralized letters of credit agreement
totaled $40.6 million and do not impact the borrowing capacity under our credit facility. |
Capital Expenditures. Capital expenditures, including capital lease obligations, were
$124.0 million, $130.0 million, and $121.1 million in 2005, 2004 and 2003, respectively. Cash
flows used for additions to property and equipment were $123.1 million, $120.1 million, and $111.9
million in 2005, 2004 and 2003, respectively. Fiscal 2005, compared
with fiscal 2004, includes higher expenditures for new restaurants
and Quick Stuff locations, as well as increases in facility
improvements primarily related to brand reinvention. The
increase in cash flows utilized in 2004 compared with 2003 is
primarily due to expenditures related to the Company’s
Innovation Center which opened in March 2004, Jack in the Box restaurant
improvements and Qdoba capital expenditures, primarily related to new
company-operated restaurants.
In fiscal year 2006, capital expenditures are expected to be $140 million to $150 million. We
plan to open a moderate number of new Jack in the Box restaurants, and under our
brand reinvention strategy, plan to upgrade approximately 100 to 150 of our restaurant facilities
to create a unique new look for Jack in the Box restaurants at an average cost
per restaurant of approximately $100,000.
Pension Funding. During 2005, we elected to contribute $22.2 million to our qualified defined
benefit pension plans from available cash on hand, compared with $30.0 million in 2004 and $4.4
million in 2003. The additional funding contributions in each year were determined based on an
annual actuarial review of the plans.
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 the sale of
company-operated restaurants to franchisees. 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 debt service, capital expenditure
and working capital requirements.
Discussion of Critical Accounting Policies
We have identified the following as the Company’s most 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 judgments. Information regarding the Company’s
other significant accounting policies are disclosed in Note 1 of our consolidated financial
statements.
Retirement
Benefits — The Company sponsors 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 the Company using specified
guidelines. In addition, our outside actuarial consultants also use certain statistical factors
such as turnover, retirement and mortality rates to estimate the Company’s future benefit
obligations. The actuarial assumptions used may differ materially from
22
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 impact the
amount of pension expense recorded by the Company. Due principally to decreases in interest rates,
the pension expense in fiscal year 2006 is expected to be approximately $4.8 million higher than
fiscal year 2005 pension expense.
Self
Insurance — The Company is self-insured for a portion of its current and prior years’
losses related to its workers’ compensation, general liability, automotive, medical, and dental
programs. In estimating the Company’s self insurance accruals, we utilize independent actuarial
estimates of expected losses, which are based on statistical analyses 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. While
medical and dental costs are anticipated to increase very modestly in fiscal year 2006, related to
the new health care coverage being offered to all crew members, we expect these cost increases to
be offset by savings realized from reduced crew turnover.
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 market-level analysis and evaluations of restaurant operating performance from
operations and marketing management. 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. In fiscal 2005, we recorded immaterial impairment charges related to
certain restaurant closures. During 2005, we noted no other indicators of impairment of our
long-lived assets.
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, we reviewed the
carrying value of our goodwill and indefinite life intangible assets and determined that no
impairment existed as of October 2, 2005.
Allowances
for Doubtful Accounts — Our trade receivables consist primarily of amounts due from
franchisees for rents on subleased sites, royalties and distribution sales. We also have
receivables related to short-term financing provided on the sale of company-operated restaurants to
certain qualified franchisees. We continually monitor amounts due from franchisees and maintain an
allowance for doubtful accounts for estimated losses resulting from the inability of our
franchisees to make required payments. This estimate is based on our assessment of the
collectibility of specific franchisee 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. The Company has good relationships with its 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, additions to the
allowance for doubtful accounts may be required.
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.
Future Application of Accounting Principles
In November 2004, the FASB issued SFAS 151, Inventory Costs. SFAS 151 clarifies the accounting
for abnormal amounts of idle facilities expense, freight, handling costs and wasted material. SFAS
151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We
expect the adoption of this Statement will not have a material impact on our operating results or
financial condition.
In December 2004, the FASB issued SFAS 123R, Share-Based Payment. SFAS 123R revises SFAS 123,
Accounting for Stock-Based Compensation, and generally requires, among other things, that all
employee stock-based compensation be measured using a fair value method and that the resulting
compensation cost be recognized in the financial statements. SFAS 123R also provides guidance on
how to determine the grant-date fair value for awards of equity instruments, as well as alternative
methods of adopting its requirements. On April 14, 2005, the Securities and Exchange Commission
delayed the effective date of required adoption of SFAS 123R to the first fiscal year beginning
after June 15, 2005. We plan to adopt the provisions of SFAS 123R in the first quarter of fiscal
year 2006 and expect the impact in fiscal 2006 to be approximately $0.15 per diluted share.
In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations—an interpretation of FASB Statement No. 143 (“FIN 47”). FIN 47 clarifies the
term conditional asset retirement obligation and requires a liability to be recorded if the fair
value of the obligation can be reasonably estimated. The types of asset retirement obligations that
are covered by FIN 47 are those for which an entity has a legal obligation to perform an asset
retirement activity; however the timing and/or method of settling the obligation are conditional on
a future event that may or may
not be within the control of the entity. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN
47 is effective for fiscal years ending after December 15, 2005. We expect the adoption of FIN 47
will not have a material impact on our consolidated financial statements.
23
In October 2005, the FASB issued Staff Position 13-1, Accounting for Rental Costs Incurred
During a Construction Period (“FSP 13-1”). FSP 13-1 is effective for the first fiscal period
beginning after December 15, 2005 and requires that rental costs associated with ground or building
operating leases that are incurred during a construction period be recognized as rental expense.
We expect the adoption of this Staff Position will not have a material impact on our operating
results or financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
primary exposure relating to financial instruments is changes in interest rates. The
Company uses interest rate swaps agreements to reduce exposure to interest rate fluctuations. At
October 2, 2005, the Company had two interest rate swap agreements having an aggregate notional
amount of $130 million expiring March 2008. These agreements effectively convert a portion of the
Company’s variable rate bank debt to fixed rate debt and have an average pay rate of 4.28%,
yielding a fixed rate of 6.03% including the term loan’s applicable margin of 1.75%.
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 the LIBOR plus an applicable margin based on
a financial leverage ratio. The majority of the credit facility borrowings are LIBOR-based. As of
October 2, 2005, our applicable margins for the LIBOR-based revolving loans and term loan were set
at 2.25% and 1.75%, respectively. A hypothetical 100 basis point increase in short-term interest
rates, based on the outstanding balance of our revolving credit facility and term loan at October
2, 2005, would result in an estimated increase of $1.4 million in annual interest expense. The
estimated increase is based on holding the unhedged portion of bank debt at its October 2, 2005
level.
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 $1.6 million and $0.3 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 futures or options contracts at October 2, 2005.
At
October 2, 2005, we had no other material financial instruments
subject to significant market exposure other than our company-owned
life insurance policies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related financial information required to be filed
are indexed on page F-1 and are incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.
Based on an evaluation of the Company’s disclosure controls and procedures (as defined in
Rules 13(a) – 15(e) and 15(d) – 15(e) of the Securities Exchange Act of 1934, as amended), as of
the end of the Company’s fiscal year ended October 2, 2005, the Company’s Chief Executive Officer
and Chief Financial Officer (its principal executive officer and principal financial officer,
respectively) have concluded that the Company’s disclosure controls and procedures were effective.
There have been no significant changes in the Company’s internal controls over financial
reporting that occurred during the Company’s fiscal quarter ended October 2, 2005 that have
materially affected, or are reasonably likely to materially affect, the Company’s internal controls
over financial reporting.
24
Management’s Report on Internal Control Over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). The Company’s internal
control over financial reporting is designed to provide reasonable assurance to the Company’s
management and Board of Directors regarding the preparation and fair presentation of published
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial
reporting as of October 2, 2005. In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
Control-Integrated Framework. Management has concluded that, as of October 2, 2005, the Company’s
internal control over financial reporting was effective based on these criteria.
The
Company’s independent registered public accounting firm, KPMG
LLP, has issued an audit report on our assessment of our internal
control over financial reporting, which follows.
Report of Independent Registered Public Accounting Firm.
The Board of Directors and Stockholders
Jack in the Box Inc.:
We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting, that Jack in the Box Inc. (Jack in the
Box) maintained effective internal control over financial reporting as of October 2, 2005, based on
criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Jack in the Box’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management’s assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Jack in the Box maintained effective internal
control over financial reporting as of October 2, 2005, is fairly stated, in all material respects,
based on criteria established in COSO. Also, in our opinion, Jack in the Box maintained, in all
material respects, effective internal control over financial reporting as of October 2, 2005, based
on criteria established in COSO.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Jack in the Box Inc. and
subsidiaries as of October 2, 2005 and October 3, 2004, and the related consolidated statements of
earnings, cash flows, and stockholders’ equity, for the fifty-two weeks ended October 2, 2005,
fifty-three weeks ended October 3, 2004, and fifty-two weeks ended September 28, 2003.
KPMG LLP
San Diego, California
December 7, 2005
25
PART III
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
That portion of our definitive Proxy Statement appearing under the captions “Election of
Directors – Committee of the Board of Directors Member Qualifications” and “Section 16(a)
Beneficial Ownership Reporting Compliance” to be filed with the Commission pursuant to Regulation
14A within 120 days after October 2, 2005 and to be used in connection with our 2006 Annual Meeting
of Stockholders is hereby incorporated by reference.
Information regarding executive officers is set forth in Item 1 of Part I of this Report under
the caption “Executive Officers.”
That portion of our definitive Proxy Statement appearing under the caption “Audit Committee,”
relating to the members of the Company’s Audit Committee and the Audit Committee financial expert
is also incorporated herein by reference.
That portion of our definitive Proxy Statement appearing under the caption “Other Business,”
relating to the procedures by which stockholders may recommend candidates for director to the
Nominating and Governance Committee of the Board of Directors, is also incorporated herein by
reference.
The Company has adopted a Code of Ethics which applies to all Jack in the Box Inc. directors,
officers and employees, including the Chief Executive Officer, Chief Financial Officer, Controller
and all of the financial team. The Code of Ethics is posted on the Company’s website,
www.jackinthebox.com (under the “Investors – Code of Conduct” caption.) The Company intends to
satisfy the disclosure requirement regarding any amendment to, or waiver of, a provision of the
Code of Ethics for the Chief Executive Officer, Chief Financial Officer and Controller or persons
performing similar functions, by posting such information on its website.
ITEM 11. EXECUTIVE COMPENSATION
That portion of our definitive Proxy Statement appearing under the caption “Executive
Compensation” to be filed with the Commission pursuant to Regulation 14A within 120 days after
October 2, 2005 and to be used in connection with our 2006 Annual Meeting of Stockholders is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
That portion of our definitive Proxy Statement appearing under the caption “Security Ownership
of Certain Beneficial Owners and Management” to be filed with the Commission pursuant to Regulation
14A within 120 days after October 2, 2005 and to be used in connection with our 2006 Annual Meeting
of Stockholders is hereby incorporated by reference. Information regarding equity compensation
plans under which Company common stock may be issued as of October 2, 2005 is set forth in Item 5
of this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
That portion of our definitive Proxy Statement appearing under the caption “Certain
Transactions,” if any, to be filed with the Commission pursuant to Regulation 14A within 120 days
after October 2, 2005 and to be used in connection with our 2006 Annual Meeting of Stockholders is
hereby incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
That portion of our definitive Proxy Statement appearing under the caption “Independent
Registered Public Accountant Fees and Services” to be filed with the Commission pursuant to
Regulation 14A within 120 days after October 2, 2005 and to be used in connection with our 2006
Annual Meeting of Stockholders is hereby incorporated by reference.
26
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 15(a)(1) Financial Statements. See Index to Consolidated Financial Statements on page
F-1 of this report.
ITEM 15(a)(2) Financial Statement Schedules. Not applicable.
ITEM 15(a)(3) Exhibits.
| |
|
|
| Number |
|
Description |
3.1
|
|
Restated Certificate of Incorporation, as amended(7) |
|
|
|
3.2
|
|
Amended and Restated Bylaws(17) |
|
|
|
3.2(a)
|
|
“Emergency” Bylaw
Amendment(25) (The bylaw allows special procedures to call,
provide notice of, and establish a quorum at meetings of directors
should they be needed in the event of an emergency as defined in
Delaware Corporate law.) |
|
|
|
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) |
|
|
|
10.1
|
|
Amended and Restated Credit Agreement dated as of January 8, 2004 by and among Jack in the Box Inc. and the lenders named therein(14) |
|
|
|
10.1.1
|
|
First Amendment dated as of June 18, 2004 to the Amended and Restated Credit Agreement(15) |
|
|
|
10.1.2
|
|
Second Amendment and Consent dated as of September 24, 2004 to the Amended and Restated Credit Agreement(19) |
|
|
|
10.1.3
|
|
Third Amendment dated as of January 31, 2005 to the Amended and Restated Credit Agreement(21) |
|
|
|
10.1.4
|
|
Fourth Amendment dated as of September 30, 2005 to the Amended and Restated Credit Agreement |
|
|
|
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(10) |
|
|
|
10.5*
|
|
Capital Accumulation Plan for Executives(9) |
|
|
|
10.5.1*
|
|
First Amendment dated as of August 2, 2002 to the Capital Accumulation Plan for Executives(11) |
|
|
|
10.6*
|
|
Supplemental Executive Retirement Plan(9) |
|
|
|
10.6.1*
|
|
First Amendment dated as of August 2, 2002 to the Supplemental Executive Retirement Plan(11) |
|
|
|
10.7*
|
|
Performance Bonus Plan(8) |
|
|
|
10.7.1*
|
|
Bonus Program for Fiscal 2005 Under the Performance Bonus Plan(21) |
|
|
|
10.8*
|
|
Deferred Compensation Plan for Non-Management Directors(2) |
|
|
|
10.9*
|
|
Amended and Restated Non-Employee Director Stock Option Plan(7) |
|
|
|
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(11) |
|
|
|
10.12
|
|
Consent Agreement(11) |
|
|
|
10.13*
|
|
Executive Deferred Compensation Plan(12) |
|
|
|
10.14*
|
|
Form of Restricted Stock Award for certain executives(12) |
|
|
|
10.14.1*
|
|
Form of Restricted Stock Award for certain executives under the 2004 Stock Incentive Plan(23) |
|
|
|
10.14(a)
|
|
Schedule of Restricted Stock Awards |
|
|
|
10.15*
|
|
Executive Agreement between Jack in the Box Inc. and Gary J. Beisler, President and Chief Executive Officer of Qdoba Restaurant
Corporation(13) |
|
|
|
10.16*
|
|
Amended and Restated 2004 Stock Incentive Plan(20) |
|
|
|
10.17
|
|
Form of Stock Option Awards(16) |
|
|
|
10.18
|
|
Retirement Agreement between Jack in the Box Inc. and John F. Hoffner, Executive Vice President and Chief Financial Officer(18) |
|
|
|
10.19
|
|
Principal Officer, Terms of Employment(22) |
|
|
|
10.20
|
|
The Jack in the Box Inc. Non-Employee Director Stock Option Award Agreement under the 2004 Stock Incentive Plan(24) |
|
|
|
10.21
|
|
Executive Compensation – Base Salaries |
|
|
|
23.1
|
|
Consent of KPMG LLP, Independent Registered Public Accountants |
|
|
|
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. |
27
| (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 October 3, 1999. |
| (8) |
|
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. |
| (9) |
|
Previously filed and incorporated herein by reference from registrant’s Annual Report on Form
10-K for the fiscal year ended September 30, 2001. |
| (10) |
|
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. |
| (11) |
|
Previously filed and incorporated herein by reference from registrant’s Annual Report on Form
10-K for the fiscal year ended September 29, 2002. |
| (12) |
|
Previously filed and incorporated herein by reference from registrant’s Quarterly Report on
Form 10-Q for the quarter ended January 18, 2003. |
| (13) |
|
Previously filed and incorporated herein by reference from registrant’s Quarterly Report on
Form 10-Q for the quarter ended April 11, 2003. |
| (14) |
|
Previously filed and incorporated herein by reference from the registrant’s Quarterly Report
on Form 10-Q for the quarter ended January 18, 2004. |
| (15) |
|
Previously filed and incorporated herein by reference from the registrant’s Quarterly Report
on Form 10-Q for the quarter ended July 4, 2004. |
| (16) |
|
Previously filed and incorporated herein by reference from the registrant’s Current Report on
Form 8-K dated September 10, 2004 |
| (17) |
|
Previously filed and incorporated herein by reference from the registrant’s Current Report on
Form 8-K dated October 7, 2004. |
| (18) |
|
Previously filed and incorporated herein by reference from the registrant’s Current Report on
Form 8-K dated November 17, 2004. |
| (19) |
|
Previously filed and incorporated herein by reference from registrant’s Annual Report on Form
10-K for the fiscal year ended October 3, 2004. |
| (20) |
|
Previously filed and incorporated herein by reference from the registrant’s Current Report on
Form 8-K dated February 24, 2005. |
| (21) |
|
Previously filed and incorporated herein by reference from the registrant’s Quarterly Report
on Form 10-Q for the quarter ended January 23, 2005. |
| (22) |
|
Previously filed and incorporated herein by reference from the registrant’s Current Report on
Form 8-K dated March 14, 2005. |
| (23) |
|
Previously filed and incorporated herein by reference from the registrant’s Current Report on
Form 8-K dated October 24, 2005. |
| (24) |
|
Previously filed and incorporated herein by reference from the registrant’s Current Report on
Form 8-K dated November 10, 2005. |
| (25) |
|
Previously filed and incorporated herein by reference from the registrant’s Current Report on
Form 8-K dated November 10, 2005. |
28
| |
|
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. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| |
|
|
|
|
|
|
| |
|
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: December 13, 2005 |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
/S/ LINDA A. LANG
|
|
Chairman of the Board and Chief
Executive
|
|
December 13, 2005 |
| |
|
|
|
|
Linda A. Lang
|
|
Officer (principal
executive officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
/S/ JERRY P. REBEL
|
|
Executive Vice President and Chief
Financial Officer |
|
December 13, 2005 |
| |
|
|
|
|
Jerry P. Rebel |
|
Officer (principal
financial officer and principal
accounting officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
/S/ MICHAEL E. ALPERT
|
|
Director
|
|
December 13, 2005 |
| |
|
|
|
|
Michael E. Alpert |
|
|
|
|
|
|
|
|
|
/S/ EDWARD W. GIBBONS
|
|
Director
|
|
December 13, 2005 |
| |
|
|
|
|
Edward W. Gibbons |
|
|
|
|
|
|
|
|
|
/S/ ANNE B. GUST
|
|
Director
|
|
December 13, 2005 |
| |
|
|
|
|
Anne B. Gust |
|
|
|
|
|
|
|
|
|
/S/ ALICE B. HAYES
|
|
Director
|
|
December 13, 2005 |
| |
|
|
|
|
Alice B. Hayes |
|
|
|
|
|
|
|
|
|
/S/ MURRAY H. HUTCHISON
|
|
Director
|
|
December 13, 2005 |
| |
|
|
|
|
Murray H. Hutchison |
|
|
|
|
|
|
|
|
|
/S/ MICHAEL W. MURPHY
|
|
Director
|
|
December 13, 2005 |
| |
|
|
|
|
Michael W. Murphy |
|
|
|
|
|
|
|
|
|
/S/ L. ROBERT PAYNE
|
|
Director
|
|
December 13, 2005 |
| |
|
|
|
|
L. Robert Payne |
|
|
|
|
|
|
|
|
|
/S/ DAVID M. TEHLE
|
|
Director
|
|
December 13, 2005 |
| |
|
|
|
|
David M. Tehle |
|
|
|
|
29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
| |
|
Page |
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
Schedules not filed: All schedules have been omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related notes.
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Jack in the Box Inc.:
We have audited the accompanying consolidated balance sheets of Jack in the Box Inc. and
subsidiaries as of October 2, 2005 and October 3, 2004 and the related consolidated statements of
earnings, cash flows and stockholders’ equity for the fifty-two weeks ended October 2, 2005,
fifty-three weeks ended October 3, 2004, and fifty-two weeks ended September 28, 2003. These
consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Jack in the Box Inc. and subsidiaries as of October 2,
2005 and October 3, 2004, and the results of their operations and their cash flows for the
fifty-two weeks ended October 2, 2005, fifty-three weeks ended October 3, 2004 and fifty-two weeks
ended September 28, 2003, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Company’s internal control over financial reporting
as of October 2, 2005, based on criteria established in Internal Control–Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated December 7, 2005 expressed an unqualified opinion on management’s assessment of, and
the effective operation of, internal control over financial reporting.
KPMG LLP
San Diego, California
December 7, 2005
F-2
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
| |
|
|
|
|
|
|
|
|
| |
|
October 2, |
|
|
October 3, |
|
| |
|
2005 |
|
|
2004 |
|
| |
ASSETS |
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents (includes restricted cash of approximately
$45,580 and $0 at
October 2, 2005 and October 3, 2004, respectively) |
|
$ |
103,708 |
|
|
$ |
131,700 |
|
Accounts and notes receivable, net |
|
|
21,227 |
|
|
|
20,928 |
|
Inventories |
|
|
40,007 |
|
|
|
34,043 |
|
Prepaid expenses and other
current assets |
|
|
24,945 |
|
|
|
21,694 |
|
Deferred income tax asset |
|
|
38,340 |
|
|
|
36,706 |
|
Assets held for sale and leaseback |
|
|
55,743 |
|
|
|
34,408 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
283,970 |
|
|
|
279,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost: |
|
|
|
|
|
|
|
|
Land |
|
|
96,544 |
|
|
|
97,594 |
|
Buildings |
|
|
702,634 |
|
|
|
661,364 |
|
Restaurant and other equipment |
|
|
566,976 |
|
|
|
547,342 |
|
Construction in progress |
|
|
57,394 |
|
|
|
47,840 |
|
|
|
|
|
|
|
|
|
|
|
1,423,548 |
|
|
|
1,354,140 |
|
Less accumulated depreciation and
amortization |
|
|
545,563 |
|
|
|
491,530 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
877,985 |
|
|
|
862,610 |
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
22,093 |
|
|
|
23,265 |
|
Goodwill |
|
|
92,187 |
|
|
|
90,218 |
|
Other assets, net |
|
|
61,751 |
|
|
|
69,094 |
|
|
|
|
|
|
|
|
|
|
$ |
1,337,986 |
|
|
$ |
1,324,666 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: |
|
|
|
|
|
|
|
|
Current maturities of long-term
debt |
|
$ |
7,788 |
|
|
$ |
8,203 |
|
Accounts payable |
|
|
56,064 |
|
|
|
53,503 |
|
Accrued liabilities |
|
|
211,438 |
|
|
|
216,587 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
275,290 |
|
|
|
278,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current
maturities |
|
|
290,213 |
|
|
|
297,092 |
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
148,251 |
|
|
|
117,396 |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
58,860 |
|
|
|
78,486 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred
stock $.01 par value, 15,000,000 shares authorized, 0 issued |
|
|
— |
|
|
|
— |
|
Common stock
$.01 par value, 75,000,000 shares authorized, 45,391,851 and
43,846,512 issued, respectively |
|
|
454 |
|
|
|
438 |
|
Capital in excess of par value |
|
|
380,161 |
|
|
|
338,326 |
|
Retained earnings |
|
|
447,015 |
|
|
|
355,478 |
|
Accumulated other comprehensive
loss, net |
|
|
(29,563 |
) |
|
|
(1,254 |
) |
Unearned compensation |
|
|
(8,233 |
) |
|
|
(7,988 |
) |
Treasury stock, at cost, 9,752,028 and 7,173,227 shares, respectively |
|
|
(224,462 |
) |
|
|
(131,601 |
) |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
565,372 |
|
|
|
553,399 |
|
|
|
|
|
|
|
|
|
|
$ |
1,337,986 |
|
|
$ |
1,324,666 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales |
|
$ |
2,045,400 |
|
|
$ |
2,033,482 |
|
|
$ |
1,864,180 |
|
Distribution and
other sales |
|
|
348,482 |
|
|
|
197,762 |
|
|
|
108,738 |
|
Franchise rents
and royalties |
|
|
80,390 |
|
|
|
66,653 |
|
|
|
54,371 |
|
Other |
|
|
32,966 |
|
|
|
24,467 |
|
|
|
31,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,507,238 |
|
|
|
2,322,364 |
|
|
|
2,058,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant costs
of sales |
|
|
646,705 |
|
|
|
630,942 |
|
|
|
573,751 |
|
Restaurant
operating costs |
|
|
1,052,262 |
|
|
|
1,056,156 |
|
|
|
989,981 |
|
Costs of
distribution and
other sales |
|
|
343,836 |
|
|
|
194,251 |
|
|
|
106,003 |
|
Franchised
restaurant costs |
|
|
35,318 |
|
|
|
31,936 |
|
|
|
25,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,078,121 |
|
|
|
1,913,285 |
|
|
|
1,695,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general
and administrative |
|
|
273,821 |
|
|
|
264,257 |
|
|
|
228,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations |
|
|
155,296 |
|
|
|
144,822 |
|
|
|
134,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
17,092 |
|
|
|
27,318 |
|
|
|
24,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes |
|
|
138,204 |
|
|
|
117,504 |
|
|
|
109,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
46,667 |
|
|
|
42,820 |
|
|
|
39,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
91,537 |
|
|
$ |
74,684 |
|
|
$ |
70,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.57 |
|
|
$ |
2.06 |
|
|
$ |
1.92 |
|
Diluted |
|
$ |
2.48 |
|
|
$ |
2.02 |
|
|
$ |
1.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
35,625 |
|
|
|
36,237 |
|
|
|
36,473 |
|
Diluted |
|
|
36,938 |
|
|
|
36,961 |
|
|
|
36,968 |
|
See accompanying notes to consolidated financial statements.
F-4
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
91,537 |
|
|
$ |
74,684 |
|
|
$ |
70,084 |
|
Non-cash items included in
operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
86,156 |
|
|
|
84,446 |
|
|
|
76,105 |
|
Deferred finance cost amortization |
|
|
982 |
|
|
|
1,456 |
|
|
|
2,849 |
|
Deferred income taxes, excluding
the effect of the
Qdoba acquisition in 2003 |
|
|
(3,237 |
) |
|
|
4,023 |
|
|
|
13,734 |
|
Amortization of unearned
compensation expense |
|
|
1,396 |
|
|
|
584 |
|
|
|
497 |
|
Loss on early retirement of debt |
|
|
— |
|
|
|
9,180 |
|
|
|
— |
|
Impairment charges and other |
|
|
3,565 |
|
|
|
933 |
|
|
|
— |
|
Tax benefit associated with exercise
of stock options |
|
|
9,771 |
|
|
|
2,867 |
|
|
|
188 |
|
Pension contributions |
|
|
(23,506 |
) |
|
|
(31,214 |
) |
|
|
(5,416 |
) |
Gains on the sale of
company-operated restaurants |
|
|
(23,334 |
) |
|
|
(17,918 |
) |
|
|
(26,562 |
) |
Changes in assets and liabilities,
excluding the effect of
the Qdoba acquisition in 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
(increase) in receivables |
|
|
162 |
|
|
|
(6,720 |
) |
|
|
(624 |
) |
Increase in inventories |
|
|
(5,964 |
) |
|
|
(2,344 |
) |
|
|
(1,573 |
) |
Decrease (increase) in prepaid
expenses and other
current assets |
|
|
(4,935 |
) |
|
|
(637 |
) |
|
|
897 |
|
Increase (decrease) in accounts
payable |
|
|
2,561 |
|
|
|
2,695 |
|
|
|
(9,890 |
) |
Increase in other liabilities |
|
|
19,052 |
|
|
|
47,616 |
|
|
|
27,523 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating
activities |
|
|
154,206 |
|
|
|
169,651 |
|
|
|
147,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(123,109 |
) |
|
|
(120,065 |
) |
|
|
(111,872 |
) |
Purchase of Qdoba, net of $2,856 cash
acquired |
|
|
— |
|
|
|
— |
|
|
|
(42,606 |
) |
Proceeds
from the sale of property and
equipment |
|
|
12,521 |
|
|
|
10,671 |
|
|
|
27,198 |
|
Proceeds from the sale of
company-operated restaurants |
|
|
33,210 |
|
|
|
21,486 |
|
|
|
3,740 |
|
Proceeds
from (purchase of) assets held
for sale and leaseback, net |
|
|
(21,000 |
) |
|
|
11,269 |
|
|
|
(22,642 |
) |
Collections on notes receivable |
|
|
895 |
|
|
|
21,911 |
|
|
|
20,092 |
|
Purchase of investments and change in
cash
surrender value, net |
|
|
(10,411 |
) |
|
|
(9,283 |
) |
|
|
(6,760 |
) |
Other |
|
|
(2,944 |
) |
|
|
16,768 |
|
|
|
(401 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing
activities |
|
|
(110,838 |
) |
|
|
(47,243 |
) |
|
|
(133,251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving bank loans |
|
|
— |
|
|
|
45,000 |
|
|
|
510,500 |
|
Principal payments under revolving
bank loans |
|
|
— |
|
|
|
(45,000 |
) |
|
|
(544,500 |
) |
Proceeds from issuance of debt |
|
|
— |
|
|
|
275,000 |
|
|
|
151,450 |
|
Principal payments on debt |
|
|
(8,205 |
) |
|
|
(282,772 |
) |
|
|
(57,632 |
) |
Debt issuance and debt repayment
costs |
|
|
(343 |
) |
|
|
(7,103 |
) |
|
|
(7,843 |
) |
Repurchase of common stock |
|
|
(92,861 |
) |
|
|
(7,138 |
) |
|
|
(50,157 |
) |
Proceeds from issuance of common stock |
|
|
30,049 |
|
|
|
8,943 |
|
|
|
363 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in)
financing activities |
|
|
(71,360 |
) |
|
|
(13,070 |
) |
|
|
2,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents |
|
$ |
(27,992 |
) |
|
$ |
109,338 |
|
|
$ |
16,742 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
| |
|
Common stock |
|
|
Capital in |
|
|
|
|
|
|
other |
|
|
|
|
|
|
|
|
|
|
| |
|
Number |
|
|
|
|
|
|
excess of |
|
|
Retained |
|
|
comprehensive |
|
|
Unearned |
|
|
Treasury |
|
|
|
|
| |
|
of shares |
|
|
Amount |
|
|
par value |
|
|
earnings |
|
|
loss |
|
|
compensation |
|
|
stock |
|
|
Total |
|
Balance at
September 29, 2002 |
|
|
42,936,810 |
|
|
$ |
429 |
|
|
$ |
319,810 |
|
|
$ |
210,710 |
|
|
$ |
(8,882 |
) |
|
$ |
— |
|
|
$ |
(74,306 |
) |
|
$ |
447,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under
stock plans,
net of tax benefit |
|
|
294,602 |
|
|
|
3 |
|
|
|
5,700 |
|
|
|
— |
|
|
|
— |
|
|
|
(5,152 |
) |
|
|
— |
|
|
|
551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
unearned
compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
497 |
|
|
|
— |
|
|
|
497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(50,157 |
) |
|
|
(50,157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
70,084 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
70,084 |
|
Additional minimum
pension
liability,
net of taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18,302 |
) |
|
|
— |
|
|
|
— |
|
|
|
(18,302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
70,084 |
|
|
|
(18,302 |
) |
|
|
— |
|
|
|
— |
|
|
|
51,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
September 28, 2003 |
|
|
43,231,412 |
|
|
|
432 |
|
|
|
325,510 |
|
|
|
280,794 |
|
|
|
(27,184 |
) |
|
|
(4,655 |
) |
|
|
(124,463 |
) |
|
|
450,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under
stock plans,
net of tax benefit |
|
|
615,100 |
|
|
|
6 |
|
|
|
12,816 |
|
|
|
— |
|
|
|
— |
|
|
|
(3,917 |
) |
|
|
— |
|
|
|
8,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
unearned
compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
584 |
|
|
|
— |
|
|
|
584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,138 |
) |
|
|
(7,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
74,684 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
74,684 |
|
Additional minimum
pension
liability,
net of taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25,930 |
|
|
|
— |
|
|
|
— |
|
|
|
25,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
74,684 |
|
|
|
25,930 |
|
|
|
— |
|
|
|
— |
|
|
|
100,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October
3, 2004 |
|
|
43,846,512 |
|
|
|
438 |
|
|
|
338,326 |
|
|
|
355,478 |
|
|
|
(1,254 |
) |
|
|
(7,988 |
) |
|
|
(131,601 |
) |
|
|
553,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under
stock plans,
net of tax benefit |
|
|
1,545,339 |
|
|
|
16 |
|
|
|
41,835 |
|
|
|
— |
|
|
|
— |
|
|
|
(2,031 |
) |
|
|
— |
|
|
|
39,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
unearned
compensation,
forfeitures and
change in value
of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,786 |
|
|
|
— |
|
|
|
1,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(92,861 |
) |
|
|
(92,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
91,537 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
91,537 |
|
Gains on interest
rate swaps, net of taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
417 |
|
|
|
— |
|
|
|
— |
|
|
|
417 |
|
Additional minimum
pension
liability,
net of taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(28,726 |
) |
|
|
— |
|
|
|
— |
|
|
|
(28,726 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
91,537 |
|
|
|
(28,309 |
) |
|
|
— |
|
|
|
— |
|
|
|
63,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October
2, 2005 |
|
|
45,391,851 |
|
|
$ |
454 |
|
|
$ |
380,161 |
|
|
$ |
447,015 |
|
|
$ |
(29,563 |
) |
|
$ |
(8,233 |
) |
|
$ |
(224,462 |
) |
|
$ |
565,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
| 1. |
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| |
| |
|
Nature of operations — Jack in the Box Inc. (the “Company”) operates and franchises
Jack in the Box quick-service
restaurants and Qdoba Mexican Grill fast-casual restaurants. |
| |
| |
|
Basis of presentation and fiscal year — The 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. Certain prior year amounts in the consolidated financial
statements have been reclassified to conform to the fiscal 2005 presentation. Our fiscal year
is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 2005 and 2003
include 52 weeks, and fiscal year 2004 includes 53 weeks. |
| |
| |
|
Financial instruments — The fair values of cash and cash equivalents, accounts and notes
receivable, accounts payable and accrued liabilities approximate the carrying amounts due to
their short maturities. Company-owned life
insurance (“COLI”) policies, included in other assets, are
recorded at their cash surrender values. The fair values of each of our long-term debt instruments are based on
quoted market values, where available, or on the amount of future cash flows associated with
each instrument, discounted using our current borrowing rate for similar debt instruments of
comparable maturity. The estimated fair values of our long-term debt at October 2, 2005 and
October 3, 2004 approximate their carrying values. |
| |
| |
|
From time-to-time, we use commodity derivatives to reduce the risk of price fluctuations
related to raw material requirements for commodities such as beef and pork, and utility
derivatives to reduce the risk of price fluctuations related to natural gas. We also use
interest rate swap agreements to manage interest rate exposure. We do not speculate using
derivative instruments, and we purchase derivative instruments only for the purpose of risk
management. |
| |
| |
|
All derivatives are recognized on the consolidated balance sheets at fair value based upon quoted market
prices. Changes in the fair values of derivatives are recorded in earnings or other
comprehensive income, based on whether the instrument is designated as a hedge transaction.
Gains or losses on derivative instruments reported in other comprehensive income are classified
to earnings in the period the hedged item affects earnings. If the underlying hedge
transaction ceases to exist, any associated amounts reported in other comprehensive income are
reclassified to earnings at that time. Any ineffectiveness is recognized in earnings in the
current period. At October 2, 2005, we had two interest rate swaps in effect and no
outstanding commodity or utility derivatives. Refer to Note 4, Long-Term Debt, for additional
discussion regarding our interest rate swaps. |
| |
| |
|
At October 2, 2005 and October 3, 2004, we had no material financial instruments subject to
significant market exposure other than the COLI policies discussed above. |
| |
| |
|
Cash and cash equivalents — We invest cash in excess of operating requirements in
short-term, highly liquid investments with original maturities of three months or less, which
are considered cash equivalents. We have restricted cash and cash equivalents of approximately
$45,580. Refer to Note 4, Long-Term Debt, for additional discussion regarding our restricted
cash. |
| |
| |
|
Inventories are valued at the lower of cost or market on a first-in, first-out basis. |
| |
| |
|
Assets held for sale and leaseback primarily represent the costs for new sites that we plan to
sell and lease back when construction is completed. Gains or losses
realized on the sale-leaseback transactions are deferred and amortized to income over the lease terms. The leases
are classified in accordance with Statement of Financial Accounting Standards (“SFAS”) 13,
Accounting for Leases, and SFAS 98, Accounting for
Leases. During 2005 and 2004, we exercised our purchase option under certain
lease arrangement. We intend to sell and lease back these properties
at more favorable rental rates and as such, these sites are
included in assets held for sale and leaseback at October 2, 2005 and
October 3, 2004. |
| |
| |
|
Property and equipment, at cost — Expenditures for new facilities and equipment, and those that
substantially increase the useful lives of the property, are capitalized. Facilities leased
under capital leases are stated at the present value of minimum lease payments at the beginning
of the lease term, not to exceed fair value. Maintenance and repairs are expensed as incurred. When properties are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the accounts, and gains or
losses on the dispositions are reflected in results of operations. |
F-7
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 1. |
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
| |
| |
|
Buildings, equipment, and leasehold improvements are generally depreciated using the
straight-line method based on the estimated useful lives of the assets, or over the initial
lease term for certain leased properties (buildings and improvements range from 15 to 35 years;
and equipment from 3 to 35 years). In certain situations, one or more option periods may be
used in determining the depreciable life of certain leased properties, if we deem that an
economic penalty will be incurred. In either circumstance, the Company’s policy requires lease
term consistency when calculating the depreciation period, in classifying the lease and in
computing straight-line rent expense. |
| |
| |
|
Other assets primarily include lease acquisition costs, acquired franchise contract costs,
deferred finance costs and COLI policies. Lease acquisition
costs primarily represent the fair values of acquired lease contracts having contractual rents
lower than fair market rents, and are amortized on a straight-line basis over the remaining
initial lease term. Acquired franchise contract costs, which represent the acquired value of
franchise contracts, are amortized over the term of the franchise agreements based on the
projected royalty revenue stream. Deferred finance costs are
amortized using the effective-interest method over the terms of the respective loan agreements, from 4 to 7 years. COLI
policies are recorded at their cash surrender values in other assets, net, while changes in
cash surrender value are included in selling, general and administrative expenses. We
purchase COLI policies to offset a portion of our obligations under our non-qualified deferred
compensation and defined benefit pension plans. Refer to Note 8, Retirement and Savings Plans,
for additional discussion regarding certain restrictions related to the COLI policies. |
| |
| |
|
Impairment of long-lived assets — Property, equipment and certain other assets, including
amortized intangible assets, are reviewed for impairment when indicators of impairment are
present. Impairment is recognized when the undiscounted future cash flows estimated to be
generated by those assets are less than the assets’ carrying amount. Long-lived assets that
are held for disposal are reported at the lower of their carrying value or fair value, less
estimated costs to sell. In addition, goodwill and intangible assets not subject to
amortization are evaluated for impairment annually, or more frequently if indicators of impairment are
present. If the estimated fair values of these assets are less than the related
carrying amounts, an impairment loss is recognized. We performed our annual impairment tests
in the fourth quarter of fiscal years 2005 and 2004, and determined these assets were not
impaired at October 2, 2005 and October 3, 2004. |
| |
| |
|
Preopening costs associated with the opening of a new restaurant consist primarily of employee
training costs and are expensed as incurred. |
| |
| |
|
Restaurant closure costs — All costs associated
with exit or disposal activities are recognized when they are
incurred. Prior to December 31, 2002, we charged costs associated with restaurant closures to operations
when management committed to closing a restaurant. Restaurant closure costs, which are
included in selling, general and administrative expenses, consist of future lease commitments,
net of anticipated sublease rentals, and expected ancillary costs. |
| |
| |
|
Self-insurance — We are self-insured for a portion of our workers’ compensation, general
liability, automotive, and employee medical and dental claims. We utilize a paid loss plan for
our workers’ compensation, general liability and automotive programs, which have predetermined
loss limits per occurrence and in the aggregate. We establish our insurance liability and
reserves using independent actuarial estimates of expected losses for determining reported
claims and as the basis for estimating claims incurred but not reported. |
F-8
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 1. |
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
| |
| |
|
Franchise operations — Franchise arrangements generally provide for initial franchise fees
and continuing payments to us based on a percentage of sales. Among other things, a franchisee
may be provided the use of land and building, generally for a period of 20 years, and is
required to pay negotiated rent, property taxes, insurance and maintenance. Franchise fees are
recorded as revenue when we have substantially performed all of our contractual obligations.
Expenses associated with the issuance of the franchise are expensed as incurred. Franchise
royalties are recorded in income on an accrual basis. Certain franchise rents, which are
contingent upon sales levels, are recognized in the period in which the contingency is met.
Gains on the sale of restaurant businesses to franchisees are recorded as other revenue when
the sales are consummated and certain other revenue recognition criteria are met. |
| |
| |
|
Advertising costs — We maintain marketing funds which include contributions of
approximately 5% and 1% of sales at all company-operated Jack in the Box and Qdoba
restaurants, respectively, as well as contractual marketing fees paid monthly by franchisees.
Production costs of commercials, programming and other marketing
activities are charged to the
marketing funds when the advertising is first used, and the costs of advertising are charged to
operations as incurred. Our contributions to the marketing funds and other marketing expenses,
which are included in selling, general, and administrative expenses in the accompanying
consolidated statements of earnings, were $104,605, $103,721 and $94,807 in 2005, 2004 and
2003, respectively. |
| |
| |
|
Variable interest entities — In January 2003, the
Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46R,
Consolidation of Variable Interest Entities
(“FIN 46R”). FIN 46R requires the primary beneficiary of a variable
interest entity to consolidate that entity. The primary beneficiary of a variable interest entity is the party that
absorbs a majority of the variable interest entity’s expected losses, receives a
majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial
interests in the entity. |
| |
| |
|
The primary entities we possess a variable interest in are
franchise entities which operate our franchised restaurants. We do not possess any ownership
interests in our franchisees and we do not generally provide financial support to our franchisees.
We have reviewed these franchise entities and determined that the
Company is not the primary beneficiary of the entities and therefore, these entities have not been consolidated. |
| |
| |
|
We use two advertising funds to administer our advertising
programs. These funds are consolidated into the Company’s
financial statements as they are deemed to be variable interest
entities for which the Company is the primary beneficiary.
Contributions to these funds are designated for advertising, and the Company
administers the funds’ contributions. In accordance with SFAS 45,
Accounting for Franchise Fee Revenue,
contributions from franchisees, when received, are recorded as
offsets to the Company’s reported
advertising expense in its consolidated statements of earnings. |
| |
| |
|
Income taxes — Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, as well as tax loss and credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. |
| |
| |
|
Net earnings per share — Basic net earnings per share is computed using the
weighted-average shares outstanding during the period. Diluted net earnings per share is
computed using the dilutive effect of including stock options and restricted stock in the
calculation of weighted-average shares outstanding. |
| |
| |
|
Segment reporting — An operating segment is defined as a component of an enterprise that
engages in business activities from which it may earn revenues and incur expenses, and about
which separate financial information is regularly evaluated by chief operating decision makers
in deciding how to allocate resources. Similar operating segments can be aggregated into a
single operating segment if the businesses are similar. Jack in the Box Inc. operates its
business in two operating segments,
Jack in the
Box and Qdoba. |
| |
| |
|
Restricted stock — Restricted stock awards are 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. |
F-9
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 1. |
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
| |
| |
|
Stock options — Stock awards are accounted for under Accounting Principles Board (“APB”)
Opinion 25, Accounting for Stock Issued to Employees, using the intrinsic method, whereby
compensation expense is recognized for the excess, if any, of the quoted market price of the
Company’s stock at the date of grant over the exercise price. Our policy is to grant stock
options at fair value at the date of grant. Had compensation expense been recognized for our
stock-based compensation plans by applying the fair value recognition provisions of SFAS 123,
Accounting for Stock-Based Compensation, we would have recorded net earnings and earnings per
share amounts as follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
Net earnings, as reported |
|
$ |
91,537 |
|
|
$ |
74,684 |
|
|
$ |
70,084 |
|
Add:
Stock-based employee
compensation included in
reported net income, net of
taxes |
|
|
880 |
|
|
|
371 |
|
|
|
318 |
|
Deduct:
Total stock-based
employee compensation expense
determined under
fair-value-based method for all awards,
net of taxes |
|
|
(7,693 |
) |
|
|
(6,171 |
) |
|
|
(5,126 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings |
|
$ |
84,724 |
|
|
$ |
68,884 |
|
|
$ |
65,276 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic – as reported |
|
$ |
2.57 |
|
|
$ |
2.06 |
|
|
$ |
1.92 |
|
Basic – pro forma |
|
$ |
2.38 |
|
|
$ |
1.90 |
|
|
$ |
1.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted – as reported |
|
$ |
2.48 |
|
|
$ |
2.02 |
|
|
$ |
1.90 |
|
Diluted – pro forma |
|
$ |
2.29 |
|
|
$ |
1.86 |
|
|
$ |
1.77 |
|
| |
|
For the pro forma disclosures, the estimated fair values of the options were amortized on
a straight-line basis over their vesting periods of up to five years. Refer to Note 10,
Stock-Based Employee Compensation, for information regarding the assumptions used by the
Company in valuing its stock options. |
| |
| |
|
In December 2004, the FASB issued SFAS 123R, Share-Based Payment, which revises SFAS 123,
Accounting for Stock-Based Compensation, and generally requires, among other things, that all
employee stock-based compensation be measured using a fair-value method and that the resulting
compensation cost be recognized in the financial statements. SFAS 123R also provides guidance
on how to determine the grant-date fair value for awards of equity instruments, as well as
alternative methods of adopting its requirements. SFAS 123R is effective at the beginning of
the first annual period after June 15, 2005. We plan to adopt the provisions of SFAS 123R in
the first quarter of fiscal year 2006 and expect the impact in fiscal 2006 to be approximately
$0.15 per diluted share. |
| |
| |
|
Estimations — In preparing the 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 from, and consider information provided by, actuaries and other
experts in a particular area. Actual amounts could differ materially from these estimates. |
F-10
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
2. QDOBA ACQUISITION
| |
|
On January 21, 2003, we acquired 100% of the outstanding stock of Qdoba, operator and
franchisor of Qdoba Mexican Grillâ, for approximately $45,000 in cash. Qdoba’s results
of operations have been included since the date of acquisition. Had the acquisition been
completed as of the beginning of fiscal year 2003, we would have reported the following pro
forma amounts: |
| |
|
|
|
|
| |
|
2003 |
| |
Total revenues |
|
$ |
2,066,398 |
|
Net earnings |
|
|
69,563 |
|
| |
Net earnings
per share – basic |
|
$ |
1.91 |
|
Net earnings
per share – diluted |
|
$ |
1.88 |
|
| |
|
The pro forma results include interest expense on our credit facility, which was used to
finance the acquisition. The pro forma amounts are not necessarily indicative of the results
that would have resulted had the acquisition occurred at the beginning of the periods
presented; nor is it necessarily indicative of anticipated future results. |
| |
| 3. |
|
INTANGIBLE ASSETS |
| |
| |
|
Intangible assets consist of the following as of October 2, 2005 and October 3, 2004: |
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
| |
Amortized intangible assets: |
|
|
|
|
|
|
|
|
Gross carrying amount |
|
$ |
60,181 |
|
|
$ |
60,550 |
|
Less accumulated amortization |
|
|
(46,888 |
) |
|
|
(46,085 |
) |
|
|
|
|
|
|
|
Net carrying amount |
|
$ |
13,293 |
|
|
$ |
14,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets: |
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
92,187 |
|
|
$ |
90,218 |
|
Trademark |
|
|
8,800 |
|
|
|
8,800 |
|
|
|
|
|
|
|
|
|
|
$ |
100,987 |
|
|
$ |
99,018 |
|
|
|
|
|
|
|
|
| |
|
Amortized intangible assets include lease acquisition costs and acquired franchise contracts.
The weighted-average life of the amortized intangible assets is approximately 26 years. Total
amortization expense related to intangible assets was $1,173, $1,260 and $1,321 in fiscal years
2005, 2004 and 2003, respectively. The estimated amortization expense for each year from
fiscal year 2006 through 2010 is $1,007, $940, $825, $761 and $749, respectively. |
| |
|
There were no changes to goodwill during fiscal year 2004. The changes in the carrying amount
of goodwill during fiscal year 2005 were as follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Jack in the Box |
|
|
Qdoba |
|
|
Total |
|
| |
Balance at October 3,
2004 |
|
$ |
66,601 |
|
|
$ |
23,617 |
|
|
$ |
90,218 |
|
Goodwill acquired |
|
|
1,267 |
|
|
|
702 |
|
|
|
1,969 |
|
|
|
|
|
|
|
|
|
|
|
Balance at October 2, 2005 |
|
$ |
67,868 |
|
|
$ |
24,319 |
|
|
$ |
92,187 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
During fiscal year 2005, aggregate goodwill of $1,969 was recorded in connection with the
acquisition of one Jack in the Box franchised restaurant and three
Qdoba franchised restaurants. |
F-11
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
| |
The detail of long-term debt at each year-end follows: |
|
|
|
|
|
|
|
|
Term loan, replaced during fiscal year 2004, variable
interest rate based on an applicable margin plus LIBOR, 5.26%
at October 2, 2005, quarterly payments of $688 through
January 29, 2010 and subsequent quarterly payments of $64,625
through January 8, 2011 |
|
$ |
270,875 |
|
|
$ |
273,625 |
|
Secured notes, 11.5% interest, repaid during fiscal year 2005 |
|
|
— |
|
|
|
713 |
|
Capitalized lease obligations, 7.97% average interest rate |
|
|
26,315 |
|
|
|
29,815 |
|
Other notes, principally unsecured, 10% average interest rate |
|
|
811 |
|
|
|
1,142 |
|
|
|
|
|
|
|
|
|
|
|
298,001 |
|
|
|
305,295 |
|
Less current portion |
|
|
7,788 |
|
|
|
8,203 |
|
|
|
|
|
|
|
|
|
|
$ |
290,213 |
|
|
$ |
297,092 |
|
|
|
|
|
|
|
|
| |
|
Credit facility — Our credit facility is comprised of: (i) a $200,000 revolving credit facility
maturing on January 8, 2008 with a rate of London Interbank Offered Rate (“LIBOR”) plus 2.25%
and (ii) a $270,875 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 $313. |
| |
| |
|
Effective October 6, 2005, we amended our 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 $200,000 for
the acquisition of our common stock or the potential payment of cash dividends. |
| |
| |
|
Letter of credit agreement — To reduce our letter
of credit fees incurred under the credit facility, we entered into a separate cash-collateralized letter of credit agreement. At October 2, 2005, we
had letters of credit outstanding under this agreement of $40,647, which were collateralized by
approximately $45,580 of cash and cash equivalents. Although we intend to continue this
agreement, we have the ability to terminate the cash-collateralized letter of credit agreement
thereby eliminating restrictions on the $45,580 restricted cash and cash equivalent balance. |
| |
| |
|
Interest rate swaps — We are exposed to interest rate volatility with regard to existing
variable rate debt. To reduce our exposure to rising interest rates, in March 2005, we entered
into two interest rate swap agreements that effectively converted $130,000 of our variable rate
term loan borrowings to a fixed rate basis through March 2008. The agreements have been
designated as cash flow hedges under the terms of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, with effectiveness assessed based on changes in the present
value of interest payments on the term loan. There was no hedge ineffectiveness in 2005.
Accordingly, changes in the fair value of the interest rate swap contracts were recorded, net
of taxes, as a component of accumulated other comprehensive income in the accompanying
consolidated balance sheet as of October 2, 2005. |
| |
| |
|
Covenants — We are subject to a number of customary covenants under our various credit
agreements, including limitations on additional borrowings, acquisitions, loans to franchisees,
capital expenditures, lease commitments and dividend payments, and requirements to maintain
certain financial ratios, cash flows and net worth. As of October 2, 2005, we were in
compliance with all debt covenants. |
| |
| |
|
Aggregate maturities on all long-term debt are $7,788,
$7,939, $7,880, $4,726 and $4,046
for the years 2006 through 2010, respectively. |
| |
| |
|
We capitalize interest in connection with the construction of our restaurants and other
facilities. Interest capitalized in 2005, 2004 and 2003 was $1,052, $1,997 and $1,130,
respectively. Capitalized interest in 2004 and 2003 includes dollars associated with the
construction of our Innovation Center. |
F-12
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 5. |
|
LEASES |
| |
| |
|
As lessee — We lease restaurants and other facilities, which generally have renewal clauses of
5 to 20 years exercisable at our option. In some instances, our leases have provisions for
contingent rentals based upon a percentage of defined revenues. Many of our leases also have
rent escalation clauses and require the payment of property taxes, insurance and maintenance
costs. We also lease certain restaurant, office and warehouse equipment, as well as various
transportation equipment. Minimum rental obligations are accounted for on a straight-line
basis over the term of the initial lease. Total rent expense was as follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
Minimum rentals |
|
$ |
184,169 |
|
|
$ |
178,937 |
|
|
$ |
167,109 |
|
Contingent rentals |
|
|
3,157 |
|
|
|
5,250 |
|
|
|
6,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,326 |
|
|
|
184,187 |
|
|
|
173,138 |
|
Less sublease rentals |
|
|
(26,086 |
) |
|
|
(22,060 |
) |
|
|
(17,744 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
161,240 |
|
|
$ |
162,127 |
|
|
$ |
155,394 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
During fiscal year 2005, we exercised our purchase option under certain lease arrangements and
purchased approximately 31
Jack in the Box
restaurant
properties. By year-end, we had subsequently sold and leased back 7 of these properties at
more favorable rental rates. We anticipate selling and leasing back the remaining sites during
fiscal 2006, which are included in assets held for sale and leaseback at October 2, 2005. |
| |
|
Future minimum lease payments under capital and operating leases are as follows: |
| |
|
|
|
|
|
|
|
|
| Fiscal |
|
Capital |
|
|
Operating |
|
| year |
|
leases |
|
|
leases |
|
| |
2006 |
|
$ |
6,685 |
|
|
$ |
178,829 |
|
2007 |
|
|
6,654 |
|
|
|
168,526 |
|
2008 |
|
|
6,288 |
|
|
|
156,856 |
|
2009 |
|
|
2,977 |
|
|
|
141,709 |
|
2010 |
|
|
2,238 |
|
|
|
128,558 |
|
Thereafter |
|
|
12,255 |
|
|
|
931,536 |
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
|
37,097 |
|
|
$ |
1,706,014 |
|
|
|
|
|
|
|
|
|
Less amount representing interest, 7.97% average interest rate |
|
|
(10,782 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Present value of obligations under capital leases |
|
|
26,315 |
|
|
|
|
|
Less current portion |
|
|
(4,695 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term capital lease obligations |
|
$ |
21,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Future minimum sublease rents of $494,285 are expected to be recovered under our operating
subleases. Assets recorded under capital leases are included in property and equipment and
consisted of the following at each year-end: |
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
| |
Buildings |
|
$ |
23,072 |
|
|
$ |
22,161 |
|
Restaurant equipment |
|
|
18,289 |
|
|
|
18,289 |
|
|
|
|
|
|
|
|
|
|
|
41,361 |
|
|
|
40,450 |
|
Less accumulated amortization |
|
|
(19,255 |
) |
|
|
(14,452 |
) |
|
|
|
|
|
|
|
|
|
$ |
22,106 |
|
|
$ |
25,998 |
|
|
|
|
|
|
|
|
| |
|
Amortization of assets under capital leases is included in depreciation and amortization
expense. |
F-13
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 5. |
|
LEASES (continued) |
| |
| |
|
As lessor — We lease or sublease restaurants to certain franchisees and others under
agreements that generally provide for the payment of percentage rentals in excess of stipulated
minimum rentals, usually for a period of 20 years. Total rental revenue was $45,734, $39,906
and $32,749, including contingent rentals of $10,280, $10,290 and $9,319, in 2005, 2004 and
2003, respectively. |
| |
| |
|
The minimum rents receivable expected to be received under these non-cancelable leases,
excluding contingent rentals, are as follows: |
| |
|
|
|
|
|
|
|
|
| Fiscal |
|
Direct financing |
|
|
Operating |
|
| year |
|
lease |
|
|
leases |
|
| |
2006 |
|
$ |
442 |
|
|
$ |
39,275 |
|
2007 |
|
|
442 |
|
|
|
37,180 |
|
2008 |
|
|
442 |
|
|
|
34,956 |
|
2009 |
|
|
442 |
|
|
|
32,877 |
|
2010 |
|
|
442 |
|
|
|
31,254 |
|
Thereafter |
|
|
5,393 |
|
|
|
346,804 |
|
|
|
|
|
|
|
|
Total minimum future rentals |
|
|
7,603 |
|
|
$ |
522,346 |
|
|
|
|
|
|
|
|
|
Less amount representing unearned income |
|
|
(7,126 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (included in other assets) |
|
$ |
477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Land, building and equipment assets held for lease were $78,580 and $66,366, net of
accumulated depreciation of $48,697 and $38,694, as of October 2, 2005 and October 3, 2004,
respectively. |
| |
| 6. |
|
RESTAURANT CLOSING, IMPAIRMENT CHARGES AND OTHER |
| |
| |
|
In fiscal 2005 and 2004, we recorded immaterial impairment charges related to the closure of
certain company-operated restaurants. Furthermore, in the fourth quarter of fiscal 2005, we
incurred costs of approximately $3,000 related to the cancellation of the Company’s test of a
fast-casual concept called JBX Grill. These charges have been included in selling, general and
administrative expenses in the consolidated statements of earnings. |
| |
| |
|
Total accrued restaurant closing costs, included in accrued expenses and other long-term
liabilities, were $5,495 and $6,321 as of October 2, 2005 and October 3, 2004, respectively.
In fiscal years 2005, 2004 and 2003, lease exit costs of $143, $287 and $1,516, respectively,
were charged to operations, resulting from revisions to certain sublease assumptions, and cash
payments of $969, $977 and $1,470, respectively, were applied against the restaurant closing
costs accrual. |
| |
| 7. |
|
INCOME TAXES |
| |
| |
|
The fiscal year income taxes consist of the following: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
Federal – current |
|
$ |
44,007 |
|
|
$ |
33,082 |
|
|
$ |
21,137 |
|
– deferred |
|
|
(18,191 |
) |
|
|
17,986 |
|
|
|
3,876 |
|
State – current |
|
|
5,897 |
|
|
|
5,715 |
|
|
|
4,647 |
|
– deferred |
|
|
(3,069 |
) |
|
|
2,546 |
|
|
|
(1,794 |
) |
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
28,644 |
|
|
|
59,329 |
|
|
|
27,866 |
|
Income tax
expense (benefit)
related to additional
minimum pension liability
and interest rate swaps |
|
|
18,023 |
|
|
|
(16,509 |
) |
|
|
11,652 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
46,667 |
|
|
$ |
42,820 |
|
|
$ |
39,518 |
|
|
|
|
|
|
|
|
|
|
|
F-14
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 7. |
|
INCOME TAXES (continued) |
| |
| |
|
A reconciliation of the federal statutory income tax rate to our effective tax rate is as
follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
2003 |
| |
Computed at federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes, net of federal tax benefit |
|
|
3.0 |
|
|
|
3.2 |
|
|
|
2.8 |
|
Benefit of jobs tax credits |
|
|
(1.4 |
) |
|
|
(1.2 |
) |
|
|
(1.3 |
) |
Adjustment to estimated tax accruals |
|
|
(2.7 |
) |
|
|
— |
|
|
|
(.6 |
) |
Other, net |
|
|
(0.1 |
) |
|
|
(.6 |
) |
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33.8 |
% |
|
|
36.4 |
% |
|
|
36.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
In 2005, the favorable tax rate related primarily to the resolution of a prior year’s tax
position and to certain tax planning strategies. The lower rates in 2004 and 2003 resulted
from additional tax credits obtained as well as favorable resolutions of long-standing tax
matters. |
The tax effects of temporary differences that give rise to significant portions of deferred tax
assets and deferred tax liabilities at each
year- end are presented below:
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
| |
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accrued pension and post retirement benefits |
|
$ |
29,351 |
|
|
$ |
11,478 |
|
Accrued insurance |
|
|
17,937 |
|
|
|
17,140 |
|
Accrued vacation pay expense |
|
|
12,458 |
|
|
|
12,282 |
|
Deferred income |
|
|
5,643 |
|
|
|
11,067 |
|
Other reserves and allowances |
|
|
7,213 |
|
|
|
8,707 |
|
Tax loss and tax credit carryforwards |
|
|
2,571 |
|
|
|
251 |
|
Other, net |
|
|
16,038 |
|
|
|
10,225 |
|
|
|
|
|
|
|
|
Total gross deferred tax assets |
|
|
91,211 |
|
|
|
71,150 |
|
Valuation
allowance |
|
|
(2,320 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Total net
deferred tax assets |
|
|
88,891 |
|
|
|
71,150 |
|
| |
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property and equipment, principally due to differences in depreciation |
|
|
87,899 |
|
|
|
92,971 |
|
Intangible assets |
|
|
21,512 |
|
|
|
19,959 |
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities |
|
|
109,411 |
|
|
|
112,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
20,520 |
|
|
$ |
41,780 |
|
|
|
|
|
|
|
|
| |
|
At October 2, 2005 and October 3, 2004, current
deferred tax assets of $38,340 and $36,706,
respectively, are included in other current assets, and non-current deferred tax liabilities of
$58,860 and $78,486, respectively, are included in other non-current liabilities. |
| |
| |
|
Deferred tax assets at October 2, 2005 include state net operating loss carryforwards of
approximately $39,600 expiring at various times between 2010 and
2025. At October 2, 2005, the Company recorded a valuation allowance
of $2,320 related to these state net operating losses. The Company believes
that it is more likely than not that these loss carry forwards will
not be realized. Management believes that the remaining deferred tax
assets will be realized through future taxable income or alternative
tax strategies. |
| |
| |
|
From time-to-time, we may take positions for filing our tax returns, which may differ from the
treatment of the same item for financial reporting purposes. The ultimate outcome of these
items will not be known until such time as the IRS has completed its examination or until the
statute of limitations has expired. |
F-15
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 8. |
|
RETIREMENT AND SAVINGS PLANS |
| |
| |
|
We have non-contributory defined benefit pension plans covering those employees meeting certain
eligibility requirements. These plans are subject to modification at any time. The plans
provide retirement benefits based on years of service and compensation. It is our practice to
fund retirement costs as necessary. |
| |
| |
|
We use a June 30 measurement date for our defined benefit pension plans. The following table
provides a reconciliation, as of June 30, 2005 and June 30, 2004, of the changes in benefit
obligations, plans assets and funded status of our qualified and non-qualified plans. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Qualified plans |
|
|
Non—qualified plan |
|
| |
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
| |
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
151,334 |
|
|
$ |
139,595 |
|
|
$ |
30,878 |
|
|
$ |
31,663 |
|
Service cost |
|
|
8,393 |
|
|
|
8,170 |
|
|
|
644 |
|
|
|
536 |
|
Interest cost |
|
|
10,053 |
|
|
|
8,943 |
|
|
|
2,043 |
|
|
|
1,941 |
|
Actuarial (gain) loss |
|
|
43,486 |
|
|
|
(2,851 |
) |
|
|
4,919 |
|
|
|
(2,093 |
) |
Benefits paid |
|
|
(2,903 |
) |
|
|
(2,523 |
) |
|
|
(1,306 |
) |
|
|
(1,214 |
) |
Plan amendment and other |
|
|
— |
|
|
|
— |
|
|
|
366 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
$ |
210,363 |
|
|
$ |
151,334 |
|
|
$ |
37,544 |
|
|
$ |
30,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
127,016 |
|
|
$ |
84,928 |
|
|
$ |
— |
|
|
$ |
— |
|
Actual return on plan assets |
|
|
12,615 |
|
|
|
14,611 |
|
|
|
— |
|
|
|
— |
|
Employer contributions |
|
|
22,200 |
|
|
|
30,000 |
|
|
|
1,306 |
|
|
|
1,214 |
|
Benefits paid |
|
|
(2,903 |
) |
|
|
(2,523 |
) |
|
|
(1,306 |
) |
|
|
(1,214 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
158,928 |
|
|
$ |
127,016 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(51,435 |
) |
|
$ |
(24,318 |
) |
|
$ |
(37,544 |
) |
|
$ |
(30,878 |
) |
Unrecognized net loss |
|
|
81,608 |
|
|
|
45,370 |
|
|
|
10,370 |
|
|
|
5,894 |
|
Unrecognized prior service cost |
|
|
708 |
|
|
|
832 |
|
|
|
4,492 |
|
|
|
4,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
30,881 |
|
|
$ |
21,884 |
|
|
$ |
(22,682 |
) |
|
$ |
(20,111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the statement of
financial position consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit liability |
|
$ |
(16,701 |
) |
|
$ |
— |
|
|
$ |
(34,100 |
) |
|
$ |
(27,037 |
) |
Prepaid benefit cost |
|
|
4,733 |
|
|
|
21,884 |
|
|
|
— |
|
|
|
— |
|
Accumulated other comprehensive loss |
|
|
42,141 |
|
|
|
— |
|
|
|
6,926 |
|
|
|
2,053 |
|
Intangible assets |
|
|
708 |
|
|
|
— |
|
|
|
4,492 |
|
|
|
4,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset (liability) recognized |
|
$ |
30,881 |
|
|
$ |
21,884 |
|
|
$ |
(22,682 |
) |
|
$ |
(20,111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
A minimum pension liability adjustment is required when the accumulated benefit obligation
exceeds the fair value of plan assets and accrued benefit liabilities at the measurement date.
In fiscal year 2005, lower interest rates have caused our accumulated benefit obligation to
increase. As a result, we were required to recognize an additional minimum pension liability
at October 2, 2005. The additional liability recognized in fiscal year 2005 resulted in a
cumulative charge to other comprehensive income in the consolidated statements of stockholders’
equity of $49,067, an increase of $47,014 compared with a year ago. All defined benefit
pension plan obligations, regardless of the funding status of the underlying plans, are fully
supported by the financial strength of the Company. |
F-16
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 8. |
|
RETIREMENT AND SAVINGS PLANS (continued) |
| |
| |
|
As of June 30, 2005, one of the qualified plans accumulated benefit obligation in the amount of
$161,910 exceeded the fair market value of plan assets totaling $145,208. The non-qualified
plan is an unfunded plan and, as such, had no plan assets as of June 30, 2005 and June 30,
2004. |
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
| |
Qualified plans |
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
$ |
210,363 |
|
|
$ |
151,334 |
|
Accumulated benefit obligation |
|
|
174,869 |
|
|
|
126,073 |
|
Fair value of plan assets |
|
|
158,928 |
|
|
|
127,016 |
|
|
|
|
|
|
|
|
|
|
Non-qualified plan |
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
$ |
37,544 |
|
|
$ |
30,878 |
|
Accumulated benefit obligation |
|
|
34,100 |
|
|
|
27,037 |
|
Fair value of plan assets |
|
|
— |
|
|
|
— |
|
| |
|
Net periodic pension cost — The components of the fiscal year net defined benefit pension cost
are as follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Qualified plans |
|
|
Non-qualified plan |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
Service cost |
|
$ |
8,393 |
|
|
$ |
8,170 |
|
|
$ |
5,357 |
|
|
$ |
644 |
|
|
$ |
536 |
|
|
$ |
511 |
|
Interest cost |
|
|
10,053 |
|
|
|
8,943 |
|
|
|
7,186 |
|
|
|
2,043 |
|
|
|
1,941 |
|
|
|
1,725 |
|
Expected return on plan assets |
|
|
(9,438 |
) |
|
|
(7,040 |
) |
|
|
(6,468 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Recognized actuarial loss |
|
|
4,072 |
|
|
|
6,272 |
|
|
|
2,378 |
|
|
|
442 |
|
|
|
603 |
|
|
|
73 |
|
Amortization
of unrecognized prior service cost |
|
|
124 |
|
|
|
124 |
|
|
|
93 |
|
|
|
652 |
|
|
|
648 |
|
|
|
506 |
|
Amortization
of unrecognized transition asset obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
95 |
|
|
|
95 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
13,204 |
|
|
$ |
16,469 |
|
|
$ |
8,546 |
|
|
$ |
3,876 |
|
|
$ |
3,823 |
|
|
$ |
2,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Assumptions — We determine our actuarial assumptions on an annual basis. In determining the
present values of the Company’s benefit obligations and net periodic pension costs as of and
for the fiscal years ended October 2, 2005, October 3, 2004 and September 28, 2003,
respectively, we used the following weighted-average assumptions: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Qualified plans |
|
Non-qualified plan |
| |
|
2005 |
|
2004 |
|
2003 |
|
2005 |
|
2004 |
|
2003 |
| |
Assumptions used to determine benefit
obligations (1) : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.50 |
% |
|
|
6.45 |
% |
|
|
6.15 |
% |
|
|
5.50 |
% |
|
|
6.45 |
% |
|
|
6.15 |
% |
Rate of future compensation increases |
|
|
3.50 |
|
|
|
3.50 |
|
|
|
3.50 |
|
|
|
5.00 |
|
|
|
5.00 |
|
|
|
5.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine net periodic
pension cost (2) : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.45 |
% |
|
|
6.15 |
% |
|
|
7.30 |
% |
|
|
6.45 |
% |
|
|
6.15 |
% |
|
|
7.30 |
% |
Long-term rate of return on assets |
|
|
7.50 |
|
|
|
7.50 |
|
|
|
8.50 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Rate of future compensation increases |
|
|
3.50 |
|
|
|
3.50 |
|
|
|
3.50 |
|
|
|
5.00 |
|
|
|
5.00 |
|
|
|
5.00 |
|
|
|
|
| (1) |
|
Determined as of end of year. |
| |
| (2) |
|
Determined as of beginning of year. |
| |
|
The assumed discount rate for our pension plans reflects the
market rates for high-quality bonds currently available. The
Company’s discount rate was determined by considering the
average of pension yield curves constructed of a population of high-quality bonds. The resulting discount rate reflects the
matching of plan liability cash flows to the yield curves. The long-term rate of return on assets was determined taking into consideration our
projected asset allocation and economic forecasts prepared with the
assistance of our actuarial consultants. |
F-17
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 8. |
|
RETIREMENT AND SAVINGS PLANS (continued) |
| |
| |
|
Plan assets — As of October 2, 2005, our target asset allocation was 41% U.S. equities, 38%
debt securities, 15% international equities and 6% balanced fund. We regularly monitor our
asset allocation to ensure it approximates our target allocation, and senior financial
management and the Finance Committee of the Board of Directors review performance results at
least quarterly. We believe our long-term asset allocation will continue to approximate our
target allocation. The qualified plans had the following asset allocations at June 30, 2005
and June 30, 2004: |
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
| |
U.S. equities |
|
|
41 |
% |
|
|
41 |
% |
International equities |
|
|
15 |
|
|
|
9 |
|
Debt securities |
|
|
38 |
|
|
|
34 |
|
Balanced fund |
|
|
6 |
|
|
|
5 |
|
Cash (1) |
|
|
— |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
We made a contribution to the qualified plans on June 30, 2004 that approximated
10% of the plans’ assets. This cash contribution was allocated to the appropriate
asset classes on the next business day, July 1, 2004. |
| |
|
Future cash flows — During fiscal year 2006, we currently expect to contribute
approximately $11,000 to our qualified plans and $2,000 to our non-qualified plan. Total
qualified and non-qualified plan pension benefits expected to be paid in each year from fiscal
year 2006 through 2010 are $4,586, $4,894, $5,354, $5,914 and $6,484, respectively. The
aggregate expected benefits to be paid in the five fiscal years from 2011 through 2015 are
$44,316. Expected benefits to be paid are based on the same assumptions used to measure our
benefit obligation at October 2, 2005 and include estimated future employee service. |
| |
| |
|
Defined contribution plans — We maintain savings plans pursuant to Section 401(k) of the
Internal Revenue Code which allows administrative and clerical employees who have satisfied the
service requirements and reached age 21, to defer a percentage of their pay on a pre-tax basis.
We contribute an amount equal to 50% of the first 4% of compensation that is deferred by the
participant. Our contributions under these plans were $1,815, $1,940 and $1,874 in 2005, 2004
and 2003, respectively. We also maintain an unfunded, non-qualified deferred compensation plan,
which was created in 1990 for key executives and other members of management who are excluded
from participation in the qualified savings plan. This plan allows participants to defer up to
50% of their salary and 100% of their bonus, on a pre-tax basis. We match an amount equal to
100% of the first 3% contributed by the employee. Our contributions under the non-qualified
deferred compensation plan were $1,091, $645 and $685 in 2005, 2004 and 2003, respectively. In
each plan, a participant’s right to Company contributions vests at a rate of 25% per year of
service. |
| |
| |
|
Company-owned life insurance — We have elected to purchase company-owned life insurance
policies to support our non-qualified benefit plans. The cash surrender value of these
policies was $43,741 and $33,310 as of October 2, 2005 and October 3, 2004, respectively. A
portion of these policies reside in an umbrella trust for use only to pay plan benefits to
participants or, if the Company becomes insolvent, to pay creditors. The cash surrender value
of those policies covered under the trust was $22,927 and $21,183 as of October 2, 2005 and
October 3, 2004, respectively. The trust also includes cash of $831 and
$850 as of October 2, 2005 and October 3, 2004, respectively. |
| |
| |
|
Non-management directors’ deferred compensation plan
— We maintain a deferred compensation plan
for non-management directors. Under the plan’s equity option, those who are eligible to
receive directors’ fees or retainers may choose to defer receipt of their compensation. The
amounts deferred are converted into stock equivalents at the current market price of our common
stock. We provide a deferment credit equal to 25% of the compensation initially deferred.
Under this plan, our liability is adjusted at the end of each reporting period to reflect the
then-current market price of our common stock. In 2005, 2004 and 2003, we expensed (credited) a
total of $280, $1,550 and $(95), respectively, for both the deferment credit and the stock
appreciation (depreciation) on the deferred compensation. |
F-18
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 9. |
|
POST RETIREMENT BENEFIT PLAN |
| |
| |
|
We sponsor health care plans that provide post retirement medical benefits for 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. Our policy is to fund the cost of medical benefits in amounts determined at
the discretion of management. |
| |
| |
|
Our post retirement health plans provide for prescription drug benefits. The Medicare
Prescription Drug Improvement and Modernization Act of 2003 (“Act”) was signed into law on
December 8, 2003. On May 19, 2004, the FASB issued FSP 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003, which provides accounting guidance related to the Act. We adopted FSP 106-2 in fiscal
year 2004 as required. The Act subsidy resulted in a $2,100 reduction in the accumulated
benefit obligation for past services. |
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
| |
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
14,217 |
|
|
$ |
13,543 |
|
Service cost |
|
|
292 |
|
|
|
259 |
|
Interest cost |
|
|
1,127 |
|
|
|
825 |
|
Participant contributions |
|
|
88 |
|
|
|
69 |
|
Actuarial (gain) loss |
|
|
3,581 |
|
|
|
(293 |
) |
Benefits paid |
|
|
(483 |
) |
|
|
(186 |
) |
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
$ |
18,822 |
|
|
$ |
14,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
— |
|
|
$ |
— |
|
Employer contributions |
|
|
395 |
|
|
|
117 |
|
Participant contributions |
|
|
88 |
|
|
|
69 |
|
Benefits paid |
|
|
(483 |
) |
|
|
(186 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status: |
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(18,822 |
) |
|
$ |
(14,217 |
) |
Unrecognized prior service cost |
|
|
1,001 |
|
|
|
— |
|
Unrecognized actuarial gain, net |
|
|
(3,737 |
) |
|
|
(5,200 |
) |
|
|
|
|
|
|
|
Net liability recognized |
|
$ |
(21,558 |
) |
|
$ |
(19,417 |
) |
|
|
|
|
|
|
|
| |
|
All of the net liability recognized in the reconciliation of funded status is included as
an other long-term liability in the consolidated balance sheets. |
| |
|
Assumptions — We determine our actuarial assumptions on an annual basis. In determining the
present values of our benefit obligation and net periodic benefit cost as of and for the fiscal
years ended October 2, 2005, October 3, 2004 and September 28, 2003, respectively, we used the
following assumptions: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
2003 |
| |
Assumptions used to determine benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.50 |
% |
|
|
6.45 |
% |
|
|
6.15 |
% |
Measurement date |
|
|
6/30/2005 |
|
|
|
6/30/2004 |
|
|
|
6/30/2003 |
|
Assumptions used to determine net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.45 |
% |
|
|
6.15 |
% |
|
|
7.30 |
% |
Measurement date |
|
|
6/30/2004 |
|
|
|
6/30/2003 |
|
|
|
6/30/2002 |
|
F-19
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 9. |
|
POST RETIREMENT BENEFIT PLAN (continued) |
| |
| |
|
Net periodic benefit cost — The components of the fiscal year net periodic post retirement
benefit cost are as follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
Service cost |
|
$ |
292 |
|
|
$ |
259 |
|
|
$ |
322 |
|
Interest cost |
|
|
1,127 |
|
|
|
825 |
|
|
|
661 |
|
Recognized actuarial gain |
|
|
(376 |
) |
|
|
(506 |
) |
|
|
(914 |
) |
Amortization of prior service cost |
|
|
185 |
|
|
|
— |
|
|
|
— |
|
Amortization of losses |
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1,232 |
|
|
$ |
578 |
|
|
$ |
69 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Health care cost trend rates — For measurement purposes, the assumed health care cost trend
rates were as follows: |
| |
|
|
|
|
| |
|
Trend Rates |
| |
Health care cost trend rate for next year: |
|
|
|
|
Participants under age 65 |
|
|
10.00 |
% |
Participants age 65 or older |
|
|
10.42 |
% |
Rate to which the cost trend rate is assumed to decline |
|
|
4.96 |
% |
Year the rate reaches the ultimate trend rate |
|
|
2014 |
|
| |
|
The health care cost trend rate assumption has a significant effect on the amounts reported.
For example, increasing the assumed health care cost trend rates by 1.0% in each year would
increase the accumulated post retirement benefit obligation as of October 2, 2005 by $3,439 and
the aggregate of the service and interest cost components of net periodic post retirement
benefit cost for 2005 by $210. If the assumed health care cost trend rates decreased by 1.0%
in each year, the accumulated post retirement benefit obligation would decrease by $2,730 as of
October 2, 2005, and the aggregate of the service and interest components of net periodic post
retirement benefit cost for 2005 would decrease by $166. |
| |
| |
|
Future cash flows — During fiscal year 2006, we expect to contribute approximately $370 to our
post retirement benefit plans. The future benefits expected to be paid and the Medicare Part D
Subsidy expected to be received are as follows: |
| |
|
|
|
|
|
|
|
|
| |
|
Gross |
|
Act |
| Fiscal year |
|
Payments |
|
Subsidy |
| |
2006 |
|
$ |
485 |
|
|
$ |
26 |
|
2007 |
|
|
562 |
|
|
|
33 |
|
2008 |
|
|
656 |
|
|
|
41 |
|
2009 |
|
|
740 |
|
|
|
50 |
|
2010 |
|
|
829 |
|
|
|
60 |
|
Thereafter |
|
|
5,366 |
|
|
|
525 |
|
F-20
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 10. |
|
STOCK-BASED EMPLOYEE COMPENSATION |
| |
| |
|
We offer a stock-based compensation plan to attract, retain, and motivate key officers,
non-employee directors, and employees to work toward the financial success of the Company. The
Amended and Restated 2004 Stock Incentive Plan (the “2004 Plan”) and all other prior plans are
administered by the Compensation Committee of the Board of Directors and have been approved by
the stockholders of the Company. As of November 2005, the 2004 Plan is the only plan under
which new awards may be issued. The 2002 Stock Incentive Plan (the “2002 Plan”) was retired in
November 2005. |
| |
| |
|
The 2004 Plan was adopted in February 2004, amended and restated in February 2005 to increase
the share authorization and provides for the issuance of up to 3,250,000 common shares in
connection with the granting of stock options, stock appreciation rights, restricted stock
purchase rights, restricted stock bonuses, restricted stock units or performance units to key
employees and directors. No more than 650,000 shares may be granted under this plan as
restricted stock or performance-based awards. |
| |
| |
|
There are four other plans under which we may no longer issue awards, although awards
outstanding under these plans may still vest and be exercised: the 1992 Employee Stock
Incentive Plan (the “1992 Plan”); the 1993 Stock Option Plan (the “1993 Plan”); the “2002
Plan”; and the Non-Employee Director Stock Option Plan (the “Director Plan”). |
| |
| |
|
In January 1992, we adopted the 1992 Plan which allowed eligible employees to annually receive
stock options, restricted stock and other various stock-based awards. Subject to certain
adjustments, up to a maximum of 3,775,000 shares of common stock may be sold or issued under
the 1992 Plan. |
| |
| |
|
In August 1993, we adopted the 1993 Plan which allowed eligible employees who did not receive
stock options under the 1992 Plan to receive stock options with an aggregate exercise price
equivalent to a percentage of their eligible earnings. Approximately 3,000,000 shares of
common stock may be sold or issued under the 1993 Plan. |
| |
| |
|
In February 2002, we adopted the 2002 Plan which allowed eligible officers and other key
employees to receive stock options and incentive stock awards. Subject to certain adjustments,
up to a maximum of 1,900,000 shares of common stock may be sold or issued under the 2002 Plan. |
| |
| |
|
In February 1995, we adopted the Director Plan which allowed any eligible non-employee director
of Jack in the Box Inc. or its subsidiaries to annually receive stock options. The actual
number of shares that may be purchased under the option was based on the relationship of a
portion of each director’s compensation to the fair market value of the common stock, but was
limited to a maximum of 10,000 shares annually. Subject to certain adjustments, up to a
maximum of 650,000 shares of common stock may be sold or issued under the Director Plan. |
| |
| |
|
The terms and conditions of the stock-based awards under the plans are determined by the
Compensation Committee of the Board of Directors on each award date and may include provisions
for the exercise price, expirations, vesting, restriction on sales and forfeiture, as
applicable. Options granted under the plans have terms not exceeding 11 years, generally vest
over a 4-year period for employees and 6 months for directors, and provide for an option
exercise price of not less than 100% of the quoted market value of the common stock at the date
of grant. As of October 2, 2005, 2,263,128 shares of common stock were available for future
issuance under the Company’s equity compensation plans. |
F-21
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 10. |
|
STOCK-BASED EMPLOYEE COMPENSATION (continued) |
| |
| |
|
The following is a summary of stock option activity for the three fiscal years ended October 2,
2005: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Option exercise price per share |
| |
|
|
|
|
|
|
|
|
|
Weighted- |
| |
|
Shares |
|
Range |
|
average |
| |
Balance at September 29, 2002 |
|
|
4,180,932 |
|
|
|
4.19 - 32.77 |
|
|
$ |
21.12 |
|
Granted |
|
|
879,196 |
|
|
|
15.37 - 22.98 |
|
|
|
20.71 |
|
Exercised |
|
|
(42,002 |
) |
|
|
15.94 - 23.29 |
|
|
|
20.41 |
|
Canceled |
|
|
(126,233 |
) |
|
|
5.75 - 26.63 |
|
|
|
23.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 28, 2003 |
|
|
4,891,893 |
|
|
|
4.19 - 32.77 |
|
|
|
21.10 |
|
Granted |
|
|
1,406,307 |
|
|
|
18.90 - 31.15 |
|
|
|
21.64 |
|
Exercised |
|
|
(580,244 |
) |
|
|
5.00 - 26.63 |
|
|
|
15.42 |
|
Canceled |
|
|
(127,909 |
) |
|
|
5.75 - 26.63 |
|
|
|
21.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 3, 2004 |
|
|
5,590,047 |
|
|
|
4.19 - 32.77 |
|
|
|
21.80 |
|
Granted |
|
|
414,400 |
|
|
|
33.16 - 35.25 |
|
|
|
35.16 |
|
Exercised |
|
|
(1,487,469 |
) |
|
|
4.19 - 32.77 |
|
|
|
20.20 |
|
Canceled |
|
|
(43,278 |
) |
|
|
5.75 - 26.63 |
|
|
|
22.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 2, 2005 |
|
|
4,473,700 |
|
|
|
5.75 - 35.25 |
|
|
|
23.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
The following is a summary of stock options outstanding at October 2, 2005: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options outstanding |
|
Options exercisable |
| |
|
|
|
|
|
Weighted-average |
|
Weighted- |
|
|
|
|
|
Weighted- |
| Range of |
|
Number |
|
remaining contractual |
|
average |
|
Number |
|
average |
| exercise prices |
|
outstanding |
|
life in years |
|
exercise price |
|
exercisable |
|
exercise price |
| |
$5.75 -
7.50 |
|
|
71,265 |
|
|
|
0.85 |
|
|
$ |
6.92 |
|
|
|
71,265 |
|
|
$ |
6.92 |
|
12.13 - 18.90 |
|
|
1,056,481 |
|
|
|
7.05 |
|
|
|
17.97 |
|
|
|
494,778 |
|
|
|
17.00 |
|
19.06 - 23.25 |
|
|
1,152,903 |
|
|
|
5.67 |
|
|
|
21.19 |
|
|
|
894,872 |
|
|
|
21.25 |
|
23.88 - 26.00 |
|
|
1,125,003 |
|
|
|
5.96 |
|
|
|
25.40 |
|
|
|
852,614 |
|
|
|
25.41 |
|
26.02 - 35.11 |
|
|
755,548 |
|
|
|
7.30 |
|
|
|
29.02 |
|
|
|
527,028 |
|
|
|
28.99 |
|
35.25 - 35.25 |
|
|
312,500 |
|
|
|
9.96 |
|
|
|
35.25 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.75 - 35.25 |
|
|
4,473,700 |
|
|
|
6.57 |
|
|
|
23.56 |
|
|
|
2,840,557 |
|
|
|
22.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At October 2, 2005, October 3, 2004 and September 28, 2003, the numbers of options exercisable
were 2,840,557, 2,976,113 and 2,874,900, respectively, and the weighted-average exercise
prices of those options were $22.83, $21.15 and $19.39, respectively. |
| |
|
The weighted-average fair value of options granted in 2005, 2004 and 2003 were $13.71, $9.66
and $9.18, respectively. Effective in the fourth quarter of fiscal 2005, we began utilizing a
binomial-based model to determine the fair value of options granted. The fair value of all
other options granted has been estimated on the date of grant using the Black-Scholes
option-pricing model. Valuation models require the input of highly subjective assumptions,
including the expected volatility of the stock price. The following weighted-average
assumptions were used for stock option grants in each fiscal year: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
2003 |
| |
Risk-free interest rate |
|
|
4.1 |
% |
|
|
3.7 |
% |
|
|
3.6 |
% |
Volatility |
|
|
35.5 |
% |
|
|
40.4 |
% |
|
|
40.0 |
% |
Dividends yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected life |
|
6 years |
|
|
6 years |
|
|
6 years |
|
F-22
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 10. |
|
STOCK-BASED EMPLOYEE COMPENSATION (continued) |
| |
| |
|
We awarded 57,870, 35,000 and 252,600 shares of restricted stock to certain executives
during fiscal years 2005, 2004 and 2003, respectively. 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. The expense recognized in connection
with these awards was $558, $584 and $497 in 2005, 2004 and 2003, respectively. |
| |
| |
|
In September 2004, we issued 92,919 shares of performance vested restricted stock awards.
During 2005, employees who left the Company before the vesting period forfeited 8,819 shares.
The number of shares to be received under these awards at the end of the three-year performance
period will depend on the attainment of certain performance objectives. The expected cost of
the shares will be reflected over the related performance period, fiscal years 2005 through
2007. In 2005, $838 was expensed in connection with these awards. Since performance-based
stock awards are contingent upon satisfying certain conditions, they are considered to be
contingently issuable and, therefore, are not included in the calculation of diluted earnings
per share. |
| |
| |
|
In September 2005, we issued an additional 71,747 performance vested restricted stock
awards related to the fiscal year 2006 through 2009 performance period. |
| |
| 11. |
|
STOCKHOLDERS’ EQUITY |
| |
| |
|
Preferred stock — We have 15,000,000 shares of preferred stock authorized for issuance at a par
value of $.01 per share. No preferred shares have been issued. |
| |
| |
|
On July 26, 1996, the Board of Directors declared a dividend of one preferred stock purchase
right (a “Right”) for each outstanding share of our common stock, which Rights expire on July
26, 2006. Each Right entitles a stockholder to purchase for an exercise price of $40, subject
to adjustment, one one-hundredth of a share of the Company’s Series A Junior Participating
Cumulative Preferred Stock, or, under certain circumstances, shares of common stock of Jack in
the Box Inc. or a successor company with a market value equal to two times the exercise price.
The Rights would only become exercisable for all other persons when any person acquires a
beneficial interest of at least 20% of the Company’s outstanding common stock. The Rights have
no voting privileges and may be redeemed by the Board of Directors at a price of $.001 per
Right at any time prior to or shortly after the acquisition of a beneficial ownership of 20% of
the outstanding common shares. There are 383,486 shares of Series A Junior Participating
Cumulative Preferred Stock reserved for issuance upon exercise of the Rights. |
| |
| |
|
Treasury stock — Pursuant to stock repurchase programs authorized by the Board of Directors, we
repurchased 2,578,801, 228,400 and 2,566,053 shares of our common stock for $92,861, $7,138
and $50,157 during 2005, 2004 and 2003, respectively. On September 15, 2005, the Board of
Directors approved an additional $150,000 stock repurchase program which was not utilized as of
October 2, 2005. |
| |
| |
|
Comprehensive income — Our total comprehensive income, net of taxes, was as follows for the
three fiscal years ended October 2, 2005: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
Net earnings |
|
$ |
91,537 |
|
|
$ |
74,684 |
|
|
$ |
70,084 |
|
Net
unrealized gains related to cash flow hedges, net of taxes of $266 |
|
|
417 |
|
|
|
— |
|
|
|
— |
|
Additional
minimum pension liability, net of taxes of $(18,289), $16,509 and $(11,652), respectively |
|
|
(28,726 |
) |
|
|
25,930 |
|
|
|
(18,302 |
) |
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income |
|
$ |
63,228 |
|
|
$ |
100,614 |
|
|
$ |
51,782 |
|
|
|
|
|
|
|
|
|
|
|
F-23
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
11. STOCKHOLDERS’ EQUITY (continued)
The components of accumulated other comprehensive loss, net of taxes, were as follows as of
October 2, 2005 and October 3, 2004:
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
| |
Additional minimum pension liability adjustment |
|
$ |
(29,980 |
) |
|
$ |
(1,254 |
) |
Net unrealized gains related to cash flow hedges |
|
|
417 |
|
|
|
— |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(29,563 |
) |
|
$ |
(1,254 |
) |
|
|
|
|
|
|
|
| 12. |
|
AVERAGE SHARES OUTSTANDING |
| |
| |
|
The following table reconciles basic weighted-average shares outstanding to diluted
weighted-average shares outstanding: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
Weighted-average shares outstanding – basic |
|
|
35,625 |
|
|
|
36,237 |
|
|
|
36,473 |
|
Assumed additional shares issued upon exercise of
stock options, net of shares reacquired at the
average market price |
|
|
1,158 |
|
|
|
644 |
|
|
|
288 |
|
Assumed
vesting of restricted stock, net of shares reacquired at the average
market price |
|
|
155 |
|
|
|
80 |
|
|
|
207 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding – diluted |
|
|
36,938 |
|
|
|
36,961 |
|
|
|
36,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options excluded (1) |
|
|
— |
|
|
|
1,281 |
|
|
|
3,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Excluded from diluted weighted-average shares outstanding because their exercise
prices exceeded the average market price of common stock for the period. |
| |
| 13. |
|
COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS |
| |
| |
|
Commitments — We are principally liable for lease obligations on various properties sub-leased
to third parties. We are also obligated under a lease guarantee agreement associated with a
Chi-Chi’s restaurant property. Due to the bankruptcy of the Chi-Chi’s restaurant chain,
previously owned by the Company, we are obligated to perform in accordance with the terms of a
guarantee agreement, as well as four other lease agreements which expire at various dates in
2010 and 2011. During fiscal year 2003, we established an accrual for these lease obligations
and do not anticipate incurring any additional charges related to the Chi-Chi’s bankruptcy in
future years. As of October 2, 2005, our accrual for the lease guarantee was $982, and the
maximum potential amount of future payments was $1,675. |
| |
| |
|
Legal proceedings — 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 and liquidity. |
F-24
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 14. |
|
SEGMENT REPORTING |
| |
| |
|
Prior to the acquisition of Qdoba Restaurant Corporation, we operated our business in a single
segment. Subsequent to the acquisition, we have two operating segments, Jack in the
Box and Qdoba, based on the Company’s management structure and method of
internal reporting. Based upon certain quantitative thresholds, only Jack in the
Box is considered a reportable segment. Summarized financial information
concerning our reportable segment is shown in the following table: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
2003 |
| |
Revenues |
|
$ |
2,448,839 |
|
|
$ |
2,284,305 |
|
|
$ |
2,038,292 |
|
Earnings from operations |
|
|
150,878 |
|
|
|
143,116 |
|
|
|
133,807 |
|
Cash flows used for additions to property and equipment |
|
|
114,926 |
|
|
|
112,518 |
|
|
|
108,438 |
|
Total assets |
|
|
1,319,171 |
|
|
|
1,313,326 |
|
|
|
1,133,716 |
|
| |
|
Interest expense and income taxes are not reported on an operating segment basis in accordance
with our method of internal reporting. |
| |
|
A reconciliation of reportable segment revenues to consolidated revenue follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
Revenues |
|
$ |
2,448,839 |
|
|
$ |
2,284,305 |
|
|
$ |
2,038,292 |
|
Qdoba revenues and other |
|
|
58,399 |
|
|
|
38,059 |
|
|
|
19,998 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
2,507,238 |
|
|
$ |
2,322,364 |
|
|
$ |
2,058,290 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
A reconciliation of reportable segment earnings from operations to consolidated earnings from
operations follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
Earnings from operations |
|
$ |
150,878 |
|
|
$ |
143,116 |
|
|
$ |
133,807 |
|
Qdoba earnings from operations |
|
|
4,418 |
|
|
|
1,706 |
|
|
|
633 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated earnings from operations |
|
$ |
155,296 |
|
|
$ |
144,822 |
|
|
$ |
134,440 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
A reconciliation of reportable segment total assets to consolidated total assets follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
Total assets |
|
$ |
1,319,171 |
|
|
$ |
1,313,326 |
|
|
$ |
1,133,716 |
|
Qdoba total assets |
|
|
67,989 |
|
|
|
60,494 |
|
|
|
55,613 |
|
Investment in Qdoba and other |
|
|
(49,174 |
) |
|
|
(49,154 |
) |
|
|
(46,848 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated total assets |
|
$ |
1,337,986 |
|
|
$ |
1,324,666 |
|
|
$ |
1,142,481 |
|
|
|
|
|
|
|
|
|
|
|
F-25
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 15. |
|
SUPPLEMENTAL CASH FLOW INFORMATION |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
2003 |
| |
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized |
|
$ |
15,654 |
|
|
$ |
23,564 |
|
|
$ |
21,463 |
|
Income tax payments |
|
|
43,678 |
|
|
|
29,265 |
|
|
|
18,665 |
|
Capital lease obligations incurred |
|
|
911 |
|
|
|
9,912 |
|
|
|
9,222 |
|
Restricted stock issued |
|
|
2,031 |
|
|
|
1,012 |
|
|
|
5,151 |
|
Performance vested restricted stock units issued |
|
|
2,529 |
|
|
|
2,905 |
|
|
|
— |
|
| |
|
The consolidated statements of cash flows also exclude the following non-cash transactions: (i)
non-cash proceeds from our short-term financing of a portion of the sale of company-operated
restaurants to certain qualified franchisees of $5,265 and $29,599 in 2004 and 2003,
respectively, included in accounts receivable; and (ii) the use of sinking fund payments to
retire financing lease obligations during 2003. |
| 16. |
|
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION |
| |
|
|
|
|
|
|
|
|
| |
|
October 2, |
|
|
October 3, |
|
| |
|
2005 |
|
|
2004 |
|
| |
Accounts receivable: |
|
|
|
|
|
|
|
|
Trade |
|
$ |
16,498 |
|
|
$ |
14,471 |
|
Notes receivable |
|
|
1,238 |
|
|
|
779 |
|
Other |
|
|
3,784 |
|
|
|
6,414 |
|
Allowances for doubtful accounts |
|
|
(293 |
) |
|
|
(736 |
) |
|
|
|
|
|
|
|
|
|
$ |
21,227 |
|
|
$ |
20,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
Payroll and related taxes |
|
$ |
75,101 |
|
|
$ |
76,069 |
|
Sales and property taxes |
|
|
21,335 |
|
|
|
27,096 |
|
Insurance |
|
|
47,072 |
|
|
|
42,412 |
|
Advertising |
|
|
17,620 |
|
|
|
19,487 |
|
Other |
|
|
50,310 |
|
|
|
51,523 |
|
|
|
|
|
|
|
|
|
|
$ |
211,438 |
|
|
$ |
216,587 |
|
|
|
|
|
|
|
|
| 17. |
|
UNAUDITED QUARTERLY RESULTS OF OPERATIONS |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
16 weeks ended |
|
12 weeks ended |
| Fiscal year 2005 |
|
Jan. 23, 2005 |
|
Apr. 17, 2005 |
|
July 10, 2005 |
|
Oct. 2, 2005 |
| |
Revenues |
|
$ |
738,596 |
|
|
$ |
577,045 |
|
|
$ |
590,178 |
|
|
$ |
601,419 |
|
Earnings from operations |
|
|
44,427 |
|
|
|
35,787 |
|
|
|
39,034 |
|
|
|
36,048 |
|
Net earnings |
|
|
25,430 |
|
|
|
20,677 |
|
|
|
23,886 |
|
|
|
21,544 |
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
.71 |
|
|
|
.57 |
|
|
|
.68 |
|
|
|
.61 |
|
Diluted |
|
|
.68 |
|
|
|
.55 |
|
|
|
.66 |
|
|
|
.59 |
|
| |
| |
|
16 weeks ended |
|
12 weeks ended |
|
13 weeks ended |
| Fiscal year 2004 |
|
Jan. 18, 2004 |
|
Apr. 11, 2004 |
|
July 4, 2004 |
|
Oct. 3, 2004 |
| |
Revenues |
|
$ |
669,920 |
|
|
$ |
517,266 |
|
|
$ |
541,241 |
|
|
$ |
593,937 |
|
Earnings from operations |
|
|
39,018 |
|
|
|
33,252 |
|
|
|
36,541 |
|
|
|
36,011 |
|
Net earnings |
|
|
14,352 |
|
|
|
18,663 |
|
|
|
20,683 |
|
|
|
20,986 |
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
.40 |
|
|
|
.51 |
|
|
|
.57 |
|
|
|
.57 |
|
Diluted |
|
|
.40 |
|
|
|
.50 |
|
|
|
.55 |
|
|
|
.56 |
|
F-26
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
| 18. |
|
NEW ACCOUNTING PRONOUNCEMENTS |
| |
| |
|
Accounting pronouncements adopted in fiscal 2005 — In December 2004, the FASB issued SFAS 153,
Exchanges of Non-Monetary Assets. SFAS 153 eliminates the exception for non-monetary exchanges
of similar productive assets and replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. SFAS 153 was effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The
adoption of this Statement did not have a material impact on our operating results or financial
condition. |
| |
| |
|
On June 29, 2005, the FASB ratified Emerging Issues Task Force (“EITF”) 05-06, Determining the
Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a
Business Combination. This Issue addresses the amortization period for leasehold improvements
in operating leases that are either (a) placed in service significantly after and not
contemplated at or near the beginning of the initial lease term or (b) acquired in a business
combination. Leasehold improvements that are placed in service significantly after and not
contemplated at or near the beginning of the lease term should be amortized over the shorter of
the useful life of the assets or a term that includes required lease periods and renewals that
are deemed to be reasonably assured at the date the leasehold improvements are purchased.
Leasehold improvements acquired in a business combination should be amortized over the shorter
of the useful life of the assets or a term that includes required lease periods and renewals
that are deemed to be reasonably assured at the date of acquisition. This EITF is effective for
leasehold improvements that are purchased or acquired after June 29, 2005. The adoption of this
EITF did not have a material impact on our operating results or financial condition. |
| |
| |
|
Future application of accounting principles — In November 2004, the FASB issued SFAS 151,
Inventory Costs. SFAS 151 clarifies the accounting for abnormal amounts of idle facilities
expense, freight, handling costs and wasted material. SFAS 151 is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. We expect the adoption of this
Statement will not have a material impact on our operating results or financial condition. |
| |
| |
|
In December 2004, the FASB issued SFAS 123R, Share-Based Payment. SFAS 123R revises SFAS 123,
Accounting for Stock-Based Compensation, and generally requires, among other things, that all
employee stock-based compensation be measured using a fair value method and that the resulting
compensation cost be recognized in the financial statements. SFAS 123R also provides guidance on
how to determine the grant-date fair-value for awards of equity instruments, as well as
alternative methods of adopting its requirements. On April 14, 2005, the Securities and
Exchange Commission delayed the effective date of required adoption of SFAS 123R to the first
fiscal year beginning after June 15, 2005. We plan to adopt the provisions of SFAS 123R in the
first quarter of fiscal year 2006 and expect the impact in fiscal 2006 to be approximately $0.15
per diluted share. |
| |
| |
|
In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations—an interpretation of FASB Statement No. 143 (“FIN 47”). FIN 47 clarifies
the term conditional asset retirement obligation and requires a liability to be recorded if the
fair value of the obligation can be reasonably estimated. The types of asset retirement
obligations that are covered by FIN 47 are those for which an entity has a legal obligation to
perform an asset retirement activity; however, the timing and/or method of settling the
obligation are conditional on a future event that may or may not be within the control of the
entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years
ending after December 15, 2005. We expect the adoption of FIN 47 will not have a material impact
on our consolidated financial statements. |
| |
| |
|
In October 2005, the FASB issued Staff Position 13-1, Accounting for Rental Costs Incurred
During a Construction Period (“FSP 13-1”). FSP 13-1 is effective for the first fiscal period
beginning after December 15, 2005 and requires that rental costs associated with ground or
building operating leases that are incurred during a construction period be recognized as rental
expense. We expect the adoption of this Staff Position will not have a material impact on our
operating results or financial condition. |
F-27