12/12/02
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
FORM 10-K
[X]
| x | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 29, 2002
Commission File Number 1-9390
JACK IN THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
COMMISSION FILE NUMBER 1-9390
Jack in the Box Inc.
- --------------------------------------------------------------------------------
(ExactBOX INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2698708
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(State of Incorporation) (I.R.S. Employer Identification No.)
9330 Balboa Avenue, San Diego, CA 92123
- ----------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's
Delaware | | 95-2698708 |
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
9330 Balboa Avenue, San Diego, CA | | 92123 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code (858) 571-2121
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange, Inc.
Title of each class
| | Name of each exchange on which registered
|
| Common Stock, $.01 par value | | New York Stock Exchange, Inc. |
Securities registered pursuant to Section 12(g) of the Act:
None
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 Xx No
--- ---
¨
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'sregistrant’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. [ ]
The¨
At December 9, 2002, the aggregate market value of the votingcapital stock held by non-affiliates of the registrant, as of November 30, 2001, computed by reference to the closing price reported in the New York Stock Exchange -– Composite Transactions, was approximately $986$688 million.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No¨
Number of shares of common stock, $.01 par value, outstanding as of the close of business November 30, 2001 - 39,280,393.
December 9, 2002 – 36,863,100.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the
20022003 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
1
JACK IN THE BOX INC.
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| | PART II | | |
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| Item 9. | | | | 22 |
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| | PART III | | |
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| | PART IV | | |
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| Item 15. | | | | 27 |
PART I
The Company
Overview.
Overview. Jack in the Box Inc. (the "Company"“Company”), formerly Foodmaker, Inc., owns, operates and franchises JACK JACKINTHE BOX(R) BOX®quick-service hamburger restaurants. In fiscal 2001,2002, we generated revenues of $1.8$2.0 billion. As of September 30, 2001,29, 2002, the Jack in the BOXJACKINTHE BOX system included 1,7621,862 restaurants, of which 1,4311,507 were Company-operated and 331355 were franchised. JACK franchise-operated. JACKINTHE BOX BOX restaurants are located primarily in the western and southern United States. Based on the number of units, JACK JACKINTHE BOX BOX is the second or third largest quick-service hamburger chain in most of its major markets.
JACK
JACKINTHE BOX BOX restaurants offer a broad selection of distinctive, innovative products targeted at the adult fast-food consumer. The JACK JACKINTHE BOX BOX menu features a variety of hamburgers, specialty sandwiches, Mexican foods, finger foods and side items. The core of the JACK JACKINTHE BOX BOX menu is hamburgers, including the signature Jumbo Jack(R)Jack®, Sourdough Jack(R)Jack® and Ultimate Cheeseburger. In addition, we offer products unique to the hamburger segment, such as the Teriyaki Chicken Bowl, and Chicken Fajita Pita.
JACK Pita and Taquitos. JACKINTHE BOX BOX restaurants also offer value-priced product alternatives, known as "Jack's“Jack’s Value Menu,"” to compete against price-oriented competitors. We believe that our distinctive menu has been instrumental in developing brand loyalty and is appealing to customers with a broader range of food preferences. JACK JACKINTHE BOX BOX restaurants strive to provide a restaurant experience that exceeds the guests'guests’ expectations.
The JACK JACKINTHE BOX BOX restaurant chain was the first to develop and expand the concept of drive-thru only 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 approximately 65% of sales at Company-operated restaurants.
History.
History. The first JACK JACKINTHE BOX BOX restaurant, which offered only drive-thru service, opened in 1951. The JACK By 1968, the JACKINTHE BOX BOX chain had expanded its operations to approximately 300 restaurants by 1968.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 addgrow, primarily through the addition of new Company-operated restaurants and havewe entered new markets.
markets in the Southeast in 1999.
Operating Strategy.Strategy. Our business plan includes increasing restaurant sales and profitability through the implementation of our successful operating strategy. Our operating strategy includes: (i) offering quality products at competitive prices, (ii) developing innovative new products, (iii) providing fast and friendly customer service, (iii)(iv) maintaining a strong brand image, (v) targeting a broader demographic segment, and (iv)(vi) the continuation of our Profit Improvement Program. We believe that our strategies of focusing on food quality, new products and guest service will allow us to differentiate ourselves from our competitors. For example, in 2002, we launched our “Best Burgers Ever” program, an extensive quality improvement initiative featuring changes to our entire sandwich line. In addition, during the past two years, with an emphasis on speed of service, we improved our average transaction time by more than a minute and expect reductions to continue as we implement our new labor-optimization and kitchen operating systems. Furthermore, our Profit Improvement Program, which helped to substantially reduce costs in fiscal 2002 and redirect investment to programs with higher returns, is expected to continue to improve margins.
Maintaining a strong brand image and targeting an attractive demographic segment. Beginning in 1994, we began a seriessegment are also integral parts of our operating initiatives to improve food quality and guest service. These
initiatives include improvements in food preparation and service methods,
product reformulations and innovations, and training and retention of employees.strategy. In 1995, we launched our award-winning, advertising campaign featuring our fictional founder "Jack"“Jack” which has been instrumental in delivering the message of product quality, innovation and value to our customers. We believe our menu and marketing campaign appeal to a broad segment of the population, particularly our primary target market of men aged 18-34, the demographic
group with the highest incidence of fast-food consumption. WeAdditionally, while we operate 81%a significant majority of the JACK JACKINTHE BOX BOX restaurants, one of the highest percentages in the quick-service
restaurant industry, which we believe enables us to implement our operating strategy and introduce product innovations consistently across the entire system, more effectively and efficiently than other quick-service restaurant chains.
we believe we can selectively expand our franchising operations to help the Company grow.
Menu Strategy.Strategy. The menu strategy for JACK JACKINTHE BOX BOX restaurants is to provide highunique, quality products that represent good value and appeal to the preferences of our customers. TheOur menu currently features traditional hamburgers and side items in addition to specialty sandwiches, Mexican foods, finger foods, breakfast foods, unique side items and desserts. 2
We recognizeTo further enhance our menu selection and differentiate our menu from our competitors, we have begun initiatives to develop a more relevant menu that includes lighter fare, new premium and value menu products and additional quality enhancements to current product lines. These initiatives include the advantagesrecent restructuring of improving existing products through
ingredient specificationsour marketing and changesR&D organizations to focus more resources on menu innovation and food quality. To support these efforts, we are in preparation and cooking procedures.
When appropriate, improvements such as our Assemble-to-Order ("ATO") program are
communicatedthe process of building a 70,000 square foot Innovation Center scheduled to the public through point-of-purchase and television media, with
messages such as "We won't make it - `til you order it." During fiscal 2001,
with an emphasis on speed of service, we improved our average transaction time
by about 40 seconds.open in late 2004. We believe these menu initiatives along with the addition of
new menu boards and order confirmation screenswill have had a favorable impact on sales.
JACK JACKINTHE BOX BOX restaurants operate in the hamburger segment which is the largest segment of the quick-service industry. Hamburgers, including the Jumbo Jack, Sourdough Jack and the Ultimate Cheeseburger, accounted for approximately one-quarter of our restaurant sales in fiscal 2001.2002. However, 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, than other quick-service chains, and theour menu appeals to guests with a broad range of food preferences.
Growth Strategy.Strategy. Our business plan is to grow the Company from a regional quick-service restaurant chain to a national restaurant company includes the following multifaceted growth strategy: (i) increase same store sales and
profitability through the continued implementationdeveloping new Company-operated restaurants, including expansion of our successful operating
strategyunique convenience store concept, (ii) expanding our franchising activities and (ii) capitalize on our strong brand name and proven operating
strategy by developing new restaurants.
We believe that our strategy of focusing on food quality and guest service
will allow us to differentiate ourselves from competitors.(iii) evaluating other restaurant concepts for acquisition. We intend to continueremain flexible in our effortsstrategies to increase same store sales and profitability through improvementsgrow the business in food quality and guest service, product innovations and creative marketing.
For example,our pursuit of long-term increases in 1999, we implemented the ATO program by remodeling our
restaurant kitchens to improve food quality and to allow for more efficient
operations. Also, we installed new drive-thru menu boards which feature an
electronic order confirmation system that allows customers to read their orders
on an electronic screen, which we believe reduces errors and increases customer
satisfaction. In response to consumer demand, we installed self-serve drink
stations in the vast majority of restaurants, improving guest satisfaction and
reducing labor.shareholder value.
Company-Operated Restaurant Development – We intend to capitalize on our strong brand name and proven operating strategy to achieve attractive returns on investment by developing new Company-operated restaurants and, to a lesser extent, franchised restaurants. We opened 126100 new Company-operated restaurants in fiscal 20012002 and intend to open and operate additional new Company-operated restaurants over the next several years.years at a rate of about 5 to 7% a year. We believe that our brand is still underpenetrated in many of our existing markets and intend to leverage media, supervision, and food delivery costs by increasing our market penetration. In addition, we believe that we can further leverage the JACK JACKINTHE BOX BOX brand name by expanding to contiguous and selected new markets. We have also begun opening a limited number of restaurants on nontraditional
sites, such as sites adjacent to convenience stores and gas stations, and intend
towill continue to add nontraditional sitesbuild new restaurants in the Southeast and prepare the Company for additional new-market expansion during the next five years.
In addition, we plan to increaseexpand our branded convenience store concept, QUICK STUFF®, which operates a full-service convenience store on a site shared with a full-sized JACKINTHE BOX restaurant and a branded fuel station. The expansion of this concept will allow for increased penetration of existing markets.markets by providing additional site development flexibility. Our branded convenience store concept also provides us with a strong unit economic model, while retaining operating characteristics similar to our core business. As of September 29, 2002, we owned and operated 12 QUICK STUFF stores and estimate that co-branded sites will comprise approximately 20 to 25% of our new Company restaurant growth over the next five years.
Franchising Program – Also as part of our growth strategy we plan to selectively expand our franchising operations. We intend to
remain flexible in our strategies to grow the business in
our pursuit of long-term increases in shareholder value.
Site selections for all new JACK IN THE BOX restaurants are made after an
extensive review of demographic data and other information relating to
population density, restaurant visibility and access, available parking,
surrounding businesses and opportunities for market penetration. JACK IN THE BOX
restaurants developed by franchisees are built to our specifications on sites
which have been approved by us.
New JACK IN THE BOX restaurants are built using several configurations,
with the largest configuration seating approximately 100 customers and the
smallest, 40 customers. Management believes that the flexibility provided by the
alternative configurations enables us to match the restaurant configuration with
specific economic, demographic and geographic characteristics of the site. The
typical development costs for new restaurants range from approximately $1.4
million to $1.8 million. We use lease financing and other means to lower our
cash investment in a typical leased restaurant to approximately $300,000 to
$400,000.
3
The following table summarizes the growth in Company-operated and
franchised JACK IN THE BOX restaurants since the beginning of fiscal 1997:
Fiscal Year
------------------------------------------
1997 1998 1999 2000 2001
------ ------ ------ ------ ------
Company-operated restaurants:
Opened........................ 75 102 115 120 126
Sold to franchisees........... (8) (2) - (13) (13)
Closed........................ (6) (8) (6) (4) (2)
Acquired from franchisees..... 23 14 13 17 9
End of period total........... 963 1,069 1,191 1,311 1,431
Franchised restaurants:
Opened........................ 5 2 2 1 4
Acquired from Company......... 8 2 - 13 13
Closed........................ (21) (5) (8) - -
Sold to Company............... (23) (14) (13) (17) (9)
End of period total........... 360 345 326 323 331
System end of period total........ 1,323 1,414 1,517 1,634 1,762
The following table summarizes, by state, the geographical locations of
JACK IN THE BOX restaurants at September 30, 2001:
Company-
operated Franchised Total
-------- ---------- -----
Arizona........................ 89 45 134
California..................... 544 244 788
Hawaii......................... 28 1 29
Idaho.......................... 22 - 22
Illinois....................... 13 - 13
Louisiana...................... 14 - 14
Missouri....................... 47 - 47
Nevada......................... 40 11 51
New Mexico..................... - 2 2
North Carolina................. 16 - 16
Oregon......................... 35 2 37
South Carolina................. 6 - 6
Tennessee...................... 19 - 19
Texas.......................... 451 26 477
Utah........................... 1 - 1
Washington..................... 106 - 106
----- ----- ------
Total...................... 1,431 331 1,762
===== ===== ======
Restaurant Operations. We devote significant resources toward ensuring that
all JACK IN THE BOX restaurants offer high quality food and service. Emphasis is
placed on ensuring that quality ingredients are delivered to the restaurants,
restaurant food production systems are continuously developed and improved, and
we train our employees to be dedicated to delivering consistently high quality
food and service. Through our network of corporate quality assurance, facilities
services and restaurant management personnel, including regional vice
presidents, area managers and restaurant managers, we standardize specifications
for food preparation and service, employee conduct and appearance, and the
maintenance and repairconvert about 25% of our premises. Operating specifications and procedures
are documented in a series of manuals and video presentations. Mostexisting Company-operated restaurants including franchised units, receive approximately four quality, food safety and
cleanliness inspections and 26 mystery guest reviews each year.
4
Each JACK IN THE BOX restaurant is operated by a Company-employed manager
or a franchisee who normally attends an extensive range of management training
classes. Our management training program involves 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 and video equipment available at each location. The restaurant
managers are directly responsible for the operation of the restaurants,
including product quality, food handling safety, cleanliness, service,
inventory, cash control and the conduct and appearance of employees.
Restaurant managers are supervised by area managers, each of whom is
responsible for an average of 15 restaurants. The area managers are supervised
by 12 regional vice presidents. Under our performance system, regional vice
presidents, and area and restaurant managers are eligible for quarterly bonuses
based on a percentage of location operating profit and profit improvementto franchises over the prior yearnext five years and certain other criteria.
Our "farm-to-fork" food safety and quality assurance program is designedalso plan to maintain high standards for the food products and food preparation procedures
used by Company-operated andadd about 200 new 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.
We provide purchasing, warehouse and distribution services for all
Company-operated and approximately one-third of franchise-operated restaurants.
The remaining franchisees participate in a purchasing cooperative they formed in
1996 and contract with another supplier for distribution services. Some
products, primarily dairy and bakery items, are delivered directly by approved
suppliers to both Company-operated and franchised restaurants.
The primary commodities purchased by JACK IN THE BOX 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 remain subject to price fluctuations.
All essential food and beverage products are available, or upon short notice can
be made available, from alternative qualified suppliers.
We have centralized financial and accounting controls for Company-operated
JACK IN THE BOX restaurants which we believe are important in analyzing and
improving profit margins. JACK IN THE BOX restaurants use a specially designed
computerized reporting and cash register system which is being converted to a
new touch screen point-of-sale system designed to increase speed of service, and
decrease employee training and transaction times. The system provides
point-of-sale transaction data and accumulates marketing information for
analysis.
Franchising Program. The growth of the JACK IN THE BOX concept occurs
primarily through the buildingsale of new Company-operated restaurants. Although we
do not actively recruit new franchisees, our franchising strategy allows
selected franchisee restaurant development in existing franchised markets.agreements. 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 development fee, a portion of which may be credited against franchise fees due for restaurants to be opened in the future. Developers may forfeit such fees and lose their rights to future developmentsdevelopment if they do not maintain the required schedule of openings. Our current 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 conversion of a Company-operated restaurant, the restaurant equipment and the right to do business at that location known as "Trading Area Rights,"
are sold to the franchisee, in most cases for cash. cash or short-term notes.
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 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 required to pay property taxes, insurance and maintenance costs. Our franchise agreement also provides us a right of first refusal on each proposed sale of a franchised restaurant, which we exercise from time to time when the proposed sale price and terms are acceptable to us.
5
We view our non-franchised JACK JACKINTHE BOX BOX units as a potential resource which, on a selected basis, can be sold to a franchisee, generating additional current cash flow and revenues while still maintaining future cash flows and earnings through franchise rents and royalties. Franchised units totaled 331355 of the 1,762
JACK 1,862 JACKINTHE BOX BOX restaurants at September 30, 2001.29, 2002. The ratio of franchised to Company-operated restaurants is expected to increase over the next several years as we increase our franchising activities; however, we still expect to maintain a low ratio relative to our major competitors.
Acquisitions– We are actively evaluating other restaurant concepts for possible acquisition to supplement our core growth and balance the risk associated with growing solely in the highly competitive quick-serve segment of the restaurant industry. We believe that the right opportunity can provide flexibility and increase the rate of our growth, as well as add shareholder value in the future.
Restaurant Design and Location.Site selections for all new JACKINTHE BOX restaurants are made after an extensive review of demographic data and other information relating to population density, competition, restaurant visibility and access, available parking, surrounding businesses and opportunities for market penetration. JACKINTHE BOX restaurants developed by franchisees are built to our specifications on sites which have been approved by us.
New JACKINTHE BOX restaurants are built using several configurations, with the largest configuration seating approximately 100 customers, and the smallest 40 customers. We are currently in the process of developing multiple restaurant prototypes to help reduce costs and improve our flexibility in locating restaurants. Management believes that the flexibility provided by the alternative configurations will enable us to match the restaurant configuration with specific economic, demographic and geographic characteristics of a particular site. Typical development costs for new restaurants ranged from approximately $1.4 million to $1.8 million during fiscal year 2002 and are expected to decrease in future years due to the reduced costs of our new restaurant prototypes, as previously mentioned. We use lease financing and other means to lower our cash investment in a typical leased restaurant to approximately $0.3 million to $0.4 million.
The following table summarizes the growth in Company-operated and franchised JACKINTHE BOX restaurants since the beginning of fiscal 1998:
| | | Fiscal Year
| |
| | | 1998
| | | 1999
| | | 2000
| | | 2001
| | | 2002
| |
| Company-operated restaurants: | | | | | | | | | | | | | | | |
| Opened | | 102 | | | 115 | | | 120 | | | 126 | | | 100 | |
| Sold to franchisees | | (2 | ) | | — | | | (13 | ) | | (13 | ) | | (22 | ) |
| Closed | | (8 | ) | | (6 | ) | | (4 | ) | | (2 | ) | | (3 | ) |
| Acquired from franchisees | | 14 | | | 13 | | | 17 | | | 9 | | | 1 | |
| End of period total | | 1,069 | | | 1,191 | | | 1,311 | | | 1,431 | | | 1507 | |
| Franchised restaurants: | | | | | | | | | | | | | | | |
| Opened | | 2 | | | 2 | | | 1 | | | 4 | | | 3 | |
| Acquired from Company | | 2 | | | — | | | 13 | | | 13 | | | 22 | |
| Closed | | (5 | ) | | (8 | ) | | — | | | — | | | — | |
| Sold to Company | | (14 | ) | | (13 | ) | | (17 | ) | | (9 | ) | | (1 | ) |
| End of period total | | 345 | | | 326 | | | 323 | | | 331 | | | 355 | |
| System end of period total | | 1,414 | | | 1,517 | | | 1,634 | | | 1,762 | | | 1,862 | |
The following table summarizes the locations of JACKINTHE BOX restaurants by state as of September 29, 2002:
| | | Company- operated
| | Franchised
| | | | Total
|
| Arizona | | 88 | | 52 | | | | 140 |
| California | | 553 | | 261 | | | | 814 |
| Hawaii | | 28 | | 1 | | | | 29 |
| Idaho | | 23 | | — | | | | 23 |
| Illinois | | 13 | | — | | | | 13 |
| Louisiana | | 17 | | — | | | | 17 |
| Missouri | | 48 | | — | | | | 48 |
| Nevada | | 44 | | 11 | | | | 55 |
| New Mexico | | — | | 2 | | | | 2 |
| North Carolina | | 24 | | — | | | | 24 |
| Oklahoma | | 2 | | — | | | | 2 |
| Oregon | | 40 | | 2 | | | | 42 |
| South Carolina | | 19 | | — | | | | 19 |
| Tennessee | | 25 | | — | | | | 25 |
| Texas | | 467 | | 26 | | | | 493 |
| Utah | | 2 | | — | | | | 2 |
| Washington | | 114 | | — | | | | 114 |
| | |
| |
| | | |
|
| Total | | 1,507 | | 355 | | | | 1,862 |
| | |
| |
| | | |
|
Restaurant Operations. We devote significant resources toward ensuring that all JACKINTHE BOX restaurants offer quality food and good service. Emphasis is placed on ensuring that quality 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, including regional vice presidents, area managers and restaurant managers, 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 a series of manuals and video presentations. Most restaurants, including franchised units, receive approximately four quality, food safety and cleanliness inspections and 26 “Mystery Guest” audits each year.
Each JACKINTHE BOX restaurant is operated by a Company-employed manager or a franchisee who normally attends an extensive range of management training classes. Our management training program involves 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 and video equipment available at each location. Restaurant managers are directly responsible for the operation of the restaurants, including product quality, service, food handling safety, cleanliness, inventory, cash control and the conduct and appearance of employees.
Area managers, each of whom is responsible for an average of 13 restaurants, supervise restaurant managers. The area managers are supervised by 12 regional vice presidents. Under our performance system, regional vice presidents, area managers and restaurant managers are eligible for quarterly bonuses based on achievement of location profit, profit improvement and certain other operational performance standards.
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.
Purchasing and Distribution. We provide purchasing, warehouse and distribution services for all Company-operated and approximately one-third of our franchise-operated restaurants. The remaining franchisees participate in a purchasing cooperative they formed in 1996 and contract with another supplier for distribution services. Some products, primarily dairy and bakery items, are delivered directly by approved suppliers to both Company-operated and franchised restaurants.
The primary commodities purchased by JACKINTHE BOX 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.
Systems.We have centralized financial and accounting controls for Company-operated JACKINTHE BOX restaurants which we believe are important in analyzing and improving profit margins. JACKINTHE BOX restaurants use a specially designed computerized reporting and cash register system which is being converted to a new touch screen point-of-sale system designed to increase speed of service, allow us to accept debit and credit cards and decrease employee training and transaction times. The system provides point-of-sale transaction data and accumulates marketing information for analysis.
Advertising and Promotion. JACK Promotion. JACKINTHE BOX BOX restaurants participate in substantial marketing programs and activities. Advertising costs are paid from a fund comprised of (i) an amount contributed each year by us equal to approximately 5% of the gross sales of our Company-operated restaurants and (ii) the marketing fees paid by franchisees. OurWe use of advertising is limited to regional and local campaigns on television, and radio and in print media.media to advertise JACKINTHE BOX restaurants and products. We spent approximately $104.5$109.3 million on advertising and promotions in fiscal 2001,2002, including franchisee contributions of $19.1$19.8 million. Our current advertising campaign relies on a series of television and radio spot advertisements to promote individual products and to develop the JACK JACKINTHE BOX BOX brand. We also spent $1.1$1.7 million in fiscal 20012002 for local marketing purposes. Franchisees are also encouraged to, and generally do, spend additional funds for local marketing programs.
Employees.
Employees. At September 30, 2001,29, 2002, we had approximately 43,60044,100 employees, of whom approximately 41,10041,570 were restaurant employees, 620630 were corporate personnel, 400 were distribution employees and 1,4801,500 were field management and administrative personnel. Employees are paid on an hourly basis, except restaurant managers, corporateoperations and fieldcorporate management, and certain administrative personnel. A majority of our restaurant employees are employed on a part-time, hourly basis to provide services necessary during peak periods of restaurant operations. We have not experienced any significant work stoppages and believe our labor relations are good. In fact, in 2002, we improved our hourly restaurant employee retention rate. We compete in the job market for qualified employees and believe our wage rates are comparable to those of our competitors.
Trademarks and Service Marks
The JACK JACKINTHE BOX BOX name is of material importance to us and is a registered trademark and service mark in the United States and in certain foreign countries. In addition, we have registered numerous service marks and trade names for use in our business, including the JACK JACKINTHE BOX BOX 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.
Competition and Markets
The restaurant business is highly competitive and is affected by competitive changes in a geographic area, changes in the public'spublic’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, quality and speed of service, advertising, name identification, restaurant location and attractiveness of facilities.
Each JACK JACKINTHE BOX Box 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 coffee shops.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 JACK JackINTHE BOX Box restaurant is subject to regulation by federal agencies and to 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 a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisers in the offer and sale of franchises and may also apply substantive standards to the relationship between franchiser and franchisee, including limitations on the ability of franchisers to terminate franchisees and alter franchise arrangements. We believe we are operating in substantial compliance with applicable laws and regulations governing our operations.
6
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.
In addition, various proposals which would require employers to provide health insurance for all of their employees are being considered from time to time in Congress and various states. The imposition of any requirement that we provide health insurance to all employees would have a material adverse impact on the consolidated operations and financial condition of the Company and the restaurant industry, in general.
We are subject to certain guidelines under the Americans with Disabilities Act of 1990 ("ADA"(“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.
Forward-Looking Statements and Risk Factors
This Form 10-K contains "forward-looking statements"“forward-looking statements” within the meaning of the securities laws. Although we believe that the expectations reflected in such forward-looking statements are reasonable, and have based these expectations on our beliefs as well as assumptions we have made, such expectations may prove to be materially incorrect due to known and unknown risks and uncertainties.
These forward-looking statements are principally contained in the sections captioned "Business"“Business” and "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations."” Statements regarding our future operating and financial performance, including growth in netrestaurant sales earnings, cash flows from operations
and profitability; our operating strategies, including new product offerings, the timing for completion of our Innovation Center, expanded franchise offerings including sales of Company-owned restaurants, new restaurant openings and markets, new convenience store/gas station/restaurant combination openings and possible acquisitions; the availability of alternative commodity suppliers; the availability of future bank financing; our future capital expenditures; the effect of our stock repurchase program; sources of liquidity; expectations regarding effective tax rates; the number
and location of new restaurants to be opened in the future and continuing
investment in new restaurants and refurbishment of existing facilities; the
appeal of our menu and marketing campaigns; our operational efficiencies and labor relations are forward-looking statements. In those and other portions of this Form 10-K, the words "anticipates," "believes," "estimates," "seeks,"
"expects," "plans," "intends"“anticipate,” “assume,” “believe,” “estimate,” “seek,” “expect,” “intend,” “plan,” “project,” “may,” “will,” “would,” and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements.
In connection with the
"safe harbor"“safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following cautionary statements identify important factors that could cause actual results to differ materially from those expressed in any forward-looking statements. In addition to the factors discussed in this Form 10-K, other factors that could cause results to differ materially include, but are not limited to: the effectiveness and cost of our advertising and promotional efforts; the degree of success of our product offerings;
our ability to expand successfully into new markets; weather conditions that adversely affect the level of customer traffic or timely delivery of our food supplies;
difficulties in obtaining ingredients and
variations in ingredient costs; our ability to control operating, general and administrative costs and to raise prices sufficiently to offset cost increases; our ability to recognize value from any current or future co-branding efforts; erosion of our sales caused by competitive products, pricing and promotions; the impact of any wide-spread negative publicity; the impact on consumer eating habits of new scientific information regarding diet, nutrition and health; competition for labor; power shortages and increases in utility costs due to deregulation;
adverse general economic
conditions;conditions and lack of consumer confidence; the practical or psychological effects of terrorist acts or government responses; changes in consumer tastes and in travel and dining-out habits; the impact on operations and the costs to comply with laws and regulations and other activities of governing entities; the costs and other effects of legal claims by franchisees, customers, vendors and others, including settlement of those claims; and the effectiveness of management strategies and decisions.
7
Risks Related to the Food Service Industry. Food service businesses are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. The performance of individual restaurants may be adversely affected by factors such as changes in 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 publicity resulting from poor food quality, illness, injury or other health concerns with respect to the nutritional value of certain food. 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 JACK JACKINTHE BOX BOX restaurants or within the food service industry 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 food, labor and employee benefit costs (including increases in hourly wage and unemployment tax rates), 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, and our financial condition and results of operations in particular. 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.
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. 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. In addition, factors such as increased food, labor and benefits costs, and the availability of experienced management and hourly employees, may adversely affect the restaurant industry in general and our restaurants in particular. Each JACKINTHE BOX 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. Some of our competitors have substantially greater financial resources and higher total sales volume. Any adverse changes in these factors could adversely affect our profitability.
Risks Associated with Development.Development. We intend to grow primarily by developing additional Company-owned restaurants.restaurants and by franchising both existing Company restaurants and new restaurants to be developed by franchisees. Development involves substantial risks, including the risk of (i) the availability of financing at acceptable rates and terms, (ii) development costs exceeding budgeted or contracted amounts, (ii)(iii) delays in completion of construction, (iii)
failing(iv) failure to obtain all necessary zoning and construction permits, (iv)(v) the inability to identify, or the unavailability of, suitable sites, both traditional and nontraditional, on acceptable leasing or purchase terms, (v)(vi) developed properties not achieving desired revenue or cash flow levels once opened, (vi)(vii) competition for suitable development sites from competitors (some of which have greater financial resources than we do), (vii)(viii) incurring substantial unrecoverable costs in the event a development project is abandoned prior to completion, (viii)(ix) changes in governmental rules, regulations, and interpretations (including interpretations of the requirements of the ADA) and (ix)(x) general economic and business conditions.
Although we intend to manage our development to reduce such risks, we cannot assure youprovide assurance that present or future developments will perform in accordance with our expectations. We cannot assure youprovide assurance that we will complete the development and construction of the facilities, or that any such developments will be completed in a timely manner or within budget, or that such 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.
Risks Associated with Growth. Our franchising and convenience store/gas station/restaurant development plans 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 youprovide assurance that we will be able to successfully implement multiple growth strategies or effectively manage our expanding operations effectively.operations. The failure to successfully implement suchone or more of our growth strategies or to implement necessary new systems and add suchappropriate resources on a cost-effective basis could have a material adverse effect on our results of operations and financial condition.
Risks Related to Acquisitions. We are evaluating the potential acquisition of other restaurant concepts. We compete against other purchasers, some of whom have greater financial resources, for those opportunities. The success of our efforts depends upon the availability of restaurant concepts at acceptable terms, our ability to successfully integrate any acquisition and effectively diversify our business, as well as many of the factors set forth above.
Reliance on Certain Markets. Because our business is regional, with approximately three-fourths of JACK JACKINTHE BOX BOX 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.
8
Risks Related to Entering New Markets.Markets. During fiscal 20022003 we expect to open additional restaurants in the new markets we entered since fiscal 2000. We cannot assure youprovide assurance that we will be able to successfully enter into theseexpand or additionalacquire critical market presence 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 markets may differ substantially from those in the markets in which we have substantial experience. We cannot assure youprovide assurance that we will be able to successfully integrate or profitably operate new Company-operated or franchised restaurants located in our new markets.
Competition. The restaurant industry is highly competitive with respect to
price, service, location and food quality, and there are many well-established
competitors. Certain of our competitors have engaged in substantial price
discounting in recent years and may continue to do so in the future. In
addition, factors such as increased food, labor and benefits costs and the
availability of experienced management and hourly employees may adversely affect
the restaurant industry in general and our restaurants in particular. Each
JACK IN THE BOX 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 coffee shops. Some of our competitors have
substantially greater financial resources and higher total sales volume. Any
changes in these factors could adversely affect our profitability.
Exposure to Commodity Pricing. Although we may take hedging positions in certain commodities from time to time and opportunistically contract for some of these items in advance of a specific need, we cannot assure youprovide assurance that we will not be subject to the risk of substantial and sudden price increases, shortages or interruptions in supply of such items, which could have a material adverse effect on us.
our operations.
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. 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. If competitive pressures or other factors prevent us from offsetting the increased costs by increases in prices, our profitability may decline. Approximately 10% of our Company-operated restaurant base will be subject to minimum wage increases in fiscal year 2003. In addition, various proposals which would require employers to provide health insurance for all of their employees are being considered from time to time in Congress and various states. The imposition of any requirement that we provide health insurance to all employees would have a material adverse impact on the operations and financial condition of the Company and the restaurant industry.
Risks Related to Advertising. We compete directly and indirectly against both regional and national quick service restaurants, grocery and specialityspecialty stores, as well as similar types of businesses, which offer sandwiches and similar items. Some of our competorscompetitors 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, there could be a material adverse effect on our results of operation and financial condition.
Taxes. From time Our income tax provision is sensitive to time,expected earnings, tax credit utilization, the resolution of tax audits and changes to tax laws. As expectations change, our effective income tax rate may vary from quarter-to-quarter and year-to-year. In addition, from time-to-time, we may take positions infor filing our tax returns, thatwhich differ from the treatmentstreatment for financial reporting purposes. The ultimate outcome of such positions could have an adverse impact on our effective tax rate.
Leverage. We are highly leveraged. Our substantial Additional indebtedness may limit our ability to respond to changing business and economic conditions. The contracts under which we acquired our debt impose significant operating and financial restrictions which limit our ability to borrow money, sell assets or make capital expenditures or investments without the approval of certain lenders. In addition to cash flows generated by operations, other financing alternatives may be required in order to repay our debt as it comes due. We cannot assure youprovide assurance that we will be able to refinance our debt or obtain additional financing, or that any such financing will be on terms favorable to us.
9
Risks Related to Franchise Operations. At September 30, 2001,29, 2002, we had 331355 franchised JACK JACKINTHE BOX BOX restaurants. Currently our restaurants are approximately 81% Company-operated and 19% franchised. Our plan is to increase the percentage of franchised restaurants over the next five years. 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 and the financial and other capabilities of our franchisees and developers. We cannot assure youprovide assurance that developers planning the opening of franchised restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants required by their agreements. The Company may, from time to time, provide financing to franchisees for the purchase of existing restaurants and the development of new restaurants. There can be no assurance that franchisees will be able to repay all amounts. We cannot assure
youprovide assurance that franchisees will successfully 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“Risks Related to Government Regulations"Regulations” below.
Dependence on Key Personnel. We believe that our success will depend in part on the continuing services of our key executives, including Robert J. Nugent, Chief Executive Officer, Kenneth R. Williams, President and Chief
Operating Officer, and John F. Hoffner, Executive Vice President and Chief Financial Officer, and Linda Lang, Executive Vice President, Marketing and Operations, Human Resources and Information Systems, none of whom are employed pursuant to an employment agreement. The loss of the services of any of such executives could have a material adverse effect on our business, and we cannot assure youprovide assurance that qualified replacements would be available. Our continued growth will also depend in part on our ability to attract and retain additional skilled management personnel.
Risks Related to Government Regulations. 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 laws governing our relationships with employees, including minimum wage requirements, overtime, working and safety conditions and citizenship requirements. See "Risks“Risks Related to Increased Labor Costs"Costs” above. 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 government regulations could have a material adverse effect on our operations.
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 environmental hazards on properties we own or have owned, or operate or have operated. 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, but are not aware of any current material liability related thereto.
10
ITEM 2. PROPERTIES
----------
At September 30, 2001,29, 2002, we owned 690 JACK 721 JACKINTHE BOX BOX restaurant buildings, including 466497 located on leased land. In addition, we leased 9901,057 restaurants where both the land and building are leased, including 148163 restaurants operated by franchisees. At September 30, 2001,29, 2002, franchisees directly owned or leased 8284 restaurants.
Number of restaurants
-----------------------------
Company- Franchise-
operated operated Total
-------- ---------- -------
Company-owned restaurant buildings:
On Company-owned land...................... 171 53 224
On leased land............................. 418 48 466
----- --- -----
Subtotal................................... 589 101 690
Company-leased restaurant buildings
on leased land............................. 842 148 990
Franchise directly-owned or directly-
leased restaurant buildings................ - 82 82
----- --- -----
Total restaurant buildings.................... 1,431 331 1,762
===== === =====
| | | Number of restaurants
|
| | | Company- operated
| | Franchise- operated
| | Total
|
| Company-owned restaurant buildings: | | | | | | |
| On Company-owned land | | 172 | | 52 | | 224 |
| On leased land | | 441 | | 56 | | 497 |
| | |
| |
| |
|
| Subtotal | | 613 | | 108 | | 721 |
| Company-leased restaurant buildings on leased land | | 894 | | 163 | | 1,057 |
| Franchise directly-owned or directly-leased restaurant buildings | | — | | 84 | | 84 |
| | |
| |
| |
|
| Total restaurant buildings | | 1,507 | | 355 | | 1,862 |
| | |
| |
| |
|
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'srestaurant’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 5352 years, including optional renewal periods. The remaining lease terms of our other leases range from approximately one year to 4342 years, including optional renewal periods. At September 30, 2001,29, 2002, the leases had initial terms expiring as follows:
Number of restaurants
-------------------------
Land and
Ground building
leases leases
---------- ------------
2002 - 2006................................... 179 256
2007 - 2011................................... 98 251
2012 - 2016................................... 45 212
2017 and later................................ 144 271
We own our
| | | Number of restaurants
|
| | | Ground leases
| | Land and building leases
|
| 2003 – 2007 | | 155 | | 228 |
| 2008 – 2012 | | 119 | | 269 |
| 2013 – 2017 | | 48 | | 219 |
| 2018 and later | | 175 | | 341 |
Our principal executive offices in San Diego, California consistingconsist of an owned facility of approximately 150,000 square feet and a leased facility of approximately 44,000 square feet. Additionally, we have opportunistically acquired land for the potential expansionfuture development of our San Diego office space.Innovation Center. We also own one warehousedistribution center and lease an additional six with remaining terms ranging from one to 1820 years, including optional renewal periods.
Certain of our real and personal property are pledged as collateral for various components of our long-term debt.
11
ITEM 3. LEGAL PROCEEDINGS
-----------------
As previously reported, we have reached a settlement in an action filed in 1995 regarding alleged failure to comply with the Americans with Disabilities Act ("ADA"(“ADA”). The settlement, as amended, requires compliance with ADA Access Guidelines at Company-operated restaurants by October 2005.2003. We are in the process of making modifications to improve accessibility at our restaurants. We currently expect to spend approximately $10$3.4 million over the next four yearsin fiscal 2003 in connection with these modifications in addition to amounts previously invested. We expect to comply with our settlement obligations by the October 2003 settlement deadline.
On April 18, 2001, an action was filed by Robert Bellmore and Jeffrey Fairbairn, individually and on behalf of all others similarly situated, in the Superior Court of the State of California, San Diego County, seeking class action status andin alleging violations of California wage and hour laws. The complaint allegesalleged that salaried restaurant management personnel in California were improperly classified as exempt from California overtime laws, thereby depriving them of overtime pay. The complaint seekssought damages in an unspecified amount, penalties, injunctive relief, prejudgment interest, costs and attorneys'attorneys’ fees. We believe our employee classifications are appropriateThe Company settled the action in fiscal year 2002 for approximately $9.3 million without admission of liability. The settlement is subject to certain conditions and plan to
vigorously defend this action. A motion for class certification is scheduled to
be heard on May 3, 2002 and a trial date has been set for January 17, 2003.
court approval.
We are also subject to normal and routine litigationlitigation. In the opinion of management, based in part on the ordinary courseadvice of business. The amount of liability from the claims and actions against us
cannot be determined with certainty, but in our opinionlegal counsel, the ultimate liability from all other pending legal proceedings, asserted legal claims and known potential legal claims which are probable of assertion should not materially affect our operating results of operations 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 September 30, 2001.
29, 2002.
PART II
ITEM 5.MARKET FOR REGISTRANT'SREGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The following table summarizes the equity compensation plans under which Company Common Stock may be issued as of September 29, 2002. All plans were approved by shareholders of the Company.
| | | (a) Number of securities to be issued upon exercise of outstanding options
| | (b) Weighted-average exercise price of outstanding options
| | (c) Number of securities remaining for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
| Equity compensation plans approved by security holders | | 4,180,932 | | $ | 21.12 | | 2,334,351 |
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:
12 weeks ended
16 weeks ended ------------------------------------------------
Jan. 23, 2000 Apr. 16, 2000 July 9, 2000 Oct. 1, 2000
-------------- ------------- ------------ ------------
High..... $27.00 $26.00 $26.88 $26.88
Low...... 18.50 18.81 22.94 20.00
12 weeks ended
16 weeks ended -------------------------------------------------
Jan. 21, 2001 Apr. 15, 2001 July 8, 2001 Sept. 30, 2001
-------------- ------------- ------------ --------------
High..... $30.56 $31.75 $26.47 $34.00
Low...... 20.06 24.46 23.91 25.55
| | | 16 weeks ended Jan. 21, 2001
| | 12 weeks ended
|
| | | | Apr. 15, 2001
| | July 8, 2001
| | Sept. 30, 2001
|
| High | | $ | 30.56 | | $ | 31.75 | | $ | 26.47 | | $ | 34.00 |
| Low | | | 20.06 | | | 24.46 | | | 23.91 | | | 25.55 |
|
| | | 16 weeks ended Jan. 20, 2002
| | 12 weeks ended
|
| | | | Apr. 14, 2002
| | July 7, 2002
| | Sept. 29, 2002
|
| High | | $ | 28.00 | | $ | 31.78 | | $ | 34.00 | | $ | 29.55 |
| Low | | | 23.00 | | | 25.85 | | | 29.19 | | | 22.24 |
We havedid not paidpay any cash or other dividends (other than the issuance of
Rights, as described in Note 8 to the Consolidated Financial Statements) during the last two fiscal years and do not anticipate paying dividends in the foreseeable future. Our credit agreements prohibit, and our public debt instruments restrict, our right to declare or pay dividends or make other distributions with respect to shares of our capital stock.
As of September
30, 2001,29, 2002, there were approximately 500 stockholders of record.
12
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Our fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30. Fiscal year 1999 included 53 weeks and all other years include 52 weeks. The following selected financial data of Jack in the Box Inc. for each fiscal year is extracted or derived from financial statements which have been audited by KPMG LLP, our independent auditors.
| | | Fiscal Year
|
| | | 2002
| | 2001
| | 2000
| | 1999
| | 1998
|
| | | (Dollars in thousands, except per share data) |
Statement of Operations Data: | | | | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | | | | |
| Restaurant sales | | $ | 1,822,902 | | $ | 1,714,126 | | $ | 1,529,328 | | $ | 1,372,899 | | $ | 1,112,005 |
| Distribution and other sales | | | 77,445 | | | 66,565 | | | 59,091 | | | 41,828 | | | 26,407 |
| Franchise rents and royalties | | | 45,936 | | | 43,825 | | | 41,432 | | | 39,863 | | | 35,904 |
| Other revenues (1) | | | 20,077 | | | 9,060 | | | 3,461 | | | 2,309 | | | 49,740 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
| Total revenues | | | 1,966,360 | | | 1,833,576 | | | 1,633,312 | | | 1,456,899 | | | 1,224,056 |
| Costs of revenues (2) | | | 1,584,384 | | | 1,477,184 | | | 1,301,757 | | | 1,142,995 | | | 951,619 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
| Gross profit | | | 381,976 | | | 356,392 | | | 331,555 | | | 313,904 | | | 272,437 |
| Selling, general and administrative expenses (3) | | | 233,426 | | | 201,579 | | | 182,961 | | | 164,297 | | | 134,926 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
| Earnings from operations | | | 148,550 | | | 154,813 | | | 148,594 | | | 149,607 | | | 137,511 |
| Interest expense | | | 22,914 | | | 24,453 | | | 25,830 | | | 28,249 | | | 33,058 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
| Earnings before income taxes, extraordinary item and cumulative effect of accounting change | | | 125,636 | | | 130,360 | | | 122,764 | | | 121,358 | | | 104,453 |
| Income taxes (4) | | | 42,590 | | | 46,300 | | | 22,500 | | | 44,900 | | | 33,400 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
| Earnings before extraordinary item and cumulative effect of accounting change | | $ | 83,046 | | $ | 84,060 | | $ | 100,264 | | $ | 76,458 | | $ | 71,053 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
| Earnings per share before extra-ordinary item and cumulative effect of accounting change: | | | | | | | | | | | | | | | |
| Basic | | $ | 2.11 | | $ | 2.17 | | $ | 2.62 | | $ | 2.00 | | $ | 1.82 |
| Diluted | | | 2.07 | | | 2.11 | | | 2.55 | | | 1.95 | | | 1.77 |
|
Balance Sheet Data (at end of period): | | | | | | | | | | | | | | | |
| Total assets | | $ | 1,063,483 | | $ | 1,029,822 | | $ | 906,828 | | $ | 833,644 | | $ | 743,588 |
| Long-term debt | | | 143,364 | | | 279,719 | | | 282,568 | | | 303,456 | | | 320,050 |
| Stockholders’ equity | | | 464,115 | | | 413,530 | | | 316,352 | | | 217,837 | | | 136,980 |
| (1) | | Fiscal Year
-----------------------------------------------------------------
2001 2000 1999year 1998 1997
---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
Statement of Operations Data:
Revenues:
Restaurant sales...................... $1,714,126 $1,529,328 $1,372,899 $1,112,005 $ 986,583
Distribution and other sales.......... 66,565 59,091 41,828 26,407 45,233
Franchise rents and royalties......... 43,825 41,432 39,863 35,904 35,426
Other revenues (1).................... 9,060 3,461 2,309 49,740 4,500
---------- ---------- ----------- ----------- ----------
Total revenues....................... 1,833,576 1,633,312 1,456,899 1,224,056 1,071,742
Costs of revenues (2).................... 1,477,048 1,301,757 1,142,995 951,619 869,721
---------- ---------- ----------- ----------- ----------
Gross profit............................. 356,528 331,555 313,904 272,437 202,021
Selling, general and
administrative expenses............... 201,715 182,961 164,297 134,926 116,459
---------- ---------- ----------- ----------- ----------
Earnings from operations................. 154,813 148,594 149,607 137,511 85,562
Interest expense......................... 24,453 25,830 28,249 33,058 40,359
---------- ---------- ----------- ----------- ----------
Earnings before income taxes,
extraordinary item and cumulative
effect of accounting change........... 130,360 122,764 121,358 104,453 45,203
Income taxes (3)......................... 46,300 22,500 44,900 33,400 9,900
---------- ---------- ----------- ----------- ----------
Earnings before extraordinary item and
cumulative effect of accounting
change................................ $ 84,060 $ 100,264 $ 76,458 $ 71,053 $ 35,303
========== ========== =========== =========== ==========
Earnings per share before extra-
ordinary item and cumulative
effect of accounting change:
Basic................................ $ 2.17 $ 2.62 $ 2.00 $ 1.82 $ .91
Diluted.............................. 2.11 2.55 1.95 1.77 .89
Balance Sheet Data (at end of period):
Total assets............................. $1,029,822 $ 906,828 $ 833,644 $ 743,588 $ 681,758
Long-term debt........................... 279,719 282,568 303,456 320,050 346,191
Stockholders' equity..................... 413,530 316,352 217,837 136,980 87,879
- ---------
(1) Includesincludes the recognition of a $45.8 million litigation settlement received from various meat suppliers in 1998.
suppliers. |
(2) Reflects | | Fiscal year 1999 reflects an $18.0 million reduction of restaurant operating costs due to a change in 1999estimates resulting from improvements to our asset protection and risk management programs. This change was supported by an independent actuarial study conducted to evaluate the self-insured portion of our workers’ compensation, general liability and other insurance programs. |
| (3) | | Fiscal year 2002 includes $9.3 million for costs associated with the settlement of a class action lawsuit and $6.4 million for costs related to the closure of eight under-performing restaurants as described in Item 7 -– Costs and Expenses.
(3) Includes |
| (4) | | Fiscal year 2000 includes the recognition of $22.9 million in tax benefits in 2000 primarily resulting from the settlement of a tax case as described in Item 7 -– Costs and Expenses. |
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
| | 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF |
Results of Operations
All comparisons under this heading betweenamong 2002, 2001 2000 and 19992000 refer to the 52-week periods ended September 29, 2002, September 30, 2001, and October 1, 2000, and the 53-week
period ended October 3, 1999, respectively, unless otherwise indicated.
Revenues
Company-operated restaurant sales were $1,822.9 million, $1,714.1 million and $1,529.3 million in 2002, 2001 and $1,372.9 million in 2001, 2000, and 1999, respectively. In 1999, restaurant
sales included approximately $28 million from an additional 53rd week. Restaurant sales improved from the prior year by $108.8 million, or 6.3%, in 2002 and $184.8 million, or 12.1%, in 2001, and $156.4 million, or 11.4%, in 2000,primarily reflecting increasesan increase in the number of Company-operated restaurants, andas well as an increase in per store average ("PSA"(“PSA”) sales.sales in 2001. The number of Company-operated restaurants at the end of the fiscal year grew to 1,507 in 2002 from 1,431 in 2001 fromand 1,311 in 2000, and 1,191 in 1999 with new restaurant openings of 100, 126 and 120, respectively. Sales at Company-operated restaurants open more than one fiscal year declined 0.8% in 2002 compared with 2001 due to increased competitive activity and 115, respectively. PSA weeklyeconomic softness in certain key markets. Such sales for comparable Company
restaurants increased 4.1% in 2001 and 3.3% in 2000 and 8.7% in 1999 compared to the respective prior year, due to increases in both the number of transactions
and the average transaction amounts.year. We believe restaurant sales improvements havein 2001 and 2000 resulted from our two-tier marketing strategy featuring both premium sandwiches and value-priced alternatives, as well as to a popular brand-building
advertising campaign that features our fictional founder, "Jack". Also
contributing to sales growth werefrom price increases and our strategic initiatives, including our ongoing focus on improving food quality and guest service.
Distribution and other sales, representing distribution sales and sales from our fuel and convenience stores, were $77.4 million, $66.6 million and $59.1 million in 2002, 2001 and $41.82000, respectively. The $10.8 million increase in 2002 compared with 2001 2000is principally due to an increase in the number of fuel and 1999, respectively.convenience stores to 12 locations at September 29, 2002 from nine a year ago, as well as to an increase in distribution sales to franchised restaurants. The $7.5 million increase in 2001 compared towith 2000 is primarily due to increasesan increase in the number of restaurants serviced by our distribution division and PSA sales growth at franchised restaurants. The $17.3
Franchise rents and royalties increased to $45.9 million increasein 2002 from $43.8 million in 2001 and $41.4 million in 2000, compared to 1999 is due
principally toprimarily reflecting an increase in the number of fuelfranchised restaurants to 355 at the end of the year from 331 in 2001 and convenience stores we
operate.
Franchise323 in 2000. As a percentage of franchise restaurant sales, franchise rents and royalties were $43.8 million, $41.4 million and $39.9
milliongrew to 11.0% in 2001, 2000 and 1999, respectively, or2002 from 10.8%, 10.6% and 10.4%,
respectively of sales at franchise-operated restaurants. Franchise restaurant
sales were $406.9 million in 2001, $391.1 million in 2000 and $384.7 million in
1999. The percentage of sales in 2001 and 10.6% in 2000, grew primarily due to increases in percentage rents at certain franchised restaurants.
Other revenues, representingprincipally franchise gains and fees, andas well as interest income from investmentsnotes and notesinvestments receivable, increased to $20.1 million in 2002 from $9.1 million in 2001 fromand $3.5 million in 2000, and $2.3 millionprimarily due to a planned increase in 1999, primarilythe number of Company-operated restaurants converted to franchises. In 2002, we converted 22 Company-operated restaurants compared with 13 a year ago, resulting in an increase in other revenues of approximately $11 million. Other revenues grew in 2001 compared with 2000 due to increased franchising activities.
Costs and Expenses
Restaurant costs of sales and operating costs increased with sales growth and the addition of Company-operated restaurants. Restaurant costs of sales, which include food and packaging costs, increased to
$555.2 million in 2002 from $528.1 million in 2001
fromand $473.4 million in
2000 and $432.2 million in 1999.2000. As a
percentpercentage of restaurant sales, costs of sales were
30.5% in 2002, 30.8% in 2001
and 31.0% in
2000 and 31.5% in 1999.2000. The restaurant costs of sales percentage improved in
2001 and 20002002 compared to
prior
years2001 as the impact of slightly higher ingredient costs was offset by increased selling prices and certain profit improvement initiatives. In 2001, the percentage improvement compared to 2000 was primarily due to favorable
overall ingredient costs and selling price increases.
14
Restaurant operating costs were $864.1$931.7 million, $864.3 million and $750.7 million in 2002, 2001 and $646.8
million in 2001, 2000, and 1999, respectively. In 1999, we reduced accrued
liabilities andAs a percentage of restaurant sales, restaurant operating costs by $18.0 million,increased to 51.1% in 2002 from 50.4% in 2001 and 49.1% in 2000. The percentage increased in 2002 compared with 2001 primarily due to a
changehigher occupancy costs on newer stores whose sales have not yet matured and increased insurance costs, which were offset in estimatespart by improved utility and supply costs. Additionally, in 2002, savings generated from our Profit Improvement Program helped to offset the reduced leverage resulting from improvements to our asset protection and risk
management programs, which were more successful than anticipated. This change in
estimates was supported by an independent actuarial study conducted to evaluate
the self-insured portion of our workers' compensation, general liability and
other insurance programs. Restaurant operating costs were 50.4% of restaurant
sales in 2001, 49.1% in 2000 and 48.4% in 1999, excluding the change in
estimates.softer sales. The restaurant operating costs percentage increased in 2001 compared to 2000 reflecting an increase in occupancyprimarily due to higher utility costs principally utilities and to a lesser extent higher labor-related expenses. The percentage in 2000 increased
compared to 1999, primarily reflecting costs related to initiatives designed to
improve the overall guest experience and slightly higher labor-related costs.
Costs of distribution and other sales were $75.3 million in 2002, $64.5 million in 2001 and $57.5 million in 2000 and $41.2 million in 1999, reflecting an increase in the related
sales.2000. As a percentpercentage of distribution and other sales, these costs improved towere 97.3% in 2002, 96.9% in 2001 fromand 97.4% in 2000 and 98.5%2000. The percentage increased in 1999,2002 compared with a year ago, primarily due to reduced margins in our distribution business related to softer sales at JACKINTHE BOX restaurants. The lower percentage in 2001 compared with 2000 reflects improved margins from our fuel and convenience store operations resulting from our revised fuel pricing strategy and a decrease in start up costs.
Franchised restaurant costs, which consist principally of rents and depreciation on properties leased to franchisees and other miscellaneous costs, wereincreased to $22.1 million in 2002 from $20.4 million, $20.1 million and $22.7 million in 2001 and $20.1 million in 2000, and 1999,
respectively. The declinesprimarily reflecting an increase in 2001 and 2000 compared to 1999 principally reflect
decreases in franchise-related legal expenses.
the number of franchised restaurants.
Selling, general and administrative expenses were $201.7$233.4 million, $201.6 million and $183.0 million in 2002, 2001 and $164.32000, respectively. Fiscal year 2002 includes unusual charges of $9.3 million to settle a class action lawsuit which alleged that Company restaurant management personnel in 2001, 2000California were not always paid overtime properly, and 1999, respectively.$6.4 million for impairment and lease exit costs related to the closure of eight under-performing restaurants. Advertising and promotion costs were $91.2 million in 2002, $86.5 million in 2001 and $77.8 million in 20002000. Excluding the unusual items in 2002, selling, general and $70.3
million in 1999, just over 5% of restaurant sales in all years. General,
administrative and other costsexpenses were approximately 6.3%11.1% of revenues in 2002, 11.0% in 2001 6.4%and 11.2% in 20002000. In 2002, higher pension, bonus and 6.5%legal costs were mitigated in 1999.part by the increased leverage from higher revenues as well as savings generated from our Profit Improvement Program. The percentage improvement in 2001 compared to 2000 is primarily due to lower bonus and pension expenses. The higher percentage in 1999
reflects costs associated with the implementation of guest initiatives,
accelerated restaurant growth and higher incentive compensation and pension
expense.
Interest expense declined to $22.9 million in 2002 from $24.5 million in 2001 fromand $25.8 million in 2000, reflecting lower average levels of debt and $28.2 million in 1999. The reduction in 2001 compared to 2000 is
principally due to lower average interest rates. rates compared with the respective prior year.
The reduction in 2000 compared
to 1999 is principally due to a reduction in total debt outstanding.
Theincome tax provisions reflect effective annual tax rates of 35.5%33.9%, 18.3%35.5% and 37.0%18.3% of pre-tax earnings in 2002, 2001 2000 and 1999,2000, respectively. The favorablelower income tax ratesrate in each year have2002 resulted from the favorable resolution of certain long-standing tax matters. In 2001 and 2000, the favorable tax rates resulted from our ability to realize previously unrecognized tax benefits such as business tax credit, tax loss and minimum tax credit carryforwards. Also contributing to the effective rate decline in 2000 was our settlement with the U.S. Internal Revenue Service of a tax case related to the disposition in November 1995 of our interest in Family Restaurants, Inc. We recognized tax benefits of $22.9 million, primarily as a result of this settlement.
In 2001, we adopted Staff Accounting Bulletin ("SAB"(“SAB”) 101 which requires that franchise percentage rents, which are coningentcontingent upon certain annual sales levels, be recognized 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 offrom 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.
Net earnings were
$83.0 million, or $2.07 per diluted share, in 2002, $82.2 million, or $2.06 per diluted share, in 2001
and $100.3 million, or $2.55 per diluted share, in
2000 and $76.5 million, or $1.95
per diluted share, in 1999.2000. Each year includes unusual items. In
2002, net earnings included after-tax charges of $10.4 million, or $.26 per diluted share, for costs associated with the settlement of a class action lawsuit in California and the closure of eight under-performing restaurants. In 2001, net earnings included the
aforementioned $1.9 million charge for the cumulative effect of accounting change, or $.05 per diluted share. In 2000,
we reached a
final agreement withnet earnings included $22.9 million, or $.58 per diluted share, for the
U.S. Internal Revenue Service to settlesettlement of a tax case as described above.
This settlement increased 2000 net earnings by $22.9 million,
or $.58 per diluted share. In 1999, restaurant operating costs were reduced by
$18.0 million due to a change in estimates as described above. This change in
estimates increased 1999 net earnings by $11.4 million, or $.29 per diluted
share, net of income taxes. In addition, 1999 included a 53rd week that
contributed an extra $1.4 million in net earnings, or $.04 per diluted share.
Excluding
theseall unusual items, net earnings increased
8.7%approximately 11% to
$93.4 million, or $2.33 per diluted share, in 2002 from $84.1 million, or $2.11 per diluted share, in 2001,
which had increased 8.7%, from $77.4 million, or $1.97 per diluted share, in
2000, which had increased 21.5% from $63.7 million, or $1.62 per diluted
share, in 1999.
15
2000.Liquidity and Capital Resources
General. Cash and cash equivalents decreased $.5$0.7 million to approximately $6.3$5.6 million at September 30, 200129, 2002 from approximately $6.8$6.3 million at the beginning of the fiscal year. We expect to maintain low levels of cash and cash equivalents, reinvesting available cash flows from operations to develop new or enhance existing restaurants, and to reduce borrowings under the revolving credit agreement.
Our working capital deficit decreased $6.9increased $118.7 million to $220.9 million at September 29, 2002 from $102.2 million at September 30, 2001 from $109.1 million at October 1, 2000, principally2001. This increase is primarily due to an
increasethe reclassifications to current liabilities of our revolving bank loans which expire in accounts receivableMarch 2003 and assets held for sale and leaseback,$70 million of financing lease obligations due in January 2003, offset in part by an increasethe related reclassification of $16.1 million in totalsinking fund payments to other current liabilities.assets from other assets. The payment of the financing lease obligations will be funded from the sinking fund, operations and our credit facility. The Company and the restaurant industry in general, maintain relatively low levels of accounts receivable and inventories, and vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. At the end of the year, our current ratio was .3 to 1 compared with .6 to 1 at September 30, 2001, decreasing due to the reclassifications discussed above.
Our revolving bank credit agreement, expiring in March 2003, provides for a credit facility expiring
in 2003 of up to $175 million, including letters of credit of up to $25 million. At September 30, 2001,29, 2002, we had borrowings of $65.0$34 million and approximately $95.9$125 million of availability under the agreement. We fully expect to secure new financing before the expiration date of the current credit facility and have engaged a leading bank to complete the arrangement. Total debt outstanding decreased $2.6$32.4 million to $282.0$249.6 million at September 30, 200129, 2002 from $284.6$282.0 million at the beginning of fiscal year 2001.
2002, primarily due to repayments under the revolving credit facility.
We are subject to a number of customary covenants under our various debt instruments, including limitations on additional borrowings, capital expenditures, lease commitments and dividend payments, andas well as requirements to maintain certain financial ratios, cash flows and net worth. As of September 29, 2002, we were in compliance with these covenants. In September 1999, the collateral securing the bank credit facility was released. Realreleased; however, the real and personal property previously held as collateral for the bank credit facility cannot be used to secure other indebtedness of the Company. In addition, certain of our real and personal property secure other indebtedness.
Other Transactions. In January 1994, we entered into financing lease arrangements with two limited partnerships (the “Partnerships”), in which we sold interests in 76 restaurants for a specified period of time. The acquisition of the properties, including costs and expenses, was funded through the issuance of $70 million in 10.3% senior secured notes by a special purpose corporation acting as agent for the Partnerships. On August 29, 2002, we entered into an agreement to repurchase the interests in the restaurant properties that had been encumbered by the financing lease transaction. Pursuant to the agreement, on January 2, 2003, we will reacquire the interests at a price which is sufficient, in connection with previous sinking fund payments, to retire the $70 million senior secured notes. To effect the acceleration of the retirement of this high interest rate bearing debt, we also agreed to pay a consent fee of $1.3 million.
In fiscal 2002, our Board of Directors authorized the repurchase of our outstanding common stock in the open market for an aggregate amount not to exceed $80 million and is in addition to our $10 million common stock repurchase amount authorized December 3, 1999. Through September 29, 2002, we had acquired 1,549,800 shares in connection with these authorizations for an aggregate cost of $39.8 million, and at the end of the year we had approximately $50.2 million of repurchase availability remaining. The stock repurchase program is intended to offset the dilutive effect of stock option exercises and to increase shareholder value.
Contractual Obligations and Commitments.The following is a summary of the Company’s contractual obligations and commercial commitments as of September 29, 2002:
| | | Payments Due by Period (in thousands)
|
| | | Total
| | Less than 1 year
| | 2-3 years
| | 4-5 years
| | After 5 years
|
Contractual Obligations: | | | | | | | | | | | | | | | |
| Revolving credit facility | | $ | 34,000 | | $ | 34,000 | | $ | — | | $ | — | | $ | — |
| Financing lease obligations (1) | | | 53,866 | | | 53,866 | | | — | | | — | | | — |
| Capital lease obligations | | | 15,290 | | | 820 | | | 1,851 | | | 2,197 | | | 10,422 |
| Other long-term debt obligations | | | 130,678 | | | 1,668 | | | 3,204 | | | 552 | | | 125,254 |
| Operating lease obligations | | | 1,466,840 | | | 148,875 | | | 275,810 | | | 229,182 | | | 812,973 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
| Total contractual obligations | | $ | 1,700,674 | | $ | 239,229 | | $ | 280,865 | | $ | 231,931 | | $ | 948,649 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Other Commercial Comments: | | | | | | | | | | | | | | | |
| Stand-by letters of credit | | $ | 16,175 | | $ | 16,175 | | $ | — | | $ | — | | $ | — |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
| (1) | | Amount is net of accumulated sinking fund payments of $16,134. |
Capital Expenditures.Capital expenditures decreased $23.9 million to $142.6 million in 2002 from $166.5 million in 2001, primarily due to a $16.3 million decrease in new restaurant expenditures reflecting a reduction in the number of new restaurant openings to 100 in 2002 from 126 a year ago. In addition, fiscal year 2001 included non-recurring capital expenditures of $7.8 million related to the purchase of land in San Diego, on which we plan to develop our new Innovation Center. Fiscal year 2002 capital expenditures included $91.8 million for new restaurant expenditures, $37.9 million for existing restaurant improvements and $12.9 million for other additions.
We plan on spending approximately $182 million during fiscal year 2003 on capital expenditures. The projected increase when compared with 2002 reflects our decision to increase investments in remodeling restaurant facilities, additional interior enhancements, and our strategic plan to purchase more new restaurant properties verses leasing them as a means to mitigate increasing occupancy costs. The capital expenditures estimate for 2003 also reflects the refinement of our current restaurant prototype to reduce development costs and improve returns.
Future Liquidity.We require capital principally to grow the business through new restaurant construction, as well as to maintain improve and refurbishremodel existing restaurants, to service our debt obligations, and for general operating purposes. Our primary short-term and long-term sources of liquidity are expected to be cash flows from operations, theour revolving bank credit facility and the sale and leaseback of restaurant properties. Additional
potential sources of liquidity include financing opportunities and the conversion of Company-operated restaurants to franchised restaurants. Additional potential sources of liquidity include various financing opportunities and the sale and leaseback of restaurant properties. Based upon current levels of operations and anticipated growth, we expect that sufficient cash flows will be generated from operations so that, combined with available financing alternatives, we will be able to meet our debt service, capital expenditure and working capital requirements.
Although we cannot determine with certainty
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 accounting policies are disclosed in Note 1 to our consolidated financial statements.
Pension Benefits– The Company sponsors pension and other retirement plans in various forms covering substantially all 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 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 to decreases in interest rates and declines in the return on assets in the plans, the pension expense in fiscal year 2003 is expected to be approximately 40% higher than in fiscal year 2002.
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 reserves, 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, reserves might not be sufficient, and additional expense may be recorded.
Long-lived Assets– Long-lived assets, including fixed assets and intangibles, are reviewed for impairment when indicators of impairment are present. If the sum of undiscounted future cash flows is less than the 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 the fourth quarter of fiscal year 2002, we recorded $2.5 million in impairment charges related to eight under-performing restaurants scheduled for closure in fiscal year 2003. During fiscal year 2002, we noted no other triggering events that would indicate the need for additional impairment of any of the Company’s assets.
Legal Accruals –The Company is subject to claims and actions describedlawsuits in Note 10the ordinary course of its business. A determination of the Consolidated Financial
Statements,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 believe the ultimate liability for such claims and actions should
not materially affect our results of operations and liquidity.
On December 3, 1999, our Board of Directors authorized the purchase of our
outstanding common stock in the open market for an aggregate amount not to
exceed $10 million. Through September 30, 2001, we had acquired 341,600 shares
in connection with this authorization for an aggregate cost of $6.6 million.
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.
16
deem appropriate. Future Accounting Changes
In July, 2001, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Statement of Financial Accounting Standards ("SFAS"(“SFAS”) 141,Business Combinations,and 142,Goodwill and Other Intangible Assets, which supersede Accounting Principles Board Opinion (“APB”) 16,Business Combinations and APB 17,Intangible Assets.Assets. SFAS 141 requires that all business combinations be accounted for under the purchase method. The statementStatement further requires separate recognition of intangible assets that meet one of the two criteria, as defined in the statement.Statement. This statementStatement applies to all business combinations initiated after June 30, 2001. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized, but are to be tested at least annually for impairment. Separable intangible assets with defined lives will continue to be amortized over their useful lives. The provisions of SFAS 142 will apply to goodwill and intangible assets acquired before and after the statement'sStatement’s effective date. This new standard is required
In accordance with the provisions of SFAS 141 and 142, our trading area rights, which represent the amounts allocated under purchase accounting to reflect the value of operating existing restaurants within each specific trading area, will be adopted byreclassified as goodwill and will no longer be amortized effective September 30, 2002. As of September 29, 2002, the carrying values of our goodwill and trading area rights were $2.0 million and $64.6 million, respectively. We recorded goodwill and trading area rights amortization expense of $4.3 million in restaurant operating costs in 2002. We will adopt the provisions of SFAS 142 in the first quarter of 2003.
In June 2001, the FASB issued SFAS 143,Accounting for Asset Retirement Obligations, which addresses accounting and reporting standards for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We intend to adopt the provisions of SFAS 143 in the first quarter of fiscal year 2003 although we may elect to
adopt it inand expect that the first quarter of fiscal year 2002. We are currently evaluating
the effect that such adoption will not have a material impact on our results of operations andor financial position.
In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. This new standard requires entities to recognize the fair value of
a liability for an asset retirement obligation in the period in which it is
incurred if a reasonable estimate of fair value can be made. When the liability
is initially incurred, the cost is capitalized as part of the carrying amount of
the long-lived asset. Over time, the liability is accreted to its present value
each period through charges to operating expense and the capitalized cost is
depreciated over the life of the asset. Upon settlement of the liability, an
entity either settles the obligation for its recorded amount or incurs a gain or
loss upon settlement. The provisions of SFAS 143 are effective for fiscal years
beginning after June 15, 2002. We have not yet determined the impact, if any, of
adoption of SFAS 143.
In August 2001, the FASB issued SFAS 144,Accounting for the Impairment or Disposal of Long-Lived Assets.Assets. This new standard supersedes SFAS 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The primary objectivesOf, and the accounting and reporting provisions of this statement were to develop one accounting
model, based onAPB Opinion 30,Reporting the framework established inResults of Operations-Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. This Statement retains the fundamental provisions of SFAS 121, for long-lived assets to
be disposed of by sale and to addressbut addresses its significant implementation issues related
to SFAS 121. Statement 144 requires that all long-lived assets, including
discontinued operations, be measured atissues. We will adopt the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or in
discontinued operations. The provisions of SFAS 144 in the first quarter of fiscal year 2003 and expect that the adoption will not have a material impact on our results of operations or financial position.
In April 2002, the FASB issued SFAS 145,Rescission of FASB Statements4, 44,and 64, Amendment ofFASBStatement 13, and Technical Corrections. SFAS 145 rescinds SFAS 4,Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS 44,Accounting for Leases and SFAS 64,Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.SFAS145 addresses inconsistencies in accounting for sale-leaseback transactions and amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. We will adopt the provisions of SFAS 145 in the first quarter of fiscal year 2003 and expect that the adoption will not have a material impact on our results of operations or financial position.
In June 2002, the FASB issued SFAS 146,Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 Supersedes Emerging Issues Task Force (“EITF”) 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity.This Statement requires that costs associated with exit or disposal activities be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. This Statement is effective for fiscal
years beginningall exit or disposal activities initiated after December 15, 2001. We31, 2002 and will have not yet determinedno impact on exit liabilities recorded by the impact, if any, of adoption of SFAS 144.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------Company prior to such date.
| | 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is exposed to financial market risks associated with interest rates and commodity prices. Our primary market risk exposure relating to financial instruments isrelates to changes in interest rates. Our $175 million credit facility bears interest at an annual rate equal to the prime rate or the London Interbank Offered Rate ("LIBOR"(“LIBOR”) plus an applicable margin based on a financial leverage ratio. As of September 30, 2001,29, 2002, our applicable margin was .625%set at 0.625%. In fiscal year 2001,2002, the average interest rate paid on the credit facility was approximately 6.3%,
including the impact of an interest rate swap which expired in June 2001.3.4%. At September 30, 2001,29, 2002, a hypothetical one percentage100 basis point increase in short-term interest rates would result in a reduction of $.7$0.3 million in annual pre-tax earnings. The estimated reduction is based on holdingthe outstanding balance of our bank debtrevolving credit facility at its
September 30, 2001 level.
29, 2002.
Changes in interest rates also impact our pension expense. An assumed discount rate is used in determining the present value of future cash outflows currently expected to be required to satisfy the pension benefit obligation when due. A hypothetical 25 basis point reduction in the assumed discount rate would result in an estimated increase of $0.7 million in our future annual pension expense.
We are also exposed to the impact of commodity price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. From time-to-time we enter into commodity futures and option contracts to manage these fluctuations. OpenWe had no open commodity futures and option contracts were not significant as of September 30, 2001.
29, 2002.
At September
30, 2001,29, 2002, we had no other material financial instruments subject to significant market exposure.
17
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 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
PART III
| | 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
The following table sets forth the name, age (as of
January 1,December 31, 2002) and position of each person who is a director or executive officer of Jack in the Box Inc.:
Name Age Positions
------------------------------ --- ------------------------------------
Robert J. Nugent(3)........... 60 Chairman of the Board and Chief
Executive Officer
Kenneth R. Williams........... 59 President, Chief Operating Officer
and Director
John F. Hoffner............... 54 Executive Vice President and Chief
Financial Officer
Lawrence E. Schauf............ 56 Executive Vice President and Secretary
Linda A. Lang................. 43 Senior Vice President, Marketing
Paul L. Schultz............... 47 Senior Vice President, Operations
and Franchising
David M. Theno, Ph.D.......... 51 Senior Vice President, Quality
and Logistics
Karen C. Bachmann............. 50 Vice President, Corporate
Communications
Pamela S. Boyd................ 46 Vice President, Financial Planning
and Analysis
Carlo E. Cetti................ 57 Vice President, Human Resources and
Strategic Planning
Stephanie E. Cline............ 56 Vice President, Chief Information
Officer
Gladys H. DeClouet............ 44 Vice President, Operations-Division II
Karen G. Gentry............... 41 Vice President, Franchising
David T. Kaufhold............. 44 Vice President, Operations-Division I
William F. Motts.............. 58 Vice President, Restaurant Development
Harold L. Sachs............... 56 Vice President, Treasurer
Charles E. Watson............. 46 Vice President, Real Estate and
Construction
Darwin J. Weeks............... 55 Vice President, Controller and Chief
Accounting Officer
Michael E. Alpert(4)(5)....... 59 Director
Jay W. Brown(3)(5)............ 56 Director
Paul T. Carter(1)(2).......... 79 Director
Edward W. Gibbons(3)(4)(5).... 65 Director
Alice B. Hayes, Ph.D.(2)(5)... 64 Director
Murray H. Hutchison(1)(2)..... 63 Director
L. Robert Payne(1)(4)......... 68 Director
----------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Executive Committee.
(4) Member of the Finance Committee.
(5) Member of the Nominating and Governance Committee.
18
Name
| | Age
| | Positions
|
| Robert J. Nugent(3) | | 61 | | Chairman of the Board and Chief Executive Officer |
| Kenneth R. Williams | | 60 | | President, Chief Operating Officer and Director (6) |
| John F. Hoffner | | 55 | | Executive Vice President and Chief Financial Officer |
| Linda A. Lang | | 44 | | Executive Vice President, Marketing and Operations, Human Resources and Information Systems |
| Lawrence E. Schauf | | 57 | | Executive Vice President and Secretary |
| Carlo E. Cetti | | 58 | | Senior Vice President, Human Resources and Strategic Planning |
| Paul L. Schultz | | 48 | | Senior Vice President, Operations and Franchising |
| David M. Theno, Ph.D. | | 52 | | Senior Vice President, Quality and Logistics |
| Karen C. Bachmann | | 51 | | Vice President, Corporate Communications |
| Stephanie E. Cline | | 57 | | Vice President, Chief Information Officer |
| Harold L. Sachs | | 57 | | Vice President, Treasurer |
| Michael E. Alpert(4)(5) | | 60 | | Director |
| Jay W. Brown(3)(5) | | 57 | | Director |
| Paul T. Carter(1)(2) | | 80 | | Director (7) |
| Edward W.Gibbons(3)(4)(5) | | 66 | | Director |
| Anne B. Gust | | 44 | | Director (8) |
| Alice B. Hayes, Ph.D.(2)(5) | | 65 | | Director |
| Murray H. Hutchison(1)(2) | | 64 | | Director |
| Michael W. Murphy(1)(2) | | 45 | | Director (9) |
| L. Robert Payne(1)(4) | | 69 | | Director |
| (1) | | Member of the Audit Committee. |
| (2) | | Member of the Compensation Committee. |
| (3) | | Member of the Executive Committee. |
| (4) | | Member of the Finance Committee. |
| (5) | | Member of the Nominating and Governance Committee. |
| (6) | | Mr. Williams announced his retirement from the Company effective January 1, 2003. Upon his retirement Mr. Nugent will assume the title of President. |
| (7) | | Resigned from committees effective November 6, 2002. |
| (8) | | Ms. Gust will join the Board effective January 1, 2003. |
| (9) | | Board and committee member effective September 12, 2002. |
Mr. Nugent has been Chairman of the Board since February 2001 and Chief Executive Officer since April 1996. The Company has announced that Mr. Nugent will assume the title of President effective January 1, 2003, upon Mr. William’s retirement from the Company. He was President from April 1996 to February 2001 and Executive Vice President from February 1985 to April 1996. He has been a director since February 1988. Mr. Nugent has 2223 years of experience with the Company in various executive and operations positions.
Mr. Williams has been President and Chief Operating Officer since February 2001. He has announced his retirement from the Company effective January 1, 2003. He was Executive Vice President, Marketing and Operations from May 1996 to February 2001 and Senior Vice President from January 1993 to May 1996. He has been a director since February 2001. Mr. Williams has 3637 years of experience with the Company in various operations positions.
Mr. Hoffner has been Executive Vice President and Chief Financial Officer since August 2001. Prior to joining the Company he was Executive Vice President of Administration and Chief Financial Officer of Cost Plus, Inc. from June 1998 to August 2001 and Senior Vice President and Chief Financial Officer of Sweet Factory, Inc. from April 1993 to June 1998.
Mr. Schauf
Ms. Lang has been Executive Vice President and Secretary since August
1996. Prior to joining the Company heJuly 2002. She was Senior Vice President, General Counsel
and Secretary of Wendy's International, Inc.Marketing from February 1991May 2001 to August 1996.
Ms. Lang has been Senior Vice President, Marketing since May 2001. She wasJuly 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 1415 years of experience with the Company in various marketing, finance and operations positions.
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 22 years of experience with the Company in various human resources and training positions.
Mr. Schultz has been Senior Vice President, Operations and Franchising since August 1999, and was Vice President from May 1988 to August 1999. Mr. Schultz has 2829 years of experience with the Company in various operations positions.
Dr. Theno has been Senior Vice President, Quality and Logistics since May 2001. He was Vice President, Technical Services (formerly Quality Assurance, Research and Development and Product Safety) from April 1994 to May 2001. Dr. Theno has nine10 years of experience with the Company in various quality assurance and product safety positions.
Ms. Bachmann has been Vice President, Corporate Communications since November 1999. She was Division Vice President, Corporate Communications from December 1994 until November 1999.
Ms. Boyd has been Vice President, Financial Planning and Analysis 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 14 years of experience with the Company in
various finance positions.
Mr. Cetti has been Vice President, Human Resources and Strategic Planning
since March 1994. Mr. Cetti has 21 years of experience with the Company in
various human resources and training 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
2425 years of experience with the Company in various management information systems positions.
Ms. DeClouet has been Vice President, Operations-Division II since February
2001. She was Division Vice President, Operations from July 1999 to February
2001 and Regional Vice President, Los Angeles from February 1998 to July 1999.
Prior to joining the Company, she was Division Manager, Marketing of BP Oil
Company from February 1995 to January 1998.
19
Ms. Gentry has been Vice President, Franchising since August 2000. From
November 1994 to August 2000 she was Division Vice President, Franchising.
Ms. Gentry has 22 years of experience with the Company in various operations and
franchise positions.
Mr. Kaufhold has been Vice President, Operations-Division I since February
2001. He was Division Vice President, Operations from July 1999 to February 2001
and Regional Vice President, Dallas from December 1995 to July 1999.
Mr. Motts has been Vice President, Restaurant Development since September
1988. Mr. Motts has 19 years of experience with the Company in various
restaurant development positions.
Mr. Sachs has been Vice President, Treasurer since November 1999. He was Treasurer from January 1986 to November 1999. Mr. Sachs has 2324 years of experience with the Company in various finance positions.
Mr. Watson has been Vice President, Real Estate and Construction since
April 1997. From July 1995 to March 1997, he was Vice President, Real Estate and
Construction of Boston Chicken, Inc. He was Division Vice President, Real Estate
and Construction of the Company from November 1991 through June 1995. Mr. Watson
has 16 years of experience with the Company in various real estate and
construction positions.
Mr. Weeks has been Vice President, Controller and Chief Accounting Officer
since August 1995 and was previously Division Vice President and Assistant
Controller from April 1982 through July 1995. Mr. Weeks has 25 years of
experience with the Company in various finance positions.
Mr. Alpert has been a director of the Company since August 1992. Mr. Alpert was a partner in the San Diego office of the law firm of Gibson, Dunn & Crutcher LLP for more than five years prior to his retirement in August 1992. He is currently Advisory Counsel to Gibson, Dunn & Crutcher LLP. Gibson, Dunn & Crutcher LLP provides legal services to us from time to time.
Mr. Brown has been a director of the Company since February 1997. He is currently a principal with Westgate Group, LLC. From April 1995 to September 1998, Mr. Brown was President and CEO of Protein Technologies International, Inc., the world'sworld’s leading supplier of soy-based proteins to the food and paper processing industries. He was Chairman and CEO of Continental Baking Company from October 1984 to July 1995 and President of Van Camp Seafood Company from August 1983 to October 1984. From July 1981 through July 1983, he served as Vice President of Marketing for us.Foodmaker Inc. Mr. Brown is a director of Agribrands
International, Inc. and Cardinal Brands, Inc.
Mr. Carter has been a director of the Company since June 1991. Mr. Carter has been an insurance consultant for the Government Division of Corroon & Black Corporation since February 1987. He retired in February 1987 as Chairman and Chief Executive Officer of Corroon & Black Corporation, Southwestern Region and as Director and Senior Vice President of Corroon & Black Corporation. Mr. Carter is a director of Borrego Springs National Bank.
Mr. Gibbons has been a director of the Company since October 1985 and has been a general partner of Gibbons, Goodwin, van Amerongen, an investment banking firm, for more than five years. Mr. Gibbons is also a director of Robert Half International, Inc. and Summer Winds Garden Centers, Inc.
Ms. Gust will become a director of the Company effective January 1, 2003. She has been Chief Administrative Officer of The Gap, Inc. since March 2000 and an Executive Vice President since September 1998. Prior to her appointment to Executive Vice President, she served as Senior Vice President, Legal and Corporate Administration.
Dr. Hayes has been a director of the Company since September 1999. She has been the President of the University of San Diego since 1995. From 1989 to 1995, Dr. Hayes served as Executive Vice President and Provost of Saint Louis University. Previously, she spent 27 years at Loyola University of Chicago, where she served in various executive positions. Dr. Hayes is also a director of the Pulitzer Publishing Company,
the Old Globe Theatre,Con Agra, Independent Colleges of Southern California, The San Diego Foundation
and Loyola University of
Chicago and
Catholic Charities, Diocese of San Diego.
20
Chicago.Mr. Hutchison has been a director of the Company since May 1998. He served 1824 years as Chief Executive Officer and Chairman of International Technology Corp., a large publicly traded environmental engineering firm, until his retirement in 1996. Mr. Hutchison is the Chairman of the Board of Sunrise
Medical, Inc.Research Design and the Huntington Hotel Corp. and serves as a director of Cadiz Inc., Senior Resource Corp. and the Olson Company.
Mr. Murphy has been director of the Company since September 2002. He has been President and CEO for Sharp HealthCare, San Diego’s largest integrated health system, since April 1996. Prior to his appointment to President and CEO, Mr. Murphy served as Senior Vice President of Business Development and Legal Affairs. His career at Sharp began in 1991 as Chief Financial Officer of Grossmont Hospital, before moving to Sharp’s system-wide role of Vice President of Financial Accounting and Reporting.
Mr. Payne has been a director of the Company since August 1986. He has been President and Chief Executive Officer of Multi-Ventures, Inc. since February 1976. Multi-Ventures, Inc. is a real estate development and investment company that is also the managing partner of the San Diego Mission Valley Hilton and the Red Lion Hanalei Hotel. He was a principal in the Company prior to its acquisition by its former parent, Ralston Purina Company, in 1968.
That portion of our definitive Proxy Statement appearing under the caption "Section“Section 16(a) Beneficial Ownership Reporting Compliance"Compliance” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 30, 200129, 2002 and to be used in connection with our 20022003 Annual Meeting of Stockholders is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
That portion of our definitive Proxy Statement appearing under the caption "Executive Compensation"“Executive Compensation” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 30, 200129, 2002 and to be used in connection with our 20022003 Annual Meeting of Stockholders is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
That portion of our definitive Proxy Statement appearing under the caption "Security“Security Ownership of Certain Beneficial Owners and Management"Management” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 30, 200129, 2002 and to be used in connection with our 20022003 Annual Meeting of Stockholders is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
That portion of our definitive Proxy Statement appearing under the caption "Certain Transactions"“Certain Transactions” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 30, 200129, 2002 and to be used in connection with our 20022003 Annual Meeting of Stockholders is hereby incorporated by reference.
ITEM 14. CONTROLS AND PROCEDURES (a) Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), within 90 days of the filing date of this report. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective.
(b) There have been no significant changes, including corrective actions with regard to significant deficiencies or material weaknesses, in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
ITEM 14(a)15(a)(1) Financial Statements.Statements. See Index to Consolidated Financial
-------------------- Statements on page F-1 of this report.
ITEM 14(a)15(a)(2) Financial Statement Schedules.Schedules. Not applicable.
-----------------------------
21
ITEM 14(a)15(a)(3) Exhibits.
--------
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation, as amended(8)
3.2 Restated Bylaws(8)
4.1 Indenture for the 8 3/8% Senior Subordinated Notes due 2008(5)
(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.)
10.1.1 Revolving Credit Agreement dated as of April 1, 1998 by and between
Foodmaker, Inc. and the Banks named therein(5)
10.1.2 First Amendment dated as of August 24, 1998 to the Revolving Credit
Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and
the Banks named therein(6)
10.1.3 Second Amendment dated as of February 27, 1999 to the Revolving Credit
Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and
the Banks named therein(7)
10.1.4 Third Amendment dated as of September 17, 1999 to the Revolving Credit
Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and
the Banks named therein(8)
10.1.5 Fourth Amendment dated as of December 6, 1999 to the Revolving Credit
Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and
the Banks named therein(9)
10.1.6 Fifth Amendment dated as of May 3, 2000 to the Revolving Credit
Agreement dated as of April 1, 1998 by and between
Jack in the Box Inc. and the Banks named therein(10)
10.1.7 Sixth Amendment dated as of November 17, 2000 to the Revolving Credit
Agreement dated as of April 1, 1998 by and between
Jack in the Box Inc. and the Banks named therein(11)
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 Amended and Restated 1992 Employee Stock Incentive Plan(3)
10.5 Capital Accumulation Plan for Executives
10.6 Supplemental Executive Retirement Plan
10.7 Performance Bonus Plan(12)
10.8 Deferred Compensation Plan for Non-Management Directors(2)
10.9 Amended and Restated Non-Employee Director Stock Option Plan(8)
10.10 Form of Compensation and Benefits Assurance Agreement for Executives(4)
23.1 Consent of KPMG LLP
- ----------
(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'sExhibits.
Number
| | Description
|
| 3.1 | | Restated Certificate of Incorporation, as amended(9) |
| 3.2 | | Restated Bylaws(9) |
| 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) |
| 10.1.1 | | Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(6) |
| 10.1.2 | | First Amendment dated as of August 24, 1998 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(7) |
| 10.1.3 | | Second Amendment dated as of February 27, 1999 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(8) |
| 10.1.4 | | Third Amendment dated as of September 17, 1999 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(9) |
| 10.1.5 | | Fourth Amendment dated as of December 6, 1999 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(10) |
| 10.1.6 | | Fifth Amendment dated as of May 3, 2000 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Jack in the Box Inc. and the Banks named therein(11) |
| 10.1.7 | | Sixth Amendment dated as of November 17, 2000 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Jack in the Box Inc. and the Banks named therein(12) |
| 10.1.8 | | Seventh Amendment dated as of August 23, 2002 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Jack in the Box Inc. and the Banks named therein |
| 10.1.9 | | Eighth Amendment dated as of September 27, 2002 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Jack in the Box Inc. and the Banks named therein |
| 10.1.10 | | Waiver dated as of November 15, 2002 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Jack in the Box Inc. and the Banks named therein |
| 10.2 | | Purchase Agreements dated as of January 22, 1987 between Foodmaker, Inc. and FFCA/IIP 1985 Property Company and FFCA/IIP 1986 Property Company(1) |
| 10.3 | | Land Purchase Agreements dated as of February 18, 1987 by and between Foodmaker, Inc. and FFCA/IPI 1984 Property Company and FFCA/IPI 1985 Property Company and Letter Agreement relating thereto(1) |
| 10.4.1 | | Amended and Restated 1992 Employee Stock Incentive Plan(4) |
| 10.4.2 | | Jack in the Box Inc. 2002 Stock Incentive Plan (15) |
| 10.5 | | Capital Accumulation Plan for Executives (14) |
| 10.5.1 | | First Amendment dated as of August 2, 2002 to the Capital Accumulation Plan for Executives |
| 10.6 | | Supplemental Executive Retirement Plan (14) |
| 10.6.1 | | First Amendment dated as of August 2, 2002 to the Supplemental Executive Retirement Plan |
| 10.7 | | Performance Bonus Plan(13) |
| 10.8 | | Deferred Compensation Plan for Non-Management Directors(2) |
| 10.9 | | Amended and Restated Non-Employee Director Stock Option Plan(9) |
| 10.10 | | Form of Compensation and Benefits Assurance Agreement for Executives(5) |
| 10.11 | | Form of Indemnification Agreement between Jack in the Box Inc. and certain officers and directors |
| 10.12 | | Consent Agreement |
| 23.1 | | Consent of KPMG LLP |
| 99.1 | | Certification of Chief Executive Officer |
| 99.2 | | Certification of Chief Financial Officer |
| (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 herein by reference from registrant's
Registration Statement on Form S-8 (No. 333-26781)filed May 9, 1997.
(4) Previously filed and incorporated herein by reference from registrant's Annual Meeting of Stockholders on February 17, 1995. |
| (3) | | Previously filed and incorporated by reference from registrant’s Current Report on Form 10-K for the fiscal year ended September 28, 1997.
(5) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended April 12, 1998.
(6) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 27, 1998.
(7) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended April 11, 1999.
22
(8) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended October 3, 1999.
(9) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended January 23, 2000.
(10) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended July 9, 2000.
(11) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended January 21, 2001.
(12) 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.
ITEM 14(b) We did not file any reports on Form 8-K dated July 26, 1996. |
| (4) | | Previously filed and incorporated herein by reference from registrant’s Registration Statement on Form S-8 (No. 333-26781) filed May 9, 1997. |
| (5) | | Previously filed and incorporated herein by reference from registrant’s Annual Report on Form 10-K for the fiscal year ended September 28, 1997. |
| (6) | | Previously filed and incorporated herein by reference from registrant’s Quarterly Report on Form 10-Q for the quarter ended April 12, 1998. |
| (7) | | Previously filed and incorporated herein by reference from registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 1998. |
| (8) | | Previously filed and incorporated herein by reference from registrant’s Quarterly Report on Form 10-Q for the quarter ended April 11, 1999. |
| (9) | | Previously filed and incorporated herein by reference from registrant’s Annual Report on Form 10-K for the fiscal year ended October 3, 1999. |
| (10) | | Previously filed and incorporated herein by reference from registrant’s Quarterly Report on Form 10-Q for the quarter ended January 23, 2000. |
| (11) | | Previously filed and incorporated herein by reference from registrant’s Quarterly Report on Form 10-Q for the quarter ended July 9, 2000. |
| (12) | | Previously filed and incorporated herein by reference from registrant’s Quarterly Report on Form 10-Q for the quarter ended January 21, 2001. |
| (13) | | Previously filed and incorporated herein by reference from registrant’s Definitive Proxy Statement dated January 19, 2001 for the Annual Meeting of Stockholders on February 23, 2001. |
| (14) | | Previously filed and incorporated herein by reference from registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2001. |
| (15) | | Previously filed and incorporated herein by reference from the registrant’s Definitive Proxy Statement dated January 18, 2002 for the Annual Meeting of Stockholders’ on February 22, 2002. |
ITEM 15(b) The Company filed a report on Form 8-K dated August 12, 2002 with the Securities and Exchange Commission duringreporting the fourth quarter ended
September 30, 2001.
Statements Under Oath of its Principle Executive Officer and Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings.
ITEM 14(c)15(c) All required exhibits are filed herein or incorporated by reference as described in Item 14(a)(3).
ITEM
14(d)15(d) All supplemental schedules are omitted as inapplicable or because the required information is included in the Consolidated Financial Statements or notes thereto.
23
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: JOHN F. HOFFNER
---------------
John F. Hoffner
Executive Vice President and
Chief Financial Officer
Date: December 10, 2001
| JACK IN THE BOX INC. |
|
| By: | | JOHN F. HOFFNER
|
| | John F. Hoffner Executive Vice President and Chief Financial Officer (Principal Financial Officer) (Duly Authorized Signatory) Date: December 12, 2002 |
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
----------------------- ---------------------- -----------------
ROBERT J. NUGENT
Signature
| | Title
| | Date
|
|
ROBERT J. NUGENT
Robert J. Nugent | | Chairman of the Board December 10, 2001
----------------------- and Chief Executive Officer (Principal Executive Officer) | | December 12, 2002 |
|
KENNETH R. WILLIAMS
Kenneth R. Williams | | President, Chief Operating Officer and Director | | December 12, 2002 |
|
JOHN F. HOFFNER
John F. Hoffner | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | | December 12, 2002 |
|
MICHAEL E. ALPERT
Michael E. Alpert | | Director | | December 12, 2002 |
|
JAY W. BROWN
Jay W. Brown | | Director | | December 12, 2002 |
|
PAUL T. CARTER
Paul T. Carter | | Director | | December 12, 2002 |
|
EDWARD W. GIBBONS
Edward W. Gibbons | | Director | | December 12, 2002 |
|
ALICE B. HAYES
Alice B. Hayes | | Director | | December 12, 2002 |
|
MURRAY H. HUTCHISON
Murray H. Hutchison | | Director | | December 12, 2002 |
|
MICHAEL W. MURPHY
Michael W. Murphy | | Director | | December 12, 2002 |
|
L. ROBERT PAYNE
L. Robert Payne | | Director | | December 12, 2002 |
CERTIFICATION
I, Robert J. Nugent, Officer (Principal
Executive Officer)
KENNETH R. WILLIAMS President, Chief December 10, 2001
----------------------- Operating Officer and
Kenneth R. Williams Director
JOHN F. HOFFNER Executive Vice President December 10, 2001
----------------------- and Chief Financialcertify that:
| 1. | | I have reviewed this annual report on Form 10-K of Jack in the Box Inc.; |
| 2. | | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
| 4. | | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a. | | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| b. | | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and |
| c. | | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a. | | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b. | | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | | The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| By: | | ROBERT J. NUGENT
|
| | Robert J. Nugent |
| | Chief Executive Officer and Chairman of the Board |
|
| | Date: December 12, 2002 |
CERTIFICATION
I, John F. Hoffner,
Officer (Principal
Financial Officer)
DARWIN J. WEEKS Vice President, December 10, 2001
----------------------- Controller and Chief
Darwin J. Weeks Accounting Officer
(Principal Accounting
Officer)
MICHAEL E. ALPERT Director December 10, 2001
-----------------------
Michael E. Alpert
JAY W. BROWN Director December 10, 2001
-----------------------
Jay W. Brown
PAUL T. CARTER Director December 10, 2001
-----------------------
Paul T. Carter
EDWARD W. GIBBONS Director December 10, 2001
-----------------------
Edward W. Gibbons
ALICE B. HAYES Director December 10, 2001
-----------------------
Alice B. Hayes
MURRAY H. HUTCHISON Director December 10, 2001
-----------------------
Murray H. Hutchison
L. ROBERT PAYNE Director December 10, 2001
-----------------------
L. Robert Payne
24
certify that: | 1. | | I have reviewed this annual report on Form 10-K of Jack in the Box Inc.; |
| 2. | | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
| 4. | | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a. | | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| b. | | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and |
| c. | | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a. | | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b. | | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | | The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| By: | | JOHN F. HOFFNER
|
| | John F. Hoffner |
| | Executive Vice President and Chief Financial Officer |
|
| | Date: December 12, 2002 |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report........................... F-2
Consolidated Balance Sheets............................ F-3
Consolidated Statements of Earnings.................... F-4
Consolidated Statements of Cash Flows.................. F-5
Consolidated Statements of Stockholders' Equity........ F-6
Notes to Consolidated Financial Statements............. F-7
F-1
| | Page
|
| Independent Auditors’ Report | | F-2 |
Consolidated Balance Sheets | | F-3 |
Consolidated Statements of Earnings | | F-4 |
Consolidated Statements of Cash Flows | | F-5 |
Consolidated Statements of Stockholders’ Equity | | F-6 |
Notes to Consolidated Financial Statements | | F-7 |
INDEPENDENT AUDITORS'AUDITORS’ REPORT
The Board of Directors
Jack in the Box Inc.:
We have audited the accompanying consolidated balance sheets of Jack in the Box Inc. and subsidiaries as of September 29, 2002 and September 30, 2001, and
October 1, 2000, and the related consolidated statements of earnings, cash flows and stockholders'stockholders’ equity for the fifty-two weeks ended September 29, 2002, September 30, 2001, and October 1, 2000, and the fifty-three weeks ended October 3, 1999.2000. These consolidated financial statements are the responsibility of the Company'sCompany’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 auditing standards generally accepted in the United States of America. 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 September 29, 2002 and September 30, 2001, and
October 1, 2000, and the results of their operations and their cash flows for the fifty-two weeks ended September 29, 2002, September 30, 2001, and October 1, 2000, and the
fifty-three weeks ended October 3, 1999, in conformity with accounting principles generally accepted in the United States of America.
KPMG LLP
San Diego, California
November
5, 2001
F-2
4, 2002JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars
(Dollars in thousands, except per share data)
September 30, October 1,
2001 2000
------------- -----------
ASSETS
Current assets:
Cash and cash equivalents...................... $ 6,328 $ 6,836
Accounts receivable, net....................... 21,816 13,667
Inventories.................................... 28,993 25,722
Prepaid expenses............................... 19,268 19,329
Assets held for sale and leaseback............. 48,329 33,855
----------- ---------
Total current assets......................... 124,734 99,409
----------- ---------
Property and equipment:
Land........................................... 95,435 88,617
Buildings...................................... 499,681 429,845
Restaurant and other equipment................. 453,376 393,885
Construction in progress....................... 63,345 55,485
----------- ---------
1,111,837 967,832
Less accumulated depreciation
and amortization............................. 332,369 288,474
----------- ---------
779,468 679,358
----------- ---------
Other assets, net................................. 125,620 128,061
----------- ---------
$ 1,029,822 $ 906,828
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........... $ 2,255 $ 2,034
Accounts payable............................... 55,036 53,082
Accrued liabilities............................ 169,628 153,356
----------- ---------
Total current liabilities.................... 226,919 208,472
----------- ---------
Long-term debt, net of current maturities......... 279,719 282,568
Other long-term liabilities....................... 91,439 86,968
Deferred income taxes............................. 18,215 12,468
Stockholders' equity:
Preferred stock................................ - -
Common stock $.01 par value, 75,000,000
authorized, 42,418,742 and 41,483,369
issued, respectively......................... 424 415
Capital in excess of par value................. 310,107 294,380
Retained earnings.............................. 144,018 61,817
Treasury stock, at cost, 3,170,574 and
3,134,774 shares, respectively............... (41,019) (40,260)
----------- ---------
Total stockholders' equity................... 413,530 316,352
----------- ---------
$ 1,029,822 $ 906,828
=========== =========
| | | September 29, 2002
| | | September 30, 2001
| |
| ASSETS |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 5,620 | | | $ | 6,328 | |
| Accounts receivable, net | | | 26,215 | | | | 21,816 | |
| Inventories | | | 29,613 | | | | 28,993 | |
| Prepaid expenses and other current assets | | | 38,471 | | | | 19,268 | |
| Assets held for sale and leaseback | | | 12,626 | | | | 48,329 | |
| | |
|
|
| |
|
|
|
| Total current assets | | | 112,545 | | | | 124,734 | |
| | |
|
|
| |
|
|
|
|
| Property and equipment, at cost: | | | | | | | | |
| Land | | | 105,298 | | | | 95,435 | |
| Buildings | | | 581,651 | | | | 499,681 | |
| Restaurant and other equipment | | | 486,183 | | | | 453,376 | |
| Construction in progress | | | 46,355 | | | | 63,345 | |
| | |
|
|
| |
|
|
|
| | | | 1,219,487 | | | | 1,111,837 | |
| Less accumulated depreciation and amortization | | | 372,556 | | | | 332,369 | |
| | |
|
|
| |
|
|
|
| Property and equipment, net | | | 846,931 | | | | 779,468 | |
| | |
|
|
| |
|
|
|
| Other assets, net | | | 104,007 | | | | 125,620 | |
| | |
|
|
| |
|
|
|
| | | $ | 1,063,483 | | | $ | 1,029,822 | |
| | |
|
|
| |
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | | | | | |
| Current maturities of long-term debt | | $ | 106,265 | | | $ | 2,255 | |
| Accounts payable | | | 59,237 | | | | 55,036 | |
| Accrued liabilities | | | 167,914 | | | | 169,628 | |
| | |
|
|
| |
|
|
|
| Total current liabilities | | | 333,416 | | | | 226,919 | |
| | |
|
|
| |
|
|
|
|
| Long-term debt, net of current maturities | | | 143,364 | | | | 279,719 | |
| Other long-term liabilities | | | 96,727 | | | | 91,439 | |
| Deferred income taxes | | | 25,861 | | | | 18,215 | |
| Stockholders’ equity: | | | | | | | | |
| Preferred stock | | | — | | | | — | |
Common stock $.01 par value, 75,000,000 authorized,
42,936,810 and 42,418,742 issued, respectively | | | 429 | | | | 424 | |
| Capital in excess of par value | | | 319,810 | | | | 310,107 | |
| Retained earnings | | | 227,064 | | | | 144,018 | |
| Accumulated other comprehensive loss, net | | | (8,882 | ) | | | — | |
| Treasury stock, at cost, 4,378,774 and 3,170,574 shares, respectively | | | (74,306 | ) | | | (41,019 | ) |
| | |
|
|
| |
|
|
|
| Total stockholders’ equity | | | 464,115 | | | | 413,530 | |
| | |
|
|
| |
|
|
|
| | | $ | 1,063,483 | | | $ | 1,029,822 | |
| | |
|
|
| |
|
|
|
See accompanying notes to consolidated financial statements.
F-3
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In
(In thousands, except per share data)
Fiscal year
------------------------------------
2001 2000 1999
---------- ---------- ----------
Revenues:
Restaurant sales............................ $1,714,126 $1,529,328 $1,372,899
Distribution and other sales................ 66,565 59,091 41,828
Franchise rents and royalties............... 43,825 41,432 39,863
Other....................................... 9,060 3,461 2,309
---------- ---------- ----------
1,833,576 1,633,312 1,456,899
---------- ---------- ----------
Costs of revenues:
Restaurant costs of sales................... 528,070 473,373 432,231
Restaurant operating costs.................. 864,135 750,736 646,815
Costs of distribution and other sales....... 64,490 57,543 41,217
Franchised restaurant costs................. 20,353 20,105 22,732
---------- ---------- ----------
1,477,048 1,301,757 1,142,995
---------- ---------- ----------
Gross profit................................... 356,528 331,555 313,904
Selling, general and administrative............ 201,715 182,961 164,297
---------- ---------- ----------
Earnings from operations....................... 154,813 148,594 149,607
Interest expense............................... 24,453 25,830 28,249
---------- ---------- ----------
Earnings before income taxes and
cumulative effect of accounting change...... 130,360 122,764 121,358
Income taxes................................... 46,300 22,500 44,900
---------- ---------- ----------
Earnings before cumulative effect of
accounting change........................... 84,060 100,264 76,458
Cumulative effect of adopting SAB 101.......... (1,859) - -
---------- ---------- ----------
Net earnings................................... $ 82,201 $ 100,264 $ 76,458
========== ========== ==========
Net earnings per share - basic:
Earnings before cumulative effect of
accounting change......................... $ 2.17 $ 2.62 $ 2.00
Cumulative effect of adopting SAB 101....... (.05) - -
--------- ---------- ----------
Net earnings per share...................... $ 2.12 $ 2.62 $ 2.00
========= ========== ==========
Net earnings per share - diluted:
Earnings before cumulative effect of
accounting change......................... $ 2.11 $ 2.55 $ 1.95
Cumulative effect of adopting SAB 101....... (.05) - -
--------- ---------- ----------
Net earnings per share...................... $ 2.06 $ 2.55 $ 1.95
========= ========== ==========
Weighted-average shares outstanding:
Basic....................................... 38,791 38,267 38,144
Diluted..................................... 39,780 39,334 39,281
| | | Fiscal year
|
| | | 2002
| | 2001
| | | 2000
|
| Revenues: | | | | | | | | | | |
| Restaurant sales | | $ | 1,822,902 | | $ | 1,714,126 | | | $ | 1,529,328 |
| Distribution and other sales | | | 77,445 | | | 66,565 | | | | 59,091 |
| Franchise rents and royalties | | | 45,936 | | | 43,825 | | | | 41,432 |
| Other | | | 20,077 | | | 9,060 | | | | 3,461 |
| | |
|
| |
|
|
| |
|
|
| | | | 1,966,360 | | | 1,833,576 | | | | 1,633,312 |
| | |
|
| |
|
|
| |
|
|
| Costs of revenues: | | | | | | | | | | |
| Restaurant costs of sales | | | 555,232 | | | 528,070 | | | | 473,373 |
| Restaurant operating costs | | | 931,686 | | | 864,271 | | | | 750,736 |
| Costs of distribution and other sales | | | 75,341 | | | 64,490 | | | | 57,543 |
| Franchised restaurant costs | | | 22,125 | | | 20,353 | | | | 20,105 |
| | |
|
| |
|
|
| |
|
|
| | | | 1,584,384 | | | 1,477,184 | | | | 1,301,757 |
| | |
|
| |
|
|
| |
|
|
| Gross profit | | | 381,976 | | | 356,392 | | | | 331,555 |
| Selling, general and administrative | | | 233,426 | | | 201,579 | | | | 182,961 |
| | |
|
| |
|
|
| |
|
|
| Earnings from operations | | | 148,550 | | | 154,813 | | | | 148,594 |
| Interest expense | | | 22,914 | | | 24,453 | | | | 25,830 |
| | |
|
| |
|
|
| |
|
|
| Earnings before income taxes and cumulative effect of accounting change | | | 125,636 | | | 130,360 | | | | 122,764 |
| Income taxes | | | 42,590 | | | 46,300 | | | | 22,500 |
| | |
|
| |
|
|
| |
|
|
| Earnings before cumulative effect of accounting change | | | 83,046 | | | 84,060 | | | | 100,264 |
| Cumulative effect of adopting SAB 101 | | | — | | | (1,859 | ) | | | — |
| | |
|
| |
|
|
| |
|
|
| Net earnings | | $ | 83,046 | | $ | 82,201 | | | $ | 100,264 |
| | |
|
| |
|
|
| |
|
|
| Net earnings per share – basic: | | | | | | | | | | |
| Earnings before cumulative effect of accounting change | | $ | 2.11 | | $ | 2.17 | | | $ | 2.62 |
| Cumulative effect of adopting SAB 101 | | | — | | | (.05 | ) | | | — |
| | |
|
| |
|
|
| |
|
|
| Net earnings per share | | $ | 2.11 | | $ | 2.12 | | | $ | 2.62 |
| | |
|
| |
|
|
| |
|
|
| Net earnings per share – diluted: | | | | | | | | | | |
| Earnings before cumulative effect of accounting change | | $ | 2.07 | | $ | 2.11 | | | $ | 2.55 |
| Cumulative effect of adopting SAB 101 | | | — | | | (.05 | ) | | | — |
| | |
|
| |
|
|
| |
|
|
| Net earnings per share | | $ | 2.07 | | $ | 2.06 | | | $ | 2.55 |
| | |
|
| |
|
|
| |
|
|
| Weighted-average shares outstanding: | | | | | | | | | | |
| Basic | | | 39,322 | | | 38,791 | | | | 38,267 |
| Diluted | | | 40,112 | | | 39,780 | | | | 39,334 |
See accompanying notes to consolidated financial statements.
F-4
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars
(Dollars in thousands)
Fiscal year
-------------------------------------
2001 2000 1999
----------- ---------- ----------
Cash flows from operating activities:
Net earnings........................................ $ 82,201 $ 100,264 $ 76,458
Non-cash items included in operations:
Depreciation and amortization..................... 64,195 56,766 45,857
Deferred finance cost amortization................ 2,075 1,664 1,794
Deferred income taxes............................. 5,747 4,413 5,708
Cumulative effect of accounting change............ 1,859 - -
Tax benefit associated with exercise of
stock options..................................... 7,531 2,589 1,663
Decrease (increase) in receivables.................. (8,149) (1,676) 3,125
Increase in inventories............................. (3,271) (5,833) (1,950)
Decrease (increase) in prepaid expenses............. 61 (3,672) (3,319)
Increase (decrease) in accounts payable............. 1,954 8,902 (7,906)
Increase (decrease) in other liabilities............ 19,144 (18,768) 35,537
--------- --------- ---------
Cash flows provided by operating activities....... 173,347 144,649 156,967
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment................. (166,522) (127,361) (134,333)
Dispositions of property and equipment.............. 8,642 5,938 12,172
Increase in trading area rights..................... (1,486) (2,656) (3,864)
Decrease (increase) in assets held for sale
and leaseback..................................... (14,474) 4,917 (11,695)
Other............................................... (4,427) (4,286) (4,024)
--------- --------- ---------
Cash flows used in investing activities........... (178,267) (123,448) (141,744)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under revolving bank loans............... 503,500 386,000 334,000
Principal repayments under revolving bank loans..... (504,500) (406,000) (345,500)
Proceeds from issuance of long-term debt............ - 825 4,347
Principal payments on long-term debt,
including current maturities...................... (2,034) (1,777) (9,833)
Repurchase of common stock.......................... (759) (5,797) -
Proceeds from issuance of common stock.............. 8,205 1,459 2,736
--------- --------- ---------
Cash flows provided by (used in)
financing activities............................. 4,412 (25,290) (14,250)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents... $ (508) $ (4,089) $ 973
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized.............. $ 22,635 $ 24,392 $ 26,873
Income tax payments............................... $ 30,174 $ 41,110 $ 26,451
| | | Fiscal year
| |
| | | 2002
| | | 2001
| | | 2000
| |
| Cash flows from operating activities: | | | | | | | | | | | | |
| Net earnings | | $ | 83,046 | | | $ | 82,201 | | | $ | 100,264 | |
| Non-cash items included in operations: | | | | | | | | | | | | |
| Depreciation and amortization | | | 70,270 | | | | 64,195 | | | | 56,766 | |
| Deferred finance cost amortization | | | 2,070 | | | | 2,075 | | | | 1,664 | |
| Deferred income taxes | | | 7,646 | | | | 5,747 | | | | 4,413 | |
| Cumulative effect of accounting change | | | — | | | | 1,859 | | | | — | |
| Impairment charge | | | 2,517 | | | | — | | | | — | |
| Tax benefit associated with additional pension liability | | | 5,655 | | | | — | | | | — | |
| Tax benefit associated with exercise of stock options | | | 3,466 | | | | 7,531 | | | | 2,589 | |
| Increase in receivables | | | (4,399 | ) | | | (8,149 | ) | | | (1,676 | ) |
| Increase in inventories | | | (620 | ) | | | (3,271 | ) | | | (5,833 | ) |
| Decrease (increase) in prepaid expenses and other current assets | | | (4,862 | ) | | | 61 | | | | (3,672 | ) |
| Increase in accounts payable | | | 4,201 | | | | 1,954 | | | | 8,902 | |
| Increase (decrease) in other liabilities | | | (10,004 | ) | | | 19,144 | | | | (18,768 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
| Cash flows provided by operating activities | | | 158,986 | | | | 173,347 | | | | 144,649 | |
| | |
|
|
| |
|
|
| |
|
|
|
| Cash flows from investing activities: | | | | | | | | | | | | |
| Additions to property and equipment | | | (142,588 | ) | | | (166,522 | ) | | | (127,361 | ) |
| Dispositions of property and equipment | | | 8,401 | | | | 8,642 | | | | 5,938 | |
| Increase in trading area rights | | | (36 | ) | | | (1,486 | ) | | | (2,656 | ) |
| Decrease (increase) in assets held for sale and leaseback | | | 35,703 | | | | (14,474 | ) | | | 4,917 | |
| Other | | | (865 | ) | | | (4,427 | ) | | | (4,286 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
| Cash flows used in investing activities | | | (99,385 | ) | | | (178,267 | ) | | | (123,448 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
| Cash flows from financing activities: | | | | | | | | | | | | |
| Borrowings under revolving bank loans | | | 385,140 | | | | 503,500 | | | | 386,000 | |
| Principal repayments under revolving bank loans | | | (416,140 | ) | | | (504,500 | ) | | | (406,000 | ) |
| Proceeds from issuance of long-term debt | | | — | | | | — | | | | 825 | |
| Principal payments on long-term debt, including current maturities | | | (2,264 | ) | | | (2,034 | ) | | | (1,777 | ) |
| Repurchase of common stock | | | (33,287 | ) | | | (759 | ) | | | (5,797 | ) |
| Proceeds from exercise of stock options | | | 6,242 | | | | 8,205 | | | | 1,459 | |
| | |
|
|
| |
|
|
| |
|
|
|
| Cash flows provided by (used in) financing activities | | | (60,309 | ) | | | 4,412 | | | | (25,290 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
| Net decrease in cash and cash equivalents | | $ | (708 | ) | | $ | (508 | ) | | $ | (4,089 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
| Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | | | | |
| Interest, net of amounts capitalized | | $ | 21,670 | | | $ | 22,635 | | | $ | 24,392 | |
| Income tax payments | | $ | 40,672 | | | $ | 30,174 | | | $ | 41,110 | |
| Capital lease obligations incurred | | $ | 475 | | | $ | — | | | $ | — | |
See accompanying notes to consolidated financial statements.
F-5
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'STOCKHOLDERS’ EQUITY
(Dollars
(Dollars in thousands)
Common stock Retained
----------------------- Capital in earnings
Number of excess of (accumulated Treasury
shares Amount par value deficit) stock Total
------------------------------------ ------------ --------- ----------- ------------ ---------- ----------
Balance at September 27, 1998...... 40,756,899 $ 408 $ 285,940 $(114,905) $(34,463) $ 136,980
Exercise of stock options and
warrants........................ 348,535 3 2,733 - - 2,736
Tax benefit associated with
exercise of stock options....... - - 1,663 - - 1,663
Net earnings....................... - - - 76,458 - 76,458
----------- ----- --------- --------- -------- ---------
Balance at October 3, 1999......... 41,105,434 411 290,336 (38,447) (34,463) 217,837
Exercise of stock options ......... 377,935 4 1,455 - - 1,459
Tax benefit associated with
exercise of stock options....... - - 2,589 - - 2,589
Purchases of treasury stock........ - - - - (5,797) (5,797)
Net earnings....................... - - - 100,264 - 100,264
----------- ----- --------- --------- -------- ---------
Balance at October 1, 2000......... 41,483,369 415 294,380 61,817 (40,260) 316,352
Exercise of stock options.......... 935,373 9 8,196 - - 8,205
Tax benefit associated with
exercise of stock options....... - - 7,531 - - 7,531
Purchase of treasury stock......... - - - - (759) (759)
Net earnings....................... - - - 82,201 - 82,201
----------- ----- --------- --------- -------- ---------
Balance at September 30, 2001...... 42,418,742 $ 424 $ 310,107 $ 144,018 $(41,019) $ 413,530
========== ===== ========= ========= ======== =========
| | | Common Stock
| | Capital in excess of par value
| | Retained earnings (accumulated deficit)
| | | Accumulated other comprehen- sive loss
| | | Treasury stock
| | | Total
| |
| | | Number of shares
| | Amount
| | | | | |
| Balance at October 3, 1999 | | 41,105,434 | | $ | 411 | | $ | 290,336 | | $ | (38,447 | ) | | $ | — | | | $ | (34,463 | ) | | $ | 217,837 | |
| Exercise of stock options | | 377,935 | | | 4 | | | 1,455 | | | — | | | | — | | | | — | | | | 1,459 | |
Tax benefit associated with exercise of stock options | | — | | | — | | | 2,589 | | | — | | | | — | | | | — | | | | 2,589 | |
| Purchase of treasury stock | | — | | | — | | | — | | | — | | | | — | | | | (5,797 | ) | | | (5,797 | ) |
| Net earnings | | — | | | — | | | — | | | 100,264 | | | | — | | | | — | | | | 100,264 | |
| | |
| |
|
| |
|
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|
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| |
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|
|
| Balance at October 1, 2000 | | 41,483,369 | | | 415 | | | 294,380 | | | 61,817 | | | | — | | | | (40,260 | ) | | | 316,352 | |
| Exercise of stock options | | 935,373 | | | 9 | | | 8,196 | | | — | | | | — | | | | — | | | | 8,205 | |
Tax benefit associated with exercise of stock options | | — | | | | | | 7,531 | | | — | | | | — | | | | — | | | | 7,531 | |
| Purchase of treasury stock | | — | | | — | | | — | | | — | | | | — | | | | (759 | ) | | | (759 | ) |
| Net earnings | | — | | | — | | | — | | | 82,201 | | | | — | | | | — | | | | 82,201 | |
| | |
| |
|
| |
|
| |
|
|
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|
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|
|
| Balance at September 30, 2001 | | 42,418,742 | | | 424 | | | 310,107 | | | 144,018 | | | | — | | | | (41,019 | ) | | | 413,530 | |
| Exercise of stock options | | 518,068 | | | 5 | | | 6,237 | | | — | | | | — | | | | — | | | | 6,242 | |
Tax benefit associated with exercise of stock options | | — | | | — | | | 3,466 | | | — | | | | — | | | | — | | | | 3,466 | |
Comprehensive income: Net earnings | | — | | | — | | | — | | | 83,046 | | | | — | | | | — | | | | 83,046 | |
Additional minimum pension liability, net | | — | | | — | | | — | | | — | | | | (8,882 | ) | | | — | | | | (8,882 | ) |
| | |
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|
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|
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|
|
|
| Total comprehensive income | | — | | | — | | | — | | | 83,046 | | | | (8,882 | ) | | | — | | | | 74,164 | |
| Purchase of treasury stock | | — | | | — | | | — | | | — | | | | — | | | | (33,287 | ) | | | (33,287 | ) |
| | |
| |
|
| |
|
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|
| Balance at September 29, 2002 | | 42,936,810 | | $ | 429 | | $ | 319,810 | | $ | 227,064 | | | $ | (8,882 | ) | | $ | (74,306 | ) | | $ | 464,115 | |
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See accompanying notes to consolidated financial statements.
F-6
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
(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-serve restaurants, principally in the
western and southern United States.
Basis of presentation and fiscal year - The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions are eliminated.
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform with the 2001 presentation. Our fiscal year is
52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 2001
and 2000 include 52 weeks and fiscal year 1999 includes 53 weeks.
Financial instruments - The fair values of cash and cash equivalents,
accounts receivable and accounts payable approximate the carrying amounts
due to their short maturities. 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
September 30, 2001 and October 1, 2000 approximate their carrying values.
From time-to-time, we use interest rate derivative instruments to manage
our exposure to variability in interest rates related to our bank credit
facility and commodity derivatives to reduce the risk of price fluctuations
related to raw material requirements for commodities such as beef and pork.
We do not speculate using derivative instruments and purchase derivative
instruments only for the purpose of risk management.
Effective October 2, 2000, we adopted Statement of Financial Accounting
Standards ("SFAS") 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS 137 and 138, which establishes accounting
and reporting standards for derivative instruments and hedging activities.
SFAS 133 requires that entities recognize all derivatives as either assets
or liabilities in the balance sheet and measure those instruments at fair
value. Accounting for changes in the fair value of a derivative depends on
the intended use and resulting designation of the derivative. For
derivatives designated as hedges, changes in the fair value are either
offset against the change in fair value of the assets or liabilities
through earnings or recognized in accumulated other comprehensive income in
the balance sheet until the hedged item is recognized in earnings.
Upon the adoption of SFAS 133, we did not designate our derivative
instruments as hedge transactions. The transition adjustment recorded upon
the adoption of SFAS 133 was not material to our consolidated statement of
earnings. The changes in the fair value of our commodity derivatives are
included in restaurant costs of sales and changes in the fair value of our
interest rate swap, which expired in June 2001, are included in interest
expense in the accompanying consolidated statement of earnings for the
fiscal year ended September 30, 2001.
At September 30, 2001, we had no other material financial instruments
subject to significant market exposure.
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.
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Assets held for sale and leaseback primarily represent the costs for new
sites that will be sold and leased back when construction is completed.
Gains and losses realized on the sale leaseback transactions are deferred
and credited to income over the lease terms. The leases are classified in
accordance with SFAS 13, Accounting for Leases.
F-7
1. | | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| | Nature of operations– Jack in the Box Inc. (the “Company”) operates and franchises JACKINTHE BOX quick-serve restaurants, principally in the western and southern United States. |
| | Basis of presentation and fiscal year – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions are eliminated. Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2002 presentation. Our fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30. Fiscal years 2002, 2001 and 2000 include 52 weeks. |
| | Financial instruments – The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate the carrying amounts due to their short maturities. 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 September 29, 2002 and September 30, 2001 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. We do not speculate using derivative instruments and purchase derivative instruments only for the purpose of risk management. |
| | Effective October 2, 2000, we adopted Statement of Financial Accounting Standards (“SFAS”) 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS 137 and 138, which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 requires that entities recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Accounting for changes in the fair value of a derivative depends on the intended use and resulting designation of the derivative. For derivatives designated as hedges, changes in the fair value are either offset against the change in fair value of the assets or liabilities through earnings or recognized in accumulated other comprehensive income on the balance sheet until the hedged item is recognized in earnings. |
| | Upon the adoption of SFAS 133, we did not designate our derivative instruments as hedge transactions. The transition adjustment recorded upon the adoption of SFAS 133 was not material to our consolidated statement of earnings. The changes in the fair value of our commodity derivatives are included in restaurant costs of sales. Changes in the fair value of our interest rate swap, which expired in June 2001, are included in interest expense in the consolidated statement of earnings for the fiscal year ended September 30, 2001. |
| | At September 29, 2002, we had no other material financial instruments subject to significant market exposure. |
| | Cash and cash equivalents –We invest cash in excess of operating requirements only in short term, highly liquid investments with original maturities of three months or less, which are considered cash equivalents. |
| | Inventories are valued at the lower of cost (first-in, first-out method) or market. |
| | Assets held for sale and leasebackprimarily represent the costs for new sites that will be sold and leased back when construction is completed. Gains and losses realized on the sale leaseback transactions are deferred and credited to income over the lease terms. The leases are classified in accordance with SFAS 13,Accounting for Leases. |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
(Dollars in thousands, except per share data)
(continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Preopening costs are those typically associated with the opening of a new
restaurant and consist primarily of employee training costs. Preopening
costs are expensed as incurred.
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 repairs, and minor
renewals 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.
Buildings, equipment and leasehold improvements are depreciated using the
straight-line method based on the estimated useful lives of the assets or
over the lease term for certain capital leases (buildings 15 to 33 years
and equipment 3 to 30 years).
Other assets primarily include trading area rights, lease acquisition
costs, deferred franchise contract costs, deferred finance costs and
goodwill. Trading area rights represent the amount allocated under purchase
accounting to reflect the value of operating existing restaurants within
their specific trading area. These rights are amortized on a straight-line
basis over the period of control of the property, not exceeding 40 years,
and are retired when a restaurant is franchised or sold.
Lease acquisition costs represent the acquired values of existing lease
contracts having contractual rents lower than fair market rents and are
amortized over the remaining lease term. Deferred franchise contract costs
which represent the acquired value of franchise contracts in existence at
the time the Company was acquired in 1988 are amortized over the term of
the franchise agreement, usually 20 years. Deferred finance costs are
amortized using the interest method over the terms of the respective loan
agreements, from 4 to 10 years, and goodwill which represents the excess of
purchase price over fair value of net assets acquired is amortized on a
straight-line basis over 40 years.
Impairment of long-lived assets - We evaluate impairment on long-lived
assets when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. We also account for long-lived assets that are held for
disposal at the lower of cost or fair value.
Franchise operations - Franchise arrangements generally provide for initial
license fees of $50 per restaurant and continuing payments to us based on a
percentage of sales. Among other things, the 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. Gains on the sale of restaurant businesses
to franchisees are recorded as other revenue when the sales are consummated
and certain other criteria are met.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial
Statements. SAB 101 requires a change in the recognition of franchise
percentage rents, which are contingent upon certain annual sales levels,
from an accrual basis to recognition in the period in which the contingency
is met. We adopted SAB 101 in the fourth quarter of fiscal year 2001 and
have reported the cumulative effect of this change in our 2001 consolidated
statement of earnings. Other than the recording of this one-time cumulative
effect, the adoption of SAB 101 did not have a material effect on our
annual results of operations.
F-8
1. | | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
| | Preopening costs are those typically associated with the opening of a new restaurant and consist primarily of employee training costs. Preopening costs are expensed as incurred. |
| | 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 repairs, and minor renewals 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. |
| | Buildings, equipment and leasehold improvements are depreciated using the straight-line method based on the estimated useful lives of the assets or over the lease term for certain capital leases (buildings 15 to 33 years and equipment 3 to 30 years). |
| | Other assets primarily include trading area rights, goodwill, lease acquisition costs, deferred franchise contract costs and deferred finance costs. Trading area rights represent the amount allocated under purchase accounting to reflect the value of operating existing restaurants within their specific trading area. These rights have been amortized on a straight-line basis over the period of control of the property, not exceeding 40 years, and are retired when a restaurant is franchised or sold. Goodwill, which represents the excess of purchase price over fair value of net assets acquired, has been amortized on a straight-line basis over 40 years. Beginning September 30, 2002, we will adopt the provisions of SFAS 142,Goodwill and Other Intangible Assets, and as a result, beginning with fiscal year 2003, our trading area rights will be reclassified as goodwill and goodwill totaling $66.6 million will no longer be amortized. |
| | Lease acquisition costs represent the fair values of acquired lease contracts having contractual rents lower than fair market rents and are amortized over the remaining lease term. Deferred franchise contract costs which represent the acquired value of franchise contracts in existence at the time the Company was acquired in 1988 are amortized over the term of the franchise agreement, usually 20 years. Deferred finance costs are amortized using the interest method over the terms of the respective loan agreements, from 4 to 10 years. |
| | Impairment of long-lived assets – We evaluate impairment on long-lived assets when indicators of impairment are present and recognize impairment when the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. We also account for long-lived assets that are held for disposal at lower of cost or fair value. |
| | Lease exit charges –We charge lease exit costs to operations when management commits to close a restaurant. Lease exit 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, automotive, general liability and employee medical and dental claims. We utilize a paid loss plan for our workers’ compensation, automotive and general liability programs and have in place predetermined loss limits to limit our loss exposure per occurrence and in the aggregate. We establish our insurance liability and reserves using independent actuarial estimates of expected losses as the basis for determining reported claims and for estimating claims incurred but not reported. |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
(Dollars in thousands, except per share data)
(continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 earnings per share is computed using the
weighted-average number of shares outstanding during the period. Diluted
earnings per share is computed using the additional dilutive effect of
stock options and warrants.
Stock options - Stock options are accounted for under the intrinsic value
based method, whereby compensation expense is recognized for the excess, if
any, of the quoted market price of the Company stock at the date of grant
over the option price. Our policy is to grant stock options at fair value
at the date of grant. We have included pro forma information in Note 7, as
required by SFAS 123, Accounting for Stock-Based Compensation.
Advertising costs - The Company maintains a marketing fund consisting of
funds contributed by us equal to approximately 5% of gross sales of all
Company-operated JACK IN THE BOX restaurants and contractual marketing fees
paid monthly by franchisees. Production costs of commercials, programming
and other marketing activities are expensed to the marketing fund when the
advertising is first used, and the costs of advertising are charged to
operations as incurred. Our contributions to the marketing fund and other
marketing expenses, which are included in selling, general and
administrative expenses in the accompanying consolidated statements of
earnings, were $86,539, $77,799 and $70,297 in 2001, 2000 and 1999,
respectively.
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 the chief operating decision maker 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 a single segment.
Estimations - In preparing the consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America, 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 from these estimates.
In 1999, we reduced accrued liabilities and restaurant operating costs by
$18.0 million, primarily due to a change in estimates resulting from
improvements to our loss prevention and risk management programs, which
were more successful than anticipated. This change in estimates was
supported by an independent actuarial study conducted to evaluate the
self-insured portion of our workers' compensation, general liability and
other insurance programs.
F-9
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, the 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. Gains on the sale of restaurant businesses to franchisees are recorded as other revenue when the sales are consummated and certain other criteria are met. |
| | In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) 101,Revenue Recognition in Financial Statements.SAB 101 required a change in the recognition of franchise percentage rents, which are contingent upon certain annual sales levels, from an accrual basis to recognition in the period in which the contingency is met. We adopted SAB 101 in the fourth quarter of fiscal year 2001 and reported the cumulative effect of this change in our 2001 consolidated statement of earnings. Other than the recording of this one-time cumulative effect, the adoption of SAB 101 did not have a material effect on our annual results of operations. |
| | 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 earnings per share is computed using the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed using the additional dilutive effect of stock options. |
| | Stock options – Stock options are accounted for under the intrinsic value based method, whereby compensation expense is recognized for the excess, if any, of the quoted market price of the Company stock at the date of grant over the option price. Our policy is to grant stock options at fair value at the date of grant. We have included pro forma information in Note 8, as required by SFAS 123,Accounting for Stock-Based Compensation. |
| | Advertising costs – The Company maintains a marketing fund consisting of funds contributed by us equal to approximately 5% of sales at all Company-operated JACKINTHE BOX restaurants and contractual marketing fees paid monthly by franchisees. Production costs of commercials, programming and other marketing activities are expensed to the marketing fund when the advertising is first used, and the costs of advertising are charged to operations as incurred. Our contributions to the marketing fund and other marketing expenses, which are included in selling, general and administrative expenses in the accompanying consolidated statements of earnings, were $91,157, $86,539 and $77,799 in 2002, 2001 and 2000, respectively. |
| | 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 the chief operating decision maker 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 a single segment. |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
(Dollars in thousands, except per share data)
(continued)
2. LONG-TERM DEBT
2001 2000
---------- ----------
1. | | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
| | Estimations – In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, 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 from these estimates. |
| | | 2002
| | 2001
|
| The detail of long-term debt at each year end follows: | | | | | | |
| Bank loans, variable interest rate based on established market indicators that approximate the prime rate or less, 2.7% at September 29, 2002 | | $ | 34,000 | | $ | 65,000 |
Senior subordinated notes, 8 3/8% interest, net of discount of $116 and $137, respectively, reflecting an 8.4% effective interest rate due April 15, 2008, redeemable beginning April 15, 2003 | | | 124,884 | | | 124,863 |
Financing lease obligations, net of discounts of $223 and $646, respectively, reflecting a 10.3% effective interest rate, semi-annual payments of $3,413 and $747 to cover interest and sinking fund requirements | | | 69,777 | | | 69,354 |
| Secured notes, 11 1/2% interest, due in monthly installments through May 1, 2005 | | | 3,887 | | | 5,077 |
| Capitalized lease obligations, 10.83% average interest rate | | | 15,290 | | | 15,565 |
| Other notes, principally unsecured, 10% average interest rate | | | 1,791 | | | 2,115 |
| | |
|
| |
|
|
| | | | 249,629 | | | 281,974 |
| Less current portion | | | 106,265 | | | 2,255 |
| | |
|
| |
|
|
| | | $ | 143,364 | | $ | 279,719 |
| | |
|
| |
|
|
| | On April 1, 1998, we entered into a revolving bank credit agreement, expiring in March 2003, which provides for a credit facility of up to $175 million, including letters of credit of up to $25 million. The detailcredit agreement requires the payment of long-term debt at each year end follows:
Bank loans, variable interest ratean annual commitment fee based on established market
indicators which approximate the prime rate or less, 4.7% atunused credit line. At September 30, 2001...................................................... $ 65,000 $ 66,000
Senior subordinated notes, 8 3/8% interest,29, 2002, we had borrowings of $34 million and approximately $125 million of availability under the agreement. |
| | We are subject to a number of customary covenants under our various credit agreements, including limitations on additional borrowings, capital expenditures, lease commitments and dividend payments, and requirements to maintain certain financial ratios, cash flows and net worth. As of discountSeptember 29, 2002 we were in compliance with these covenants. In September 1999, the collateral securing the bank loans was released. Real and personal property previously held as collateral for the bank loans cannot be used to secure other indebtedness of $137the Company. In addition, certain of our real and $158, respectively, reflecting an 8.4% effective interest rate
due April 15, 2008, redeemable beginning April 15, 2003................. 124,863 124,842
Financing lease obligations, net of discounts of $646 and
$1,031, respectively, reflecting a 10.3% effective interest rate,
semi-annual payments of $3,413 and $747 to cover interest and
sinking fund requirements, respectively, due in equal
installments on January 1, 2003 and November 1, 2003.................... 69,354 68,969
Secured notes, 11 1/2% interest, due in monthly
installments through May 1, 2005........................................ 5,077 6,139
Capitalized lease obligations, 11% average interest rate.................. 15,565 16,229
Other notes, principally unsecured, 10% average interest rate ............ 2,115 2,423
---------- ----------
281,974 284,602
Less current portion...................................................... 2,255 2,034
---------- ----------
$ 279,719 $ 282,568
========== ==========
personal property secure other indebtedness. |
On April 1, 1998, we entered into a revolving bank credit agreement, which
expires March 31, 2003 and provides for a credit facility of up to $175
million, including letters of credit of up to $25 million. The credit
agreement requires the payment of an annual commitment fee based on the
unused credit line. At September 30, 2001, we had borrowings of $65 million
and approximately $95.9 million of availability under the agreement.
We are subject to a number of customary covenants under our various credit
agreements, including limitations on additional borrowings, capital
expenditures, lease commitments and dividend payments, and requirements to
maintain certain financial ratios, cash flows and net worth. In
September 1999, the collateral securing the bank loans was released. Real
and personal property previously held as collateral for the bank loans
cannot be used to secure other indebtedness of the Company. In addition,
certain of our real and personal property secure other indebtedness.
In January 1994, we entered into financing lease arrangements with two
limited partnerships (the "Partnerships"), in which interests in 76
restaurants for a specified period of time were sold. The acquisition of
the properties, including costs and expenses, was funded through the
issuance of $70 million in senior secured notes by a special purpose
corporation acting as agent for the Partnerships. On January 1, 2003 and
November 1, 2003, we must make offers to reacquire 50% of the properties at
a price which is sufficient, in conjunction with previous sinking fund
deposits, to retire the notes. If the Partnerships reject the offers, we
may purchase the properties at less than fair market value or cause the
Partnerships to fund the remaining principal payments on the notes and, at
our option, cause the Partnerships to acquire our residual interest in the
properties. If the Partnerships are allowed to retain their interests, we
have available options to extend the leases for total terms of up to 35
years, at which time the ownership of the property will revert to us. The
transactions are reflected as financings with the properties remaining in
our consolidated financial statements.
F-10
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
(Dollars in thousands, except per share data)
(continued)
2. LONG-TERM DEBT (continued)
Aggregate maturities and sinking fund requirements on all long-term debt
are $3,750, $89,025, $37,680, $2,336 and $1,377 for the years 2002 through
2006, respectively. The 2003 amount is net of accumulated sinking fund
payments of $13,453.
2. | | LONG-TERM DEBT (continued) |
| | In January 1994, we entered into financing lease arrangements with two limited partnerships (the “Partnerships”), in which we sold interests in 76 restaurants for a specified period of time. The acquisition of the properties, including costs and expenses, was funded through the issuance of $70 million in 10.3% senior secured notes by a special purpose corporation acting as agent for the Partnerships. The transactions have been reflected as financings with the properties remaining in our consolidated financial statements. On August 29, 2002, pursuant to the terms of the financing lease arrangements, we made an Offer (the “Offer”) to reacquire, on January 2, 2003, the interests in the restaurants at a price which is sufficient, in conjunction with previous sinking fund deposits, to retire the senior secured notes. In connection with the Offer, we entered into an agreement with the Partnerships in which we agreed to pay a $1.3 million consent fee to accelerate retirement of this high interest rate debt. |
| | Aggregate maturities and sinking fund requirements on all long-term debt are $90,354, $2,703, $2,352, $1,393 and $1,356 for the years 2003 through 2007, respectively. The 2003 amount is net of accumulated sinking fund payments of $16,134. |
Interest capitalized during the construction period of restaurants was
$1,696, $2,441
and $2,259
and $1,469 in
2001, 2000 and 1999, respectively.
3. LEASES
As Lessee - We lease restaurant and other facilities under leases having
terms expiring at various dates through 2054. The leases generally have
renewal clauses of 5 to 20 years exercisable at our option and, in some
instances, have provisions for contingent rentals based upon a percentage
of defined revenues. Total rent expense for all operating leases was
$142,351, $123,465 and $108,700, including contingent rentals of $7,200,
$6,551 and $6,066, in 2001, 2000 and 1999, respectively.
Future minimum lease payments under capital and operating leases are as
follows:
Fiscal Capital Operating
year leases leases
----------------------------------------------- ------- ----------
2002............................................ $ 2,376 $ 120,992
2003............................................ 2,376 118,852
2004............................................ 2,376 116,216
2005............................................ 2,359 106,058
2006............................................ 2,335 96,061
Thereafter...................................... 17,830 747,208
------- ----------
Total minimum lease payments........................ 29,652 $1,305,387
==========
Less amount representing interest................... 14,087
-------
Present value of obligations under capital leases... 15,565
Less current portion................................ 738
-------
Long-term capital lease obligations................. $14,827
=======
Building assets recorded under capital leases were $13,843 and $14,651, net
of accumulated amortization of $7,089 and $6,284, as of September 30,2002, 2001 and
October 1, 2000, respectively.
As Lessor - We lease or sublease restaurants to certain franchisees and
others under agreements which 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 $27,213, $25,900 and $25,134,
including contingent rentals of $11,091, $10,642 and $9,655, in 2001, 2000
and 1999, respectively.
F-11
| | As Lessee – We lease restaurants and other facilities under leases having terms expiring at various dates through 2054. The leases generally have renewal clauses of 5 to 20 years exercisable at our option and, in some instances, have provisions for contingent rentals based upon a percentage of defined revenues. Total rent expense for all operating leases was $160,046, $142,351 and $123,465, including contingent rentals of $7,292, $7,200 and $6,551 and sublease rentals of $15,113, $13,629 and $13,603, in 2002, 2001 and 2000, respectively. |
| | Future minimum lease payments under capital and operating leases, including those in the closed restaurant reserve, are as follows: |
Fiscal year
| | Capital leases
| | | Operating leases
|
| 2003 | | $ | 2,426 | | | $ | 148,875 |
| 2004 | | | 2,426 | | | | 144,043 |
| 2005 | | | 2,409 | | | | 131,767 |
| 2006 | | | 2,386 | | | | 119,668 |
| 2007 | | | 2,356 | | | | 109,514 |
| Thereafter | | | 16,138 | | | | 812,973 |
| | |
|
|
| |
|
|
| Total minimum lease payments | | | 28,141 | | | $ | 1,466,840 |
| | | | | | |
|
|
| Less amount representing interest | | | (12,851 | ) | | | |
| | |
|
|
| | | |
| Present value of obligations under capital leases | | | 15,290 | | | | |
| Less current portion | | | (820 | ) | | | |
| | |
|
|
| | | |
| Long-term capital lease obligations | | $ | 14,470 | | | | |
| | |
|
|
| | | |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
(Dollars in thousands, except per share data)
(continued)
3. LEASES (continued)
The minimum rents receivable under these non-cancelable leases are as
follows:
Fiscal Sales-type Operating
year leases leases
----------------------------------------- ---------- ----------
2002..................................... $ 98 $ 17,960
2003..................................... 98 16,839
2004..................................... 98 15,921
2005..................................... 99 14,728
2006..................................... 88 13,004
Thereafter............................... 781 74,857
------- ----------
Total minimum future rentals................. 1,262 $ 153,309
==========
Less amount representing interest............ 630
-------
Net investment (included in other assets).... $ 632
=======
Land and building assets held for lease were $45,133 and $42,531, net of
accumulated amortization of $22,787 and $21,697, as of September 30, 2001
and October 1, 2000, respectively.
4. INCOME TAXES
The fiscal year income taxes consist of the following:
2001 2000 1999
------- ------- -------
Federal - current.......................... $34,658 $14,036 $31,227
- deferred......................... 5,419 3,535 6,709
State - current.......................... 4,695 4,051 7,965
- deferred......................... 328 878 (1,001)
------- ------- -------
Subtotal................................... 45,100 22,500 44,900
Income tax benefit related to
cumulative effect of accounting change... 1,200 - -
------- ------- -------
Income taxes............................... $46,300 $22,500 $44,900
======= ======= =======
A reconciliation of the federal statutory income tax rate to our effective
tax rate is as follows:
2001 2000 1999
---- ---- ----
Computed at federal statutory rate............. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit. 2.5 2.6 3.7
Benefit of jobs tax credits.................... (1.2) (1.0) (1.1)
Adjustment of tax loss, contribution and
tax credit carryforwards..................... 1.7 - .4
Reduction to valuation allowance............... (2.6) (19.3) (1.5)
Other, net..................................... .1 1.0 .5
----- ----- -----
35.5% 18.3% 37.0%
===== ===== =====
F-12
| | Total minimum lease payments have not been reduced for future minimum sublease rents of $188,177 expected to be recovered under our operating subleases. Building assets recorded under capital leases were $13,505 and $13,843, net of accumulated amortization of $7,881 and $7,089, as of September 29, 2002 and September 30, 2001, respectively. |
| | 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 $28,755, $27,213 and $25,900, including contingent rentals of $10,559, $11,091 and $10,642, in 2002, 2001 and 2000, respectively. |
| | The minimum rents receivable expected to be received under these non-cancelable leases, excluding contingent rentals, are as follows: |
Fiscal year
| | Direct financing lease
| | Operating leases
|
| 2003 | | $ | 106 | | $ | 21,386 |
| 2004 | | | 106 | | | 20,294 |
| 2005 | | | 106 | | | 19,080 |
| 2006 | | | 106 | | | 17,338 |
| 2007 | | | 106 | | | 15,797 |
| Thereafter | | | 1,503 | | | 115,232 |
| | |
|
| |
|
|
| Total minimum future rentals | | | 2,033 | | $ | 209,127 |
| | | | | |
|
|
| Less amount representing unearned income | | | 1,889 | | | |
| | |
|
| | | |
| Net investment (included in other assets) | | $ | 144 | | | |
| | |
|
| | | |
| | Land and building assets held for lease were $46,904 and $45,133, net of accumulated amortization of $26,882 and $22,787 as of September 29, 2002 and September 30, 2001, respectively. |
4. | | RESTAURANT CLOSING AND IMPAIRMENT CHARGES |
| | In the fourth quarter of fiscal year 2002, management committed to closing eight under-performing restaurants during 2003. As a result of management’s plan to close these restaurants, in 2002, we recorded non-cash charges of $2.5 million for the impairment of the related long-lived assets and lease exit charges of $3.9 million. These charges have been included in selling, general and administrative expenses in the consolidated statement of earnings. As of September 29, 2002, our accrual for restaurant lease exit charges was $7.0 million. |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
(Dollars in thousands, except per share data)
(continued)
4. INCOME TAXES (continued)
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:
2001 2000
-------- --------
Deferred tax assets:
Accrued pension and postretirement benefits.... $ 17,039 $ 18,247
Accrued insurance.............................. 10,086 10,513
Accrued vacation pay expense................... 9,558 8,542
Deferred income................................ 13,449 11,279
Other reserves and allowances.................. 4,212 5,471
Tax loss and tax credit carryforwards.......... - 3,386
Other, net..................................... 7,824 8,599
-------- --------
Total gross deferred tax assets................ 62,168 66,037
Less valuation allowance....................... - 3,386
-------- --------
Net deferred tax assets........................ 62,168 62,651
-------- --------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation.................. 71,773 65,941
Intangible assets.............................. 8,610 9,178
-------- --------
Total gross deferred tax liabilities........... 80,383 75,119
-------- --------
Net deferred tax liabilities................... $ 18,215 $ 12,468
======== ========
During fiscal year 2000, we reached a final agreement with the U.S.
Internal Revenue Service ("IRS") to settle a tax case related to the
disposition in November 1995 of our interest in Family Restaurants, Inc. We
recognized tax benefits of $22,900, primarily as a result of this
settlement which reduced our fiscal year 2000 provision for income taxes.
The valuation allowance decreased $3,386 in fiscal year 2001 due to the
resolution of tax loss carryforwards and $23,579 in fiscal year 2000 due to
the IRS settlement and the expected use of deferred tax assets. As of
September 30, 2001, we have not recorded a valuation allowance because we
believe it is more likely than not that the net 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-13
| | The fiscal year income taxes consist of the following: |
| | | 2002
| | 2001
| | 2000
|
| Federal – current | | $ | 24,745 | | $ | 34,658 | | $ | 14,036 |
| – deferred | | | 11,249 | | | 5,419 | | | 3,535 |
| State – current | | | 4,545 | | | 4,695 | | | 4,051 |
| – deferred | | | 2,051 | | | 328 | | | 878 |
| | |
|
| |
|
| |
|
|
| Subtotal | | | 42,590 | | | 45,100 | | | 22,500 |
| Income tax benefit related to cumulative effect of accounting change | | | — | | | 1,200 | | | — |
| | |
|
| |
|
| |
|
|
| Income taxes | | $ | 42,590 | | $ | 46,300 | | $ | 22,500 |
| | |
|
| |
|
| |
|
|
| | A reconciliation of the federal statutory income tax rate to our effective tax rate is as follows: |
| | | 2002
| | | 2001
| | | 2000
| |
| Computed at federal statutory rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State income taxes, net of federal tax benefit | | 3.6 | | | 2.5 | | | 2.6 | |
| Benefit of jobs tax credits | | (1.1 | ) | | (1.2 | ) | | (1.0 | ) |
| Adjustment of tax loss, contribution and tax credit carryforwards | | — | | | 1.7 | | | — | |
| Reduction to valuation allowance | | — | | | (2.6 | ) | | (19.3 | ) |
| Adjustment to estimated tax accruals | | (4.4 | ) | | — | | | — | |
| Other, net | | .8 | | | .1 | | | 1.0 | |
| | |
|
| |
|
| |
|
|
| | | 33.9 | % | | 35.5 | % | | 18.3 | % |
| | |
|
| |
|
| |
|
|
| | 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: |
| | | 2002
| | 2001
|
| Deferred tax assets: | | | | | | |
| Accrued pension and postretirement benefits | | $ | 19,229 | | $ | 17,039 |
| Accrued insurance | | | 11,222 | | | 10,086 |
| Accrued vacation pay expense | | | 10,711 | | | 9,558 |
| Deferred income | | | 13,248 | | | 13,449 |
| Other reserves and allowances | | | 10,489 | | | 4,212 |
| Other, net | | | 7,812 | | | 7,824 |
| | |
|
| |
|
|
| Total gross deferred tax assets | | | 72,711 | | | 62,168 |
| | |
|
| |
|
|
| Deferred tax liabilities: | | | | | | |
| Property and equipment, principally due to differences in depreciation | | | 85,139 | | | 71,773 |
| Intangible assets | | | 13,433 | | | 8,610 |
| | |
|
| |
|
|
| Total gross deferred tax liabilities | | | 98,572 | | | 80,383 |
| | |
|
| |
|
|
| Net deferred tax liabilities | | $ | 25,861 | | $ | 18,215 |
| | |
|
| |
|
|
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
(Dollars in thousands, except per share data)
(continued)
5. RETIREMENT, SAVINGS AND BONUS PLANS
We have non-contributory defined benefit pension plans covering
substantially all salaried and hourly 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.
Qualified plans Non-qualified plan
------------------------ ----------------------
20015. | | INCOME TAXES (continued) |
| | During fiscal year 2002, we finalized an examination by the U.S. Internal Revenue Service (“IRS”) for tax years 1997 to 1999. This exam included a review of the tax treatment of certain settlements that we entered into during these years. We recognized tax benefits of $5,544, primarily as a result of the resolution of these items, which reduced our fiscal year 2002 provision for income taxes. |
| | During fiscal year 2000, 2001we reached a final agreement with the IRS to settle a tax case related to the disposition in November 1995 of our interest in Family Restaurants, Inc. We recognized tax benefits of $22,900, primarily as a result of this settlement, which reduced our fiscal year 2000 --------- --------- -------- --------
Change in benefit obligation:
Benefit obligation at beginningprovision for income taxes. |
| | As of year......... $ 66,839 $ 68,942 $ 17,877 $ 17,391
Service cost.................................... 3,917 4,706 255 245
Interest cost................................... 5,442 4,991 1,432 1,305
Actuarial (gain) loss........................... 5,729 (10,097) 2,151 (774)
Benefits paid................................... (2,424) (1,703) (543) (438)
Plan amendment.................................. - - 1,500 148
-------- -------- -------- --------
Benefit obligation at endSeptember 29, 2002, we have not recorded a valuation allowance because we believe it is more likely than not that the net 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 year............... $ 79,503 $ 66,839 $ 22,672 $ 17,877
======== ======== ======== ========
Change in plan assets:
Fair valuethe same item for financial reporting purposes. The ultimate outcome of plan assets at beginningthese items will not be known until such time as the IRS has completed its examination or until the statute of year.. $ 68,550 $ 60,852 $ - $ -
Actual return on plan assets.................... (1,223) 8,419 - -
Employer contributions.......................... 5,500 982 543 438
Benefits paid................................... (2,424) (1,703) (543) (438)
-------- -------- -------- --------
Fair value of plan assets at end of year........ $ 70,403 $ 68,550 $ - $ -
======== ======== ======== ========
Reconciliation of funded status:
Funded status................................... $ (9,100) $ 1,712 $(22,672) $(17,877)
Unrecognized net (gain) loss.................... 7,247 (5,596) 3,949 1,798
Unrecognized prior service cost................. (67) (103) 5,132 4,111
Unrecognized net transition asset............... - 9 3 31
-------- -------- -------- --------
Net liabilities recognized...................... $ (1,920) $ (3,978) $(13,588) $(11,937)
======== ======== ======== ========
Amounts recognized in the statement of
financial position consist of:
Accrued benefit liability....................... $ (1,920) $ (3,978) $(18,723) $(15,565)
Intangible asset................................ - - 5,135 3,628
-------- -------- -------- --------
Net liabilities recognized...................... $ (1,920) $ (3,978) $(13,588) $(11,937)
======== ======== ======== ========
limitations has expired. |
In determining the present values of benefit obligations, our actuaries
assumed discount rates of 7.75% and 8.00% at the measurement dates of
June 30, 2001 and 2000, respectively. The assumed rate of increase in
compensation levels was 4% for the qualified plans and 5% for the
non-qualified plan in 2001 and 2000. The long-term rate of return on assets
was 8.5% in both years. Assets of the qualified plans consist primarily of
listed stocks and bonds.
F-14
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
(Dollars in thousands, except per share data)
(continued)
5. RETIREMENT, SAVINGS AND BONUS PLANS (continued)
The components of the fiscal year net
6. | | RETIREMENT, SAVINGS AND BONUS PLANS |
| | We have non-contributory defined benefit pension cost are as
follows:
Qualified plans Non-qualifiedcovering substantially all salaried and hourly 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.
| | | Qualified plans
| | | Non–qualified plan
| | | | | 2002
| | | 2001
| | | 2002
| | | 2001
| | | Change in benefit obligation: | | | | | | | | | | | | | | | | | | Benefit obligation at beginning of year | | $ | 79,503 | | | $ | 66,839 | | | $ | 22,672 | | | $ | 17,877 | | | Service cost | | | 4,586 | | | | 3,917 | | | | 298 | | | | 255 | | | Interest cost | | | 6,063 | | | | 5,442 | | | | 1,747 | | | | 1,432 | | | Actuarial (gain) loss | | | 5,779 | | | | 5,729 | | | | (672 | ) | | | 2,151 | | | Benefits paid | | | (1,843 | ) | | | (2,424 | ) | | | (795 | ) | | | (543 | ) | | Plan amendment | | | — | | | | — | | | | 340 | | | | 1,500 | | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | Benefit obligation at end of year | | $ | 94,088 | | | $ | 79,503 | | | $ | 23,590 | | | $ | 22,672 | | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | Change in plan assets: | | | | | | | | | | | | | | | | | | Fair value of plan assets at beginning of year | | $ | 70,403 | | | $ | 68,550 | | | $ | — | | | $ | — | | | Actual return on plan assets | | | (7,573 | ) | | | (1,223 | ) | | | — | | | | — | | | Employer contributions | | | 3,920 | | | | 5,500 | | | | 795 | | | | 543 | | | Benefits paid | | | (1,843 | ) | | | (2,424 | ) | | | (795 | ) | | | (543 | ) | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | Fair value of plan assets at end of year | | $ | 64,907 | | | $ | 70,403 | | | $ | — | | | $ | — | | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | Reconciliation of funded status: | | | | | | | | | | | | | | | | | | Funded status | | $ | (29,181 | ) | | $ | (9,100 | ) | | $ | (23,590 | ) | | $ | (22,672 | ) | | Unrecognized net loss | | | 26,516 | | | | 7,247 | | | | 3,090 | | | | 3,949 | | | Unrecognized prior service cost | | | (31 | ) | | | (67 | ) | | | 4,892 | | | | 5,132 | | | Unrecognized net transition asset | | | — | | | | — | | | | — | | | | 3 | | | Additional contribution | | | 15,195 | | | | — | | | | — | | | | — | | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | Net amount recognized | | $ | 12,499 | | | $ | (1,920 | ) | | $ | (15,608 | ) | | $ | (13,588 | ) | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | Amounts recognized in the statement of financial position consist of: | | | | | | | | | | | | | | | | | | Accrued benefit liability | | $ | (15,155 | ) | | $ | (1,920 | ) | | $ | (22,578 | ) | | $ | (18,723 | ) | | Accumulated other comprehensive loss | | | 12,459 | | | | — | | | | 2,078 | | | | — | | | Additional contribution | | | 15,195 | | | | — | | | | — | | | | — | | | Intangible assets | | | — | | | | — | | | | 4,892 | | | | 5,135 | | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | Net amount recognized | | $ | 12,499 | | | $ | (1,920 | ) | | $ | (15,608 | ) | | $ | (13,588 | ) | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| | A minimum pension liability adjustment is required when the accumulated benefit obligation exceeds the fair value of plan --------------------------------- -----------------------------
2001 2000 1999 2001 2000 1999
--------- --------- --------- ------- ------- -------
Service cost..................... $ 3,917 $ 4,706 $ 4,744 $ 255 $ 245 $ 408
Interest cost.................... 5,442 4,991 4,541 1,432 1,305 1,153
Expectedassets and accrued benefit liabilities at the measurement date. The downturn in the fixed income and equity markets has caused the market value of our pension plan assets to decline, and lower interest rates have caused our accumulated benefit obligation to increase. As a result, we were required to recognize additional minimum pension liabilities at September 29, 2002 and record total pre-tax charges of $14,537 to other comprehensive income in fiscal 2002. In the fourth quarter of fiscal year 2002, subsequent to the June 30 measurement date for qualified plans, we made a total contribution of $15,195 to return onthe qualified plans to a funded status. All defined benefit pension plan assets... (5,889) (5,082) (5,257) - - -
Net amortization................. (28) 162 426 508 587 601
-------- -------- -------- ------- ------- -------
Net periodic pension cost........ $ 3,442 $ 4,777 $ 4,454 $ 2,195 $ 2,137 $ 2,162
======== ======== ======== ======= ======= =======
obligations, regardless of the funding status of the underlying plans, are fully supported by the financial strength of the Company. |
We maintain a savings plan 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 from 2% to
12% 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 this plan were $1,651, $1,426 and $1,328 in 2001, 2000
and 1999, 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 were then excluded from participation
in the qualified savings plan. This plan allows participants to defer up to
15% of their salary on a pre-tax basis. We contribute an amount equal to
100% of the first 3% contributed by the employee. Our contributions under
the non-qualified deferred compensation plan were $680, $609 and $481 in
2001, 2000 and 1999, respectively. In each plan, a participant's right to
Company contributions vests at a rate of 25% per year of service.
We maintain a bonus plan that allows certain officers and management of the
Company to earn annual bonuses based upon achievement of certain financial
and performance goals approved by the Compensation Committee of our Board
of Directors. Under this plan, $1,297, $4,654 and $6,390 was expensed in
2001, 2000 and 1999, respectively.
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 then-current market price of our common stock. We provide a deferment
credit equal to 25% of the compensation initially deferred. Under this
plan, a total of $234, $0 and $562 was expensed in 2001, 2000 and 1999,
respectively, for both the deferment credit and the stock appreciation on
the deferred compensation.
F-15
JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars (Dollars in thousands, except per share data) (continued)
6. POSTRETIREMENT BENEFIT PLAN
We sponsor a health care plan that provides postretirement medical benefits
for employees who meet minimum age and service requirements. The plan is
contributory, with retiree contributions adjusted annually, and contains
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.
2001 2000
-------- --------
Change in benefit obligation:
Benefit obligation at beginning of year.......... $ 16,769 $ 16,465
Service cost..................................... 247 586
Interest cost.................................... 537 1,233
Actuarial gain................................... (9,741) (1,420)
Benefits paid.................................... (83) (95)
-------- --------
Benefit obligation at end of year................ $ 7,729 $ 16,769
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year... $ - $ -
Employer contributions........................... 83 95
Benefits paid.................................... (83) (95)
-------- --------
Fair value of plan assets at end of year......... $ - $ -
======== ========
Reconciliation of funded status:
Funded status.................................... $ (7,729) $(16,769)
Unrecognized net gain............................ (11,792) (3,351)
-------- --------
Net liability recognized......................... $(19,521) $(20,120)
======== ========
All of the net liability recognized in the reconciliation of funded status
is included as an accrued benefit liability in the statements of financial
position.
In determining the above information, our actuaries assumed a discount rate
of 7.75% and 8.00% at the measurement dates of June 30, 2001 and 2000,
respectively.
The components of the fiscal year net periodic postretirement benefit cost
are as follows:
2001 2000 1999
------- ------- -------
Service cost........................... $ 247 $ 586 $ 638
Interest cost.......................... 537 1,233 1,137
Net amortization....................... (1,282) (34) -
------- ------- -------
Net periodic pension (income) cost..... $ (498) $ 1,785 $ 1,775
======= ======= =======
For measurement purposes, a 9.0% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed
for 2002. For plan participants under age 65, the rate was assumed to
decrease .5% per year to 6.0% by the year 2008 and remain at that level
thereafter. For plan participants age 65 years or older, a 9.0% annual
health care cost trend rate was assumed for 2002. The rate was assumed to
decrease .5% per year to 6.0% by the year 2008 and remain at that level
thereafter. 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 one percentage point in each year would increase
the accumulated postretirement benefit obligation as of September 30, 2001
by $1,638, or 21%, and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 2001 by $208, or
27%.
F-16
6. | | RETIREMENT, SAVINGS AND BONUS PLANS (continued) |
| | In determining the present values of benefit obligations, we assumed discount rates of 7.30% and 7.75% at the measurement dates of June 30, 2002 and 2001, respectively. The assumed rate of increase in compensation levels was 3.5% and 4.0%, respectively, for the qualified plans and 5% for the non-qualified plan in 2002 and 2001. The long-term rate of return on assets was 8.5% in both years. Assets of the qualified plans consist primarily of listed stocks and bonds. |
| | The components of the fiscal year net defined benefit pension cost are as follows: |
| | | Qualified plans
| | | Non-qualified plan
| | | | 2002
| | | 2001
| | | 2000
| | | 2002
| | 2001
| | 2000
| | Service cost | | $ | 4,586 | | | $ | 3,917 | | | $ | 4,706 | | | $ | 298 | | $ | 255 | | $ | 245 | | Interest cost | | | 6,063 | | | | 5,442 | | | | 4,991 | | | | 1,747 | | | 1,432 | | | 1,305 | | Expected return on plan assets | | | (5,917 | ) | | | (5,889 | ) | | | (5,082 | ) | | | — | | | — | | | — | | Net amortization | | | (36 | ) | | | (28 | ) | | | 162 | | | | 770 | | | 508 | | | 587 | | | |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
| | Net periodic pension cost | | $ | 4,696 | | | $ | 3,442 | | | $ | 4,777 | | | $ | 2,815 | | $ | 2,195 | | $ | 2,137 | | | |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
| | We maintain a savings plan 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 from 2% to 12% 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 this plan were $1,838, $1,651 and $1,426 in 2002, 2001 and 2000, 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 15% of their salary, including bonuses, 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 $617, $680 and $609 in 2002, 2001 and 2000, respectively. In each plan, a participant’s right to Company contributions vests at a rate of 25% per year of service. |
| | We maintain a bonus plan that allows certain officers and management of the Company to earn annual bonuses based upon achievement of certain financial and performance goals approved by the Compensation Committee of our Board of Directors. Under this plan, $3,682, $1,297 and $4,654 was expensed in 2002, 2001 and 2000, respectively. |
| | 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 then-current market price of our common stock. We provide a deferment credit equal to 25% of the compensation initially deferred. Under this plan, a total of $(312), $234 and $(14) was (credited) expensed in 2002, 2001 and 2000, respectively, for both the deferment credit and the stock appreciation (depreciation) on the deferred compensation. |
JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars (Dollars in thousands, except per share data) (continued)
7. STOCK OPTIONS
We offer stock option plans to attract, retain and motivate key officers,
non-employee directors and employees to work toward the future financial
success of the Company.
In January 1992, we adopted the 1992 Employee Stock Incentive Plan (the
"1992 Plan") and, as part of a merger, assumed outstanding options to
employees under our predecessor's 1990 Stock Option Plan and assumed
contractually the options to purchase 42,750 shares of common stock granted
to two non-employee directors of the Company. Under the 1992 Plan,
employees are eligible to 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. No awards shall be granted after January 16, 2002, although stock may
be issued thereafter pursuant to awards granted prior to such date.
In August 1993, we adopted the 1993 Stock Option Plan (the "1993 Plan").
Under the 1993 Plan, employees who do not receive stock options under the
1992 Plan are eligible to receive annually stock options with an aggregate
exercise price equivalent to a percentage of their eligible earnings.
Subject to certain adjustments, up to a maximum of 3,000,000 shares of
common stock may be sold or issued under the 1993 Plan. No awards shall be
granted after December 11, 2003, although common stock may be issued
thereafter pursuant to awards granted prior to such date.
In February 1995, we adopted the Non-Employee Director Stock Option Plan
(the "Director Plan"). Under the Director Plan, any eligible director of
Jack in the Box Inc. who is not an employee of the Company or its
subsidiaries is granted annually an option to purchase shares of common
stock at fair market value. The actual number of shares that may be
purchased under the option is based on the relationship of a portion of
each director's compensation to the fair market value of the common stock,
but is limited to fewer than 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. Unless sooner terminated, no awards
shall be granted after February 17, 2005, although common stock may be
issued thereafter pursuant to awards granted prior to such date.
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 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.
F-17
7. | | POSTRETIREMENT BENEFIT PLAN |
| | We sponsor a health care plan that provides postretirement medical benefits for employees who meet minimum age and service requirements. The plan is contributory, with retiree contributions adjusted annually, and contains 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. |
| | | 2002
| | | 2001
| | | Change in benefit obligation: | | | | | | | | | | Benefit obligation at beginning of year | | $ | 7,729 | | | $ | 16,769 | | | Service cost | | | 278 | | | | 247 | | | Interest cost | | | 595 | | | | 537 | | | Actuarial (gain) loss | | | 722 | | | | (9,741 | ) | | Benefits paid | | | (225 | ) | | | (83 | ) | | | |
|
|
| |
|
|
| | Benefit obligation at end of year | | $ | 9,099 | | | $ | 7,729 | | | | |
|
|
| |
|
|
| | Change in plan assets: | | | | | | | | | | Fair value of plan assets at beginning of year | | $ | — | | | $ | — | | | Employer contributions | | | 225 | | | | 83 | | | Benefits paid | | | (225 | ) | | | (83 | ) | | | |
|
|
| |
|
|
| | Fair value of plan assets at end of year | | $ | — | | | $ | — | | | | |
|
|
| |
|
|
| | Reconciliation of funded status: | | | | | | | | | | Funded status | | $ | (9,099 | ) | | $ | (7,729 | ) | | Unrecognized net gain | | | (9,957 | ) | | | (11,792 | ) | | | |
|
|
| |
|
|
| | Net liability recognized | | $ | (19,056 | ) | | $ | (19,521 | ) | | | |
|
|
| |
|
|
|
| | All of the net liability recognized in the reconciliation of funded status is included as an accrued benefit liability in the statements of financial position. In determining the above information, we assumed a discount rate of 7.30% and 7.75% at the measurement dates of June 30, 2002 and 2001, respectively. |
| | The components of the fiscal year net periodic postretirement benefit cost are as follows: |
| | | 2002
| | | 2001
| | | 2000
| | | Service cost | | $ | 278 | | | $ | 247 | | | $ | 586 | | | Interest cost | | | 595 | | | | 537 | | | | 1,233 | | | Net amortization | | | (1,113 | ) | | | (1,282 | ) | | | (34 | ) | | | |
|
|
| |
|
|
| |
|
|
| | Net periodic pension (income) cost | | $ | (240 | ) | | $ | (498 | ) | | $ | 1,785 | | | | |
|
|
| |
|
|
| |
|
|
|
| | For measurement purposes, an 8.5% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 2003. For plan participants under age 65, the rate was assumed to decrease .5% per year to 6.0% by the year 2008 and remain at that level thereafter. For plan participants age 65 years or older, an 8.5% annual health care cost trend rate was assumed for 2003. The rate was assumed to decrease .5% per year to 6.0% by the year 2008 and remain at that level thereafter. 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 one percentage point in each year would increase the accumulated postretirement benefit obligation as of September 29, 2002 by $1,956, or 21.5%, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 2002 by $231, or 26.5%. |
JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars (Dollars in thousands, except per share data) (continued)
7. | | We offer stock option plans to attract, retain and motivate key officers, non-employee directors and employees to work toward the future financial success of the Company. All of the Plans are administered by the Compensation Committee of the Board of Directors and have been approved by the stockholders of the Company. |
| | In January 1992, we adopted the 1992 Employee Stock Incentive Plan (the “1992 Plan”) and, as part of a merger, assumed outstanding options to employees under our predecessor’s 1990 Stock Option Plan. Under the 1992 Plan, employees are eligible to 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. No awards shall be granted after January 3, 2002, although common stock may be issued thereafter pursuant to awards granted prior to such date. |
| | In August 1993, we adopted the 1993 Stock Option Plan (the “1993 Plan”). Under the 1993 Plan, employees who do not receive stock options under the 1992 Plan are eligible to receive annually stock options with an aggregate exercise price equivalent to a percentage of their eligible earnings. Subject to certain adjustments, up to a maximum of 3,000,000 shares of common stock may be sold or issued under the 1993 Plan. No awards shall be granted after February 12, 2003, although common stock may be issued thereafter pursuant to awards granted prior to such date. |
| | In February 1995, we adopted the Non-Employee Director Stock Option Plan (the “Director Plan”). Under the Director Plan, any eligible director of Jack in the Box Inc. who is not an employee of the Company or its subsidiaries is granted annually an option to purchase shares of common stock at fair market value. The actual number of shares that may be purchased under the option is based on the relationship of a portion of each director’s compensation to the fair market value of the common stock, but is limited to fewer than 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. Unless sooner terminated, no awards shall be granted after February 17, 2005, although common stock may be issued thereafter pursuant to awards granted prior to such date. |
| | In February 2002, we adopted the Jack in the Box Inc. 2002 Stock Incentive Plan (“the 2002 Plan), to continue the objectives of the 1992 Employee Stock Incentive Plan. Under the 2002 Plan, officers and other key employees are eligible 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. |
| | 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 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. |
JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 8. STOCK OPTIONS (continued) The following is a summary of stock option activity for the three fiscal years ended September 30, 2001:
Option exercise price per share
-------------------------------
Weighted-
Shares Range average
--------- -------------- ---------
Balance at September 27, 1998... 3,611,121 $ .96 - 19.06 $ 10.10
Granted....................... 655,541 13.56 - 26.63 26.24
Exercised..................... (297,148) .96 - 19.06 9.00
Canceled...................... (105,801) 5.75 - 26.63 15.27
---------
Balance at October 3, 1999...... 3,863,713 .96 - 26.63 12.78
Granted....................... 699,574 23.25 - 23.88 23.25
Exercised..................... (377,935) .96 - 19.06 3.92
Canceled...................... (128,922) 5.75 - 26.63 20.39
---------
Balance at October 1, 2000...... 4,056,430 1.13 - 26.63 15.16
Granted....................... 996,699 26.00 - 32.77 26.27
Exercised..................... (935,373) 1.13 - 26.63 8.51
Canceled...................... (119,655) 5.75 - 26.63 23.20
---------
Balance at September 30, 2001... 3,998,101 4.19 - 32.77 19.24
=========
29, 2002: | | | Shares
| | | Option exercise price per share
| | | | | Range
| | Weighted- average
| | Balance at October 3, 1999 | | 3,863,713 | | | $ | .96 - 26.63 | | $ | 12.78 | | Granted | | 699,574 | | | | 23.25 - 23.88 | | | 23.25 | | Exercised | | (377,935 | ) | | | .96 - 19.06 | | | 3.92 | | Canceled | | (128,922 | ) | | | 5.75 - 26.63 | | | 20.39 | | | |
|
| | | | | | | | Balance at October 1, 2000 | | 4,056,430 | | | | 1.13 - 26.63 | | | 15.16 | | Granted | | 996,699 | | | | 26.00 - 32.77 | | | 26.27 | | Exercised | | (935,373 | ) | | | 1.13 - 26.63 | | | 8.51 | | Canceled | | (119,655 | ) | | | 5.75 - 26.63 | | | 23.20 | | | |
|
| | | | | | | | Balance at September 30, 2001 | | 3,998,101 | | | | 4.19 - 32.77 | | | 19.24 | | Granted | | 815,341 | | | | 23.00 - 31.87 | | | 25.01 | | Exercised | | (518,068 | ) | | | 22.52 - 34.09 | | | 29.56 | | Canceled | | (114,442 | ) | | | 7.50 - 26.63 | | | 24.42 | | | |
|
| | | | | | | | Balance at September 29, 2002 | | 4,180,932 | | | | 4.19 - 32.77 | | | 21.12 | | | |
|
| | | | | | |
The following is a summary of stock options outstanding at September 30, 2001:
Options outstanding Options exercisable
----------------------------------------------- -----------------------
Weighted-average Weighted- Weighted-
contractual average average
Range of Number remaining exercise Number exercise
exercise prices outstanding life in years price exercisable price
--------------- ----------- ---------------- --------- ----------- ---------
$ 4.19 - 12.13 1,082,043 3.86 $ 8.76 1,082,043 $ 8.76
12.25 - 23.25 1,405,656 7.60 19.74 711,376 18.29
23.88 - 32.77 1,510,402 9.17 26.29 364,732 25.99
--------- ---------
4.19 - 32.77 3,998,101 7.18 19.24 2,158,151 14.81
========= =========
29, 2002:| | | Options outstanding
| | Options exercisable
| Range of exercise prices
| | Number outstanding
| | Weighted-average remaining contractual life in years
| | Weighted- average exercise price
| | Number exercisable
| | Weighted- average exercise price
| | $ 4.19 - 19.06 | | 1,419,193 | | 4.70 | | $ | 12.96 | | 1,319,065 | | $ | 12.50 | | 23.00 - 25.00 | | 1,415,797 | | 8.68 | | | 24.24 | | 383,899 | | | 23.65 | | 26.00 - 26.63 | | 1,300,942 | | 8.22 | | | 26.22 | | 517,857 | | | 26.33 | | 31.87 - 32.77 | | 45,000 | | 9.17 | | | 32.67 | | 8,000 | | | 32.77 | | | |
| | | | | | |
| | | | | $ 4.19 - 32.77 | | 4,180,932 | | 7.19 | | | 21.12 | | 2,228,821 | | | 17.71 | | | |
| | | | | | |
| | | |
At September 29, 2002, September 30, 2001 and October 1, 2000, and October 3, 1999, the number of options exercisable were 2,228,821, 2,158,151 2,514,773 and 2,503,009,2,514,773, respectively, and the weighted-average exercise prices of those options were $17.71, $14.81, and $10.90, and $8.62, respectively. For purposes of the following pro forma disclosures required by SFAS 123, the fair value of each option granted after fiscal year 1995 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. Therefore, in management'smanagement’s opinion, the existing models do not provide a reliable single measure of the value of employee stock options. The following assumptions were used for grants: risk-free interest rates of 5.8%4.2%, 5.8% and 5.9% in 2002, 2001 and 5.5% in
2001, 2000, and 1999, respectively; expected volatility of 40% in 2001 and
2000 and 35% in 1999;each year; and an expected life of six years in each year. We have not paid any cash dividends and do not anticipate paying dividends in the foreseeable future; therefore, the expected dividend yield is zero.
F-18
JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars (Dollars in thousands, except per share data) (continued)
7. STOCK OPTIONS (continued)
The weighted-average fair value of options granted was $12.70 in 2001,
$11.26 in 2000 and $11.58 in 1999. Had compensation expense been recognized
for stock-based compensation plans in accordance with provisions of SFAS
123, the Company would have recorded net earnings of $77,739, or $2.00 per
basic share and $1.95 per diluted share, in 2001; $97,620, or $2.55 per
basic share and $2.48 per diluted share, in 2000 and $74,391, or $1.95 per
basic share and $1.89 per diluted share, in 1999.
For the pro forma disclosures, the estimated fair values of the options
were amortized over their vesting periods of up to five years. The pro
forma disclosures do not include a full five years of grants since SFAS 123
does not apply to grants before 1996. Therefore, these pro forma amounts
are not indicative of anticipated future disclosures.
8. STOCKHOLDERS' EQUITY
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 has acquired or
commences to acquire 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.
At September 30, 2001, we had 5,133,351 shares of common stock reserved for
issuance upon the exercise of stock options.
F-19
8. | | STOCK OPTIONS (continued) |
| | The weighted-average fair value of options granted was $11.35 in 2002, $12.70 in 2001 and $11.26 in 2000. Had compensation expense been recognized for stock-based compensation plans in accordance with provisions of SFAS 123, the Company would have recorded net earnings of $78,596, or $2.00 per basic share and $1.96 per diluted share, in 2002; $77,739, or $2.00 per basic share and $1.95 per diluted share, in 2001; and $97,620, or $2.55 per basic share and $2.48 per diluted share, in 2000. For the pro forma disclosures, the estimated fair values of the options were amortized over their vesting periods of up to five years. |
| | 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 has acquired or commences to acquire 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. |
| | At September 29, 2002, we had 6,515,283 shares of common stock reserved for issuance upon the exercise of stock options. |
JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars (Dollars in thousands, except per share data) (continued)
9. AVERAGE SHARES OUTSTANDING
10. | | AVERAGE SHARES OUTSTANDING |
Net earnings per share for each fiscal year is based on the weighted-average number of common shares outstanding during the year, determined as follows: | | | 2002
| | | 2001
| | | 2000
| | | Shares outstanding, beginning of fiscal year | | 39,248,168 | | | 38,348,595 | | | 38,276,460 | | | Effect of common stock issued | | 273,782 | | | 470,040 | | | 200,074 | | | Effect of common stock reacquired | | (199,591 | ) | | (27,212 | ) | | (209,048 | ) | | | |
|
| |
|
| |
|
| | Weighted-average shares outstanding – basic | | 39,322,359 | | | 38,791,423 | | | 38,267,486 | | | Assumed additional shares issued upon exercise of stock options, net of shares reacquired at the average market price | | 789,791 | | | 988,644 | | | 1,066,579 | | | | |
|
| |
|
| |
|
| | Weighted-average shares outstanding – diluted | | 40,112,150 | | | 39,780,067 | | | 39,334,065 | | | | |
|
| |
|
| |
|
|
2001 2000 1999
---------- ---------- ----------
Shares outstanding, beginning of fiscal year...... 38,348,595 38,276,460 37,927,925
Effect of common stock issued..................... 470,040 200,074 215,635
Effect of common stock reacquired................. (27,212) (209,048) -
---------- ---------- ----------
Weighted-average | | The diluted weighted-average shares outstanding - basic....... 38,791,423 38,267,486 38,143,560
Assumed additional shares issued upon exercise
ofcomputation excludes 468,050, 496,125 and 1,047,684 antidilutive stock options in 2002, 2001 and warrants, net2000, respectively. |
11. | | CONTINGENCIES AND LEGAL MATTERS |
| | As previously reported, we have reached a settlement in an action filed in 1995 regarding alleged failure to comply with the Americans with Disabilities Act (“ADA”). The settlement, as amended, requires compliance with ADA Access Guidelines at Company-operated restaurants by October 2003. We are in the process of shares
reacquiredmaking modifications to improve accessibility at our restaurants. We currently expect to spend approximately $3.4 million in fiscal 2003 in connection with these modifications in addition to amounts previously invested. We expect to comply with our settlement obligations by the average market price.......... 988,644 1,066,579 1,136,949
---------- ---------- ----------
Weighted-average shares outstanding - diluted..... 39,780,067 39,334,065 39,280,509
========== ========== ==========
October 2003 settlement deadline. |
The diluted weighted-average shares outstanding computation excludes
496,125, 1,047,684 and 345,040 antidilutive stock options in 2001, 2000 and
1999, respectively.
10. CONTINGENCIES AND LEGAL MATTERS
As previously reported, we have reached a settlement in an action filed in
1995 regarding alleged failure to comply with the Americans with
Disabilities Act ("ADA"). The settlement requires compliance with ADA
Access Guidelines at Company-operated restaurants by October 2005. We are
in the process of making modifications to improve accessibility at our
restaurants. We currently expect to spend approximately $10 million over
the next four years in connection with these modifications in addition to
amounts previously invested.
On April 18, 2001, an action was filed by Robert Bellmore and Jeffrey
Fairbairn, individually and on behalf of all others similarly situated, in
the Superior Court of the State of California, San Diego County, seeking
class action status and alleging violations of California wage and hour
laws. The complaint alleges that salaried restaurant management personnel
in California were improperly classified as exempt from California overtime
laws, thereby depriving them of overtime pay. The complaint seeks damages
in an unspecified amount, penalties, injunctive relief, prejudgment
interest, costs and attorneys' fees. We believe our employee
classifications are appropriate and plan to vigorously defend this action.
A motion for class certification is scheduled to be heard on May 3, 2002
and a trial date has been set for January 17, 2003.
We are also subject to normal and routine litigation in the ordinary course
of business. The amount of liability from the claims and actions against us
cannot be determined with certainty, but in our opinion the ultimate
liability from all pending legal proceedings, asserted legal claims and
known potential legal claims which are probable of assertion should not
materially affect our results of operations and liquidity.
We have three wholly-owned subsidiaries, consisting of Foodmaker
International Franchising Inc. (the "Subsidiary Guarantor") and two other
non-guarantor subsidiaries (collectively, the "Non-Guarantor
Subsidiaries"). The Non-Guarantor Subsidiaries conduct no material
operations, have no significant assets on a consolidated basis and account
for only an insignificant share of our consolidated revenues. The
Subsidiary Guarantor's guaranty of our $125 million senior subordinated
notes is full and unconditional. The Subsidiary Guarantor has no
significant operations or any significant assets or liabilities other than
the guaranty of indebtedness of the Company, and therefore, no separate
financial statements of the Subsidiary Guarantor are presented because they
are not material to investors.
F-20
| | On April 18, 2001, an action was filed by Robert Bellmore and Jeffrey Fairbairn, individually and on behalf of all others similarly situated, in the Superior Court of the State of California, San Diego County, seeking class action status in alleging violations of California wage and hour laws. The complaint alleged that salaried restaurant management personnel in California were improperly classified as exempt from California overtime laws, thereby depriving them of overtime pay. The complaint sought damages in an unspecified amount, penalties, injunctive relief, prejudgment interest, costs and attorneys’ fees. The Company settled the action in fiscal year 2002 for approximately $9.3 million without admission of liability. The settlement is subject to certain conditions and court approval. |
| | We are also subject to normal and routine litigation. In the opinion of management, based in part on the advice of legal counsel, the ultimate liability from all other pending legal proceedings, asserted legal claims and known potential legal claims should not materially affect our operating results and liquidity. |
| | The Company’s wholly-owned subsidiary, Foodmaker International Franchising Inc. (the “Subsidiary Guarantor”), guarantees, fully and unconditionally, our $125 million senior subordinated notes. The Subsidiary Guarantor has no significant operations or any significant assets or liabilities other than the guaranty of indebtedness of the Company, and therefore, no separate financial statements of the Subsidiary Guarantor are presented. |
JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars (Dollars in thousands, except per share data) (continued)
11. 12. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
September 30, October 1,
2001 2000
------------ ----------
Accounts receivable:
Trade...................................... $ 7,163 $ 5,871
Construction advances...................... 8,426 5,857
Other...................................... 6,808 3,034
Allowances for doubtful accounts........... (581) (1,095)
---------- ----------
$ 21,816 $ 13,667
========== ==========
Other assets:
Trading area rights, net of amortization
of $37,330 and $33,183, respectively.... $ 68,825 $ 71,565
Other, net of amortization
of $46,058 and $42,159, respectively.... 56,795 56,496
---------- ----------
$ 125,620 $ 128,061
========== ==========
Accrued liabilities:
Payroll and related taxes.................. $ 46,058 $ 47,842
Sales and property taxes................... 17,970 15,364
Insurance.................................. 27,771 27,696
Advertising................................ 13,228 11,419
Capital improvements....................... 15,898 13,142
Income tax liabilities..................... 13,181 5,887
Other...................................... 35,522 32,006
---------- ----------
$ 169,628 $ 153,356
========== ==========
F-21
| | | September 29, 2002
| | | September 30, 2001
| | | Accounts receivable: | | | | | | | | | | Trade | | $ | 6,777 | | | $ | 7,163 | | | Construction advances | | | 1,942 | | | | 8,426 | | | Notes receivable | | | 12,186 | | | | 1,753 | | | Other | | | 5,620 | | | | 5,055 | | | Allowances for doubtful accounts | | | (310 | ) | | | (581 | ) | | | |
|
|
| |
|
|
| | | | $ | 26,215 | | | $ | 21,816 | | | | |
|
|
| |
|
|
| | Other assets: | | | | | | | | | Trading area rights, net of amortization
of $41,077 and $37,330, respectively | | $ | 64,628 | | | $ | 68,825 | | Other, net of amortization
of $44,999 and $46,065, respectively | | | 39,379 | | | | 56,795 | | | | |
|
|
| |
|
|
| | | | $ | 104,007 | | | $ | 125,620 | | | | |
|
|
| |
|
|
| | Accrued liabilities: | | | | | | | | | | Payroll and related taxes | | $ | 55,204 | | | $ | 46,058 | | | Sales and property taxes | | | 19,280 | | | | 17,970 | | | Insurance | | | 27,606 | | | | 27,771 | | | Advertising | | | 13,339 | | | | 13,228 | | | Capital improvements | | | 8,444 | | | | 15,898 | | | Income tax liabilities | | | 390 | | | | 13,181 | | | Other | | | 43,651 | | | | 35,522 | | | | |
|
|
| |
|
|
| | | | $ | 167,914 | | | $ | 169,628 | | | | |
|
|
| |
|
|
|
JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars (Dollars in thousands, except per share data) (continued)
12. 13. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following fiscal year 2001 quarterly results of operations reflect the
adoption of SAB 101 as described in Note 1:
16 weeks 12 weeks ended
ended ----------------------------------
Jan. 21, Apr. 15, July 8, Sept. 30,
Fiscal Year 2001 2001 2001 2001 2001
------------------------------------------ --------- --------- -------- ---------
Revenues.................................. $543,223 $413,219 $434,633 $442,501
Gross profit.............................. 109,998 77,394 84,750 84,386
Net earnings before cumulative
effect of accounting change............. 25,580 16,771 21,034 20,675
Net earnings.............................. 23,721 16,771 21,034 20,675
Net earnings per share before cumulative
effect of accounting change:
Basic................................. .67 .43 .54 .53
Diluted............................... .65 .42 .53 .52
Net earnings per share:
Basic................................. .62 .43 .54 .53
Diluted............................... .60 .42 .53 .52
Although the impact of adopting SAB 101 on full fiscal year operating
results was not significant, the results for each of the respective
quarters presented above reflect the following SAB 101 adjustments.
Revenues and gross profit increased (decreased) $2,481, $(2,353), $(1,440)
and $1,259. Net earnings before cumulative effect of accounting change
increased (decreased) $1,541, $(1,460), $(927) and $812. Net earnings
increased (decreased) $622, $(2,353), $(1,440) and $1,259. Basic and
diluted net earnings per share before cumulative effect of accounting
change increased (decreased) $.04, $(.04), $(.02) and $.02. Basic and
diluted net earnings per share increased (decreased) $(.01), $(.04), $(.02)
and $.02.
Since SAB 101 was adopted as of the beginning of fiscal year 2001, the
following fiscal year 2000 quarterly results of operations have not been
adjusted:
16 weeks 12 weeks ended
ended ---------------------------------
Jan. 23, Apr. 16, July 9, Oct. 1,
Fiscal Year 2000 2000 2000 2000 2000
------------------------------------------ --------- --------- -------- --------
Revenues.................................. $476,806 $370,495 $390,311 $395,700
Gross profit.............................. 94,133 74,280 82,170 80,972
Net earnings.............................. 20,392 16,085 20,808 42,979
Net earnings per share:
Basic................................... .53 .42 .54 1.12
Diluted................................. .52 .41 .53 1.09
F-22
Fiscal Year 2002
| | 16 weeks ended Jan. 20, 2002
| | 12 weeks ended
| | | | Apr. 14, 2002
| | July 7, 2002
| | Sept. 29, 2002
| | Revenues | | $ | 594,180 | | $ | 447,630 | | $ | 461,219 | | $ | 463,331 | | Gross profit | | | 115,187 | | | 83,634 | | | 92,362 | | | 90,793 | | Net earnings | | | 26,674 | | | 18,186 | | | 24,202 | | | 13,984 | | Net earnings per share: | | | | | | | | | | | | | | Basic | | | .68 | | | .46 | | | .61 | | | .36 | | Diluted | | | .67 | | | .45 | | | .60 | | | .35 | | Fiscal Year 2001
| | 16 weeks ended Jan. 21, 2001
| | 12 weeks ended
| | | | Apr. 15, 2001
| | July 8, 2001
| | Sept. 30, 2001
| | Revenues | | $ | 543,223 | | $ | 413,219 | | $ | 434,633 | | $ | 442,501 | | Gross profit | | | 109,960 | | | 77,367 | | | 84,723 | | | 84,342 | | Net earnings before cumulative effect of accounting change | | | 25,580 | | | 16,771 | | | 21,034 | | | 20,675 | | Net earnings | | | 23,721 | | | 16,771 | | | 21,034 | | | 20,675 | | Net earnings per share before cumulative effect of accounting change: | | | | | | | | | | | | | | Basic | | | .67 | | | .43 | | | .54 | | | .53 | | Diluted | | | .65 | | | .42 | | | .53 | | | .52 | | Net earnings per share: | | | | | | | | | | | | | | Basic | | | .62 | | | .43 | | | .54 | | | .53 | | Diluted | | | .60 | | | .42 | | | .53 | | | .52 |
F-23 |