JACK IN THE BOX INC /NEW/
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| þ |
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE FISCAL YEAR ENDED OCTOBER 3, 2010
COMMISSION FILE NUMBER
1-9390
JACK IN THE BOX INC.
(Exact name of registrant as
specified in its charter)
| Delaware | 95-2698708 | |
|
(State of Incorporation)
|
(I.R.S. Employer Identification No.) | |
| 9330 Balboa Avenue, San Diego, CA | 92123 | |
|
(Address of principal executive offices)
|
(Zip Code) |
Registrant’s telephone number, including area code
(858) 571-2121
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
|
Common Stock, $0.01 par value
|
NASDAQ |
Securities registered pursuant to
Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes
þ
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act.
Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 and Regulations S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act.
Large accelerated
filer
þ
Accelerated
filer
o
Non-accelerated
filer
o
Smaller
reporting
company
o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes
o
No
þ
The aggregate market value of the common stock held by
non-affiliates of the registrant, computed by reference to the
closing price reported in the NASDAQ — Composite
Transactions as of April 11, 2010, was approximately
$1,302.3 million.
Number of shares of common stock, $0.01 par value,
outstanding as of the close of business November 18,
2010 — 52,904,990.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to
be filed with the Securities and Exchange Commission in
connection with the 2011 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof.
JACK IN
THE BOX INC.
TABLE OF
CONTENTS
1
Table of Contents
| ITEM 1. | BUSINESS |
The
Company
Overview.
Jack in the Box Inc. (the
“Company”), based in San Diego, California,
operates and franchises more than 2,700 Jack in the
Box
®
quick-service restaurants (“QSR”) and Qdoba Mexican
Grill
®
fast-casual restaurants. In fiscal 2010, we generated total
revenues of $2.3 billion. References to the Company
throughout this Annual Report on
Form 10-K
are made using the first person notations of “we,”
“us” and “our.”
Jack in the Box
— The first Jack in the Box
restaurant, which offered only drive-thru service, opened in
1951. Jack in the Box
is one of the nation’s largest hamburger chains and,
based on the number of units, is the second or third largest QSR
hamburger chain in most of our major markets. As of the end of
our fiscal year on October 3, 2010, the Jack in the Box
system included 2,206 restaurants in 18 states, of which
956 were company-operated and 1,250 were franchise-operated.
Qdoba Mexican Grill
— To supplement our core
growth and balance the risk associated with growing solely in
the highly competitive hamburger segment of the QSR industry, in
January 2003 we acquired Qdoba Restaurant Corporation, operator
and franchisor of Qdoba Mexican Grill. As of October 3,
2010, the Qdoba system included 525 restaurants in
43 states, as well as the District of Columbia, of which
188 were company-operated and 337 were franchise-operated. In
recent years, Qdoba has emerged as a leader in the fast-casual
segment of the restaurant industry.
Discontinued Operations
— We had also operated
a proprietary chain of 61 convenience stores and fuel stations
called Quick
Stuff
®
,
which were each adjacent to a Jack in the Box restaurant. In the
fourth quarter of 2009, under a plan approved by our Board of
Directors, we sold Quick Stuff. Refer to Note 2,
Discontinued Operations
, in the notes to the consolidated
financial statements for more information.
Strategic Plan.
Our Company’s long-term
strategic plan is supported by four key initiatives:
(i) reinvent the Jack in the Box brand, (ii) expand
franchising operations, (iii) improve the business model,
and (iv) grow Jack in the Box and Qdoba Mexican Grill.
Strategic Plan — Brand Reinvention.
We
believe that reinventing the Jack in the Box brand by focusing
on the following three initiatives will differentiate us from
our competition by offering our guests a better restaurant
experience than typically found in the QSR segment:
| • | Menu Innovation . We believe that menu innovation and our use of high-quality ingredients differentiates Jack in the Box from competitors, strengthens our brand and appeals to a broader base of consumers. In recent years, we have successfully leveraged premium ingredients like sirloin and artisan breads in launching new products unique to our segment of the restaurant industry. | |
| • | Service . A second major initiative of brand reinvention is to improve the level and consistency of guest service. Investing in employee training to reinforce six key tenets of guest service (quality food, a clean environment, friendly employees, order accuracy, a hassle-free experience and speed of service) has resulted in improvement in guest-satisfaction scores. Additionally, we are leveraging new technologies to improve service and guest satisfaction, such as self-serve kiosks installed at certain Jack in the Box locations, which offer guests an alternative method of ordering inside a restaurant. As of fiscal year end, more than 230 company and franchise restaurants had kiosks, and over time, we plan to add them to additional restaurants where the frequency of use is expected to be highest. Generally, our kiosk transactions have higher check averages than orders processed at the service counters, partially due to our ability to customize messaging to prompt add-on items. | |
| • | Environment . Because the restaurant environment is another driver of guest satisfaction, the third element of brand reinvention is a comprehensive re-image of our restaurant facilities. We can portray a more cohesive and consistent brand image to our guests by completely redesigning the dining room and common areas and enhancing the exteriors with new paint schemes, lighting and landscaping. At fiscal year end, nearly 68% of company restaurants – and more than 55% of the Jack in the Box system – featured all interior and exterior elements of the re-image program. We remain focused on enhancing the entire guest |
2
Table of Contents
| experience, including the substantial completion of our restaurant re-imaging program system-wide, which is targeted by the end of 2011. Our newest restaurant prototype distinguishes Jack in the Box from our competitors through innovative architectural elements and a flexible kitchen design that can accommodate future menu offerings while maximizing productivity and throughput. In 2009, we unveiled a new logo that sends a clear signal to consumers that today’s Jack in the Box is not the Jack of the past. The new logo now appears on packaging and uniforms and in our advertising. At fiscal year end, nearly 15% of the system featured the new logo on restaurant signage. |
Strategic Plan — Expand Franchising
Operations.
Our second strategic initiative is to
continue expanding our franchising operations to generate higher
margins and returns for the Company while creating a business
model that is less capital intensive and not as susceptible to
cost fluctuations. Through the sale of 219 company-operated
Jack in the Box restaurants to franchisees and the development
of 16 new franchise restaurants, we increased franchise
ownership of the Jack in the Box system to approximately 57% at
fiscal year end from approximately 46% at the end of fiscal
2009. We are ahead of our plan to achieve our goal to increase
the percentage of franchise ownership in the Jack in the Box
system to approximately
70-80%
by
the end of fiscal 2013. We also have executed development
agreements with several franchisees to further expand the Jack
in the Box brand in new and existing markets in 2011 and beyond.
The Qdoba system is predominantly franchised, and we anticipate
that future growth will continue to be mostly franchised. In
fiscal 2010, Qdoba franchisees opened 21 restaurants.
Strategic Plan — Improve the Business
Model.
This sweeping strategy involves focusing our
entire organization on improving restaurant profitability and
returns as well as on administrative efficiencies. We will
continue to focus on reducing food, packaging and labor costs
through product design, menu innovation and operations
simplification, as well as pricing optimization. We expect our
selling, general and administrative expenses to further decrease
as we continue reengineering our processes and systems and
transition to a business model comprised of predominantly
franchised restaurant locations.
Strategic Plan — Grow Jack in the Box and Qdoba
Mexican Grill.
| • | Jack in the Box Growth . In fiscal 2010, 46 Jack in the Box restaurants opened, including 16 franchise locations. During the year, we expanded our presence in several new contiguous markets in Texas, Colorado, Oregon, New Mexico and Oklahoma. In fiscal 2011, 30-35 new company and franchise restaurants are planned as Jack in the Box will continue to expand into new contiguous markets, including the Kansas City metropolitan area. | |
| • | Qdoba Growth . In fiscal 2010, 36 Qdoba restaurants opened, including 21 franchise locations, and franchisees expanded into new markets in Illinois, Texas, New Mexico, West Virginia and Mississippi. Our Qdoba system is primarily franchised and is the largest franchised Mexican-food chain in the fast-casual segment of the restaurant industry. In fiscal 2011, we plan to open 50-60 new company and franchise restaurants. |
Restaurant
Concepts
Jack in the
Box
.
Jack
in the Box restaurants offer a broad selection of distinctive,
innovative products targeted primarily at the adult fast-food
consumer. Our
menu
features a variety of hamburgers, salads, specialty sandwiches,
tacos, drinks, smoothies, real ice cream shakes and side items.
Hamburger products include our signature Jumbo
Jack
®
,
Sourdough
Jack
®
,
Ultimate Cheeseburger and Jack’s 100% Sirloin Burger. Jack
in the Box restaurants also offer premium entrée salads,
specialty sandwiches, Teriyaki Bowls and every day value-priced
products, known as “Jack’s Value Menu,” to
compete against price-oriented competitors and because value is
important to certain fast-food customers. Jack in the Box
restaurants also offer customers the ability to customize their
meals and to order any product, including breakfast items, any
time of the day.
The Jack in the Box
restaurant chain was the first major hamburger chain to
develop and expand the concept of drive-thru restaurants. In
addition to drive-thru windows, most of our restaurants have
seating capacities ranging from 20 to 100 persons and are
open
18-24 hours
a day. Drive-thru sales currently account for approximately 70%
of sales at company-operated restaurants.
3
Table of Contents
The following table summarizes the changes in the number of
company-operated and franchise Jack in the Box restaurants over
the past five years:
| Fiscal Year | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
|
Company-operated restaurants:
|
||||||||||||||||||||
|
Beginning of period
|
1,190 | 1,346 | 1,436 | 1,475 | 1,534 | |||||||||||||||
|
New
|
30 | 43 | 23 | 42 | 29 | |||||||||||||||
|
Refranchised
|
(219 | ) | (194 | ) | (109 | ) | (76 | ) | (82 | ) | ||||||||||
|
Closed
|
(46 | ) | (6 | ) | (4 | ) | (5 | ) | (6 | ) | ||||||||||
|
Acquired from franchisees
|
1 | 1 | - | - | - | |||||||||||||||
|
End of period total
|
956 | 1,190 | 1,346 | 1,436 | 1,475 | |||||||||||||||
|
% of system
|
43% | 54% | 62% | 67% | 71% | |||||||||||||||
|
Franchise restaurants:
|
||||||||||||||||||||
|
Beginning of period
|
1,022 | 812 | 696 | 604 | 515 | |||||||||||||||
|
New
|
16 | 21 | 15 | 16 | 7 | |||||||||||||||
|
Refranchised
|
219 | 194 | 109 | 76 | 82 | |||||||||||||||
|
Closed
|
(6 | ) | (4 | ) | (8 | ) | - | - | ||||||||||||
|
Sold to Company
|
(1 | ) | (1 | ) | - | - | - | |||||||||||||
|
End of period total
|
1,250 | 1,022 | 812 | 696 | 604 | |||||||||||||||
|
% of system
|
57% | 46% | 38% | 33% | 29% | |||||||||||||||
|
System end of period total
|
2,206 | 2,212 | 2,158 | 2,132 | 2,079 | |||||||||||||||
Qdoba Mexican Grill.
Qdoba restaurants use fresh,
high quality ingredients and traditional Mexican flavors fused
with popular ingredients from other regional cuisines,
positioning Qdoba as an Artisanal Mexican kitchen within reach.
A few examples of Qdoba’s unique flavors are its signature
Poblano Pesto and Ancho Chile BBQ sauces. While the great
flavors start with the core philosophy of “the fresher the
ingredients, the fresher the
flavors
tm
,”
our ability to deliver these flavors is made possible by the
commitment to professional preparation methods. Throughout each
day, guacamole is prepared on site using fresh Hass avocados,
black and pinto beans are slow-simmered, shredded beef and pork
are slow-roasted and adobo-marinated chicken and steak are
flame-grilled. Customer orders are prepared in full view, which
gives our guests the control they desire to build a meal that is
specifically suited to their individual taste preferences and
nutritional needs. Qdoba restaurants also offer a variety of
catering options that can be tailored to feed groups of five to
several hundred. Our Hot Taco, Nacho and Naked Burrito Bars come
with everything needed, including plates, napkins, serving
utensils, chafing stands and sternos. Each Hot Bar is set up
buffet-style so diners have the ability to prepare their meal to
their liking, just like in the restaurant. The seating capacity
at Qdoba restaurants ranges from 60 to 80 persons,
including outdoor patio seating at many locations.
4
Table of Contents
The following table summarizes the changes in the number of
company-operated and franchise
Qdoba
restaurants
over the past five years:
| Fiscal Year | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
|
Company-operated restaurants:
|
||||||||||||||||||||
|
Beginning of period
|
157 | 111 | 90 | 70 | 57 | |||||||||||||||
|
New
|
15 | 24 | 21 | 10 | 13 | |||||||||||||||
|
Refranchised
|
- | - | - | - | - | |||||||||||||||
|
Closed
|
- | - | - | - | - | |||||||||||||||
|
Acquired from franchisees
|
16 | 22 | - | 10 | - | |||||||||||||||
|
End of period total
|
188 | 157 | 111 | 90 | 70 | |||||||||||||||
|
% of system
|
36% | 31% | 24% | 23% | 22% | |||||||||||||||
|
Franchise restaurants:
|
||||||||||||||||||||
|
Beginning of period
|
353 | 343 | 305 | 248 | 193 | |||||||||||||||
|
New
|
21 | 38 | 56 | 77 | 58 | |||||||||||||||
|
Refranchised
|
- | - | - | - | - | |||||||||||||||
|
Closed
|
(21 | ) | (6 | ) | (18 | ) | (10 | ) | (3 | ) | ||||||||||
|
Sold to Company
|
(16 | ) | (22 | ) | - | (10 | ) | - | ||||||||||||
|
End of period total
|
337 | 353 | 343 | 305 | 248 | |||||||||||||||
|
% of system
|
64% | 69% | 76% | 77% | 78% | |||||||||||||||
|
System end of period total
|
525 | 510 | 454 | 395 | 318 | |||||||||||||||
Site
Selection and Design
Site selections for all new company-operated restaurants
are made after an economic analysis and a review of demographic
data and other information relating to population density,
traffic, competition, restaurant visibility and access,
available parking, surrounding businesses and opportunities for
market penetration. Restaurants developed by franchisees are
built to our specifications on sites we have reviewed.
We have a restaurant prototype with different seating capacities
to help reduce costs and improve our flexibility in locating
restaurants. Management believes that the flexibility provided
by the alternative configurations enables the Company to match
the restaurant configuration with the specific economic,
demographic, geographic and physical characteristics of a
particular site. The majority of our Jack in the
Box
restaurants
are financed with sale and leaseback transactions or constructed
on leased land. Typical costs to develop a traditional Jack in
the Box restaurant, excluding the land value, range from
$1.2 million to $1.9 million. When sale and leaseback
financing is used, the initial cash investment is reduced to the
cost of equipment, which averages approximately
$0.4 million. Qdoba restaurant development costs typically
range from $0.5 million to $0.9 million depending on
geographic region.
Franchising
Program
Jack in the
Box
.
The
Jack in the Box franchise agreement generally provides for an
initial franchise fee of $50,000 per restaurant for a
20-year
term, and in most instances, marketing fees at 5% of gross
sales. Royalty rates, typically 5% of gross sales, range from 2%
to as high as 15% of gross sales, and some existing agreements
provide for variable rates. We offer development agreements for
construction of one or more new restaurants over a defined
period of time and in a defined geographic area. Developers are
required to pay a fee, a portion of which may be credited
against franchise fees due when restaurants open in the future.
Developers may forfeit such fees and lose their rights to future
development if they do not maintain the required schedule of
openings. In fiscal 2009, we began offering a new market
development incentive to our franchisees whereby the first 10%
of restaurants opening on schedule in a new market may be
eligible to receive a royalty rate reduction of 2.5% of gross
sales for the first two years after opening, subject to certain
limitations.
In connection with the sale of a company-operated restaurant,
the restaurant equipment and the right to do business at that
location are sold to the franchisee. The aggregate price is
equal to the negotiated fair market value of the restaurant as a
going concern, which depends on various factors, including the
sales and cash flows of the
5
Table of Contents
restaurant, as well as its location and history. In addition,
the land and building are generally leased or subleased to the
franchisee at a negotiated rent, generally equal to the greater
of a minimum base rent or a percentage of gross sales. The
franchisee is usually required to pay property taxes, insurance
and ancillary costs, and is responsible for maintaining the
image of the restaurant.
Qdoba Mexican Grill.
The current Qdoba franchise
agreement generally provides for an initial franchise fee of
$30,000 per restaurant, a
10-year
term
with a
10-year
option to extend at a fee of $5,000, and marketing fees of up to
2% of gross sales. Franchisees are also required to spend a
minimum of 2% of gross sales on local marketing for their
restaurants. Royalty rates are typically 5% of gross sales with
certain agreements at 2.5% as noted below. We offer development
agreements for the construction of one or more new restaurants
over a defined period of time and in a defined geographic area
for a development fee, a portion of which may be credited
against franchise fees due for restaurants to be opened in the
future. If the developer does not maintain the required schedule
of openings, they may forfeit such fees and lose their rights to
future development. In fiscal 2010, as an incentive to develop
target markets, we entered into two development agreements with
an initial franchise fee of $15,000 and a royalty rate of 2.5%
of gross sales for the first two years of operation for each
restaurant opened within the first two years of the development
agreement, subject to certain limitations. We may offer similar
development agreements in target markets during fiscal 2011.
Restaurant
Operations
Restaurant Management.
Restaurants are operated by a
company-employed manager or a franchisee who is directly
responsible for the operations of the restaurant, including
product quality, service, food safety, cleanliness, inventory,
cash control and the conduct and appearance of employees.
Restaurant managers are required to attend extensive management
training classes involving a combination of classroom
instruction and
on-the-job
training in specially designated training restaurants.
Restaurant managers and supervisory personnel train other
restaurant employees in accordance with detailed procedures and
guidelines using training aids available at each location. We
also use an interactive system of computer-based training
(“CBT”), with a touch-screen computer terminal at Jack
in the Box restaurants. The CBT technology incorporates audio,
video and text, all of which are updated via satellite. CBT is
also designed to reduce the administrative demands on restaurant
managers.
For company operations, division vice presidents supervise
regional directors, who supervise area coaches, who in turn
supervise restaurant managers. Under our performance system,
division vice presidents, regional directors, area coaches and
restaurant managers are eligible for periodic bonuses based on
achievement of goals related to location sales, profit
and/or
certain other operational performance standards.
Customer Satisfaction.
We devote significant
resources toward ensuring that all restaurants offer quality
food and good service. We place great emphasis on ensuring that
ingredients are delivered timely to the restaurants. Restaurant
food production systems are continuously developed and improved,
and we train our employees to deliver consistently good service.
Through our network of quality assurance, facilities services
and restaurant management personnel, we standardize
specifications for food preparation and service, employee
conduct and appearance, and the maintenance of our restaurant
premises. Operating specifications and procedures are documented
in on-line reference manuals and CBT modules. During fiscal
2010, most Jack in the Box restaurants received at least two
quality and food safety inspections. In addition, our
“Voice of the Guest” program provides restaurant
managers with guest surveys each period regarding their Jack in
the Box experience. In 2010, we received more than
1.2 million guest survey responses, in addition to
receiving guest feedback through our toll-free telephone number.
Also, we recently implemented a comprehensive, system-wide
program at Jack in the Box restaurants to improve guest service
by delivering a more consistent dining experience. Additional
resources are being committed to more closely measure how
restaurants are executing the key drivers of guest satisfaction,
including: food quality, accuracy, hassle free service,
friendliness, cleanliness and service times. The regional
director, area coach and restaurant manager receive the feedback
so they are able to take immediate action to correct any issues
and improve the guest experience in the restaurant.
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 franchise
restaurants. We maintain
6
Table of Contents
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, documented restaurant practices and
detailed attention to product quality at every stage of the food
preparation cycle. The U.S. Department of Agriculture
(“USDA”), Food and Drug Administration
(“FDA”) and the Center for Science in the Public
Interest have recognized our HACCP program as a leader in the
industry.
In addition, our HACCP system uses
ServSafe
®
,
a nationally recognized food-safety training and certification
program. Jack in the Box Inc. is a member of the International
Food Safety Council, a coalition of industry members of the
National Restaurant Association that have demonstrated a
corporate commitment to food safety. Our standards require that
all restaurant managers and grill employees receive special
grill certification training and be certified annually.
Purchasing
and Distribution
We provide purchasing, warehouse and distribution services for
all Jack in the Box company-operated restaurants, nearly 90% of
our Jack in the Box franchise-operated restaurants, and
approximately 45% of Qdoba’s company and franchise-operated
restaurants. The remaining Jack in the Box franchisees and Qdoba
restaurants purchase product from approved suppliers and
distributors. Some products, primarily dairy and bakery items,
are delivered directly by approved suppliers to both company and
franchise-operated restaurants. In 2009, we outsourced the
transportation services portion of our supply chain as a means
of reducing risks associated with the transportation business
without increasing our costs.
Regardless of whether we provide distribution services to a
restaurant or not, we require that all suppliers meet our strict
HACCP program standards, previously discussed. The primary
commodities purchased by our 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 we 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 can be made
available, upon short notice from alternative qualified
suppliers.
Information
Systems
Jack in the Box.
We have centralized financial and
accounting systems for company-operated restaurants. We believe
these systems are important in analyzing and improving profit
margins and accumulating marketing information. Our restaurant
satellite-enabled software allows for daily, weekly and monthly
polling of sales, inventory and labor data from the restaurants.
We use a standardized Windows-based touch screen
point-of-sale
(“POS”) platform in our Jack in the Box company and
franchise restaurants, which allows us to accept credit cards
and
JACK
CA$H
®
,
our re-loadable gift cards. We have contactless payment
technology throughout our system, which allows us to accept new
credit card types and to prepare for future innovation. We have
also developed business intelligence systems to provide
visibility to the key metrics in the operation of company and
franchise restaurants. Our interactive CBT system, previously
discussed, is the standard training tool for new hire training
and periodic workstation re-certifications. We have a labor
scheduling system to assist in managing labor hours based on
forecasted sales volumes. We also have a highly reliable
inventory management system, which enables timely deliveries to
our restaurants with excellent control over food safety. To
support order accuracy and speed of service, our drive-thru
restaurants use color order confirmation screens.
Qdoba.
Qdoba restaurants use POS software with touch
screens, accept debit and credit cards at all locations and use
back-of-the-restaurant
software to control purchasing, inventory, and food and labor
costs. These software products have been customized to meet
Qdoba’s operating standards.
Advertising
and Promotion
We build brand awareness through our marketing and advertising
programs and activities. These activities are supported
primarily by contractual contributions from all company and
franchise restaurants based on a percentage of sales. Activities
to advertise restaurant products, promote brand awareness and
attract customers include, but are not limited to, regional and
local campaigns on television, national cable television, radio
and print media, as well as Internet advertising on specific
sites and broad-reach Web portals.
7
Table of Contents
Employees
At October 3, 2010, we had approximately
29,300 employees, of whom 27,600 were restaurant employees,
1,000 were corporate personnel, 300 were distribution employees
and 400 were field management and administrative personnel.
Employees are paid on an hourly basis, except certain restaurant
managers, operations and corporate management, and certain
administrative personnel. We employ both full and part-time
restaurant employees in order to provide the flexibility
necessary during peak periods of restaurant operations.
We have not experienced any significant work stoppages and
believe our labor relations are good. Over the last several
years, we have realized improvements in our hourly restaurant
employee retention rate. We support our employees, including
part-time workers, by offering competitive wages and benefits.
Furthermore, we offer all hourly employees meeting certain
minimum service requirements access to health coverage,
including vision and dental benefits. As an additional incentive
to team members with more than a year of service, we will pay a
portion of their health insurance premiums. We also provide our
restaurant employees with a program called “Sed de
Saber” (Thirst for Knowledge), an electronic home study
program to assist Spanish-speaking restaurant employees in
improving their English skills. We believe these programs have
contributed to lower turnover, training costs and workers’
compensation claims.
Executive
Officers
The following table sets forth the name, age, position and years
with the Company of each person who is an executive officer of
Jack in the Box Inc. (as of October 3, 2010):
|
Years with the
|
||||||||||
| Name | Age | Positions |
Company
|
|||||||
|
Linda A. Lang
|
52 | Chairman of the Board, Chief Executive Officer and President | 23 | |||||||
|
Jerry P. Rebel
|
53 | Executive Vice President and Chief Financial Officer | 7 | |||||||
|
Phillip H. Rudolph
|
52 | Executive Vice President, General Counsel, Secretary, and Chief Ethics & Compliance Officer | 2 | |||||||
|
Leonard A. Comma
|
40 | Senior Vice President, Chief Operating Officer | 9 | |||||||
|
Terri F. Graham
|
45 | Senior Vice President, Chief Marketing Officer | 20 | |||||||
|
Charles E. Watson
|
55 | Senior Vice President, Chief Development Officer | 24 | |||||||
|
Mark H. Blankenship, Ph.D.
|
49 | Vice President, Human Resources | 13 | |||||||
|
Carol A. DiRaimo
|
49 | Vice President, Investor Relations and Corporate Communications | 2 | |||||||
|
Gary J. Beisler
|
54 | Chief Executive Officer and President, Qdoba Restaurant Corporation | 7 | |||||||
The following sets forth the business experience of each
executive officer for at least the last 5 years:
Ms. Lang has been Chairman of the Board and Chief Executive
Officer since October 2005, and became President in February
2010. She was President and Chief Operating Officer from
November 2003 to October 2005 and was Executive Vice President
from July 2002 to November 2003. From 1996 through July 2002,
Ms. Lang held officer-level positions with marketing or
operations responsibilities.
Mr. Rebel has been Executive Vice President and Chief
Financial Officer since October 2005. He was previously Senior
Vice President and Chief Financial Officer from January 2005 to
October 2005 and Vice President and Controller of the Company
from September 2003 to January 2005. Prior to joining the
Company in 2003, Mr. Rebel held senior level positions with
Fleming Companies, CVS Corporation and People’s Drugs
and has more than 20 years of corporate finance experience.
Mr. Rudolph has been Executive Vice President, General
Counsel, Corporate Secretary, and Chief Ethics &
Compliance Officer since February 2010. He was previously Senior
Vice President, General Counsel, Corporate Secretary and Chief
Ethics & Compliance Officer since November 2007. Prior
to joining the Company in November 2007, Mr. Rudolph was
Vice President and General Counsel for Ethical Leadership Group
of Wilmette, Ill. He was previously a Partner with Foley Hoag,
LLP, a Vice President and U.S. and International General
Counsel at McDonald’s Corporation, and a Partner with the
law firm of Gibson, Dunn & Crutcher, LLP.
Mr. Rudolph has more than 25 years of legal experience.
Mr. Comma became Senior Vice President and Chief Operating
Officer in February 2010. He was Vice President Operations
Division II from February 2007 to February 2010, Regional
Vice President of the Company’s Southern California region
from May 2006 to February 2007 and Director of
Convenience-Store & Fuel Operations for the
Company’s proprietary chain of Quick Stuff convenience
stores from August 2001 to May 2006.
8
Table of Contents
Ms. Graham has been Senior Vice President and Chief
Marketing Officer since September 2007. She was previously Vice
President and Chief Marketing Officer from December 2004 to
September 2007, Vice President of Marketing from May 2003 to
December 2004 and Vice President of Brand Communications and
Regional Marketing from July 2002 to May 2003. Ms. Graham
has 20 years of experience with the Company in various
marketing positions.
Mr. Watson has been Senior Vice President since September
2008 and Chief Development Officer since November 2007.
Mr. Watson served as Vice President, Restaurant Development
since rejoining the Company in April 1997. Mr. Watson has
24 years of experience with the Company in various
development and franchising positions.
Dr. Blankenship has been Vice President, Human Resources
since November 2009. He was previously Vice President, Human
Resources and Operational Services since October 2005. He was
Division Vice President, Human Resources from October 2001
to September 2005. Dr. Blankenship has more than
13 years experience with the Company in various human
resource and training positions. Effective the beginning of
fiscal 2011, he was promoted to Senior Vice President and Chief
Administrative Officer.
Ms. DiRaimo has been Vice President of Investor Relations
and Corporate Communications since July 2008. She previously
held various positions with Applebee’s International, Inc.,
including Vice President of Investor Relations from February
2004 to November 2007. Ms. DiRaimo has more than
27 years of corporate finance and public accounting
experience.
Mr. Beisler has been Chief Executive Officer of Qdoba
Restaurant Corporation since November 2000 and President since
January 1999. He was Chief Operating Officer from April 1998 to
December 1998.
Trademarks
and Service Marks
The Jack in the Box and Qdoba Mexican Grill names are of
material importance to us and each is a registered trademark and
service mark in the United States. In addition, we have
registered numerous service marks and trade names for use in our
businesses, including the Jack in the Box logo, the Qdoba logo
and various product names and designs.
Seasonality
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
population trends, traffic patterns, competitive changes in a
geographic area, changes in consumer dining habits and
preferences, new information regarding diet, nutrition and
health, and local and national economic conditions, including
unemployment levels, that affect consumer spending habits. Key
elements of competition in the industry are the type and quality
of the food products offered, price, quality and speed of
service, personnel, advertising, name identification, restaurant
location and attractiveness of the facilities.
Each Jack in the Box and Qdoba restaurant competes directly and
indirectly with a large number of national and regional
restaurant chains, as well as with locally-owned
and/or
independent restaurants in the quick-service and the fast-casual
segments. In selling franchises, we compete with many other
restaurant franchisors, some of whom have substantially greater
financial resources and higher total sales volume.
Regulation
Each restaurant is subject to regulation by federal agencies, as
well as licensing and regulation by state and local health,
sanitation, safety, fire, zoning, building and other
departments. Difficulties or failures in obtaining and
9
Table of Contents
maintaining any required permits, licensing or approval could
result in closures of existing restaurants or delays or
cancellations in the opening of new restaurants.
We are also subject to federal and state laws regulating the
offer and sale of franchises. Such laws impose registration and
disclosure requirements on franchisors in the offer and sale of
franchises, and may also apply substantive standards to the
relationship between franchisor and franchisee, including
limitations on the ability of franchisors to terminate
franchises and alter franchise arrangements.
We are subject to the federal Fair Labor Standards Act and
various state laws governing such matters as minimum wages,
exempt status classification, overtime, breaks and other working
conditions. A significant number of our food service personnel
are paid at rates based on the federal and state minimum wage
and, accordingly, increases in the minimum wage increase our
labor costs. Federal and state laws may also require us to
provide paid and unpaid leave to our employees, which could
result in significant additional expense to us.
We are subject to certain guidelines under the Americans with
Disabilities Act of 1990 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.
We are also subject to various federal, state and local laws
regulating the discharge of materials into the environment. The
cost of complying with these laws increases the cost of
operating existing restaurants and developing new restaurants.
Additional costs relate primarily to the necessity of obtaining
more land, landscaping, storm drainage control and the cost of
more expensive equipment necessary to decrease the amount of
effluent emitted into the air, ground and surface waters.
Many of our Qdoba restaurants sell alcoholic beverages, which
require licensing. The regulations governing licensing may
impose requirements on licensees including minimum age of
employees, hours of operation, advertising and handling of
alcoholic beverages. The failure of a Qdoba Mexican Grill
restaurant to obtain or retain a license could adversely affect
the store’s results of operations.
We have processes in place to monitor compliance with applicable
laws and regulations governing our operations.
Forward-Looking
Statements
From time to time, we make oral and written forward-looking
statements that reflect our current expectations regarding
future results of operations, economic performance, financial
condition and achievements of the Company. A forward-looking
statement is neither a prediction nor a guarantee of future
events. Whenever possible, we try to identify these
forward-looking statements by using words such as
“anticipate,” “assume,” “believe,”
“estimate,” “expect,” “forecast,”
“goals,” “guidance,” “intend,”
“plan,” “project,” “may,”
“will,” “would,” and similar expressions.
Certain forward-looking statements are included in this
Form 10-K,
principally in the sections captioned “Business,”
“Legal Proceedings,” “Consolidated Financial
Statements” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,”
including statements regarding our strategic plans and operating
strategies. Although we believe that the expectations reflected
in our forward-looking statements are based on reasonable
assumptions, such expectations may prove to be materially
incorrect due to known and unknown risks and uncertainties.
In some cases, information regarding certain important factors
that could cause actual results to differ materially from any
forward-looking statement appears together with such statement.
In addition, the factors described under “Risk
Factors” and “Critical Accounting Estimates,” as
well as other possible factors not listed, could cause actual
results
and/or
goals
to differ materially from those expressed in forward-looking
statements. As a result, investors should not place undue
reliance on such forward-looking statements, which speak only as
of the date of this report. The Company is under no obligation
to update forward-looking statements, whether as a result of new
information or otherwise.
10
Table of Contents
| ITEM 1A. | RISK FACTORS |
We caution you that our business and operations are subject to a
number of risks and uncertainties. The factors listed below are
important factors that could cause actual results to differ
materially from our historical results and from projections in
forward-looking statements contained in this report, in our
other filings with the Securities and Exchange Commission
(“SEC”), in our news releases and in oral statements
by our representatives. However, other factors that we do not
anticipate or that we do not consider significant based on
currently available information may also have an adverse effect
on our results.
Risks Related to the Food Service Industry.
Food
service businesses may be materially and adversely affected by
changes in consumer tastes, national and regional economic and
political conditions, and changes in consumer eating habits,
whether based on new information regarding diet, nutrition and
health, or otherwise. Recessionary economic conditions,
including higher levels of unemployment, lower levels of
consumer confidence and decreased consumer spending can reduce
restaurant traffic and sales and impose practical limits on
pricing. If recessionary economic conditions persist for an
extended period of time, consumers may make long-lasting changes
to their spending behavior. The performance of individual
restaurants may be adversely affected by factors such as traffic
patterns, demographics and the type, number and location of
competing restaurants, as well as local regulatory, economic and
political conditions, terrorist acts or government responses,
and catastrophic events such as earthquakes or other natural
disasters.
Multi-unit
food service businesses such as ours can also be materially and
adversely affected by widespread negative publicity of any type,
particularly regarding food quality, nutritional content,
illness or public health issues (such as epidemics or the
prospect of a pandemic), obesity, safety, injury or other health
concerns. Adverse publicity in these areas could damage the
trust customers place in our brand. We have taken steps to
mitigate each of these risks. To minimize the risk of foodborne
illness, we have implemented a HACCP system for managing food
safety and quality. Nevertheless, these risks cannot be
completely eliminated. Any outbreak of such illness attributed
to our restaurants or within the food service industry or any
widespread negative publicity regarding our brands or the
restaurant industry in general could cause a decline in our
sales and have a material adverse effect on our financial
condition and results of operations.
Unfavorable trends or developments concerning factors such as
inflation, increased cost of food, labor, fuel, utilities,
technology, insurance and employee benefits (including increases
in hourly wages, workers’ compensation and other insurance
costs and premiums), increases in the number and locations of
competing restaurants, regional weather conditions and the
availability of qualified, experienced management and hourly
employees, may also adversely affect the food service industry
in general. Because a significant number of our restaurants are
company-operated, we may have greater exposure to operating cost
issues than chains that are more heavily franchised. Exposure to
these fluctuating costs, including increases in commodity costs,
could negatively impact our margins. Our continued success will
depend in part on our ability to anticipate, identify and
respond to changing conditions.
Restaurant sales and profitability are traditionally higher in
the spring and summer months due to increased travel, improved
weather conditions and other factors which affect the
public’s dining habits. We cannot assure that our operating
results will not be impacted by seasonal fluctuations in sales.
Risks Associated with Severe Weather and Climate
Conditions.
Foodservice businesses such as ours can be
materially and adversely affected by severe weather conditions.
Severe storms, hurricanes, prolonged drought or protracted heat
waves and their aftermath, including flooding, mudslides or
wildfires, can result in (i) lost restaurant sales when
consumers stay home or are physically prevented from reaching
the restaurants; (ii) property damage and lost sales when
locations are forced to close for extended periods of time;
(iii) interruptions in supply when vendors suffer damages
or transportation is affected and (iv) increased costs if
agricultural capacity is diminished or if insurance recoveries
do not cover all our losses. If systemic or widespread adverse
changes in climate or weather patterns occur, we could
experience more of these losses, and such losses could have a
material effect on our results of operations and financial
condition.
Risks Associated with Suppliers.
Dependence on
frequent deliveries of fresh produce and other food products
subjects food service businesses such as ours to the risk that
shortages or interruptions in supply could adversely affect the
availability, quality and cost of ingredients or require us to
incur additional costs to obtain adequate
11
Table of Contents
supplies. Our deliveries of supplies may be affected by adverse
weather conditions, natural disasters, supplier financial or
solvency issues, product recalls, failure to meet our high
standards for quality or other issues.
Reliance on Certain Geographic Markets.
Because
approximately 57% of all of our restaurants are located in the
states of California and Texas, the economic conditions, state
and local laws, government regulations, weather conditions and
natural disasters affecting those states may have a material
impact upon our results. While there are reports pointing
towards U.S. economic recovery, many of our largest markets
continue to experience adverse economic conditions, including
higher levels of unemployment, lower levels of consumer
confidence and decreased consumer spending. If economic recovery
is slower and unemployment rates remain elevated, our sales
results may be adversely affected.
Risks Associated with Development.
We intend to grow
by developing additional company-owned restaurants and through
new restaurant development by franchisees. Development involves
substantial risks, including the risk of (i) the
availability of financing for the Company and for franchisees at
acceptable rates and terms, (ii) development costs
exceeding budgeted or contracted amounts, (iii) delays in
completion of construction, (iv) the inability to identify,
or the unavailability of suitable sites on acceptable leasing or
purchase terms, (v) developed properties not achieving
desired revenue or cash flow levels once opened, (vi) the
unpredicted negative impact of a new restaurant upon sales at
nearby existing restaurants, (vii) competition for suitable
development sites, (viii) incurring substantial
unrecoverable costs in the event a development project is
abandoned prior to completion, (ix) the inability to obtain
all required governmental permits, including, in appropriate
cases, liquor licenses, (x) changes in governmental rules,
regulations and interpretations (including interpretations of
the requirements of the Americans with Disabilities Act), and
(xi) general economic and business conditions.
Although we manage our development activities to reduce such
risks, we cannot assure you that present or future development
will perform in accordance with our expectations. 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 Related to Entering New Markets.
Our growth
strategy includes opening restaurants in markets where we have
no existing locations. We cannot assure you that we will be able
to successfully expand or acquire critical market presence for
our brands in new geographic 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 or attract new customers. Competitive circumstances and
consumer characteristics in new market segments and new
geographic markets may differ substantially from those in the
market segments and geographic markets in which we have
substantial experience. It may also be difficult for us to
recruit and retain qualified personnel to manage restaurants. We
cannot assure that company or franchise restaurants can be
operated profitably in new geographic markets. Management
decisions to curtail or cease investment in certain locations or
markets may result in impairment charges.
Competition.
The restaurant industry is highly
competitive with respect to price, service, location, personnel,
advertising, brand identification and the type and quality of
food. There are many well-established competitors. Each of
our restaurants competes directly and indirectly with a large
number of national and regional restaurant chains, as well as
with locally-owned
and/or
independent quick-service restaurants, fast-casual restaurants,
sandwich shops and similar types of businesses. The trend toward
convergence in grocery, deli and restaurant services may
increase the number of our competitors. Such increased
competition could decrease the demand for our products and
negatively affect our sales and profitability. Some of our
competitors have substantially greater financial, marketing,
operating and other resources than we have, which may give them
a competitive advantage. Certain of our competitors have
introduced a variety of new products and engaged in substantial
price discounting in the past, and may adopt similar strategies
in the future. Our promotional strategies or other actions
during unfavorable competitive conditions may adversely affect
our margins. We plan to take various steps in connection with
our on-going “brand re-invention” strategy, including
making improvements to the facility image at our restaurants,
introducing new, higher-quality products, discontinuing certain
menu items and implementing new service and training
initiatives. However, there can be no assurance (i) that
our facility improvements will foster increases in sales and
yield the desired return on investment; (ii) of the success
of our new products, initiatives or our overall strategies; or
(iii) that competitive product offerings, pricing and
promotions will not have an adverse effect upon our sales
results and financial condition. We have an on-going
“profit improvement program” which seeks to
12
Table of Contents
improve efficiencies and lower costs in all aspects of
operations. Although we have been successful in improving
efficiencies and reducing costs in the past, there is no
assurance that we will be able to continue to do so in the
future.
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, state and local
minimum wage rates increase, our labor costs will increase. If
competitive pressures or other factors prevent us from
offsetting the increased costs by increases in prices, our
profitability may decline. In addition, the Patient Protection
and Affordable Care Act (the healthcare reform act) passed by
Congress and signed into law in early 2010 imposes several new
and costly mandates upon us, including the requirement that we
offer health insurance to all full time employees beginning in
2014. It is our belief that our expenses incurred in providing
such insurance will be substantially higher than our current
expenses and could negatively affect our results of operations.
Risks Related to Advertising.
Some of our
competitors have greater financial resources, which enable them
to purchase significantly more television and radio advertising
than we are able to purchase. Should our competitors increase
spending on advertising and promotion, should the cost of
television or radio advertising increase or our advertising
funds decrease for any reason, including implementation of
reduced spending strategies, or should our advertising and
promotion be less effective than our competitors, there could be
a material adverse effect on our results of operations and
financial condition. Also, the trend toward fragmentation in the
media favored by our target consumers poses challenges and risks
for our marketing and advertising strategies. Failure to
effectively tackle these challenges and risks could also have a
materially adverse effect on our results.
Taxes.
Our income tax provision is sensitive to
expected earnings and, as those expectations change, our income
tax provisions may vary from
quarter-to-quarter
and
year-to-year.
In addition, from time to time, we may take positions for filing
our tax returns that differ from the treatment for financial
reporting purposes. The ultimate outcome of such positions could
have an adverse impact on our effective tax rate.
Risks Related to Achieving Increased Franchise Ownership and
Reducing Operating Costs.
At October 3, 2010,
approximately 57% of the Jack in the Box restaurants were
franchised. Our plan to increase the percentage of franchise
restaurants and move towards a level of franchise ownership more
closely aligned with that of the quick service restaurant
industry is subject to risks and uncertainties. We may not be
able to identify franchisee candidates with appropriate
experience and financial resources or to negotiate mutually
acceptable agreements with them. Our franchisee candidates may
not be able to obtain financing at acceptable rates and terms.
Current credit market conditions may slow the rate at which we
are able to refranchise. We may not be able to increase the
percentage of franchise restaurants at the rate we desire or
achieve the ownership mix of franchise to company-operated
restaurants that we desire. Our ability to sell franchises and
to realize gains from such sales is uncertain. Sales of our
franchises and the realization of gains from franchising may
vary from
quarter-to-quarter
and
year-to-year,
and may not meet expectations. We anticipate that our operating
costs will be reduced as the number of company-operated
restaurants decreases. The ability to reduce our operating costs
through increased franchise ownership is subject to risks and
uncertainties, and we may not achieve reductions in costs at the
rate we desire.
Risks Related to Franchise Operations.
The opening
and success of franchise restaurants depends on various factors,
including the demand for our franchises, the selection of
appropriate franchisee candidates, the availability of suitable
sites, the negotiation of acceptable lease or purchase terms for
new locations, permitting and regulatory compliance, the ability
to meet construction schedules, the availability of financing
and the financial and other capabilities of our franchisees and
developers. See “Risks Associated with Development”
and “Risks Related to Achieving Increased Franchise
Ownership and Reducing Operating Costs” above. We cannot
assure you that developers planning the opening of franchise
restaurants will have the business abilities or sufficient
access to financial resources necessary to open the restaurants
required by their agreements. As the number of franchisees
increases, our revenues derived from royalties and rents at
franchise restaurants will increase, as will the risk that
earnings could be negatively impacted by defaults in the payment
of royalties and rents. In addition, franchisee business
obligations may not be limited to the operation of Jack in the
Box restaurants, making them subject to business and financial
risks unrelated to the operation of our restaurants. These
unrelated risks could adversely affect a franchisee’s
ability to make payments to us or to make payments on a timely
basis. We cannot assure you that franchisees will successfully
participate in our strategic initiatives or operate their
restaurants in a manner consistent with our concept and
standards. There are significant risks to our business if a
franchisee, particularly one who
13
Table of Contents
operates a large number of restaurants, fails to adhere to our
standards and projects an image inconsistent with our brand.
Risks Related to Loss of Key Personnel.
We believe
that our success will depend, in part, on our ability to attract
and retain the services of skilled personnel, including key
executives. The loss of services of any such personnel could
have a material adverse effect on our business.
Risks Related to Government Regulations.
See also
“Item 1. Business — Regulation.” The
restaurant industry is subject to extensive federal, state and
local governmental regulations. The increasing amount and
complexity of regulations may increase both our costs of
compliance and our exposure to regulatory claims. We are subject
to regulations including but not limited to those related to:
| • | The preparation, labeling, advertising and sale of food; | |
| • | Building and zoning requirements; | |
| • | Employee healthcare (we are currently assessing the potential costs of new federal healthcare legislation); | |
| • | Health, sanitation and safety standards; | |
| • | Liquor licenses; | |
| • | Labor and employment, including our relationships with employees and work eligibility requirements; | |
| • | The registration, offer, sale, termination and renewal of franchises; | |
| • | Consumer protection and the security of information. The costs of compliance, including increased investment in technology in order to protect such information, may negatively impact our margins; | |
| • | Climate change, including the potential impact of greenhouse gases, water consumption, or a tax on carbon emissions. |
Risks Related to Computer Systems and Information
Technology.
We rely on computer systems and information
technology to conduct our business. A material failure or
interruption of service or a breach in security of our computer
systems could cause reduced efficiency in operations, loss of
data and business interruptions. Significant capital investment
could be required to rectify these problems. In addition, any
security breach involving our point of sale or other systems
could result in loss of consumer confidence and potential costs
associated with consumer fraud.
Risks Related to Interest Rates.
We have exposure to
changes in interest rates based on our financing, investing and
cash management activities. Changes in interest rates could
materially impact our profitability.
Risks Related to Availability of Credit.
To the
extent that banks in our revolving credit facility become
insolvent, this could limit our ability to borrow to the full
level of our facility.
Risks Related to the Failure of Internal
Controls.
We maintain a documented system of internal
controls, which is reviewed and monitored by an Internal Control
Committee and tested by the Company’s full time Internal
Audit Department. The Internal Audit Department reports to the
Audit Committee of the Board of Directors. We believe we have a
well-designed system to maintain adequate internal controls on
the business; however, we cannot be certain that our controls
will be adequate in the future or that adequate controls will be
effective in preventing errors or fraud. If our internal
controls are ineffective, we may not be able to accurately
report our financial results or prevent fraud. Any failures in
the effectiveness of our internal controls could have a material
adverse effect on our operating results or cause us to fail to
meet reporting obligations.
Environmental Risks and Regulations.
As is the case
with any owner or operator of real property, we are subject to a
variety of federal, state and local governmental regulations
relating to the use, storage, discharge, emission and disposal
of hazardous materials. Failure to comply with environmental
laws could result in the imposition of severe penalties or
restrictions on operations by governmental agencies or courts of
law, which could adversely affect operations. We have engaged
and may engage in real estate development projects and own or
lease several parcels of real estate on which our restaurants
are located. We are unaware of any significant hazards on
properties we own or have owned, or operate or have operated,
the remediation of which would result in material liability for
the Company. Accordingly, we do not have environmental liability
insurance, nor do we maintain a reserve to cover such events. 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
14
Table of Contents
warehouses and handle various petroleum substances and hazardous
substances, and we are not aware of any current material
liability related thereto.
Risks Related to Leverage.
The Company has a
$600 million credit facility, which is comprised of a
$400 million revolving credit facility and a
$200 million term loan. Increased leverage resulting from
borrowings under the credit facility could have certain material
adverse effects on the Company, including but not limited to the
following: (i) our ability to obtain additional financing
in the future for acquisitions, working capital, capital
expenditures and general corporate or other purposes could be
impaired, or any such financing may not be available on terms
favorable to us; (ii) a substantial portion of our cash
flows could be required for debt service and, as a result, might
not be available for our operations or other purposes;
(iii) any substantial decrease in net operating cash flows
or any substantial increase in expenses could make it difficult
for us to meet our debt service requirements or force us to
modify our operations or sell assets; (iv) our ability to
withstand competitive pressures may be decreased; and
(v) our level of indebtedness may make us more vulnerable
to economic downturns and reduce our flexibility in responding
to changing business, regulatory and economic conditions. Our
ability to repay expected borrowings under our credit facility
and to meet our other debt or contractual obligations (including
compliance with applicable financial covenants) will depend upon
our future performance and our cash flows from operations, both
of which are subject to prevailing economic conditions and
financial, business and other known and unknown risks and
uncertainties, certain of which are beyond our control.
Risks of Market Volatility.
Many factors affect the
trading price of our stock, including factors over which we have
no control, such as reports on the economy or the price of
commodities, as well as negative or positive announcements by
competitors, regardless of whether the report relates directly
to our business. In addition to investor expectations about our
prospects, trading activity in our stock can reflect the
portfolio strategies and investment allocation changes of
institutional holders and non-operating initiatives such as a
share repurchase program. Any failure to meet market
expectations whether for sales, growth rates, refranchising
goals, earnings per share or other metrics could cause our share
price to drop.
Risks of Changes in Accounting Policies and
Assumptions.
Changes in accounting standards, policies
or related interpretations by auditors or regulatory entities
may negatively impact our results. Many accounting standards
require management to make subjective assumptions and estimates,
such as those required for stock compensation, tax matters,
pension costs, litigation, insurance accruals and asset
impairment calculations. Changes in those underlying assumptions
and estimates could significantly change our results.
Litigation.
Like any public company, we are subject
to a wide variety of legal claims by employees, consumers,
franchisees, shareholders and others including potential class
action claims. The costs associated with the defense, settlement
and/or
potential judgments related to such claims could adversely
affect our results.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 2. | PROPERTIES |
The following table sets forth information regarding our Jack in
the Box and Qdoba restaurant properties as of October 3,
2010:
| Company-Operated | Franchised | Total | ||||||||||
|
Company-owned restaurant buildings:
|
||||||||||||
|
On company-owned land
|
101 | 131 | 232 | |||||||||
|
On leased land
|
500 | 330 | 830 | |||||||||
|
Subtotal
|
601 | 461 | 1,062 | |||||||||
|
Company-leased restaurant buildings on leased land
|
543 | 637 | 1,180 | |||||||||
|
Franchise directly-owned or directly-leased restaurant buildings
|
- | 489 | 489 | |||||||||
|
Total restaurant buildings
|
1,144 | 1,587 | 2,731 | |||||||||
Our leases generally provide for fixed rental payments (with
cost-of-living
index adjustments) plus real estate
15
Table of Contents
taxes, insurance and other expenses. In addition, less than 20%
of the leases provide for contingent rental payments between 1%
and 11% of the restaurant’s gross sales once certain
thresholds are met. We have generally been able to renew our
restaurant leases as they expire at then-current market rates.
The remaining terms of ground leases range from approximately
one year to 58 years, including optional renewal periods.
The remaining lease terms of our other leases range from
approximately one year to 47 years, including optional
renewal periods. At October 3, 2010, our restaurant leases
had initial terms expiring as follows:
| Number of Restaurants | ||||||||
|
Land and
|
||||||||
|
Ground
|
Building
|
|||||||
| Fiscal Year | Leases | Leases | ||||||
|
2011 – 2015
|
157 | 377 | ||||||
|
2016 – 2020
|
176 | 580 | ||||||
|
2021 – 2025
|
176 | 306 | ||||||
|
2026 and later
|
133 | 105 | ||||||
Our principal executive offices are located in San Diego,
California in an owned facility of approximately
150,000 square feet. We also own our 70,000 square
foot Innovation Center and approximately four acres of
undeveloped land directly adjacent to it. Qdoba’s corporate
support center is located in a leased facility in Wheat Ridge,
Colorado. We also lease seven distribution centers, with
remaining terms ranging from seven to 15 years, including
optional renewal periods.
| ITEM 3. | LEGAL PROCEEDINGS |
The Company is subject to normal and routine litigation. In the
opinion of management, based in part on the advice of legal
counsel, the ultimate liability from all pending legal
proceedings, asserted legal claims and known potential legal
claims should not materially affect our operating results,
financial position or liquidity.
16
Table of Contents
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information.
Our common stock is traded on
the Nasdaq Global Select Market under the symbol
“JACK.” The following table sets forth the high and
low sales prices for our common stock during the fiscal quarters
indicated, as reported on the New York Stock Exchange and
NASDAQ — Composite Transactions:
|
13 Weeks Ended
|
12 Weeks Ended |
16 Weeks Ended
|
||||||||||||||
| Oct. 3, 2010 | July 4, 2010 | Apr. 11, 2010 | Jan. 17, 2010 | |||||||||||||
|
High
|
$ | 22.54 | $ | 26.37 | $ | 25.04 | $ | 21.04 | ||||||||
|
Low
|
18.42 | 19.05 | 19.50 | 17.84 | ||||||||||||
| 12 Weeks Ended |
16 Weeks Ended
|
|||||||||||||||
| Sept. 27, 2009 | July 5, 2009 | Apr. 12, 2009 | Jan. 18, 2009 | |||||||||||||
|
High
|
$ | 23.87 | $ | 28.35 | $ | 25.78 | $ | 23.09 | ||||||||
|
Low
|
19.87 | 21.82 | 16.59 | 11.82 | ||||||||||||
Dividends.
We did not pay any cash or other
dividends during the last two fiscal years and do not anticipate
paying dividends in the foreseeable future. Our credit agreement
provides for $500 million for the potential payment of cash
dividends and stock repurchases, subject to certain limitations
based on our leverage ratio as defined in our credit agreement.
Stock Repurchases.
In November 2007, the Board
approved a program to repurchase up to $200 million in
shares of our common stock over three years expiring
November 9, 2010. As of October 3, 2010, the aggregate
remaining amount authorized and available under this program for
repurchase was $3.0 million. During fiscal 2010, we
repurchased 4.9 million shares for a total of
$97.0 million. The following table summarizes shares
repurchased pursuant to this program during the quarter ended
October 3, 2010:
|
(c)
|
||||||||||||||||
|
Total number
|
(d)
|
|||||||||||||||
|
of shares
|
Maximum dollar
|
|||||||||||||||
|
(a)
|
(b)
|
purchased as
|
value that may
|
|||||||||||||
|
Total number
|
Average
|
part of publicly
|
yet be purchased
|
|||||||||||||
|
of shares
|
price paid
|
announced
|
under
|
|||||||||||||
| purchased | per share | programs | these programs | |||||||||||||
| $ | 50,000,479 | |||||||||||||||
|
July 5, 2010 – August 1, 2010
|
- | - | - | 50,000,479 | ||||||||||||
|
August 2, 2010 – August 29, 2010
|
1,979,287 | $ | 19.82 | 1,979,287 | 10,718,098 | |||||||||||
|
August 30, 2010 – October 3, 2010
|
366,368 | 21.04 | 366,368 | 3,000,485 | ||||||||||||
|
Total
|
2,345,655 | $ | 20.01 | 2,345,655 | ||||||||||||
In November 2010, the Board of Directors approved a new program
to repurchase, within the next year, up to $100.0 million
in shares of our common stock.
Stockholders.
As of October 3, 2010, there were
638 stockholders of record.
Securities Authorized for Issuance Under Equity Compensation
Plans.
The following table summarizes the
17
Table of Contents
equity compensation plans under which Company common stock may
be issued as of October 3, 2010. Stockholders of the
Company approved all plans.
|
(b) Weighted-
|
||||||||||||
|
average
|
(c) Number of securities
|
|||||||||||
|
(a) Number of securities to
|
exercise price
|
remaining for future issuance
|
||||||||||
|
be issued upon exercise of
|
of
|
under equity compensation
|
||||||||||
|
outstanding options, warrants
|
outstanding
|
plans (excluding securities
|
||||||||||
| and rights (1) | options (1) | reflected in column (a))(2) | ||||||||||
|
Equity compensation plans
approved by security holders (3) |
5,503,369 | $ | 21.81 | 2,371,672 | ||||||||
| (1) | Includes shares issuable in connection with our outstanding stock options, performance-vested stock awards, nonvested stock awards and units, and non-management director deferred stock equivalents. The weighted-average exercise price in column (b) includes the weighted-average exercise price of stock options only. | |
| (2) | Includes 143,072 shares that are reserved for issuance under our Employee Stock Purchase Plan. | |
| (3) | For a description of our equity compensation plans, refer to Note 12, Share-Based Employee Compensation , of the notes to the consolidated financial statements. |
Performance Graph.
The following graph compares the
cumulative return to holders of the Company’s common stock
at September 30th of each year (except 2010 when the
comparison date is October 3 due to the fifty-third week in
fiscal 2010) to the yearly weighted cumulative return of a
Restaurant Peer Group Index and to the Standard &
Poor’s (“S&P”) 500 Index for the same period.
The below comparison assumes $100 was invested on
September 30, 2005 in the Company’s common stock and
in the comparison group and assumes reinvestment of dividends.
The Company paid no dividends during these periods.
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||
|
Jack in the Box Inc.
|
$ | 100 | $ | 174 | $ | 217 | $ | 141 | $ | 137 | $ | 144 | ||||||||||||||||||
|
S&P 500 Index
|
$ | 100 | $ | 111 | $ | 129 | $ | 101 | $ | 94 | $ | 103 | ||||||||||||||||||
|
Restaurant Peer Group (1)
|
$ | 100 | $ | 121 | $ | 141 | $ | 138 | $ | 143 | $ | 193 | ||||||||||||||||||
| (1) | Jack in the Box Inc. Restaurant Peer Group Index is comprised of the following companies: Brinker International, Inc.; Cracker Barrel Old Country Store, Inc.; Darden Restaurants Inc.; DineEquity, Inc.; McDonalds Corp.; Panera Bread Company; PF Chang’s China Bistro Inc.; Ruby Tuesday, Inc.; Sonic Corp.; Starbucks Corp.; The Cheesecake Factory Inc.; and Yum! Brands Inc. |
18
Table of Contents
| ITEM 6. | SELECTED FINANCIAL DATA |
Our fiscal year is 52 or 53 weeks, ending the Sunday
closest to September 30. All years presented include
52 weeks, except for 2010 which includes 53 weeks. The
selected financial data reflects Quick Stuff as discontinued
operations for fiscal years 2006 through 2009. The following
selected financial data of Jack in the Box Inc. for each fiscal
year was extracted or derived from our audited financial
statements.
| Fiscal Year | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||
|
Statements of Earnings Data:
|
||||||||||||||||||||
|
Total revenues
|
$ | 2,297,531 | $ | 2,471,096 | $ | 2,539,561 | $ | 2,513,431 | $ | 2,381,244 | ||||||||||
|
Total operating costs and expenses
|
2,230,609 | 2,318,470 | 2,390,022 | 2,334,526 | 2,244,383 | |||||||||||||||
|
Gains on the sale of company-operated
restaurants, net |
(54,988 | ) | (78,642 | ) | (66,349 | ) | (38,091 | ) | (40,464 | ) | ||||||||||
|
Total operating costs and expenses, net
|
2,175,621 | 2,239,828 | 2,323,673 | 2,296,435 | 2,203,919 | |||||||||||||||
|
Earnings from operations
|
121,910 | 231,268 | 215,888 | 216,996 | 177,325 | |||||||||||||||
|
Interest expense, net
|
15,894 | 20,767 | 27,428 | 23,335 | 12,056 | |||||||||||||||
|
Income taxes
|
35,806 | 79,455 | 70,251 | 68,982 | 58,845 | |||||||||||||||
|
Earnings from continuing operations
|
$ | 70,210 | $ | 131,046 | $ | 118,209 | $ | 124,679 | $ | 106,424 | ||||||||||
|
Earnings per Share and Share Data:
|
||||||||||||||||||||
|
Earnings per share from continuing operations:
|
||||||||||||||||||||
|
Basic
|
$ | 1.27 | $ | 2.31 | $ | 2.03 | $ | 1.91 | $ | 1.52 | ||||||||||
|
Diluted
|
$ | 1.26 | $ | 2.27 | $ | 1.99 | $ | 1.85 | $ | 1.48 | ||||||||||
|
Weighted-average shares outstanding – Diluted (1)
|
55,843 | 57,733 | 59,445 | 67,263 | 71,834 | |||||||||||||||
|
Market price at year-end
|
$ | 21.47 | $ | 20.07 | $ | 22.06 | $ | 32.42 | $ | 26.09 | ||||||||||
|
Other Operating Data:
|
||||||||||||||||||||
|
Jack in the Box restaurants:
|
||||||||||||||||||||
|
Company-operated average unit volume (3)
|
$ | 1,297 | $ | 1,420 | $ | 1,439 | $ | 1,430 | $ | 1,358 | ||||||||||
|
Change in company-operated same-store sales (4)
|
(8.6 | )% | (1.2 | )% | 0.2% | 6.1% | 4.8% | |||||||||||||
|
Change in franchise-operated same-store sales (4)
|
(7.8 | )% | (1.3 | )% | 0.1% | 5.3% | 3.5% | |||||||||||||
|
Change in system same-store sales (4)
|
(8.2 | )% | (1.3 | )% | 0.2% | 5.8% | 4.5% | |||||||||||||
|
Qdoba restaurants:
|
||||||||||||||||||||
|
System average unit volume (3)
|
$ | 923 | $ | 905 | $ | 946 | $ | 953 | $ | 933 | ||||||||||
|
Change in system same-store sales(4)
|
2.8% | (2.3 | )% | 1.6% | 4.6% | 5.9% | ||||||||||||||
|
SG&A rate
|
10.6% | 10.5% | 10.4% | 11.6% | 12.5% | |||||||||||||||
|
Capital expenditures related to continuing operations
|
$ | 95,610 | $ | 153,500 | $ | 178,605 | $ | 148,508 | $ | 135,022 | ||||||||||
|
Balance Sheet Data (at end of period):
|
||||||||||||||||||||
|
Total assets
|
$ | 1,407,092 | $ | 1,455,910 | $ | 1,498,418 | $ | 1,374,690 | $ | 1,513,499 | ||||||||||
|
Long-term debt
|
352,630 | 357,270 | 516,250 | 427,516 | 254,231 | |||||||||||||||
|
Stockholders’ equity (2)
|
520,463 | 524,489 | 457,111 | 409,585 | 706,633 | |||||||||||||||
| (1) | Weighted-average shares reflect the impact of common stock repurchases under Board-approved programs. | |
| (2) | Fiscal 2007 includes a reduction in stockholders’ equity of $363.4 million related to shares repurchased and retired during the year. | |
| (3) | 2010 average unit volume is adjusted to exclude the 53 rd week for the purpose of comparison to prior years. | |
| (4) | Same-store sales, sales growth and average unit volume presented on a system-wide basis include company and franchise restaurants. Franchise sales represent sales at all franchise restaurants and are revenues to our franchisees. We do not record franchise sales as revenues; however, our royalty revenues are calculated based on a percentage of franchise sales. We believe franchise and system sales growth information is useful to investors as a significant indicator of the overall strength of our business as it incorporates our significant revenue drivers which are company and franchise same-store sales as well as net unit development. Company, franchise and system same-store sales growth includes the results of all restaurants that have been open more than one year. |
19
Table of Contents
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
GENERAL
For an understanding of the significant factors that influenced
our performance during the past three fiscal years, we believe
our Management’s Discussion and Analysis of Financial
Condition and Results of Operations (“MD&A”)
should be read in conjunction with the Consolidated Financial
Statements and related Notes included in this Annual Report as
indexed on
page F-1.
Comparisons under this heading refer to the 53-week period ended
October 3, 2010 and the 52-week periods ended
September 27, 2009 and September 28, 2008 for 2010,
2009 and 2008, respectively, unless otherwise indicated.
Our MD&A consists of the following sections:
| • | Overview — a general description of our business, the quick-service dining segment of the restaurant industry and fiscal 2010 highlights. | |
| • | Financial reporting — a discussion of changes in presentation. | |
| • | Results of operations — an analysis of our consolidated statements of earnings for the three years presented in our consolidated financial statements. | |
| • | Liquidity and capital resources — an analysis of cash flows including capital expenditures, aggregate contractual obligations, share repurchase activity, known trends that may impact liquidity, and the impact of inflation. | |
| • | Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates. | |
| • | Future application of accounting principles — a discussion of new accounting pronouncements, dates of implementation and impact on our consolidated financial position or results of operations, if any. |
OVERVIEW
Our primary source of revenue is from retail sales at Jack in
the Box and Qdoba company-operated restaurants. We also derive
revenue from Jack in the Box and Qdoba franchise restaurants,
including royalties (based upon a percent of sales), rents,
franchise fees and distribution sales of food and packaging
commodities. In addition, we recognize gains from the sale of
company-operated restaurants to franchisees, which are presented
as a reduction of operating costs and expenses, net in the
accompanying consolidated statements of earnings.
The quick-service restaurant industry is complex and
challenging. Challenges currently facing the sector include
higher levels of consumer expectations, intense competition with
respect to market share, restaurant locations, labor, menu and
product development, changes in the economy, including the
current recessionary environment, high rates of unemployment,
costs of commodities and trends for healthier eating.
The following summarizes the most significant events occurring
in fiscal 2010 and certain trends compared to prior years:
| • | Restaurant Sales. Sales at Jack in the Box company-operated restaurants open more than one year (“same-store sales”) decreased 8.6% in fiscal 2010 and 1.2% in 2009. Same-store sales at franchise-operated restaurants decreased 7.8% in fiscal 2010 and 1.3% in 2009. System same-store sales at Qdoba increased 2.8% versus a decrease of 2.3% last fiscal year. Sales at Jack in the Box restaurants continue to be impacted by high unemployment rates in our major markets for our key customer demographics. | |
| • | Commodity Costs. Pressures from higher commodity costs, which negatively impacted our business in fiscal 2009, moderated somewhat in 2010. Overall commodity costs at Jack in the Box restaurants decreased approximately 1.4% after increasing approximately 2.0% in 2009, as lower costs for beef, shortening, poultry and bakery were partially offset by higher costs for produce and pork. |
20
Table of Contents
| • | Restaurant Closures. In the fourth quarter, we closed 40 underperforming Jack in the Box restaurants located primarily in the Southeast and Texas resulting in a charge of $18.5 million, net of taxes, or $0.33 per diluted share. These closures are expected to have a positive impact on future earnings and cash flows. | |
| • | New Unit Development. We continued to grow our brands with the opening of new company-operated and franchise restaurants. In 2010, we opened 46 Jack in the Box locations, including several in our newer markets, and 36 Qdoba locations. | |
| • | Franchising Program. We refranchised 219 Jack in the Box restaurants, while Qdoba and Jack in the Box franchisees opened 37 restaurants in 2010. We remain on track to achieve our goal to increase the percentage of franchise ownership in the Jack in the Box system to 70-80% by the end of fiscal year 2013, and we ended fiscal 2010 at 57% franchised. | |
| • | Credit Facility. During 2010, we entered into a new credit agreement consisting of a $400 million revolving credit facility and a $200 million term loan, both with a five-year maturity. | |
| • | Share Repurchases. Pursuant to a share repurchase program authorized by our Board of Directors, we repurchased 4.9 million shares of our common stock at an average price of $19.71 per share. |
FINANCIAL
REPORTING
In 2010, we separated impairment and other charges, net from
selling, general and administrative expenses in our consolidated
statements of earnings. Prior year amounts have been
reclassified to conform to this new presentation.
The results of operations and cash flows for Quick Stuff, which
was sold in 2009, are reflected as discontinued operations for
all periods presented. Refer to Note 2,
Discontinued
Operations
, in the notes to our consolidated financial
statements for more information.
RESULTS
OF OPERATIONS
The following table presents certain income and expense items
included in our consolidated statements of earnings as a
percentage of total revenues, unless otherwise indicated:
| Fiscal Year | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Revenues:
|
||||||||||||
|
Company restaurant sales
|
72.6% | 80.0% | 82.8% | |||||||||
|
Distribution sales
|
17.3% | 12.2% | 10.8% | |||||||||
|
Franchise revenues
|
10.1% | 7.8% | 6.4% | |||||||||
|
Total revenues
|
100.0% | 100.0% | 100.0% | |||||||||
|
Total operating costs and expenses, net:
|
||||||||||||
|
Company restaurant costs:
|
||||||||||||
|
Food and packaging (1)
|
31.8% | 32.4% | 33.3% | |||||||||
|
Payroll and employee benefits(1)
|
30.3% | 29.7% | 29.7% | |||||||||
|
Occupancy and other (1)
|
23.9% | 21.7% | 20.9% | |||||||||
|
Total company restaurant costs (1)
|
85.9% | 83.8% | 83.9% | |||||||||
|
Distribution costs (1)
|
100.4% | 99.6% | 99.3% | |||||||||
|
Franchise costs (1)
|
45.4% | 40.6% | 39.9% | |||||||||
|
Selling, general and administrative expenses
|
10.6% | 10.5% | 10.4% | |||||||||
|
Impairment and other charges, net
|
2.1% | 0.9% | 0.9% | |||||||||
|
Gains on the sale of company-operated restaurants, net
|
(2.4)% | (3.2)% | (2.6)% | |||||||||
|
Earnings from operations
|
5.3% | 9.4% | 8.5% | |||||||||
|
Income tax rate (2)
|
33.8% | 37.7% | 37.3% | |||||||||
| (1) | As a percentage of the related sales and/or revenues. | |
| (2) | As a percentage of earnings from continuing operations and before income taxes. |
21
Table of Contents
Revenues
As we execute our refranchising strategy, which includes the
sale of restaurants to franchisees, we expect the number of
company-operated restaurants and the related sales to
continually decrease while revenues from franchise restaurants
increase. Company restaurant sales decreased $307.3 million
in 2010 and $125.7 million in 2009 compared with the prior
years. The decrease in restaurant sales in both years is due
primarily to decreases in the average number of Jack in the Box
company-operated restaurants and declines in same-store sales at
Jack in the Box restaurants, partially offset by an increase in
the number of Qdoba company-operated restaurants and, in 2010,
additional sales of $28.9 million from a 53rd week.
The following table presents the approximate impact of these
increases and decreases on restaurant sales (
dollars in
millions
):
| Increase/(Decrease) | ||||||||
| 2010 vs 2009 | 2009 vs 2008 | |||||||
|
Reduction in the average number of company-operated restaurants
|
$ | (176.6) | $ | (85.5) | ||||
|
Jack in the Box same-store sales declines
|
(156.1) | (27.4) | ||||||
|
53rd week
|
28.9 | - | ||||||
|
Other
|
(3.5) | (12.8) | ||||||
|
Total change in restaurant sales
|
$ | (307.3) | $ | (125.7) | ||||
Same-store sales at Jack in the Box restaurants declined 8.6% in
2010 and 1.2% in 2009. The average check decreased 1.5% in 2010
and increased 1.8% in 2009, including the impact of price
increases of approximately 1.7% and 2.8%, respectively. The 2010
decline reflects unfavorable product mix changes, promotions and
discounting. Sales continue to be impacted by high unemployment
rates in our major markets.
Distribution sales to Jack in the Box and Qdoba franchisees grew
$95.8 million in 2010 and $26.9 million in 2009
compared with the prior year. The increase in distribution sales
in both years primarily relates to an increase in the number of
Jack in the Box and Qdoba franchise restaurants serviced by our
distribution centers, which contributed additional sales of
approximately $108.4 million and $39.6 million in 2010
and 2009, respectively, and were partially offset by lower per
store average (“PSA”) volumes in both years. The
increase in 2010 also includes sales of approximately
$11.2 million from the 53rd week.
Franchise revenues increased $37.9 million and
$30.4 million in 2010 and 2009, respectively, primarily
reflecting an increase in the average number of Jack in the Box
franchise restaurants and, in 2010, additional revenues of
$4.6 million from a 53rd week, offset in part by a
decline in same-store sales at Jack in the Box franchise
restaurants. The increase in the average number of restaurants
due to refranchising activity contributed additional royalties,
rents and fees of approximately $39.0 million and
$31.2 million in 2010 and 2009, respectively. The following
table reflects the detail of our franchise revenues in each year
and other information we believe is useful in analyzing the
change in franchise revenues (
dollars in thousands
):
| 2010 | 2009 | 2008 | ||||||||||
|
Royalties
|
$ | 91,216 | $ | 79,690 | $ | 68,811 | ||||||
|
Rents
|
128,143 | 103,784 | 86,310 | |||||||||
|
Re-image contributions to franchisees
|
(1,455) | (3,700) | (2,100) | |||||||||
|
Franchise fees and other
|
13,123 | 13,345 | 9,739 | |||||||||
|
Franchise revenues
|
$ | 231,027 | $ | 193,119 | $ | 162,760 | ||||||
|
% change
|
19.6% | 18.7% | 16.4% | |||||||||
|
Average number of franchised restaurants
|
1,424 | 1,215 | 1,068 | |||||||||
|
% change
|
17.2% | 13.8% | ||||||||||
|
Change in Jack in the Box franchise-operated same-store sales
|
(7.8)% | (1.3)% | 0.1% | |||||||||
|
Royalties as a percentage of estimated franchised restaurant
sales:
|
||||||||||||
|
Jack in the Box
|
5.3% | 5.3% | 5.1% | |||||||||
|
Qdoba
|
5.0% | 5.0% | 5.0% | |||||||||
22
Table of Contents
Operating
Costs and Expenses
Food and packaging costs decreased to 31.8% of company
restaurant sales in 2010 from 32.4% in 2009 and 33.3% in 2008.
In 2010, lower commodity costs (including beef, shortening,
poultry and bakery), margin improvement initiatives and modest
selling price increases more than offset the impact of
unfavorable product mix and promotions. The decline in 2009
included the benefit of selling price increases, favorable
product mix changes and margin improvement initiatives, offset
in part by commodity cost increases of approximately 2.0%.
Payroll and employee benefit costs were 30.3% of company
restaurant sales in 2010 and 29.7% in 2009 and 2008. The
increase in 2010 reflects the impact of same-store sales
deleverage and higher workers’ compensation costs of
approximately 50 basis points, which more than offset the
benefits derived from our labor productivity initiatives.
Workers’ compensation costs have increased as the cost per
claim is trending higher although the number of claims is lower.
In 2009 labor productivity initiatives offset minimum wage
increases.
Occupancy and other costs were 23.9% of company restaurant sales
in 2010, 21.7% in 2009 and 20.9% in 2008. The higher percentage
in 2010 is due primarily to sales deleverage and higher
depreciation from the ongoing re-image program at Jack in the
Box, which were partially offset by lower utilities expense. The
increase in 2009 was due primarily to higher depreciation
expense related to the Jack in the Box re-image program and a
kitchen enhancement project completed in 2008, higher rent and
depreciation related to new restaurant development at Qdoba and
sales deleverage at Jack in the Box and Qdoba restaurants, which
were partially offset by lower utility costs.
Distribution costs increased to $399.7 million in 2010 from
$300.9 million in 2009 and $273.4 million in 2008,
primarily reflecting increases in the related sales. These costs
increased to 100.4% of distribution sales in 2010, compared with
99.6% in 2009 and 99.3% in 2008, due primarily to deleverage
from lower PSA sales at Jack in the Box franchise restaurants.
Franchise costs, principally rents and depreciation on
properties leased to Jack in the Box franchisees, increased
$26.4 million in 2010 and $13.4 million in 2009, due
primarily to an increase in the number of franchise restaurants
that sublease property from us as a result of our refranchising
activities. Franchise costs increased to 45.4% of the related
revenues in 2010 from 40.6% in 2009 and 39.9% in 2008 primarily
due to revenue deleverage from lower sales at franchised
restaurants and higher PSA rent and depreciation expense.
The following table presents the change in selling, general and
administrative (“SG&A”) expenses in each period
compared with the prior year (
in thousands
):
| Increase/(Decrease) | ||||||||
| 2010 vs 2009 | 2009 vs 2008 | |||||||
|
Advertising
|
$ | (11,689 | ) | $ | (6,807 | ) | ||
|
Refranchising strategy
|
(14,818 | ) | 4,217 | |||||
|
Severance
|
(1,366 | ) | 2,079 | |||||
|
Incentive compensation
|
(6,062 | ) | (25 | ) | ||||
|
Cash surrender value of COLI policies, net
|
(2,954 | ) | (2,731 | ) | ||||
|
Pension and postretirement benefits
|
17,632 | (2,190 | ) | |||||
|
Hurricane Ike insurance proceeds
|
(4,223 | ) | - | |||||
|
Pre-opening
|
(1,540 | ) | 1,861 | |||||
|
53rd week
|
3,597 | - | ||||||
|
Other
|
4,114 | (540 | ) | |||||
| $ | (17,309 | ) | $ | (4,136 | ) | |||
Our refranchising strategy has resulted in a decrease in the
number of company-operated restaurants and the related overhead
expenses to manage and support those restaurants. Advertising
costs, primarily contributions to our marketing fund that are
generally determined as a percentage of company restaurant
sales, decreased reflecting our refranchising strategy and lower
PSA sales at Jack in the Box company-operated restaurants, and
were partially offset by incremental Company contributions of
approximately $6.5 million in 2010. The decrease in
incentive compensation in 2010 reflects the decrease in the
Company’s performance. Changes in the cash surrender value
of our COLI policies, net of changes in our non-qualified
deferred compensation obligation supported by these policies are
subject to market fluctuations. The market adjustments of the
investments include a net benefit of
23
Table of Contents
$2.7 million in 2010 compared with negative impacts of
$0.3 million in 2009 and $3.0 million in 2008. The
increase in pension and postretirement benefits expense in 2010
principally relates to a decrease in our discount rate. The
fluctuations in pre-opening costs primarily relate to changes in
the number of new Jack in the Box restaurants opened which
decreased to 30 locations in 2010, compared with 43 in 2009 and
23 in 2008.
Impairment and other charges, net is comprised of the following
(in thousands)
:
| 2010 | 2009 | 2008 | ||||||||||
|
Impairment
|
$ | 12,970 | $ | 6,586 | $ | 3,507 | ||||||
|
Losses on disposition of property and equipment, net
|
10,757 | 11,418 | 17,373 | |||||||||
|
Costs of closed restaurants (primarily lease obligations)
|
22,262 | 2,080 | (21 | ) | ||||||||
|
Other
|
2,898 | 1,930 | 1,898 | |||||||||
| $ | 48,887 | $ | 22,014 | $ | 22,757 | |||||||
Impairment and other charges, net increased $26.9 million
in 2010 and decreased slightly in 2009 compared to the prior
years. The increase in 2010 is due primarily to the closure of
40 underperforming Jack in the Box restaurants in the fourth
quarter of the fiscal year. The decision to close these
restaurants was based on a comprehensive analysis performed that
took into consideration levels of return on investment and other
key operating performance metrics. In connection with these
closures, we recorded a total charge of $28.0 million which
included property and equipment impairment charges of
$8.4 million and $19.0 million related to future lease
commitments.
Gains on the sale of company-operated restaurants to
franchisees, net are detailed in the following table (
dollars
in thousands
):
| 2010 | 2009 | 2008 | ||||||||||
|
Number of restaurants sold to franchisees
|
219 | 194 | 109 | |||||||||
|
Gains on the sale of company-operated restaurants
|
$ | 54,988 | $ | 81,013 | $ | 66,349 | ||||||
|
Loss on expected sale of underperforming market
|
- | (2,371 | ) | - | ||||||||
|
Gains on the sale of company-operated restaurants, net
|
$ | 54,988 | $ | 78,642 | $ | 66,349 | ||||||
|
Average gain on restaurants sold
|
$ | 251 | $ | 418 | $ | 609 | ||||||
Gains were impacted by the number of restaurants sold and
changes in average gains recognized, which relate to the
specific sales and cash flows of those restaurants. In 2009,
gains on the sale of company-operated restaurants to
franchisees, net included a loss of $2.4 million relating
to the anticipated sale of a lower performing Jack in the Box
market.
Interest
Expense, Net
Interest expense, net is comprised of the following (
in
thousands
):
| 2010 | 2009 | 2008 | ||||||||||
|
Interest expense
|
$ | 17,011 | $ | 22,155 | $ | 28,070 | ||||||
|
Interest income
|
(1,117 | ) | (1,388 | ) | (642 | ) | ||||||
|
Interest expense, net
|
$ | 15,894 | $ | 20,767 | $ | 27,428 | ||||||
Interest expense, net decreased $4.9 million in 2010 and
$6.7 million in 2009 due primarily to lower average
interest rates. In 2010, lower average borrowings, partially
offset by a $0.5 million charge to write off deferred
financing fees in connection with the refinancing of our credit
facility, also contributed to the decrease. In 2009, higher
average borrowings partially offset the impact of lower interest
rates.
Income
Taxes
The income tax provisions reflect effective tax rates of 33.8%,
37.7% and 37.3% of pretax earnings from continuing operations in
2010, 2009 and 2008, respectively. The lower tax rate in 2010 is
largely attributable to the impact of impairment and other
charges, higher work opportunity tax credits and the market
performance of insurance investment products used to fund
certain non-qualified retirement plans. Changes in the cash
value of the insurance products are not included in taxable
income.
24
Table of Contents
Earnings
from Continuing Operations
Earnings from continuing operations were $70.2 million, or
$1.26 per diluted share, in 2010; $131.0 million, or $2.27
per diluted share, in 2009; and $118.2 million, or $1.99
per diluted share, in 2008. We estimate that the extra
53rd week benefitted net earnings by approximately
$1.8 million, or $0.03 per diluted share, in fiscal 2010.
Earnings
from Discontinued Operations, Net
As described in the “Financial Reporting” section,
Quick Stuff’s results of operations have been reported as
discontinued operations. In 2009, the loss from discontinued
operations, net was $12.6 million, reflecting the
$15.0 million net of tax loss from the sale of Quick Stuff
in the fourth quarter. Earnings from discontinued operations,
net were $1.1 million in 2008.
LIQUIDITY
AND CAPITAL RESOURCES
General.
Our primary sources of short-term
and long-term liquidity are expected to be cash flows from
operations, the revolving bank credit facility, the sale of
company-operated restaurants to franchisees and the sale and
leaseback of certain restaurant properties.
Our cash requirements consist principally of:
| • | working capital; | |
| • | capital expenditures for new restaurant construction and restaurant renovations; | |
| • | income tax payments; | |
| • | debt service requirements; and | |
| • | obligations related to our benefit plans. |
Based upon current levels of operations and anticipated growth,
we expect that cash flows from operations, combined with other
financing alternatives in place or available, will be sufficient
to meet our capital expenditure, working capital and debt
service requirements for the foreseeable future.
As is common in the restaurant industry, we maintain relatively
low levels of accounts receivable and inventories and our
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. As a result, we typically maintain current liabilities
in excess of current assets, which results in a working capital
deficit.
Cash and cash equivalents decreased $42.4 million to
$10.6 million at October 3, 2010 from
$53.0 million at the beginning of the fiscal year. This
decrease is primarily due to repurchases of common stock, net
repayments under our credit facility, and property and equipment
expenditures. These uses of cash were offset in part by proceeds
from the sale and leaseback of restaurant properties, cash flows
provided by operating activities, and proceeds and collections
of notes receivable from the sale of restaurants to franchisees.
We generally reinvest available cash flows from operations to
develop new restaurants or enhance existing restaurants, to
reduce debt and to repurchase shares of our common stock.
25
Table of Contents
Cash Flows.
The table below summarizes our
cash flows from operating, investing and financing activities
for each of the past three fiscal years
(in thousands)
.
| 2010 | 2009 | 2008 | ||||||||||
|
Total cash provided by (used in):
|
||||||||||||
|
Operating activities:
|
||||||||||||
|
Continuing operations
|
$ | 64,038 | $ | 147,324 | $ | 167,035 | ||||||
|
Discontinued operations
|
(2,172 | ) | 1,426 | 5,349 | ||||||||
|
Investing activities:
|
||||||||||||
|
Continuing operations
|
19,173 | (71,607 | ) | (132,406 | ) | |||||||
|
Discontinued operations
|
- | 30,648 | (1,964 | ) | ||||||||
|
Financing activities
|
(123,434 | ) | (102,673 | ) | (5,832 | ) | ||||||
|
Increase (decrease) in cash and cash equivalents
|
$ | (42,395 | ) | $ | 5,118 | $ | 32,182 | |||||
Operating Activities
. Operating cash flows from
continuing operations decreased $83.3 million in 2010
compared with 2009 due primarily to the timing of working
capital receipts and disbursements and a decrease in cash flows
related to higher company restaurant costs, our refranchising
strategy and same-store sales declines at our Jack in the Box
restaurants. In 2009, cash flows from continuing operations
decreased $19.7 million compared with 2008 due to a
decrease in earnings from continuing operations adjusted for
non-cash items, partially offset by fluctuations due to the
timing of working capital receipts and disbursements. Operating
cash flows from our discontinued operations were not material to
our consolidated statements of cash flows for all fiscal years
presented.
Investing Activities
. Investing activity cash flows
from continuing operations increased $90.8 million in 2010
compared with 2009. This increase is primarily due to an
increase in the number of sites that we sold and leased back and
lower spending for purchases of property and equipment,
partially offset by decreases in proceeds from and collections
of notes receivable related to the sale of restaurants to
franchisees. In 2009, cash flows used in investing activities
from continuing operations decreased $60.8 million compared
with 2008. This decrease was primarily due to an increase in
cash proceeds from the sale of company-operated restaurants to
franchisees, lower spending for purchases of property and
equipment and an increase in collections on notes receivable,
offset in part by an increase in spending related to assets held
for sale and leaseback and cash used in 2009 to acquire Qdoba
franchise-operated restaurants.
In 2009, cash flows provided by discontinued operations
increased $32.6 million compared with 2008 due primarily to
proceeds received in 2009 of $34.4 million related to the
sale of our Quick Stuff convenience and fuel stores.
Assets Held for Sale and Leaseback.
We use sale and
leaseback financing to lower the initial cash investment in our
Jack in the Box restaurants to the cost of the equipment,
whenever possible. In 2010, 20 of our new Jack in the Box
restaurants were developed as sale and leaseback properties,
compared with 18 in 2009 and 9 in 2008. In 2010, we sold and
leased back 25 restaurants compared with four in 2009 and 7 in
2008. As of October 3, 2010, we had cash investments of
$59.9 million in approximately 56 operating and
under-construction restaurant properties that we expect to sell
and lease back during fiscal 2011.
Capital Expenditures.
The composition of capital
expenditures used in continuing operations in each year follows
(
in thousands
):
| 2010 | 2009 | 2008 | ||||||||||
|
Jack in the Box:
|
||||||||||||
|
New restaurants
|
$ | 20,867 | $ | 46,078 | $ | 35,751 | ||||||
|
Restaurant facility improvements
|
50,724 | 69,856 | 116,670 | |||||||||
|
Other, including corporate
|
10,447 | 18,377 | 10,943 | |||||||||
|
Qdoba
|
13,572 | 19,189 | 15,241 | |||||||||
|
Total capital expenditures used in continuing operations
|
$ | 95,610 | $ | 153,500 | $ | 178,605 | ||||||
Our capital expenditure program includes, among other things,
investments in new locations, restaurant remodeling, new
equipment and information technology enhancements. In 2010,
capital expenditures decreased
26
Table of Contents
due primarily to a decline in the number of new Jack in the Box
and Qdoba restaurants developed and the number of existing
restaurants rebuilt, and lower spending related to our re-image
program and network and system upgrades. In 2010, we continued
reimaging our restaurants, focusing on the interiors as we
substantially completed reimaging the restaurant exteriors in
2009. The reimage program, which began in 2006, is an important
part of the chain’s brand-reinvention initiative and is
intended to create a warm and inviting dining experience for
Jack in the Box guests. As of October 3, 2010,
approximately 68% of all Jack in the Box company-operated
restaurants feature all interior and exterior elements of the
reimage program; we expect completion by the end of fiscal year
2011. In 2009, capital expenditures decreased due to lower
spending related to our reimage program as well as the inclusion
of a kitchen enhancement project and the purchase of our
smoothie equipment in 2008. The kitchen enhancements were
designed to increase restaurant capacity for new product
introductions while reducing utility expense using
energy-efficient equipment.
In fiscal 2011, capital expenditures are expected to be
approximately $135-$145 million, including investment costs
related to the Jack in the Box restaurant re-image program and
the continued rollout of our new logo. We plan to open
approximately 25 new Jack in the Box and 25 new Qdoba
company-operated restaurants in 2011.
Sale of Company-Operated Restaurants.
We have
continued to expand franchise ownership in the Jack in the Box
system primarily through the sale of company-operated
restaurants to franchisees. The following table details proceeds
received in connection with our refranchising activities
(in
thousands)
:
| 2010 | 2009 | 2008 | ||||||||||
|
Number of restaurants sold to franchisees
|
219 | 194 | 109 | |||||||||
|
Cash proceeds from the sale of company-operated restaurants
|
$ | 66,152 | $ | 94,927 | $ | 57,117 | ||||||
|
Notes receivable
|
25,809 | 21,575 | 27,928 | |||||||||
|
Total proceeds
|
$ | 91,961 | $ | 116,502 | $ | 85,045 | ||||||
|
Average proceeds
|
$ | 420 | $ | 601 | $ | 780 | ||||||
All fiscal years presented include financing provided to
facilitate the closing of certain transactions. As of
October 3, 2010, notes receivable related to refranchisings
were $29.8 million, of which $18.7 million has been
repaid since the end of the fiscal year. We expect total
proceeds of $85-$95 million from the sale of
175-225
Jack
in the Box restaurants in 2011.
Acquisition of Franchise-Operated Restaurants.
In
2010, we acquired 16 Qdoba franchise-operated restaurants in the
Boston market for approximately $8.1 million. The purchase
price was allocated to property and equipment, goodwill and
reacquired franchise rights. For additional information, refer
to Note 3,
Initial Franchise Fees, Refranchisings and
Acquisitions
, of the notes to the consolidated financial
statements.
In 2009, we acquired 22 Qdoba franchise-operated restaurants for
approximately $6.8 million, net of cash received. The total
purchase price was allocated to property and equipment, goodwill
and other income. The restaurants acquired are located in
Michigan and California, which we believe provide good long-term
growth potential consistent with our strategic goals.
Financing Activities
. Cash used in financing
activities increased $20.8 million in 2010 and
$96.8 million in 2009 compared with the previous year.
These increases were primarily attributable to purchases of our
common stock in 2010 and the repayment of borrowings under our
revolving credit facility in 2009.
New Credit Facility.
On June 29, 2010, we
replaced our existing credit facility with a new credit facility
intended to provide a more flexible capital structure. The new
credit facility is comprised of (i) a $400.0 million
revolving credit facility and (ii) a $200.0 million
term loan with a five-year maturity, initially both with London
Interbank Offered Rate (“LIBOR”) plus 2.50
%.
In
connection with the refinancing, borrowings under the term loan
and $169.0 million of borrowings under the revolving credit
facility were used to repay all borrowings under the prior
credit facility and related transaction fees and expenses,
including those associated with the new credit facility. Loan
origination costs associated with the new credit facility were
$9.5 million and are included as deferred costs in other
assets, net in the accompanying consolidated balance sheet as of
October 3, 2010.
As part of the credit agreement, we may also request the
issuance of up to $75.0 million in letters of credit, the
outstanding amount of which reduces the net borrowing capacity
under the agreement. The new credit facility
27
Table of Contents
requires the payment of an annual commitment fee based on the
unused portion of the credit facility. The credit
facility’s interest rates and the annual commitment rate
are based on a financial leverage ratio, as defined in the
credit agreement. We may make voluntary prepayments of the loans
under the revolving credit facility and term loan at any time
without premium or penalty. Specific events, such as asset
sales, certain issuances of debt and insurance and condemnation
recoveries, may trigger a mandatory prepayment.
We are subject to a number of customary covenants under our
credit facility, including limitations on additional borrowings,
acquisitions, loans to franchisees, capital expenditures, lease
commitments, stock repurchases, dividend payments and
requirements to maintain certain financial ratios.
At October 3, 2010, we had $197.5 million outstanding
under the term loan, borrowings under the revolving credit
facility of $160.0 million and letters of credit
outstanding of $34.9 million. For additional information
related to our credit facility, refer to Note 7,
Indebtedness
, of the notes to the consolidated financial
statements.
Interest Rate Swaps.
To reduce our exposure to
rising interest rates under our credit facility, we consider
interest rate swaps. In August 2010, we entered into two forward
looking swaps that will effectively convert $100.0 million
of our variable rate term loan to a fixed-rate basis beginning
September 2011 through September 2014. Based on the term
loan’s applicable margin of 2.50% as of October 3,
2010, these agreements would have an average pay rate of 1.54%,
yielding a fixed rate of 4.04%. Previously, we held two interest
rate swaps that effectively converted $200.0 million of our
variable rate term loan borrowings to a fixed-rate basis from
March 2007 to April 1, 2010. For additional information
related to our interest rate swaps, refer to Note 6,
Derivative Instruments
, of the notes to the consolidated
financial statements.
Repurchases of Common Stock.
In November 2007, the
Board of Directors approved a program to repurchase up to
$200.0 million in shares of our common stock over three
years expiring November 9, 2010. During fiscal 2010, we
repurchased 4.9 million shares at an aggregate cost of
$97.0 million. During fiscal 2008, we repurchased
3.9 million shares at an aggregate cost of
$100.0 million. As of October 3, 2010, the aggregate
remaining amount authorized and available under our credit
agreement for repurchase was $3.0 million. In November
2010, the Board of Directors approved a new program to
repurchase, within the next year, up to $100.0 million in
shares of our common stock.
Off-balance sheet arrangements.
Other than
operating leases, we are not a party to any off-balance sheet
arrangements that have, or are reasonably likely to have, a
current or future material effect on our financial condition,
changes in financial condition, results of operations,
liquidity, capital expenditures or capital resources. We finance
a portion of our new restaurant development through
sale-leaseback transactions. These transactions involve selling
restaurants to unrelated parties and leasing the restaurants
back. Additional information regarding our operating leases is
available in Item 2,
Properties,
and Note 8,
Leases,
of the notes to the consolidated financial
statements.
Contractual obligations and commitments.
The
following is a summary of our contractual obligations and
commercial commitments as of October 3, 2010 (
in
thousands
):
| Payments Due by Year | ||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | ||||||||||||||||
|
Contractual Obligations:
|
||||||||||||||||||||
|
Credit facility term loan (1)
|
$ | 217,240 | $ | 17,925 | $ | 51,880 | $ | 147,435 | $ | - | ||||||||||
|
Revolving credit facility (1)
|
181,180 | 4,459 | 8,918 | 167,803 | - | |||||||||||||||
|
Capital lease obligations
|
12,824 | 2,101 | 3,424 | 2,735 | 4,564 | |||||||||||||||
|
Operating lease obligations
|
1,901,022 | 219,414 | 405,462 | 356,770 | 919,376 | |||||||||||||||
|
Purchase commitments (2)
|
740,786 | 482,871 | 254,794 | 3,121 | - | |||||||||||||||
|
Benefit obligations (3)
|
61,465 | 16,428 | 9,091 | 9,111 | 26,835 | |||||||||||||||
|
Total contractual obligations
|
$ | 3,114,517 | $ | 743,198 | $ | 733,569 | $ | 686,975 | $ | 950,775 | ||||||||||
|
Other Commercial Commitments:
|
||||||||||||||||||||
|
Stand-by letters of credit (4)
|
$ | 34,941 | $ | 34,941 | $ | - | $ | - | $ | - | ||||||||||
28
Table of Contents
| (1) | Obligations related to our credit facility include interest expense estimated at interest rates in effect on October 3, 2010. | |
| (2) | Includes purchase commitments for food, beverage, packaging items and certain utilities. | |
| (3) | Includes expected payments associated with our defined benefit plans, postretirement benefit plans and our non-qualified deferred compensation plan through fiscal 2020. | |
| (4) | Consists primarily of letters of credit for workers’ compensation and general liability insurance. |
We maintain a noncontributory defined benefit pension plan
(“qualified plan”) covering substantially all
full-time employees. Our policy is to fund our qualified plan at
amounts necessary to satisfy the minimum amount required by law,
plus additional amounts as determined by management to improve
the plan’s funded status. Based on the funding status of
our qualified plan as of our last measurement date, we are not
required to make a minimum contribution in 2011. However, we
expect to make discretionary contributions of $10.0 million
which have been included in the table above. Effective September
2010, we amended our qualified plan whereby participants will no
longer accrue benefits after December 31, 2015. As a
result, our discretionary contributions will likely be lower in
the future when compared with recent years. Contributions beyond
fiscal 2011 will depend on pension asset performance, future
interest rates, future tax law changes, and future changes in
regulatory funding requirements. For additional information
related to our pension plans, refer to Note 11,
Retirement Plans
, of the notes to the consolidated
financial statements.
DISCUSSION
OF CRITICAL ACCOUNTING ESTIMATES
We have identified the following as our most critical accounting
estimates, which are those that are most important to the
portrayal of the Company’s financial condition and results,
and that require management’s most subjective and complex
judgments. Information regarding our other significant
accounting estimates and policies are disclosed in Note 1
to our consolidated financial statements.
Long-lived Assets
— Property, equipment and
certain other assets, including amortized intangible assets, are
reviewed for impairment when indicators of impairment are
present. This review generally includes a restaurant-level
analysis, except when we are actively selling a group of
restaurants, in which case we perform our impairment evaluations
at the group level. Impairment evaluations for individual
restaurants take into consideration a restaurant’s
operating cash flows, the period of time since a restaurant has
been opened or remodeled, refranchising expectations, and the
maturity of the related market. Impairment evaluations for a
group of restaurants take into consideration the group’s
expected future cash flows and sales proceeds from bids
received, if any, or fair market value based on, among other
considerations, the specific sales and cash flows of those
restaurants. If the assets of a restaurant or group of
restaurants subject to our impairment evaluation are not
recoverable based upon the forecasted, undiscounted cash flows,
we recognize an impairment loss as the amount by which the
carrying value of the assets exceeds fair value. Our estimates
of cash flows used to assess impairment are subject to a high
degree of judgment and may differ from actual cash flows due to,
among other things, economic conditions or changes in operating
performance. During fiscal year 2010, we recorded impairment
charges totaling $13.0 million to write down certain assets
to their estimated fair value.
Retirement Benefits
— Our defined benefit and
other postretirement plans’ costs and liabilities are
determined using several statistical and other factors, which
attempt to anticipate future events, including assumptions about
the discount rate and expected return on plan assets. Our
discount rate is set annually by us, with assistance from our
actuaries, and is determined by considering the average of
pension yield curves constructed of a population of high-quality
bonds with a Moody’s or Standard and Poor’s rating of
“AA” or better meeting certain other criteria. As of
October 3, 2010, our discount rate was 5.82% for our
defined benefit and postretirement benefit plans. Our expected
long-term rate of return on assets is determined taking into
consideration our projected asset allocation and economic
forecasts prepared with the assistance of our actuarial
consultants. As of October 3, 2010, our assumed expected
long-term rate of return was 7.75% for our qualified defined
benefit plan. 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 affect the amount of pension expense we record.
A hypothetical 25 basis point reduction in the assumed
discount rate and expected long-term rate of return on plan
assets would have resulted in an estimated increase of
$2.7 million and $0.7 million, respectively, in our
fiscal 2011 pension and postretirement plan expense. We expect
our pension and
29
Table of Contents
postretirement expense to decrease in fiscal 2011 principally
due to the curtailment of our qualified plan which will be
partially offset by a decrease in our discount rate from 6.16%
to 5.82%.
Self Insurance
— We are self-insured for a
portion of our losses related to workers’ compensation,
general liability, automotive, and health benefits. In
estimating our self-insurance accruals, we utilize independent
actuarial estimates of expected losses, which are based on
statistical analysis of historical data. These assumptions are
closely monitored and adjusted when warranted by changing
circumstances. Should a greater amount of claims occur compared
to what was estimated or medical costs increase beyond what was
expected, accruals might not be sufficient, and additional
expense may be recorded.
Restaurant Closing Costs
— Restaurant closing
costs consist of future lease commitments, net of anticipated
sublease rentals and expected ancillary costs. We record a
liability for the net present value of any remaining lease
obligations, net of estimated sublease income, at the date we
cease using a property. Subsequent adjustments to the liability
as a result of changes in estimates of sublease income or lease
cancellations are recorded in the period incurred. The estimates
we make related to sublease income are subject to a high degree
of judgment and may differ from actual sublease income due to
changes in economic conditions, desirability of the sites and
other factors.
Share-based Compensation —
We offer share-based
compensation plans to attract, retain and motivate key officers,
non-employee directors and employees to work toward the
financial success of the Company. Share-based compensation cost
for our stock option grants is estimated at the grant date based
on the award’s fair-value as calculated by an option
pricing model and is recognized as expense ratably over the
requisite service period. The option pricing models require
various highly judgmental assumptions including volatility,
forfeiture rates and expected option life. If any of the
assumptions used in the model change significantly, share-based
compensation expense may differ materially in the future from
that recorded in the current period.
Goodwill and Other Intangibles
— We also
evaluate goodwill and
non-amortizable
intangible assets annually, or more frequently if indicators of
impairment are present. If the determined fair values of these
assets are less than the related carrying amounts, an impairment
loss is recognized. The methods we use to estimate fair value
include future cash flow assumptions, which may differ from
actual cash flows due to, among other things, economic
conditions or changes in operating performance. During the
fourth quarter of fiscal 2010, we reviewed the carrying value of
our goodwill and indefinite life intangible assets and
determined that no impairment existed as of October 3, 2010.
Allowances for Doubtful Accounts
— Our trade
receivables consist primarily of amounts due from franchisees
for rents on subleased sites, royalties and distribution sales.
We continually monitor amounts due from franchisees and maintain
an allowance for doubtful accounts for estimated losses. This
estimate is based on our assessment of the collectability of
specific franchisee accounts, as well as a general allowance
based on historical trends, the financial condition of our
franchisees, consideration of the general economy and the aging
of such receivables. We have good relationships with our
franchisees and high collection rates; however, if the future
financial condition of our franchisees were to deteriorate,
resulting in their inability to make specific required payments,
we may be required to increase the allowance for doubtful
accounts.
Legal Accruals —
The Company is subject to
claims and lawsuits in the ordinary course of its business. A
determination of the amount accrued, if any, for these
contingencies is made after analysis of each matter. We
continually evaluate such accruals and may increase or decrease
accrued amounts, as we deem appropriate.
Income Taxes —
We estimate certain components
of our provision for income taxes. These estimates include,
among other items, depreciation and amortization expense
allowable for tax purposes, allowable tax credits, effective
rates for state and local income taxes and the tax deductibility
of certain other items. We adjust our effective income tax rate
as additional information on outcomes or events becomes
available. Our estimates are based on the best available
information at the time that we prepare the income tax
provision. We generally file our annual income tax returns
several months after our fiscal year-end. Income tax returns are
subject to audit by federal, state and local governments,
generally years after the returns are filed. These returns could
be subject to material adjustments or differing interpretations
of the tax laws.
30
Table of Contents
FUTURE
APPLICATION OF ACCOUNTING PRINCIPLES
In June 2009, the FASB issued authoritative guidance for
consolidation, which changes the approach for determining which
enterprise has a controlling financial interest in a variable
interest entity and requires more frequent reassessments of
whether an enterprise is a primary beneficiary. This guidance is
effective for annual periods beginning after November 15,
2009. We are currently in the process of assessing the impact
this guidance may have on our consolidated financial statements.
Other accounting standards that have been issued or proposed by
the FASB or other standards-setting bodies that do not require
adoption until a future date are not expected to have a material
impact on our consolidated financial statements upon adoption.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our primary exposure to risks relating to financial instruments
is changes in interest rates. Our credit facility, which is
comprised of a revolving credit facility and a term loan, bears
interest at an annual rate equal to the prime rate or LIBOR plus
an applicable margin based on a financial leverage ratio. As of
October 3, 2010, the applicable margin for the LIBOR-based
revolving loans and term loan was set at 2.50%.
We use interest rate swap agreements to reduce exposure to
interest rate fluctuations. In August 2010, we entered into two
interest rate swap agreements that will effectively convert
$100.0 million of our variable rate term loan borrowings to
a fixed-rate basis beginning September 2011 through September
2014. Based on the term loan’s applicable margin of 2.50%
as of October 3, 2010, these agreements would have an
average pay rate of 1.54%, yielding a fixed rate of 4.04%.
A hypothetical 100 basis point increase in short-term
interest rates, based on the outstanding balance of our
revolving credit facility and term loan at October 3, 2010,
would result in an estimated increase of $3.6 million in
annual interest expense.
We are also exposed to the impact of commodity and utility price
fluctuations related to unpredictable factors such as weather
and various other market conditions outside our control. Our
ability to recover increased costs through higher prices is
limited by the competitive environment in which we operate. From
time to time, we enter into futures and option contracts to
manage these fluctuations. At October 3, 2010, we had no
such contracts in place.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The consolidated financial statements and related financial
information required to be filed are indexed on
page F-1
and are incorporated herein.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
Based on an evaluation of the Company’s disclosure controls
and procedures (as defined in Rules 13(a) – 15(e)
and 15(d) – 15(e) of the Securities Exchange Act of
1934, as amended), as of the end of the Company’s fiscal
year ended October 3, 2010, the Company’s Chief
Executive Officer and Chief Financial Officer (its principal
executive officer and principal financial officer, respectively)
have concluded that the Company’s disclosure controls and
procedures were effective.
Changes
in Internal Control Over Financial Reporting
There have been no significant changes in the Company’s
internal control over financial reporting that occurred
31
Table of Contents
during the Company’s fiscal quarter ended October 3,
2010 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over
financial reporting.
Management’s
Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rule 13a-15(f)
under the Exchange Act). The Company’s internal control
over financial reporting is designed to provide reasonable
assurance to the Company’s management and Board of
Directors regarding the preparation and fair presentation of
published financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation.
Management assessed the effectiveness of the Company’s
internal control over financial reporting as of October 3,
2010. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”) in Internal
Control-Integrated Framework. Management has concluded that, as
of October 3, 2010, the Company’s internal control
over financial reporting was effective based on these criteria.
The Company’s independent registered public accounting
firm, KPMG LLP, has issued an audit report on the effectiveness
of our internal control over financial reporting, which follows.
32
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Jack in the Box Inc.:
We have audited Jack in the Box Inc.’s (the Company’s)
internal control over financial reporting as of October 3,
2010, based on criteria established in
Internal
Control – Integrated Framework,
issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Jack in the Box Inc. maintained, in all material
respects, effective internal control over financial reporting as
of October 3, 2010, based on criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Jack in the Box Inc. and
subsidiaries as of October 3, 2010 and September 27,
2009, and the related consolidated statements of earnings, cash
flows, and stockholders’ equity for the fifty-three weeks
ended October 3, 2010, and the fifty-two weeks ended
September 27, 2009 and September 28, 2008, and our
report dated November 23, 2010, expressed an unqualified
opinion on those consolidated financial statements.
/s/
KPMG
LLP
San Diego, California
November 23, 2010
33
Table of Contents
| ITEM 9B. | OTHER INFORMATION |
Not applicable.
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
That portion of our definitive Proxy Statement appearing under
the captions “Election of Directors – Committees
of the Board of Directors Member Qualifications” and
“Section 16(a) Beneficial Ownership Reporting
Compliance” to be filed with the Commission pursuant to
Regulation 14A within 120 days after October 3,
2010 and to be used in connection with our 2011 Annual Meeting
of Stockholders is hereby incorporated by reference.
Information regarding executive officers is set forth in
Item 1 of Part I of this Report under the caption
“Executive Officers.”
That portion of our definitive Proxy Statement appearing under
the caption “Audit Committee,” relating to the members
of the Company’s Audit Committee and the Audit Committee
financial expert, is also incorporated herein by reference.
That portion of our definitive Proxy Statement appearing under
the caption “Other Business,” relating to the
procedures by which stockholders may recommend candidates for
director to the Nominating and Governance Committee of the Board
of Directors, is also incorporated herein by reference.
We have adopted a Code of Ethics, which applies to all Jack in
the Box Inc. directors, officers and employees, including the
Chief Executive Officer, Chief Financial Officer, Controller and
all of the financial team. The Code of Ethics is posted on the
Company’s website, www.jackinthebox.com (under the
“Investors – Corporate Governance –
Code of Conduct” caption). We intend to satisfy the
disclosure requirement regarding any amendment to, or waiver of,
a provision of the Code of Ethics for the Chief Executive
Officer, Chief Financial Officer and Controller or persons
performing similar functions, by posting such information on our
website. No such waivers have been issued during fiscal 2010.
We have also adopted a set of Corporate Governance Principles
and Practices and charters for all of our Board Committees,
including the Audit, Compensation, and Nominating and Governance
Committees. The Corporate Governance Principles and Practices
and committee charters are available on our website at
www.jackinthebox.com and in print free of charge to any
shareholder who requests them. Written requests for our Code of
Business Conduct and Ethics, Corporate Governance Principles and
Practices and committee charters should be addressed to Jack in
the Box Inc., 9330 Balboa Avenue, San Diego, CA 92123,
Attention: Corporate Secretary.
The Company’s primary website can be found at
www.jackinthebox.com. We make available free of charge at this
website (under the caption “Investors — SEC
Filings”) all of our reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, including our Annual Report on
Form 10-K,
our Quarterly Reports on
Form 10-Q
and our Current Reports on
Form 8-K,
and amendments to those reports. These reports are made
available on the website as soon as reasonably practicable after
their filing with, or furnishing to, the Securities and Exchange
Commission.
| ITEM 11. | EXECUTIVE COMPENSATION |
That portion of our definitive Proxy Statement appearing under
the caption “Executive Compensation,”
“Compensation Committee Interlocks and Insider
Participation” and “Compensation Committee
Report” to be filed with the Commission pursuant to
Regulation 14A within 120 days after October 3,
2010 and to be used in connection with our 2011 Annual Meeting
of Stockholders is hereby incorporated by reference.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
That portion of our definitive Proxy Statement appearing under
the caption “Security Ownership of Certain Beneficial
Owners and Management” to be filed with the Commission
pursuant to Regulation 14A within 120 days after
October 3, 2010 and to be used in connection with our 2011
Annual Meeting of Stockholders is hereby
34
Table of Contents
incorporated by reference. Information regarding equity
compensation plans under which company common stock may be
issued as of October 3, 2010 is set forth in Item 5 of
this Report.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
That portion of our definitive Proxy Statement appearing under
the caption “Certain Transactions,” if any, to be
filed with the Commission pursuant to Regulation 14A within
120 days after October 3, 2010 and to be used in
connection with our 2011 Annual Meeting of Stockholders is
hereby incorporated by reference.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
That portion of our definitive Proxy Statement appearing under
the caption “Independent Registered Public Accountant Fees
and Services” to be filed with the Commission pursuant to
Regulation 14A within 120 days after October 3,
2010 and to be used in connection with our 2011 Annual Meeting
of Stockholders is hereby incorporated by reference.
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
| ITEM 15(a) | (1) Financial Statements . See Index to Consolidated Financial Statements on page F-1 of this Report. |
|
|
(2) Financial Statement Schedules . Not applicable. |
35
Table of Contents
| Number | Description | |
|
3.1
|
Restated Certificate of Incorporation, as amended, which is
incorporated herein by reference from the registrant’s
Current Report on
Form 8-K
dated September 21, 2007.
|
|
|
3.1.1
|
Certificate of Amendment of Restated Certificate of
Incorporation, which is incorporated herein by reference from
the registrant’s Current Report on
Form 8-K
dated September 21, 2007.
|
|
|
3.2
|
Amended and Restated Bylaws, which are incorporated herein by
reference from the registrant’s Current Report on
Form 8-K
dated May 11, 2010.
|
|
|
10.1
|
Credit Agreement dated as of June 29, 2010 by and among
Jack in the Box Inc. and the lenders named therein, which is
incorporated herein by reference from the registrant’s
Current Report on
Form 8-K
dated July 1, 2010.
|
|
|
10.2
|
Collateral Agreement dated as of June 29, 2010 by and among
Jack in the Box Inc. and the lenders named therein, which is
incorporated herein by reference from the registrant’s
Current Report on
Form 8-K
dated July 1, 2010.
|
|
|
10.3
|
Guaranty Agreement dated as of June 29, 2010 by and among
Jack in the Box Inc. and the lenders named therein, which is
incorporated herein by reference from the registrant’s
Current Report on
Form 8-K
dated July 1, 2010.
|
|
|
10.4*
|
Amended and Restated 1992 Employee Stock Incentive Plan, which
is incorporated herein by reference from the registrant’s
Registration Statement on
Form S-8
(No. 333-26781)
filed May 9, 1997.
|
|
|
10.5*
|
Jack in the Box Inc. 2002 Stock Incentive Plan, which is
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.
|
|
|
10.5.1*
|
Form of Restricted Stock Award for certain executives under the
2002 Stock Incentive Plan, which is incorporated herein by
reference from the registrant’s Quarterly Report on
Form 10-Q
for the quarter ended January 19, 2003.
|
|
|
10.6*
|
Amended and Restated Supplemental Executive Retirement Plan,
which is incorporated herein by reference from the
registrant’s Quarterly Report on
Form 10-Q
for the quarter ended January 18, 2009.
|
|
|
10.6.1*
|
First Amendment dated as of August 2, 2002 to the
Supplemental Executive Retirement Plan, which is incorporated
herein by reference from registrant’s Annual Report on
Form 10-K
for the fiscal year ended September 29, 2002.
|
|
|
10.6.2*
|
Second Amendment dated as of November 9, 2006 to the
Supplemental Executive Retirement Plan, which is incorporated
herein by reference from the registrant’s Annual Report on
Form 10-K
for the year ended October 1, 2006.
|
|
|
10.6.3*
|
Third Amendment dated as of February 15, 2007 to the
Supplemental Executive Retirement Plan, which is incorporated
herein by reference from the registrant’s Quarterly Report
on
Form 10-Q
for the quarter ended April 15, 2007.
|
|
|
10.6.4*
|
Fourth and Fifth Amendments dated as of September 14, 2007
and November 8, 2007, respectively, to the Supplemental
Executive Retirement Plan, which is incorporated herein by
reference from the registrant’s Annual Report on
Form 10-K
for the year ended September 30, 2007.
|
|
|
10.7*
|
Amended and Restated Performance Bonus Plan effective
October 2, 2000, which is incorporated herein by reference
from the registrant’s Definitive Proxy Statement dated
January 13, 2006 for the Annual Meeting of Stockholders on
February 17, 2006.
|
|
|
10.8*
|
Amended and Restated Deferred Compensation Plan for
Non-Management Directors effective November 9, 2006, which
is incorporated herein by reference from the registrant’s
Annual Report on
Form 10-K
for the year ended October 1, 2006.
|
36
Table of Contents
| Number | Description | |
|
10.9*
|
Amended and Restated Non-Employee Director Stock Option Plan,
which is incorporated herein by reference from the
registrant’s Annual Report on
Form 10-K
for the fiscal year ended October 3, 1999.
|
|
|
10.10*
|
Form of Compensation and Benefits Assurance Agreement for
Executives, which is incorporated herein by reference from the
registrant’s Quarterly Report on
Form 10-Q
for the quarter ended January 20, 2008.
|
|
|
10.10.1*
|
Revised Form of Compensation and Benefits Assurance Agreement
for Executives, which is incorporated herein by reference from
the registrant’s Current Report on
Form 8-K
dated November 16, 2009.
|
|
|
10.11*
|
Form of Indemnification Agreement between Jack in the Box Inc.
and certain officers and directors, which is incorporated herein
by reference from the registrant’s Annual Report on
Form 10-K
for the fiscal year ended September 29, 2002.
|
|
|
10.13*
|
Amended and Restated Executive Deferred Compensation Plan, which
is incorporated herein by reference from the registrant’s
Quarterly Report on
Form 10-Q
for the quarter ended January 18, 2009.
|
|
|
10.13.1*
|
First amendment dated September 14, 2007 to the Executive
Deferred Compensation Plan, which is incorporated herein by
reference from the registrant’s Annual Report on
Form 10-K
for the year ended September 30, 2007.
|
|
|
10.14(a)*
|
Schedule of Restricted Stock Awards, which is incorporated
herein by reference from the registrant’s Annual Report on
Form 10-K
for the year ended October 1, 2006.
|
|
|
10.15*
|
Executive Retention Agreement between Jack in the Box Inc. and
Gary J. Beisler, President and Chief Executive Officer of Qdoba
Restaurant Corporation, which is incorporated herein by
reference from the registrant’s Quarterly Report on
Form 10-Q
for the quarter ended April 13, 2003.
|
|
|
10.16*
|
Amended and Restated 2004 Stock Incentive Plan, which is
incorporated herein by reference from the registrant’s
Quarterly Report on
Form 10-Q
dated April 11, 2010.
|
|
|
10.16.1*
|
Form of Restricted Stock Award for officers and certain members
of management under the 2004 Stock Incentive Plan, which is
incorporated herein by reference from the registrant’s
Quarterly Report on
Form 10-Q
for the quarter ended July 5, 2009.
|
|
|
10.16.1(a)*
|
Form of Restricted Stock Award for executives of Qdoba
Restaurant Corporation under the 2004 Stock Incentive Plan,
which is incorporated herein by reference from the
registrant’s Quarterly Report on
Form 10-Q
for the quarter ended July 5, 2009.
|
|
|
10.16.2*
|
Form of Stock Option Awards under the 2004 Stock Incentive Plan,
which is incorporated herein by reference from the
registrant’s Quarterly Report on
Form 10-Q
for the quarter ended July 5, 2009.
|
|
|
10.16.2(a)*
|
Form of Stock Option Award for officers of Qdoba Restaurant
Corporation under the 2004 Stock Incentive Plan, which is
incorporated herein by reference from the registrant’s
Quarterly Report on
Form 10-Q
for the quarter ended July 5, 2009.
|
|
|
10.16.3*
|
Jack in the Box Inc. Non-Employee Director Stock Option Award
Agreement under the 2004 Stock Incentive Plan, which is
incorporated herein by reference from the registrant’s
Current Report on
Form 8-K
dated November 10, 2005.
|
|
|
10.16.4*
|
Form of Restricted Stock Unit Award Agreement for officers and
certain members of management under the 2004 Stock Incentive
Plan, which is incorporated herein by reference from the
registrant’s Quarterly Report on
Form 10-Q
for the quarter ended April 12, 2009.
|
|
|
10.16.4(a)*
|
Form of Restricted Stock Unit Award Agreement for Non-Employee
Director under the 2004 Stock Incentive Plan, which is
incorporated by reference from the registrant’s Annual
Report on Form 10-K for the year ended September 27, 2009.
|
37
Table of Contents
| Number | Description | |
|
10.16.4(b)*
|
Form of Time-Vested Restricted Stock Unit Award Agreement for
officers under the 2004 Stock Incentive Plan.
|
|
|
10.16.5*
|
Form of Award Agreement under the 2004 Stock Incentive Plan,
which is incorporated by reference from the registrant’s
Annual Report on Form
10-K
for the
year ended September 27, 2009.
|
|
|
10.16.6*
|
Form of Qdoba Unit Award Agreement
|
|
|
10.22*
|
Dr. David M. Theno’s Retirement and Release Agreement,
which is incorporated herein by reference from the
registrant’s Annual Report on
Form 10-K
for the year ended September 28, 2008.
|
|
|
10.23*
|
Summary of Director Compensation effective fiscal 2007, which is
incorporated herein by reference from the registrant’s
Annual Report on
Form 10-K
for the year ended October 1, 2006.
|
|
|
23.1
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
31.1
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
101.INSλ
|
XBRL Instance Document
|
|
|
101.SCHλ
|
XBRL Taxonomy Extension Schema Document
|
|
|
101.CALλ
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
101.LABλ
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
101.PREλ
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
101.DEFλ
|
XBRL Taxonomy Extension Definition Linkbase Document
|
| * | Management contract or compensatory plan. | |
| λ | In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall be deemed to be “furnished” and not “filed.” |
|
|
All required exhibits are filed herein or incorporated by reference as described in Item 15(a)(3). |
|
|
All supplemental schedules are omitted as inapplicable or because the required information is included in the consolidated financial statements or notes thereto. |
38
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
JACK IN THE BOX INC.
| By: | /S/ JERRY P. REBEL |
Jerry P. Rebel
Executive Vice President and Chief Financial Officer
(principal financial officer)
(Duly Authorized Signatory)
Date: November 24, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
| Signature | Title | Date | ||||
|
/S/ LINDA A. LANG
|
Chairman of the Board, Chief Executive Officer and President
(principal executive officer) |
November 24, 2010 | ||||
|
/S/ JERRY P. REBEL
|
Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) | November 24, 2010 | ||||
|
/S/ MICHAEL E. ALPERT
|
Director | November 24, 2010 | ||||
|
/S/ DAVID L. GOEBEL
|
Director | November 24, 2010 | ||||
|
/S/ MURRAY H. HUTCHISON
|
Director | November 24, 2010 | ||||
|
/S/ MICHAEL W. MURPHY
|
Director | November 24, 2010 | ||||
|
/S/ DAVID M. TEHLE
|
Director | November 24, 2010 | ||||
|
/S/ WINIFRED M. WEBB
|
Director | November 24, 2010 | ||||
|
/S/ JOHN T. WYATT
|
Director | November 24, 2010 | ||||
39
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
Schedules not filed: All schedules have been omitted as the
required information is inapplicable or the information is
presented in the consolidated financial statements or related
notes.
F-1
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Jack in the Box Inc.:
We have audited the accompanying consolidated balance sheets of
Jack in the Box Inc. and subsidiaries (the Company) as of
October 3, 2010 and September 27, 2009, and the
related consolidated statements of earnings, cash flows, and
stockholders’ equity for the fifty-three weeks ended
October 3, 2010, and the fifty-two weeks ended
September 27, 2009 and September 28, 2008. These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Jack in the Box Inc. and subsidiaries as of
October 3, 2010 and September 27, 2009, and the
results of their operations and their cash flows for the
fifty-three weeks ended October 3, 2010, and the fifty-two
weeks ended September 27, 2009 and September 28, 2008,
in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Jack
in the Box Inc.’s internal control over financial reporting
as of October 3, 2010, based on criteria established in
Internal Control – Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated November 23, 2010,
expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
/s/ KPMG LLP
San Diego, CA
November 23, 2010
F-2
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
(Dollars
in thousands, except per share data)
|
October 3,
|
September 27,
|
|||||||
| 2010 | 2009 | |||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 10,607 | $ | 53,002 | ||||
|
Accounts and other receivables, net
|
81,150 | 49,036 | ||||||
|
Inventories
|
37,391 | 37,675 | ||||||
|
Prepaid expenses
|
33,563 | 8,958 | ||||||
|
Deferred income taxes
|
46,185 | 44,614 | ||||||
|
Assets held for sale
|
59,897 | 99,612 | ||||||
|
Other current assets
|
6,129 | 7,152 | ||||||
|
Total current assets
|
274,922 | 300,049 | ||||||
|
Property and equipment, at cost:
|
||||||||
|
Land
|
101,206 | 101,576 | ||||||
|
Buildings
|
965,312 | 936,351 | ||||||
|
Restaurant and other equipment
|
437,547 | 506,185 | ||||||
|
Construction in progress
|
58,664 | 58,135 | ||||||
| 1,562,729 | 1,602,247 | |||||||
|
Less accumulated depreciation and amortization
|
(684,690 | ) | (665,957 | ) | ||||
|
Property and equipment, net
|
878,039 | 936,290 | ||||||
|
Intangible assets, net
|
17,986 | 18,434 | ||||||
|
Goodwill
|
85,041 | 85,843 | ||||||
|
Other assets, net
|
151,104 | 115,294 | ||||||
| $ | 1,407,092 | $ | 1,455,910 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
|
Current liabilities:
|
||||||||
|
Current maturities of long-term debt
|
$ | 13,781 | $ | 67,977 | ||||
|
Accounts payable
|
101,216 | 63,620 | ||||||
|
Accrued liabilities
|
168,186 | 206,100 | ||||||
|
Total current liabilities
|
283,183 | 337,697 | ||||||
|
Long-term debt, net of current maturities
|
352,630 | 357,270 | ||||||
|
Other long-term liabilities
|
250,440 | 234,190 | ||||||
|
Deferred income taxes
|
376 | 2,264 | ||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock $.01 par value, 15,000,000 shares
authorized, none issued
|
- | - | ||||||
|
Common stock $.01 par value, 175,000,000 shares
authorized, 74,461,632 and 73,987,070 issued, respectively
|
745 | 740 | ||||||
|
Capital in excess of par value
|
187,544 | 169,440 | ||||||
|
Retained earnings
|
982,420 | 912,210 | ||||||
|
Accumulated other comprehensive loss, net
|
(78,787 | ) | (83,442 | ) | ||||
|
Treasury stock, at cost, 21,640,400 and 16,726,032 shares,
respectively
|
(571,459 | ) | (474,459 | ) | ||||
|
Total stockholders’ equity
|
520,463 | 524,489 | ||||||
| $ | 1,407,092 | $ | 1,455,910 | |||||
See accompanying notes to consolidated financial statements.
F-3
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
(In
thousands, except per share data)
| Fiscal Year | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Revenues:
|
||||||||||||
|
Company restaurant sales
|
$ | 1,668,527 | $ | 1,975,842 | $ | 2,101,576 | ||||||
|
Distribution sales
|
397,977 | 302,135 | 275,225 | |||||||||
|
Franchise revenues
|
231,027 | 193,119 | 162,760 | |||||||||
| 2,297,531 | 2,471,096 | 2,539,561 | ||||||||||
|
Operating costs and expenses, net:
|
||||||||||||
|
Company restaurant costs:
|
||||||||||||
|
Food and packaging
|
530,613 | 639,916 | 700,755 | |||||||||
|
Payroll and employee benefits
|
505,138 | 587,551 | 624,600 | |||||||||
|
Occupancy and other
|
398,066 | 428,979 | 438,788 | |||||||||
|
Total company restaurant costs
|
1,433,817 | 1,656,446 | 1,764,143 | |||||||||
|
Distribution costs
|
399,707 | 300,934 | 273,369 | |||||||||
|
Franchise costs
|
104,845 | 78,414 | 64,955 | |||||||||
|
Selling, general and administrative expenses
|
243,353 | 260,662 | 264,798 | |||||||||
|
Impairment and other charges, net
|
48,887 | 22,014 | 22,757 | |||||||||
|
Gains on the sale of company-operated restaurants, net
|
(54,988 | ) | (78,642 | ) | (66,349 | ) | ||||||
| 2,175,621 | 2,239,828 | 2,323,673 | ||||||||||
|
Earnings from operations
|
121,910 | 231,268 | 215,888 | |||||||||
|
Interest expense, net
|
15,894 | 20,767 | 27,428 | |||||||||
|
Earnings from continuing operations and before income taxes
|
106,016 | 210,501 | 188,460 | |||||||||
|
Income taxes
|
35,806 | 79,455 | 70,251 | |||||||||
|
Earnings from continuing operations
|
70,210 | 131,046 | 118,209 | |||||||||
|
Earnings (losses) from discontinued operations, net
|
- | (12,638 | ) | 1,070 | ||||||||
|
Net earnings
|
$ | 70,210 | $ | 118,408 | $ | 119,279 | ||||||
|
Net earnings per share – basic:
|
||||||||||||
|
Earnings from continuing operations
|
$ | 1.27 | $ | 2.31 | $ | 2.03 | ||||||
|
Earnings (losses) from discontinued operations, net
|
- | (0.23 | ) | 0.02 | ||||||||
|
Net earnings per share
|
$ | 1.27 | $ | 2.08 | $ | 2.05 | ||||||
|
Net earnings per share – diluted:
|
||||||||||||
|
Earnings from continuing operations
|
$ | 1.26 | $ | 2.27 | $ | 1.99 | ||||||
|
Earnings (losses) from discontinued operations, net
|
- | (0.22 | ) | 0.02 | ||||||||
|
Net earnings per share
|
$ | 1.26 | $ | 2.05 | $ | 2.01 | ||||||
|
Weighted-average shares outstanding:
|
||||||||||||
|
Basic
|
55,070 | 56,795 | 58,249 | |||||||||
|
Diluted
|
55,843 | 57,733 | 59,445 | |||||||||
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
(Dollars
in thousands)
| Fiscal Year | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net earnings
|
$ | 70,210 | $ | 118,408 | $ | 119,279 | ||||||
|
Losses (earnings) from discontinued operations, net
|
- | 12,638 | (1,070 | ) | ||||||||
|
Net earnings from continuing operations
|
70,210 | 131,046 | 118,209 | |||||||||
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
||||||||||||
|
Depreciation and amortization
|
101,514 | 100,830 | 96,943 | |||||||||
|
Deferred finance cost amortization
|
1,658 | 1,461 | 1,462 | |||||||||
|
Deferred income taxes
|
(27,554 | ) | (15,331 | ) | 6,643 | |||||||
|
Share-based compensation expense
|
10,605 | 9,341 | 10,566 | |||||||||
|
Pension and postretirement expense
|
29,140 | 12,243 | 14,433 | |||||||||
|
Losses (gains) on cash surrender value of company-owned life
insurance
|
(6,199 | ) | 1,910 | 8,172 | ||||||||
|
Gains on the sale of company-operated restaurants, net
|
(54,988 | ) | (78,642 | ) | (66,349 | ) | ||||||
|
Gains on the acquisition of franchise-operated restaurants
|
- | (958 | ) | - | ||||||||
|
Losses on the disposition of property and equipment, net
|
10,757 | 11,418 | 17,373 | |||||||||
|
Impairment charges and other
|
12,970 | 6,586 | 3,507 | |||||||||
|
Loss on early retirement of debt
|
513 | - | - | |||||||||
|
Changes in assets and liabilities, excluding acquisitions and
dispositions:
|
||||||||||||
|
Accounts and other receivables
|
(8,174 | ) | 3,519 | (9,172 | ) | |||||||
|
Inventories
|
284 | 7,596 | (4,452 | ) | ||||||||
|
Prepaid expenses and other current assets
|
(22,967 | ) | 11,496 | 7,026 | ||||||||
|
Accounts payable
|
(2,219 | ) | (14,975 | ) | 4,167 | |||||||
|
Pension and postretirement contributions
|
(24,072 | ) | (26,233 | ) | (25,012 | ) | ||||||
|
Other
|
(27,440 | ) | (13,983 | ) | (16,481 | ) | ||||||
|
Cash flows provided by operating activities from continuing
operations
|
64,038 | 147,324 | 167,035 | |||||||||
|
Cash flows provided by (used in) operating activities from
discontinued operations
|
(2,172 | ) | 1,426 | 5,349 | ||||||||
|
Cash flows provided by operating activities
|
61,866 | 148,750 | 172,384 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchases of property and equipment
|
(95,610 | ) | (153,500 | ) | (178,605 | ) | ||||||
|
Proceeds from the sale of company-operated restaurants
|
66,152 | 94,927 | 57,117 | |||||||||
|
Proceeds from (purchases of) assets held for sale and leaseback,
net
|
45,348 | (36,824 | ) | (14,003 | ) | |||||||
|
Collections on notes receivable
|
8,322 | 31,539 | 7,942 | |||||||||
|
Acquisition of franchise-operated restaurants
|
(8,115 | ) | (6,760 | ) | - | |||||||
|
Other
|
3,076 | (989 | ) | (4,857 | ) | |||||||
|
Cash flows provided by (used in) investing activities from
continuing operations
|
19,173 | (71,607 | ) | (132,406 | ) | |||||||
|
Cash flows provided by (used in) investing activities from
discontinued operations
|
- | 30,648 | (1,964 | ) | ||||||||
|
Cash flows provided by (used in) investing activities
|
19,173 | (40,959 | ) | (134,370 | ) | |||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Borrowings on revolving credit facility
|
881,000 | 541,000 | 650,000 | |||||||||
|
Repayments of borrowings on revolving credit facility
|
(721,000 | ) | (632,000 | ) | (559,000 | ) | ||||||
|
Proceeds from issuance of debt
|
200,000 | - | - | |||||||||
|
Principal repayments on debt
|
(418,836 | ) | (2,334 | ) | (5,722 | ) | ||||||
|
Debt issuance costs
|
(9,548 | ) | - | - | ||||||||
|
Proceeds from issuance of common stock
|
5,186 | 4,574 | 8,642 | |||||||||
|
Repurchase of common stock
|
(97,000 | ) | - | (100,000 | ) | |||||||
|
Excess tax benefits from share-based compensation arrangements
|
2,037 | 664 | 3,346 | |||||||||
|
Change in book overdraft
|
34,727 | (14,577 | ) | (3,098 | ) | |||||||
|
Cash flows used in financing activities
|
(123,434 | ) | (102,673 | ) | (5,832 | ) | ||||||
|
Net increase (decrease) in cash and cash equivalents
|
(42,395 | ) | 5,118 | 32,182 | ||||||||
|
Cash and cash equivalents at beginning of period
|
53,002 | 47,884 | 15,702 | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 10,607 | $ | 53,002 | $ | 47,884 | ||||||
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
(Dollars
in thousands)
|
Accumulated
|
||||||||||||||||||||||||||||
|
Capital in
|
other
|
|||||||||||||||||||||||||||
|
Number
|
excess of
|
Retained
|
comprehensive
|
Treasury
|
||||||||||||||||||||||||
| of shares | Amount | par value | earnings | loss, net | stock | Total | ||||||||||||||||||||||
|
Balance at September 30, 2007
|
72,515,171 | $ | 725 | $ | 132,081 | $ | 676,378 | $ | (25,140 | ) | $ | (374,459 | ) | $ | 409,585 | |||||||||||||
|
Shares issued under stock plans, including tax benefit
|
990,878 | 10 | 12,376 | - | - | - | 12,386 | |||||||||||||||||||||
|
Share-based compensation
|
- | - | 10,566 | - | - | - | 10,566 | |||||||||||||||||||||
|
Purchase of treasury stock
|
- | - | - | - | - | (100,000 | ) | (100,000 | ) | |||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Net earnings
|
- | - | - | 119,279 | - | - | 119,279 | |||||||||||||||||||||
|
Unrealized losses on interest rate swaps, net
|
- | - | - | - | (1,984 | ) | - | (1,984 | ) | |||||||||||||||||||
|
Amortization of unrecognized actuarial gain and prior service
cost, net
|
- | - | - | - | 7,279 | - | 7,279 | |||||||||||||||||||||
|
Total comprehensive income
|
- | - | - | 119,279 | 5,295 | - | 124,574 | |||||||||||||||||||||
|
Balance at September 28, 2008
|
73,506,049 | 735 | 155,023 | 795,657 | (19,845 | ) | (474,459 | ) | 457,111 | |||||||||||||||||||
|
Shares issued under stock plans, including tax benefit
|
481,021 | 5 | 5,076 | - | - | - | 5,081 | |||||||||||||||||||||
|
Share-based compensation
|
- | - | 9,341 | - | - | - | 9,341 | |||||||||||||||||||||
|
Change in pension and postretirement plans’ measurement
date, net
|
- | - | - | (1,855 | ) | 40 | - | (1,815 | ) | |||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Net earnings
|
- | - | - | 118,408 | - | - | 118,408 | |||||||||||||||||||||
|
Unrealized gains on interest rate swaps, net
|
- | - | - | - | 21 | - | 21 | |||||||||||||||||||||
|
Amortization of unrecognized actuarial loss and prior service
cost, net
|
- | - | - | - | (63,658 | ) | - | (63,658 | ) | |||||||||||||||||||
|
Total comprehensive income
|
- | - | - | 118,408 | (63,637 | ) | - | 54,771 | ||||||||||||||||||||
|
Balance at September 27, 2009
|
73,987,070 | 740 | 169,440 | 912,210 | (83,442 | ) | (474,459 | ) | 524,489 | |||||||||||||||||||
|
Shares issued under stock plans, including tax benefit
|
474,562 | 5 | 7,499 | - | - | - | 7,504 | |||||||||||||||||||||
|
Share-based compensation
|
- | - | 10,605 | - | - | - | 10,605 | |||||||||||||||||||||
|
Purchase of treasury stock
|
- | - | - | - | - | (97,000 | ) | (97,000 | ) | |||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Net earnings
|
- | - | - | 70,210 | - | - | 70,210 | |||||||||||||||||||||
|
Unrealized gains on interest rate swaps, net
|
- | - | - | - | 2,401 | - | 2,401 | |||||||||||||||||||||
|
Amortization of unrecognized actuarial loss and prior service
cost, net
|
- | - | - | - | 2,254 | - | 2,254 | |||||||||||||||||||||
|
Total comprehensive income
|
- | - | - | 70,210 | 4,655 | - | 74,865 | |||||||||||||||||||||
|
Balance at October 3, 2010
|
74,461,632 | $ | 745 | $ | 187,544 | $ | 982,420 | $ | (78,787 | ) | $ | (571,459 | ) | $ | 520,463 | |||||||||||||
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
| 1. | ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of operations
— Founded in 1951,
Jack in the Box Inc. (the “Company”) operates and
franchises Jack in the
Box
®
quick-service restaurants and Qdoba Mexican
Grill
®
(“Qdoba”) fast-casual restaurants in 45 states.
The following summarizes the number of restaurants:
| 2010 | 2009 | 2008 | ||||||||||
|
Jack in the Box:
|
||||||||||||
|
Company-operated
|
956 | 1,190 | 1,346 | |||||||||
|
Franchised
|
1,250 | 1,022 | 812 | |||||||||
|
Total system
|
2,206 | 2,212 | 2,158 | |||||||||
|
Qdoba:
|
||||||||||||
|
Company-operated
|
188 | 157 | 111 | |||||||||
|
Franchised
|
337 | 353 | 343 | |||||||||
|
Total system
|
525 | 510 | 454 | |||||||||
References to the Company throughout these notes to the
consolidated financial statements are made using the first
person notations of “we,” “us” and
“our.”
Basis of presentation
— The accompanying
consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting
principles and the rules and regulations of the Securities and
Exchange Commission (“SEC”). During fiscal 2009, we
sold all of our Quick
Stuff
®
convenience stores and fuel stations. These stores and their
related activities have been presented as discontinued
operations for all periods presented. Unless otherwise noted,
amounts and disclosures throughout these Notes to Consolidated
Financial Statements relate to our continuing operations.
Principles of consolidation
— The
consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries and the accounts of any
variable interest entities where we are deemed the primary
beneficiary. All significant intercompany transactions are
eliminated.
Reclassifications and adjustments
— Certain prior year amounts in the
consolidated financial statements have been reclassified to
conform to the fiscal 2010 presentation. In 2010, we separated
impairment and other charges, net from selling, general and
administrative expenses in our consolidated statements of
earnings. We believe the additional detail provided is useful
when analyzing our results of operations.
Fiscal year
— Our fiscal year is 52 or
53 weeks ending the Sunday closest to September 30.
Fiscal 2010 includes 53 weeks while fiscal 2009 and 2008
include 52 weeks.
Use of estimates
— In preparing the
consolidated financial statements in conformity with
U.S. generally accepted accounting principles, management
is required to make certain assumptions and estimates that
affect reported amounts of assets, liabilities, revenues,
expenses and the disclosure of contingencies. In making these
assumptions and estimates, management may from time to time seek
advice and consider information provided by actuaries and other
experts in a particular area. Actual amounts could differ
materially from these estimates.
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.
Accounts and other receivables, net
is primarily
comprised of receivables from franchisees, tenants and credit
card processors. Franchisee receivables primarily include rents,
royalties, and marketing fees associated with the franchise
agreements, and receivables arising from distribution services
provided to most franchisees. Tenant receivables relate to
subleased properties where we are on the master lease agreement.
We charge interest on past due accounts receivable and accrue
interest on notes receivable based on the contractual terms. The
allowance for doubtful accounts is based on historical
experience and a review of existing receivables.
F-7
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Changes in accounts and other receivables are classified as an
operating activity in the consolidated statements of cash flows.
Inventories
are valued at the lower of cost or
market on a
first-in,
first-out basis. Changes in inventories are classified as an
operating activity in the consolidated statements of cash flows.
Assets held for sale
typically represent the costs
for new sites and existing sites that we plan to sell and lease
back within the next year. Gains or losses realized on
sale-leaseback transactions are deferred and amortized to income
over the lease terms. Assets held for sale also includes the net
book value of equipment we plan to sell to franchisees. Assets
are not depreciated when classified as held for sale. Assets
held for sale consisted of the following at each year-end:
| 2010 | 2009 | |||||||
|
Sites held for sale and leaseback
|
$ | 55,224 | $ | 99,612 | ||||
|
Assets held for sale
|
4,673 | - | ||||||
| $ | 59,897 | $ | 99,612 | |||||
Property and equipment, at cost
— Expenditures for new facilities and
equipment, and those that substantially increase the useful
lives of the property, are capitalized. Facilities leased under
capital leases are stated at the present value of minimum lease
payments at the beginning of the lease term, not to exceed fair
value. Maintenance and repairs are expensed as incurred. When
properties are retired or otherwise disposed of, the related
cost and accumulated depreciation are removed from the accounts,
and gains or losses on the dispositions are reflected in results
of operations.
Buildings, equipment, and leasehold improvements are generally
depreciated using the straight-line method based on the
estimated useful lives of the assets, over the initial lease
term for certain assets acquired in conjunction with the lease
commencement for leased properties, or the remaining lease term
for certain assets acquired after the commencement of the lease
for leased properties. In certain situations, one or more option
periods may be used in determining the depreciable life of
assets related to leased properties if we deem that an economic
penalty would be incurred otherwise. In either circumstance, our
policy requires lease term consistency when calculating the
depreciation period, in classifying the lease and in computing
straight-line rent expense. Building and leasehold improvement
assets are assigned lives that range from three to
35 years, and equipment assets are assigned lives that
range from two to 35 years. Depreciation and amortization
expense related to property and equipment was
$101.0 million, $100.5 million and $96.7 million
in 2010, 2009 and 2008, respectively.
Impairment of long-lived assets
— We
evaluate our long-lived assets, such as property and equipment,
for impairment whenever indicators of impairment are present.
This review generally includes a restaurant-level analysis,
except when we are actively selling a group of restaurants in
which case we perform our impairment evaluations at the group
level. Impairment evaluations for individual restaurants take
into consideration a restaurant’s operating cash flows, the
period of time since a restaurant has been opened or remodeled,
refranchising expectations, and the maturity of the related
market. Impairment evaluations for a group of restaurants takes
into consideration the group’s expected future cash flows
and sales proceeds from bids received, if any, or fair market
value based on, among other considerations, the specific sales
and cash flows of those restaurants. If the assets of a
restaurant or group of restaurants subject to our impairment
evaluation are not recoverable based upon the forecasted,
undiscounted cash flows, we recognize an impairment loss by the
amount which the carrying value of the assets exceeds fair
value. Long-lived assets that are held for disposal are reported
at the lower of their carrying value or fair value, less
estimated costs to sell.
Goodwill and intangible assets
— Goodwill is the excess of the purchase price
over the fair value of identifiable net assets acquired.
Intangible assets, net is comprised primarily of lease
acquisition costs, acquired franchise contract costs and our
Qdoba trademark. Lease acquisition costs primarily represent the
fair
F-8
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
values of acquired lease contracts having contractual rents
lower than fair market rents and are amortized on a
straight-line basis over the remaining initial lease term.
Acquired franchise contract costs, which represent the acquired
value of franchise contracts, are amortized over the term of the
franchise agreements, generally 10 years, based on the
projected royalty revenue stream. Our trademark asset, recorded
in connection with our acquisition of Qdoba Restaurant
Corporation in fiscal 2003, has an indefinite life and is not
amortized.
Goodwill and
non-amortizable
intangible assets are evaluated for impairment annually, or more
frequently if indicators of impairment are present. If the
determined fair values of these assets are less than the related
carrying amounts, an impairment loss is recognized. We performed
our annual impairment tests of goodwill and
non-amortized
intangible assets in the fourth quarter of fiscal 2010 and
determined there was no impairment.
Company-owned life insurance
— We have
purchased company-owned life insurance (“COLI”)
policies to support our non-qualified benefit plans. The cash
surrender values of these policies were $75.8 million and
$66.9 million as of October 3, 2010 and
September 27, 2009, respectively, and are included in other
assets, net in the accompanying consolidated balance sheets.
Changes in cash surrender values are included in selling,
general and administrative expenses in the accompanying
consolidated statements of earnings. These policies reside in an
umbrella trust for use only to pay plan benefits to participants
or to pay creditors if the Company becomes insolvent. As of
October 3, 2010 and September 27, 2009, the trust also
included cash of $0.5 million and $1.4 million,
respectively.
Leases
—
We review all leases for
capital or operating classification at their inception under the
Financial Accounting Standards Board (“FASB”)
authoritative guidance for leases. Our operations are primarily
conducted under operating leases. Within the provisions of
certain leases, there are rent holidays and escalations in
payments over the base lease term, as well as renewal periods.
The effects of the holidays and escalations have been reflected
in rent expense on a straight-line basis over the expected lease
term. Differences between amounts paid and amounts expensed are
recorded as deferred rent. The lease term commences on the date
when we have the right to control the use of the leased
property. Certain leases also include contingent rent provisions
based on sales levels, which are accrued at the point in time we
determine that it is probable such sales levels will be achieved.
Revenue recognition
— Revenue from
company restaurant sales is recognized when the food and
beverage products are sold and are presented net of sales taxes.
We provide purchasing, warehouse and distribution services for
most of our franchise-operated restaurants. Revenue from these
services, included in distribution sales in the accompanying
consolidated statements of earnings, is recognized at the time
of physical delivery of the inventory.
Our franchise arrangements generally provide for franchise fees
and continuing fees based upon a percentage of sales
(“royalties”). In order to renew a franchise agreement
upon expiration, a franchisee must obtain the Company’s
approval and pay then current fees. Franchise fees are recorded
as revenue when we have substantially performed all of our
contractual obligations. Franchise royalties are recorded in
revenues on an accrual basis. Among other things, a franchisee
may be provided the use of land and building, generally for a
period of 20 years, and is required to pay negotiated rent,
property taxes, insurance and maintenance. Certain franchise
rents, which are contingent upon sales levels, are recognized in
the period in which the contingency is met.
Gift cards
— We sell gift cards to our
customers in our restaurants and through selected third parties.
The gift cards sold to our customers have no stated expiration
dates and are subject to actual
and/or
potential escheatment rights in several of the jurisdictions in
which we operate. We recognize income from gift cards when
redeemed by the customer.
F-9
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
While we will continue to honor all gift cards presented for
payment, we may determine the likelihood of redemption to be
remote for certain card balances due to, among other things,
long periods of inactivity. In these circumstances, to the
extent we determine there is no requirement for remitting
balances to government agencies under unclaimed property laws,
card balances may be recognized as a reduction to selling,
general and administrative expenses in the accompanying
consolidated statements of earnings.
Income recognized on unredeemed gift card balances was
$0.7 million in fiscal 2010 and 2009 and $1.0 million
in fiscal 2008.
Pre-opening costs
associated with the opening of a
new restaurant consist primarily of employee training costs and
are expensed as incurred and are included in selling, general
and administrative expenses in the accompanying consolidated
statements of earnings.
Restaurant closure costs
— All costs
associated with exit or disposal activities are recognized when
they are incurred. Restaurant closure costs, which are included
in impairment and other charges, net in the accompanying
consolidated statements of earnings, consist of future lease
commitments, net of anticipated sublease rentals, and expected
ancillary costs.
Self-insurance
— We are self-insured for
a portion of our workers’ compensation, general liability,
automotive, and employee medical and dental claims. We utilize a
paid-loss plan for our workers’ compensation, general
liability and automotive programs, which have predetermined loss
limits per occurrence and in the aggregate. We establish our
insurance liability and reserves using independent actuarial
estimates of expected losses for determining reported claims and
as the basis for estimating claims incurred but not reported.
Advertising costs
— We administer
marketing funds which included contractual contributions of
approximately 5% and 1% of sales at all franchise and
company-operated Jack in the Box and Qdoba restaurants,
respectively. We record contributions from franchisees as a
liability included in accrued expenses in the accompanying
consolidated balance sheets until such funds are expended. As
the contributions to the marketing funds are designated for
advertising, we act as an agent for the franchisees with regard
to these contributions. Therefore, we do not reflect franchisee
contributions to the funds in our consolidated statements of
earnings or cash flows.
Production costs of commercials, programming and other marketing
activities are charged to the marketing funds when the
advertising is first used for its intended purpose, and the
costs of advertising are charged to operations as incurred.
Total contributions and other marketing expenses, which are
included in selling, general, and administrative expenses in the
accompanying consolidated statements of earnings, were
$89.8 million, $100.1 million and $106.9 million
in 2010, 2009 and 2008, respectively.
Share-based compensation
—
We
account for our share-based compensation as required by the FASB
authoritative guidance on stock compensation
,
which
generally requires, among other things, that all employee
share-based compensation be measured using a fair value method
and that the resulting compensation cost be recognized in the
financial statements.
Compensation expense for our share-based compensation awards is
generally recognized on a straight-line basis during the service
period of the respective grant. Certain awards accelerate
vesting upon the recipient’s retirement from the Company.
In these cases, for awards granted prior to October 3,
2005, we recognize compensation costs over the service period
and accelerate any remaining unrecognized compensation when the
employee retires. For awards granted after October 2, 2005,
we recognize compensation costs over the shorter of the vesting
period or the period from the date of grant to the date the
employee becomes eligible to retire. For awards granted prior to
October 3, 2005, had we recognized compensation cost over
the shorter of the vesting period or the period from the date of
grant to becoming retirement eligible, compensation costs
recognized would not have been materially different.
F-10
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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. We recognize interest and, when
applicable, penalties related to unrecognized tax benefits as a
component of our income tax provision.
Authoritative guidance issued by the FASB prescribes a minimum
probability threshold that a tax position must meet before a
financial statement benefit is recognized. The minimum threshold
is defined as a tax position that is more likely than not to be
sustained upon examination by the applicable taxing authority,
including resolution of any related appeals or litigation
processes, based on the technical merits of the position. Refer
to Note 10,
Income Taxes
, for additional information.
Derivative instruments
—
From
time to time, we use commodity derivatives to reduce the risk of
price fluctuations related to raw material requirements for
commodities such as beef and pork, and we use utility
derivatives to reduce the risk of price fluctuations related to
natural gas. We also use interest rate swap agreements to manage
interest rate exposure. We do not speculate using derivative
instruments. We purchase derivative instruments only for the
purpose of risk management.
All derivatives are recognized on the consolidated balance
sheets at fair value based upon quoted market prices. Changes in
the fair values of derivatives are recorded in earnings or other
comprehensive income, based on whether the instrument is
designated as a hedge transaction. Gains or losses on derivative
instruments reported in other comprehensive income are
classified to earnings in the period the hedged item affects
earnings. If the underlying hedge transaction ceases to exist,
any associated amounts reported in other comprehensive income
are reclassified to earnings at that time. Any ineffectiveness
is recognized in earnings in the current period. Refer to
Note 5,
Fair Value Measurements
, and Note 6,
Derivative Instruments,
for additional information
regarding our derivative instruments.
Contingencies
— We recognize liabilities
for contingencies when we have an exposure that indicates it is
probable that an asset has been impaired or that a liability has
been incurred and the amount of impairment or loss can be
reasonably estimated. Our ultimate legal and financial liability
with respect to such matters cannot be estimated with certainty
and requires the use of estimates. When the reasonable estimate
is a range, the recorded loss will be the best estimate within
the range. We record legal settlement costs as those costs are
incurred.
Variable interest entities
— The FASB
authoritative guidance on consolidation requires the primary
beneficiary of a variable interest entity to consolidate that
entity. The primary beneficiary of a variable interest entity is
the party that absorbs a majority of the variable interest
entity’s expected losses, receives a majority of the
entity’s expected residual returns, or both, because of
ownership, contractual or other financial interests in the
entity.
The primary entities in which we possess a variable interest are
franchise entities, which operate our franchise restaurants. We
do not possess any ownership interests in franchise entities. We
have reviewed these franchise entities and determined that we
are not the primary beneficiary of the entities and therefore,
these entities have not been consolidated.
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 our chief operating decision makers in
deciding how to allocate resources. Similar operating segments
can be aggregated into a single operating segment if the
businesses are similar. We operate our business in two operating
segments, Jack in the Box and Qdoba. Refer to Note 16,
Segment Reporting
, for additional discussion regarding
our segments.
F-11
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Effect of new accounting pronouncements
— In December 2008, the FASB issued
authoritative guidance which expands the disclosure requirements
about fair value measurements of plan assets for pension plans.
We adopted with guidance in the fourth quarter of fiscal 2010.
The additional disclosures are included in Note 11,
Retirement Plans
.
Subsequent events
— The Company has
evaluated subsequent events through the time of filing this
Form 10-K
with the SEC, and determined there were no other items to
disclose.
| 2. | DISCONTINUED OPERATIONS |
In 2009, we completed the sale of all 61 of our Quick Stuff
convenience stores, which included a major-branded fuel station
developed adjacent to a full-size Jack in the Box restaurant. We
received cash proceeds of $34.4 million and recorded a loss
on disposition of $24.3 million, or $15.0 million net
of taxes, included in earnings (losses) from discontinued
operations, net in the accompanying consolidated statement of
earnings for fiscal 2009. The loss on disposition includes an
impairment charge of $22.4 million related to building
assets retained by us and leased to the buyers as part of the
sale agreements. The net assets sold totaled approximately
$25.7 million and consisted primarily of property and
equipment of $24.8 million.
Revenue and operating income from discontinued operations for
fiscal 2009 (through the date of sale) and 2008 were as follows
(in thousands
):
| 2009 | 2008 | |||||||
|
Revenue
|
$ | 272,202 | $ | 461,888 | ||||
|
Operating (losses) income
|
(20,439 | ) | 1,749 | |||||
| 3. | INITIAL FRANCHISE FEES, REFRANCHISINGS AND ACQUISITIONS |
Initial franchise fees and refranchisings
— The following is a summary of initial
franchise fees received and gains recognized on the sale of
restaurants to franchisees (
dollars in thousands
):
| 2010 | 2009 | 2008 | ||||||||||
|
Number of restaurants sold to franchisees
|
219 | 194 | 109 | |||||||||
|
Number of new restaurants opened by franchisees
|
37 | 59 | 71 | |||||||||
|
Initial franchise fees received
|
$ | 10,218 | $ | 10,538 | $ | 7,303 | ||||||
|
Cash proceeds from the sale of company-operated restaurants
|
$ | 66,152 | $ | 94,927 | $ | 57,117 | ||||||
|
Notes receivable
|
25,809 | 21,575 | 27,928 | |||||||||
|
Total proceeds
|
91,961 | 116,502 | 85,045 | |||||||||
|
Net assets sold (primarily property and equipment)
|
(35,113 | ) | (33,007 | ) | (16,864 | ) | ||||||
|
Goodwill related to the sale of company-operated restaurants
|
(1,860 | ) | (2,482 | ) | (1,832 | ) | ||||||
|
Gains on the sale of company-operated restaurants
|
$ | 54,988 | $ | 81,013 | $ | 66,349 | ||||||
In 2009, we recognized a loss of $2.4 million related to
the anticipated sale of a lower performing Jack in the Box
company-operated market. This loss was included in gains on the
sale of company-operated restaurants, net in the accompanying
consolidated statement of earnings.
Franchise acquisitions
— We account for
the acquisition of franchise restaurants using the purchase
method of accounting for business combinations. In 2010, we
acquired 16 Qdoba restaurants from a franchisee for net
consideration of $8.1 million. The purchase price
allocation was based on fair value estimates determined
F-12
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
using significant unobservable inputs (Level 3). The
following table provides detail of the allocation (
in
thousands
):
|
Property and equipment
|
$ | 6,756 | ||
|
Reacquired franchise rights
|
301 | |||
|
Goodwill
|
1,058 | |||
|
Total consideration
|
$ | 8,115 | ||
In 2009, we acquired 22 Qdoba restaurants from franchisees for
net consideration of $6.8 million. The purchase price was
allocated to property and equipment, goodwill and other income
(included in selling, general and administrative expenses in the
accompanying consolidated statement of earnings).
| 4. | GOODWILL AND INTANGIBLE ASSETS, NET |
The changes in the carrying amount of goodwill during 2010 and
2009 by operating segment were as follows
(in thousands)
:
| Jack in the Box | Qdoba | Total | ||||||||||
|
Balance at September 28, 2008
|
$ | 56,992 | $ | 28,797 | $ | 85,789 | ||||||
|
Acquisition of franchised restaurants
|
- | 2,536 | 2,536 | |||||||||
|
Sale of company-operated restaurants to franchisees
|
(2,482 | ) | - | (2,482 | ) | |||||||
|
Balance at September 27, 2009
|
54,510 | 31,333 | 85,843 | |||||||||
|
Acquisition of franchised restaurants
|
- | 1,058 | 1,058 | |||||||||
|
Sale of company-operated restaurants to franchisees
|
(1,860 | ) | - | (1,860 | ) | |||||||
|
Balance at October 3, 2010
|
$ | 52,650 | $ | 32,391 | $ | 85,041 | ||||||
Intangible assets, net consist of the following as of
October 3, 2010 and September 27, 2009
(in
thousands)
:
| 2010 | 2009 | |||||||
|
Amortized intangible assets:
|
||||||||
|
Gross carrying amount
|
$ | 17,035 | $ | 17,679 | ||||
|
Less accumulated amortization
|
(7,849 | ) | (8,045 | ) | ||||
|
Net carrying amount
|
9,186 | 9,634 | ||||||
|
Non-amortized
intangible assets:
|
||||||||
|
Trademark
|
8,800 | 8,800 | ||||||
|
Net carrying amount
|
$ | 17,986 | $ | 18,434 | ||||
Amortized intangible assets include lease acquisition costs and
acquired franchise contracts. The weighted-average life of the
amortized intangible assets is approximately 20 years.
Total amortization expense related to intangible assets was
$0.7 million in fiscal 2010 and $0.8 million in fiscal
2009 and 2008.
The following table summarizes, as of October 3, 2010, the
estimated amortization expense for each of the next five fiscal
years
(in thousands)
:
|
Fiscal Year
|
||||
|
2011
|
$ | 780 | ||
|
2012
|
769 | |||
|
2013
|
735 | |||
|
2014
|
702 | |||
|
2015
|
688 | |||
|
Total
|
$ | 3,674 | ||
F-13
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
| 5. | FAIR VALUE MEASUREMENTS |
Financial assets and liabilities
— The
following table presents the financial assets and liabilities
measured at fair value on a recurring basis as of
October 3, 2010 (
in thousands
):
| Fair Value Measurements | ||||||||||||||||
|
Quoted Prices
|
||||||||||||||||
|
in Active
|
Significant
|
|||||||||||||||
|
Markets for
|
Other
|
|||||||||||||||
|
Identical
|
Observable
|
Significant
|
||||||||||||||
|
Assets
|
Inputs
|
Unobservable Inputs
|
||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
|
Non-qualified deferred compensation plan (1)
|
$ | 36,011 | $ | 36,011 | $ | - | $ | - | ||||||||
|
Interest rate swaps (Note 6) (2)
|
733 | - | 733 | - | ||||||||||||
|
Total liabilities at fair value
|
$ | 36,744 | $ | 36,011 | $ | 733 | $ | - | ||||||||
| (1) | We maintain an unfunded defined contribution plan for key executives and other members of management excluded from participation in our qualified savings plan. The fair value of this obligation is based on the closing market prices of the participants’ elected investments. | |
| (2) | We entered into interest rate swaps to reduce our exposure to rising interest rates on our variable debt. The fair value of our interest rate swaps are based upon valuation models as reported by our counterparties. |
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 term loan
and capital lease obligations approximated their carrying values
as of October 3, 2010.
Non-financial assets and liabilities
— The Company’s non-financial
instruments, which primarily consist of goodwill, intangible
assets and property and equipment, are reported at carrying
value and are not required to be measured at fair value on a
recurring basis. However, on a periodic basis or whenever events
or changes in circumstances indicate that their carrying value
may not be recoverable (at least annually for goodwill and
semi-annually for property and equipment), non-financial
instruments are assessed for impairment and, if applicable,
written down to fair value.
In connection with our semi-annual property and equipment
impairment reviews and the closure of 40 Jack in the Box
company-operated restaurants prior to the end of the fiscal
2010, long-lived assets having a carrying value of
$13.8 million were written down to fair value using
significant unobservable inputs (Level 3). The resulting
impairment charge of $13.0 million was included in
impairment and other charges, net in the accompanying
consolidated statement of earnings for the fiscal year ended
October 3, 2010.
| 6. | DERIVATIVE INSTRUMENTS |
Objectives and strategies
— We are
exposed to interest rate volatility with regard to our variable
rate debt. To reduce our exposure to rising interest rates, in
August 2010, we entered into two interest rate swap agreements
that will effectively convert $100.0 million of our
variable rate term loan borrowings to a fixed-rate basis
beginning September 2011 through September 2014. Previously, we
held two interest rate swaps that effectively converted
$200.0 million of our variable rate term loan borrowings to
a fixed-rate basis from March 2007 to April 1, 2010. These
agreements have been designated as cash flow hedges under the
terms of the FASB authoritative guidance for derivatives and
hedging and to the extent that they are effective in offsetting
the variability of the hedged cash flows, changes in the
derivatives’ fair value are not included in earnings but
are included in other comprehensive income (loss).
We are also exposed to the impact of utility price fluctuations
related to unpredictable factors such as weather and various
other market conditions outside our control. Our ability to
recover increased costs through higher
F-14
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
prices is limited by the competitive environment in which we
operate. Therefore, from time to time, we enter into futures and
option contracts to manage these fluctuations. These contracts
have not been designated as hedging instruments under the FASB
authoritative guidance for derivatives and hedging.
Financial position
— The following
derivative instruments were outstanding as of the end of each
period
(in thousands):
| October 3, 2010 | September 27, 2009 | |||||||||||||||
|
Balance
|
Balance
|
|||||||||||||||
|
Sheet
|
Fair
|
Sheet
|
Fair
|
|||||||||||||
| Location | Value | Location | Value | |||||||||||||
|
Derivatives designated hedging instruments:
|
||||||||||||||||
|
Interest rate swaps (Note 5)
|
Accrued
liabilities |
$ | 733 |
Accrued
liabilities |
$ | 4,615 | ||||||||||
|
Total derivatives
|
$ | 733 | $ | 4,615 | ||||||||||||
Financial performance
— The following is
a summary of the gains or losses recognized on our derivative
instruments
(in thousands):
|
Amount of Gain/(Loss)
|
||||||||||||
| Recognized in OCI | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Derivatives in cash flow hedging relationship:
|
||||||||||||
|
Interest rate swaps (Note 13)
|
$ | 3,882 | $ | 42 | $ | (3,210 | ) | |||||
|
Location of
|
Amount of Loss
|
|||||||||||||||
|
Gain/(Loss)
|
Recognized in Income | |||||||||||||||
| in Income | 2010 | 2009 | 2008 | |||||||||||||
|
Derivatives not designated hedging instruments:
|
||||||||||||||||
|
Natural gas contracts
|
Occupancy
and other |
$ | - | $ | (544 | ) | $ | (840 | ) | |||||||
Approximately $4.7 million, $6.2 million, and $2.0
million was reclassified from accumulated other comprehensive
income (loss) to interest expense during fiscal years 2010,
2009, and 2008, respectively. These amounts represent payments
made to the counterparty for the effective portions of the
interest rate swaps that were recognized in accumulated other
comprehensive income (loss) and reclassified into earnings as an
increase to interest expense for the periods presented. During
2010, 2009 and 2008, our interest rate swaps had no hedge
ineffectiveness and no gains or losses were reclassified into
net earnings.
| 7. |
|
The detail of long-term debt at each year-end is as follows
(in thousands)
:
| 2010 | 2009 | |||||||
|
Revolver, variable interest rate based on an applicable margin
plus LIBOR, 2.79% at October 3, 2010
|
$ | 160,000 | $ | - | ||||
|
Term loan, variable interest rate based on an applicable margin
plus LIBOR, 2.80% at October 3, 2010
|
197,500 | 415,000 | ||||||
|
Capital lease obligations, 10.14% weighted average interest rate
|
8,911 | 10,247 | ||||||
| 366,411 | 425,247 | |||||||
|
Less current portion
|
(13,781 | ) | (67,977 | ) | ||||
| $ | 352,630 | $ | 357,270 | |||||
New Credit Facility
— On June 29,
2010, the Company replaced its existing credit facility with a
new credit facility intended to provide a more flexible capital
structure. The new credit facility is comprised of (i) a
F-15
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
$400.0 million revolving credit facility and (ii) a
$200.0 million term loan with a five-year maturity,
initially both with London Interbank Offered Rate
(“LIBOR”) plus 2.50
%.
As part of the credit
agreement, we may also request the issuance of up to
$75.0 million in letters of credit, the outstanding amount
of which reduces the net borrowing capacity under the agreement.
The new credit facility requires the payment of an annual
commitment fee based on the unused portion of the credit
facility. The credit facility’s interest rates and the
annual commitment rate are based on a financial leverage ratio,
as defined in the credit agreement. At October 3, 2010, we
had borrowings under the revolving credit facility of
$160.0 million, $197.5 million outstanding under the
term loan and letters of credit outstanding of
$34.9 million. Loan origination costs associated with the
new credit facility were $9.5 million and are included as
deferred costs in other assets, net in the accompanying
consolidated balance sheet as of October 3, 2010. Deferred
financing fees of $0.5 million related to the prior credit
facility were written off and are included in interest expense,
net in the accompanying consolidated statements of earnings.
Collateral
— The Company’s
obligations under the new credit facility are secured by first
priority liens and security interests in the capital stock,
partnership and membership interests owned by the Company and
(or) its subsidiaries, and any proceeds thereof, subject to
certain restrictions set forth in the credit agreement.
Additionally, there is a negative pledge on all tangible and
intangible assets (including all real and personal property)
with customary exceptions as reflected in the credit agreement.
Covenants
— We are subject to a number
of customary covenants under our credit facility, including
limitations on additional borrowings, acquisitions, loans to
franchisees, capital expenditures, lease commitments, stock
repurchases, dividend payments and requirements to maintain
certain financial ratios. We were in compliance with all
covenants at October 3, 2010.
Future cash payments
— Scheduled
principal payments on our long-term debt for each of the next
five fiscal years are as follows
(in thousands)
:
|
Fiscal Year
|
||||
|
2011
|
$ | 13,781 | ||
|
2012
|
21,137 | |||
|
2013
|
23,478 | |||
|
2014
|
53,430 | |||
|
2015
|
250,901 | |||
|
Total principal payments
|
$ | 362,727 | ||
We may make voluntary prepayments of the loans under the
revolving credit facility and term loan at any time without
premium or penalty. Certain events such as asset sales, certain
issuances of debt and insurance and condemnation recoveries may
trigger a mandatory prepayment.
Capitalized interest
— We capitalize
interest in connection with the construction of our restaurants
and other facilities. Interest capitalized in 2010, 2009 and
2008 was $0.3 million, $0.7 million and
$0.9 million, respectively.
| 8. | LEASES |
As lessee
— We lease restaurants and
other facilities, which generally have renewal clauses of 5 to
20 years exercisable at our option. In some instances, our
leases have provisions for contingent rentals based upon a
percentage of defined revenues. Many of our leases also have
rent escalation clauses and require the payment of property
taxes, insurance and maintenance costs. We also lease certain
restaurant, office and warehouse equipment, as well as various
transportation equipment. Minimum rental obligations are
accounted for on a straight-line basis over the term of the
initial lease.
F-16
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The components of rent expense were as follows in each fiscal
year
(in thousands)
:
| 2010 | 2009 | 2008 | ||||||||||
|
Minimum rentals
|
$ | 222,600 | $ | 208,091 | $ | 199,903 | ||||||
|
Contingent rentals
|
1,804 | 2,954 | 3,444 | |||||||||
|
Total rent expense
|
224,404 | 211,045 | 203,347 | |||||||||
|
Less sublease rentals
|
(83,340 | ) | (61,529 | ) | (50,004 | ) | ||||||
|
Net rent expense
|
$ | 141,064 | $ | 149,516 | $ | 153,343 | ||||||
Future minimum lease payments under capital and operating leases
are as follows
(in thousands)
:
|
Capital
|
Operating
|
|||||||
|
Fiscal Year
|
Leases | Leases | ||||||
|
2011
|
$ | 2,101 | $ | 219,414 | ||||
|
2012
|
1,841 | 209,939 | ||||||
|
2013
|
1,583 | 195,523 | ||||||
|
2014
|
1,426 | 185,697 | ||||||
|
2015
|
1,309 | 171,073 | ||||||
|
Thereafter
|
4,564 | 919,376 | ||||||
|
Total minimum lease payments
|
12,824 | $ | 1,901,022 | |||||
|
Less amount representing interest, 10.14% weighted average
interest rate
|
(3,913 | ) | ||||||
|
Present value of obligations under capital leases
|
8,911 | |||||||
|
Less current portion
|
(1,281 | ) | ||||||
|
Long-term capital lease obligations
|
$ | 7,630 | ||||||
Total future minimum lease payments have not been reduced by
minimum sublease rents of $1.2 billion expected to be
recovered under our operating subleases.
Assets recorded under capital leases are included in property
and equipment and consisted of the following at each year-end
(in thousands)
:
| 2010 | 2009 | |||||||
|
Buildings
|
$ | 22,733 | $ | 22,733 | ||||
|
Equipment
|
16 | 499 | ||||||
| 22,749 | 23,232 | |||||||
|
Less accumulated amortization
|
(15,340 | ) | (15,048 | ) | ||||
| $ | 7,409 | $ | 8,184 | |||||
Amortization of assets under capital leases is included in
depreciation and amortization expense.
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. Most of our leases have rent escalation clauses
and renewal clauses of 5 to 20 years. Total rental income
was $133.8 million, $105.5 million and
$88.6 million, including contingent rentals of
$7.7 million, $13.0 million and $13.8 million, in
2010, 2009 and 2008, respectively.
F-17
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The minimum rents receivable expected to be received under these
non-cancelable operating leases, excluding contingent rentals,
are as follows
(in thousands)
:
|
Fiscal Year
|
||||
|
2011
|
$ | 122,577 | ||
|
2012
|
120,393 | |||
|
2013
|
117,872 | |||
|
2014
|
117,010 | |||
|
2015
|
116,238 | |||
|
Thereafter
|
1,199,605 | |||
|
Total minimum future rentals
|
$ | 1,793,695 | ||
Assets held for lease consisted of the following at each
year-end
(in thousands)
:
| 2010 | 2009 | |||||||
|
Land
|
$ | 49,913 | $ | 36,507 | ||||
|
Buildings
|
410,823 | 256,858 | ||||||
|
Equipment
|
373 | - | ||||||
| 461,109 | 293,365 | |||||||
|
Less accumulated depreciation
|
(207,616 | ) | (140,870 | ) | ||||
| $ | 253,493 | $ | 152,495 | |||||
| 9. | IMPAIRMENT, DISPOSAL OF PROPERTY AND EQUIPMENT, AND RESTAURANT CLOSING COSTS |
Impairment
— When events and
circumstances indicate that our long-lived assets might be
impaired and their carrying amount is greater than the
undiscounted cash flows we expect to generate from such assets,
we recognize an impairment loss as the amount by which the
carrying value exceeds the fair value of the assets. We
typically estimate fair value based on the estimated discounted
cash flows of the related asset using marketplace participant
assumptions. Impairment charges primarily relate to the
write-down of the carrying value of certain underperforming Jack
in the Box restaurants we continue to operate and restaurants we
have closed.
Disposal of property and equipment
— We
also recognize accelerated depreciation and other costs on the
disposition of property and equipment. When we decide to dispose
of a long-lived asset, depreciable lives are adjusted based on
the estimated disposal date and accelerated depreciation is
recorded. Other disposal costs primarily relate to gains or
losses recognized upon the sale of closed restaurant properties
and normal ongoing capital maintenance activities.
The following impairment and disposal costs are included in
impairment and other charges, net in the accompanying
consolidated statements of earnings (
in thousands
):
| 2010 | 2009 | 2008 | ||||||||||
|
Impairment charges
|
$ | 12,970 | $ | 6,586 | $ | 3,507 | ||||||
|
Losses on the disposition of property and equipment, net
|
$ | 10,757 | $ | 11,418 | $ | 17,373 | ||||||
F-18
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Restaurant closing costs
consist of future lease
commitments, net of anticipated sublease rentals and expected
ancillary costs, and are included in impairment and other
charges, net. Total accrued restaurant closing costs, included
in accrued liabilities and other long-term liabilities, changed
as follows (
in thousands
):
| 2010 | 2009 | |||||||
|
Balance at beginning of year
|
$ | 4,234 | $ | 4,712 | ||||
|
Additions and adjustments
|
22,362 | 834 | ||||||
|
Cash payments
|
(1,576 | ) | (1,312 | ) | ||||
|
Balance at end of year
|
$ | 25,020 | $ | 4,234 | ||||
Additions and adjustments primarily relate to revisions to
certain sublease assumptions and the closures of certain Jack in
the Box restaurants. Additions in 2010 principally relate to the
closure of 40 restaurants at the end of the fiscal year which
resulted in future lease commitment charges of
$20.3 million.
| 10. | INCOME TAXES |
The fiscal year income taxes consist of the following
(in
thousands)
:
| 2010 | 2009 | 2008 | ||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 55,046 | $ | 91,088 | $ | 54,967 | ||||||
|
State
|
8,314 | 13,442 | 9,061 | |||||||||
| 63,360 | 104,530 | 64,028 | ||||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(24,070 | ) | (21,846 | ) | 5,202 | |||||||
|
State
|
(3,484 | ) | (3,229 | ) | 1,021 | |||||||
| (27,554 | ) | (25,075 | ) | 6,223 | ||||||||
|
Income tax expense from continuing operations
|
$ | 35,806 | $ | 79,455 | $ | 70,251 | ||||||
|
Income tax expense (benefit) from discontinued operations
|
$ | - | $ | (7,465 | ) | $ | 679 | |||||
A reconciliation of the federal statutory income tax rate to our
effective tax rate is as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Computed at federal statutory rate
|
35.0% | 35.0% | 35.0% | |||||||||
|
State income taxes, net of federal tax benefit
|
3.2 | 3.2 | 3.3 | |||||||||
|
Benefit of jobs tax credits
|
(1.8 | ) | (0.7 | ) | (2.5 | ) | ||||||
|
Benefit of cash surrender value
|
(2.3 | ) | - | (0.1 | ) | |||||||
|
Others, net
|
(0.3 | ) | 0.2 | 1.6 | ||||||||
| 33.8% | 37.7% | 37.3% | ||||||||||
F-19
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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
(in
thousands)
:
| 2010 | 2009 | |||||||
|
Deferred tax assets:
|
||||||||
|
Accrued pension and postretirement benefits
|
$ | 57,817 | $ | 58,256 | ||||
|
Accrued insurance
|
13,603 | 12,676 | ||||||
|
Leasing transactions
|
11,290 | 13,304 | ||||||
|
Accrued vacation pay expense
|
8,528 | 11,835 | ||||||
|
Deferred income
|
2,436 | 2,660 | ||||||
|
Other reserves and allowances
|
33,893 | 21,955 | ||||||
|
Tax loss and tax credit carryforwards
|
4,087 | 3,924 | ||||||
|
Share-based compensation
|
16,708 | 12,172 | ||||||
|
Other, net
|
4,515 | 3,922 | ||||||
|
Total gross deferred tax assets
|
152,877 | 140,704 | ||||||
|
Valuation allowance
|
(4,087 | ) | (3,924 | ) | ||||
|
Total net deferred tax assets
|
148,790 | 136,780 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Property and equipment, principally due to differences in
depreciation
|
(38,250 | ) | (51,734 | ) | ||||
|
Intangible assets
|
(23,394 | ) | (22,737 | ) | ||||
|
Total gross deferred tax liabilities
|
(61,644 | ) | (74,471 | ) | ||||
|
Net deferred tax assets
|
$ | 87,146 | $ | 62,309 | ||||
Deferred tax assets at October 3, 2010 include state net
operating loss carryforwards of approximately $63.5 million
expiring at various times between 2011 and 2028. At
October 3, 2010 and September 27, 2009, we recorded a
valuation allowance related to state net operating losses of
$4.1 million for October 3, 2010 and $3.9 million
for September 27, 2009. The current year change in the
valuation allowance of $0.2 million relates to net
operating losses. We believe that it is more likely than not
that these loss carryforwards will not be realized and that the
remaining deferred tax assets will be realized through future
taxable income or alternative tax strategies.
At September 27, 2009, our gross unrecognized tax benefits
associated with uncertain income tax positions were
$0.6 million, which if recognized, would favorably affect
the effective income tax rate. As of October 3, 2010, the
gross unrecognized tax benefits remain unchanged. A
reconciliation of the beginning and ending amount of
unrecognized tax benefits follows (
in thousands
):
| 2010 | 2009 | |||||||
|
Balance beginning of year
|
$ | 608 | $ | 4,172 | ||||
|
Increases to tax positions recorded during current years
|
200 | 195 | ||||||
|
Reductions to tax positions due to settlements with taxing
authorities
|
(179 | ) | (3,759 | ) | ||||
|
Balance at end of year
|
$ | 629 | $ | 608 | ||||
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 the IRS has completed its
examination or until the statute of limitations has expired.
It is reasonably possible that changes of approximately
$0.4 million to the gross unrecognized tax benefits will be
required within the next twelve months. These changes relate to
the possible settlement of state tax audits.
The major jurisdictions in which the Company files income tax
returns include the United States and states in which we operate
that impose an income tax. The federal statutes of limitations
have not expired for tax years 2007 and forward. The statutes of
limitations for California and Texas, which constitute the
Company’s major
F-20
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
state tax jurisdictions, have not expired for tax years 2000 and
2006, respectively, and forward. Generally, the statutes of
limitations for the other state jurisdictions have not expired
for tax years 2007 and forward.
| 11. | RETIREMENT PLANS |
We sponsor programs that provide retirement benefits to most of
our employees. These programs include defined contribution
plans, defined benefit pension plans and postretirement
healthcare plans.
Defined contribution plans
—
We
maintain savings plans pursuant to Section 401(k) of the
Internal Revenue Code, which allow administrative and clerical
employees who have satisfied the service requirements and
reached age 21 to defer a percentage of their pay on a
pre-tax basis. We match 50% of the first 4% of compensation
deferred by the participant. Our contributions under these plans
were $1.5 million, $1.9 million and $2.0 million
in 2010, 2009 and 2008, respectively. We also maintain an
unfunded, non-qualified deferred compensation plan for key
executives and other members of management who are excluded from
participation in the qualified savings plan. This plan allows
participants to defer up to 50% of their salary and 100% of
their bonus, on a pre-tax basis. We match 100% of the first 3%
contributed by the participant. Effective January 1, 2007,
our supplemental executive retirement plan (“SERP”)
was closed to new participants. To compensate executives no
longer eligible to participate in the SERP, we also contribute a
supplemental amount equal to 4% of an eligible employee’s
salary and bonus for a period of ten years in such eligible
position. Our contributions under the non-qualified deferred
compensation plan were $1.2 million, $1.1 million and
$1.3 million in 2010, 2009 and 2008, respectively. In each
plan, a participant’s right to Company contributions vests
at a rate of 25% per year of service.
Defined benefit pension plans
—
We sponsor a defined benefit pension
plan (“qualified plan”) covering substantially all
full-time employees. In September 2010, the Board of Directors
approved changes to our qualified plan whereby participants will
no longer accrue benefits effective December 31, 2015 and
the plan will be closed to new participants effective
January 1, 2011. This change was accounted for as a plan
“curtailment” in accordance with the authoritative
guidance issued by the FASB. As a result of the curtailment, our
qualified plan benefit obligation decreased by approximately
$16.5 million representing the effect of estimated future
pay increases which cease to be a part of the benefit obligation
as of December 31, 2015. The curtailment impact to net
earnings in fiscal 2010 was immaterial. We also sponsor an
unfunded supplemental executive retirement plan
(“non-qualified plan”) which provides certain
employees additional pension benefits and has been closed to new
participants since January 1, 2007. In connection with the
curtailment of the qualified plan, our non-qualified plan
benefit obligation increased $0.2 million in 2010. Benefits
under both plans are based on the employees’ years of
service and compensation over defined periods of employment.
Postretirement healthcare plans
—
We also sponsor healthcare plans that
provide postretirement medical benefits to certain employees who
meet minimum age and service requirements. The plans are
contributory, with retiree contributions adjusted annually, and
contain other cost-sharing features such as deductibles and
coinsurance.
Obligations and funded status
—
The following table provides a
reconciliation of the changes in benefit obligations, plan
assets and funded status of our retirement plans as of
October 3, 2010 and September 27, 2009. In fiscal
2009, we adopted the measurement date provisions of the FASB
guidance for retirement
F-21
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
benefits, which require the measurement date to be consistent
with our fiscal year end. Previously, we used a June 30
measurement date.
(in thousands
):
| Qualified Pension Plans | Non-Qualified Pension Plan | Postretirement Health Plans | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
|
Change in benefit obligation:
|
||||||||||||||||||||||||
|
Obligation at beginning of year
|
$ | 290,469 | $ | 212,027 | $ | 49,445 | $ | 40,634 | $ | 23,828 | $ | 16,979 | ||||||||||||
|
Service cost
|
11,726 | 9,045 | 829 | 641 | 106 | 99 | ||||||||||||||||||
|
Interest cost
|
17,704 | 15,334 | 3,003 | 2,907 | 1,435 | 1,199 | ||||||||||||||||||
|
Participant contributions
|
- | - | - | - | 142 | 138 | ||||||||||||||||||
|
Actuarial loss
|
26,594 | 55,779 | 3,053 | 7,717 | 4,677 | 6,185 | ||||||||||||||||||
|
Benefits paid
|
(8,061) | (7,810) | (3,001) | (3,341) | (2,369) | (1,097) | ||||||||||||||||||
|
Elimination of early measurement date
|
- | 6,094 | - | 887 | - | 325 | ||||||||||||||||||
|
Plan amendment
|
- | - | 176 | - | - | - | ||||||||||||||||||
|
Net gain arising due to curtailment
|
(16,491) | - | - | - | - | - | ||||||||||||||||||
|
Obligation at end of year
|
$ | 321,941 | $ | 290,469 | $ | 53,505 | $ | 49,445 | $ | 27,819 | $ | 23,828 | ||||||||||||
|
Change in plan assets:
|
||||||||||||||||||||||||
|
Fair value at beginning of year
|
$ | 231,584 | $ | 228,772 | $ | - | $ | - | $ | - | $ | - | ||||||||||||
|
Actual return on plan assets
|
27,296 | (11,878) | - | - | - | - | ||||||||||||||||||
|
Participant contributions
|
- | - | - | - | 142 | 138 | ||||||||||||||||||
|
Employer contributions
|
20,000 | 22,500 | 3,001 | 3,341 | 2,227 | 959 | ||||||||||||||||||
|
Benefits paid
|
(8,061) | (7,810) | (3,001) | (3,341) | (2,369) | (1,097) | ||||||||||||||||||
|
Fair value at end of year
|
$ | 270,819 | $ | 231,584 | $ | - | $ | - | $ | - | $ | - | ||||||||||||
|
Funded status at end of year
|
$ | (51,122) | $ | (58,885) | $ | (53,505) | $ | (49,445) | $ | (27,819) | $ | (23,828) | ||||||||||||
|
Amounts recognized on the balance sheet:
|
||||||||||||||||||||||||
|
Current liabilities
|
$ | - | $ | - | $ | (3,184) | $ | (2,827) | $ | (1,193) | $ | (1,053) | ||||||||||||
|
Noncurrent liabilities
|
(51,122) | (58,885) | (50,321) | (46,618) | (26,626) | (22,775) | ||||||||||||||||||
|
Total liability recognized
|
$ | (51,122) | $ | (58,885) | $ | (53,505) | $ | (49,445) | $ | (27,819) | $ | (23,828) | ||||||||||||
|
Amounts in AOCI not yet reflected in net periodic benefit
cost:
|
||||||||||||||||||||||||
|
Unamortized actuarial loss, net
|
$ | 101,447 | $ | 110,895 | $ | 16,316 | $ | 14,452 | $ | 6,381 | $ | 1,768 | ||||||||||||
|
Unamortized prior service cost
|
- | 180 | 2,538 | 2,827 | 31 | 216 | ||||||||||||||||||
|
Total
|
$ | 101,447 | $ | 111,075 | $ | 18,854 | $ | 17,279 | $ | 6,412 | $ | 1,984 | ||||||||||||
|
Other changes in plan assets and benefit obligations
recognized in OCI:
|
||||||||||||||||||||||||
|
Net actuarial loss
|
$ | 17,012 | $ | 89,513 | $ | 3,053 | $ | 7,717 | $ | 4,677 | $ | 6,185 | ||||||||||||
|
Amortization of actuarial gain (loss)
|
(9,969) | (55) | (1,189) | (396) | (64) | 964 | ||||||||||||||||||
|
Amortization of prior service cost
|
(124) | (124) | (465) | (707) | (184) | (185) | ||||||||||||||||||
|
Prior service cost due to curtailment
|
(56) | - | 176 | - | - | - | ||||||||||||||||||
|
Net gain arising due to curtailment
|
(16,491) | - | - | - | - | - | ||||||||||||||||||
|
Total recognized in OCI
|
(9,628) | 89,334 | 1,575 | 6,614 | 4,429 | 6,964 | ||||||||||||||||||
|
Net periodic benefit cost and other losses
|
21,865 | 7,073 | 5,486 | 4,651 | 1,789 | 519 | ||||||||||||||||||
|
Total recognized in comprehensive income
|
$ | 12,237 | $ | 96,407 | $ | 7,061 | $ | 11,265 | $ | 6,218 | $ | 7,483 | ||||||||||||
|
Amounts in AOCI expected to be amortized in fiscal
2011 net periodic benefit cost:
|
||||||||||||||||||||||||
|
Net actuarial loss
|
$ | 8,518 | $ | 1,305 | $ | 202 | ||||||||||||||||||
|
Prior service cost
|
- | 488 | 31 | |||||||||||||||||||||
|
Total
|
$ | 8,518 | $ | 1,793 | $ | 233 | ||||||||||||||||||
F-22
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Additional year-end pension plan information
—
The pension benefit obligation
(“PBO”) is the actuarial present value of benefits
attributable to employee service rendered to date, including the
effects of estimated future pay increases. The accumulated
benefit obligation (“ABO”) also reflects the actuarial
present value of benefits attributable to employee service
rendered to date but does not include the effects of estimated
future pay increases. Therefore, the ABO as compared to plan
assets is an indication of the assets currently available to
fund vested and nonvested benefits accrued through the end of
the fiscal year. The funded status is measured as the difference
between the fair value of a plan’s assets and its PBO.
As of October 3, 2010 and September 27, 2009, the
qualified plan’s ABO exceeded the fair value of its plan
assets. The non-qualified plan is an unfunded plan and, as such,
had no plan assets as of October 3, 2010 and
September 27, 2009. The following sets forth the PBO, ABO
and fair value of plan assets of our pension plans as of the
measurement date in each year
(in thousands)
:
| 2010 | 2009 | |||||||
|
Qualified plan:
|
||||||||
|
Projected benefit obligation
|
$ | 321,941 | $ | 290,469 | ||||
|
Accumulated benefit obligation
|
302,982 | 254,470 | ||||||
|
Fair value of plan assets
|
270,819 | 231,584 | ||||||
|
Non-qualified plan:
|
||||||||
|
Projected benefit obligation
|
$ | 53,505 | $ | 49,445 | ||||
|
Accumulated benefit obligation
|
53,282 | 46,875 | ||||||
|
Fair value of plan assets
|
- | - | ||||||
Net periodic benefit cost
—
The
components of the fiscal year net periodic benefit cost were as
follows
(in thousands):
| 2010 | 2009 | 2008 | ||||||||||
|
Qualified defined pension plan:
|
||||||||||||
|
Service cost
|
$ | 11,726 | $ | 9,045 | $ | 10,427 | ||||||
|
Interest cost
|
17,704 | 15,334 | 14,539 | |||||||||
|
Expected return on plan assets
|
(17,714) | (17,485) | (17,010) | |||||||||
|
Actuarial loss
|
9,969 | 55 | 971 | |||||||||
|
Amortization of unrecognized prior service cost
|
124 | 124 | 124 | |||||||||
|
Prior service cost due to curtailment
|
56 | - | - | |||||||||
|
Net periodic benefit cost
|
$ | 21,865 | $ | 7,073 | $ | 9,051 | ||||||
|
Non-qualified pension plan:
|
||||||||||||
|
Service cost
|
$ | 829 | $ | 641 | $ | 802 | ||||||
|
Interest cost
|
3,003 | 2,907 | 2,552 | |||||||||
|
Actuarial loss
|
1,189 | 396 | 533 | |||||||||
|
Amortization of unrecognized prior service cost
|
465 | 707 | 733 | |||||||||
|
Net periodic benefit cost
|
$ | 5,486 | $ | 4,651 | $ | 4,620 | ||||||
|
Postretirement health plans:
|
||||||||||||
|
Service cost
|
$ | 106 | $ | 99 | $ | 222 | ||||||
|
Interest cost
|
1,435 | 1,199 | 1,176 | |||||||||
|
Actuarial loss (gain)
|
64 | (964) | (821) | |||||||||
|
Amortization of unrecognized prior service cost
|
184 | 185 | 185 | |||||||||
|
Net periodic benefit cost
|
$ | 1,789 | $ | 519 | $ | 762 | ||||||
Assumptions
—
We determine our
actuarial assumptions on an annual basis. In determining the
present values of our benefit obligations and net periodic
benefit costs as of and for the fiscal years ended
October 3, 2010,
F-23
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September 27, 2009 and September 28, 2008,
respectively, we used the following weighted-average assumptions:
| 2010 | 2009 | 2008 | ||||||||||
|
Assumptions used to determine benefit
obligations (1):
|
||||||||||||
|
Qualified pension plan:
|
||||||||||||
|
Discount rate
|
5.82% | 6.16% | 7.30% | |||||||||
|
Rate of future pay increases
|
3.50 | 3.50 | 3.50 | |||||||||
|
Non-qualified pension plan:
|
||||||||||||
|
Discount rate
|
5.82% | 6.16% | 7.30% | |||||||||
|
Rate of future pay increases
|
3.50 | 5.00 | 5.00 | |||||||||
|
Postretirement health plans:
|
||||||||||||
|
Discount rate
|
5.82% | 6.16% | 7.30% | |||||||||
|
Assumptions used to determine net periodic benefit
cost (2):
|
||||||||||||
|
Qualified pension plans:
|
||||||||||||
|
Discount rate
|
6.16% | 7.30% | 6.50% | |||||||||
|
Long-term rate of return on assets
|
7.75 | 7.75 | 7.75 | |||||||||
|
Rate of future pay increases
|
3.50 | 3.50 | 3.50 | |||||||||
|
Non-qualified pension plan:
|
||||||||||||
|
Discount rate
|
6.16% | 7.30% | 6.50% | |||||||||
|
Rate of future pay increases
|
5.00 | 5.00 | 5.00 | |||||||||
|
Postretirement health plans:
|
||||||||||||
|
Discount rate
|
6.16% | 7.30% | 6.50% | |||||||||
| (1) | Determined as of end of year. | |
| (2) | Determined as of beginning of year. |
The assumed discount rate was determined by considering the
average of pension yield curves constructed of a population of
high-quality bonds with a Moody’s or Standard and
Poor’s rating of “AA” or better whose cash flow
from coupons and maturities match the year-by year projected
benefit payments from the plans. Since benefit payments
typically extend beyond the date of the longest maturing bond,
cash flows beyond 30 years were discounted back to the 30th
year and then matched like any other payment.
The assumed expected long-term rate of return on assets is the
weighted average rate of earnings expected on the funds invested
or to be invested to provide for the pension obligations. The
long-term rate of return on assets was determined taking into
consideration our projected asset allocation and economic
forecasts prepared with the assistance of our actuarial
consultants.
The assumed discount rate and expected long-term rate of return
on assets have a significant effect on amounts reported for our
pension and postretirement plans. A quarter percentage point
decrease in the discount rate and long-term rate of return used
would decrease earnings before income taxes by $2.7 million
and $0.7 million, respectively.
The assumed average rate of compensation increase is the average
annual compensation increase expected over the remaining
employment periods for the participating employees.
For measurement purposes, the weighted-average assumed health
care cost trend rates for our postretirement health plans were
as follows for each fiscal year:
| 2010 | 2009 | |||||||
|
Health care cost trend rate for next year:
|
||||||||
|
Participants under age 65
|
7.75% | 8.00% | ||||||
|
Participants age 65 or older
|
7.25% | 7.50% | ||||||
|
Rate to which the cost trend rate is assumed to decline
|
4.50% | 5.00% | ||||||
|
Year the rate reaches the ultimate trend rate
|
2028 | 2021 | ||||||
F-24
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The assumed health care cost trend rate represents our estimate
of the annual rates of change in the costs of the health care
benefits currently provided by our postretirement plans. The
health care cost trend rate implicitly considers estimates of
health care inflation, changes in health care utilization and
delivery patterns, technological advances and changes in the
health status of the plan participants. The health care cost
trend rate assumption has a significant effect on the amounts
reported. For example, a 1.0% change in the assumed health care
cost trend rate would have the following effect
(in
thousands)
:
|
1% Point
|
1% Point
|
|||||||
| Increase | Decrease | |||||||
|
Total interest and service cost
|
$ | 211 | $ | (178) | ||||
|
Postretirement benefit obligation
|
$ | 3,727 | $ | (3,155) | ||||
Plan assets
—
Our investment
philosophy is to (1) protect the corpus of the fund;
(2) establish investment objectives that will allow the
market value to exceed the present value of the vested and
unvested liabilities over time; while (3) obtaining
adequate investment returns to protect benefits promised to the
participants and their beneficiaries. Our asset allocation
strategy utilizes multiple investment managers in order to
maximize the plan’s return while minimizing risk. We
regularly monitor our asset allocation, and senior financial
management and the Finance Committee of the Board of Directors
review performance results at least semi-annually. Our plan
asset allocation at the end of 2010 and target allocations are
as follows:
|
Percentage of
|
||||||||||||
| Plan Assets | Asset Allocation | |||||||||||
| 2010 | Target | Minimum | Maximum | |||||||||
|
Large cap equity
|
26% | 25% | 15% | 35% | ||||||||
|
Small cap equity
|
15% | 15% | 5% | 25% | ||||||||
|
International equity
|
17% | 15% | 5% | 25% | ||||||||
|
Core fixed funds
|
27% | 25% | 15% | 35% | ||||||||
|
Real return bonds
|
6% | 5% | 0% | 10% | ||||||||
|
Alternative investments
|
6% | 5% | 0% | 10% | ||||||||
|
Real estate
|
3% | 10% | 0% | 10% | ||||||||
| 100% | 100% | |||||||||||
F-25
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The fair values of the qualified plan’s assets at
October 3, 2010 by asset category are as follows
(in
thousands)
:
| Fair Value Measurements | ||||||||||||||||||||
|
Quoted Prices
|
Significant
|
|||||||||||||||||||
|
in Active
|
Other
|
Significant
|
||||||||||||||||||
|
Markets for
|
Observable
|
Unobservable
|
||||||||||||||||||
|
Identical
|
Inputs
|
Inputs
|
||||||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||
|
Asset Category:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
(1 | ) | $ | 5,311 | $ | 5,311 | $ | - | $ | - | ||||||||||
|
Equity:
|
||||||||||||||||||||
|
U.S.
|
(2 | ) | 74,240 | 74,240 | - | - | ||||||||||||||
|
Commingled
|
(3 | ) | 82,065 | 82,065 | - | - | ||||||||||||||
|
Fixed income:
|
||||||||||||||||||||
|
Asset-backed securities
|
(4 | ) | 4,679 | - | 4,679 | - | ||||||||||||||
|
Corporate bonds
|
(5 | ) | 44,557 | 36,123 | 8,365 | 69 | ||||||||||||||
|
Non-government-backed C.M.O.’s
|
(6 | ) | 5,778 | - | 5,778 | - | ||||||||||||||
|
Government and mortgage securities
|
(7 | ) | 31,136 | 16,075 | 15,061 | - | ||||||||||||||
|
Other
|
(8 | ) | 15,945 | 15,945 | - | - | ||||||||||||||
|
Interest rate swaps
|
(9 | ) | 54 | - | 54 | - | ||||||||||||||
|
Real estate
|
(10 | ) | 7,054 | - | - | 7,054 | ||||||||||||||
| $ | 270,819 | $ | 229,759 | $ | 33,937 | $ | 7,123 | |||||||||||||
| (1) | Cash and cash equivalents are comprised of commercial paper, short-term bills and notes, and short-term investment funds, which are valued at unadjusted quoted market prices. | |
| (2) | U.S. equity securities are comprised of investments in common stock of U.S. and non-U.S. companies for total return purposes. These investments are valued by the trustee at closing prices from national exchanges on the valuation date. | |
| (3) | Commingled equity securities are comprised of investments in mutual funds, the fair value of which is determined by reference to the fund’s underlying assets, which are primarily marketable equity securities that are traded on national exchanges and valued at unadjusted quoted market prices. | |
| (4) | Asset-backed securities are comprised of collateralized obligations and mortgage-backed securities, which are valued by the trustee using observable, market-based inputs. | |
| (5) | Corporate bonds are comprised of mutual funds traded on national securities exchanges, valued at unadjusted quoted market prices, as well as securities traded in markets that are not considered active, which are valued based on quoted market prices, broker/dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Securities that trade infrequently and therefore have little or no price transparency are valued using the investment manager’s best estimate. | |
| (6) | Non-government backed securities are comprised of collateralized obligations and mortgage-back securities, which the trustee values using observable, market-based inputs. | |
| (7) | Government and mortgage securities are comprised of government and municipal bonds, including treasury bills, notes and index linked bonds which are valued using an unadjusted quoted price in an active market or observable, market-based inputs. | |
| (8) | Other fixed income securities are comprised of other commingled funds invested in registered securities which are valued at the unadjusted quoted price in an active market or exchange. | |
| (9) | Interest rate swaps are derivative instruments used to reduce exposure to the impact of changing interest rates and are valued using observable, market-based inputs. | |
| (10) | Real estate is investments in a real estate investment trust for purposes of total return. These investments are valued at unit values provided by the investment managers and their consultants. |
F-26
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in Level 3
investments for the qualified plan
(in thousands)
:
|
Fair Value Measurements Using
|
|||||||||||||||
| Significant Unobservable Inputs (Level 3) | |||||||||||||||
|
Corporate
|
Commercial
|
Non-Government
|
|||||||||||||
| Bonds | Mortgage-Backed | Backed C.M.O.’s | Real Estate | Total | |||||||||||
|
Beginning balance at September 27, 2009
|
$ | 96 | $ | 542 | $ | 192 | $ | 6,872 | $ | 7,702 | |||||
|
Actual return on plan assets
:
|
|||||||||||||||
|
Relating to assets still held at the reporting date
|
13 | 104 | 24 | 331 | 472 | ||||||||||
|
Relating to assets sold during the period
|
- | 7 | - | (40) | (33) | ||||||||||
|
Purchases, sales, and settlements
|
- | (242) | (21) | (109) | (372) | ||||||||||
|
Transfers in and/or out of Level 3
|
(40) | (411) | (195) | - | (646) | ||||||||||
|
Ending balance at October 3, 2010
|
$ | 69 | $ | - | $ | - | $ | 7,054 | 7,123 | ||||||
Future cash flows
—
Our policy is
to fund our plans at or above the minimum required by law.
Contributions expected to be paid in the next fiscal year and
the projected benefit payments for each of the next five fiscal
years and the total aggregate amount for the subsequent five
fiscal years are as follows
(in thousands)
:
|
Defined
|
||||||||
|
Benefit
|
Postretirement
|
|||||||
| Pension | Health Plans | |||||||
|
Estimated net contributions during fiscal 2011
|
$ | 13,184 | $ | 1,193 | ||||
|
Estimated future year benefit payments during fiscal years:
|
||||||||
|
2011
|
$ | 9,802 | $ | 1,193 | ||||
|
2012
|
10,187 | 1,249 | ||||||
|
2013
|
10,639 | 1,305 | ||||||
|
2014
|
11,207 | 1,384 | ||||||
|
2015
|
11,889 | 1,443 | ||||||
|
2016-2020
|
79,280 | 8,893 | ||||||
We will continue to evaluate contributions to our defined
benefit plans based on changes in pension assets as a result of
asset performance in the current market and economic
environment. Expected benefit payments are based on the same
assumptions used to measure our benefit obligation at
October 3, 2010 and include estimated future employee
service.
| 12. | SHARE-BASED EMPLOYEE COMPENSATION |
Stock incentive plans
—
We offer
share-based compensation plans to attract, retain and motivate
key officers, employees and non-employee directors to work
toward the financial success of the Company.
Our stock incentive plans are administered by the Compensation
Committee of the Board of Directors and have been approved by
the stockholders of the Company. The terms and conditions of our
share-based awards are determined by the Compensation Committee
on each award date and may include provisions for the exercise
price, expirations, vesting, restriction on sales and
forfeitures, as applicable. We issue new shares to satisfy stock
issuances under our stock incentive plans.
Our Amended and Restated 2004 Stock Incentive Plan authorizes
the issuance of up to 7,900,000 common shares in connection with
the granting of stock options, stock appreciation rights,
restricted stock purchase rights, restricted stock bonuses,
restricted stock units or performance units to key employees and
directors. As of October 3, 2010, 1,965,176 shares of
common stock were available for future issuance under this plan.
There are four other plans under which we can no longer issue
awards, although awards outstanding under these plans may still
vest and be exercised: the 1992 Employee Stock Incentive Plan,
the 1993 Stock Option Plan, the 2002 Stock Incentive Plan
and the Non-Employee Director Stock Option Plan.
F-27
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
We also maintain a deferred compensation plan for non-management
directors under which those who are eligible to receive fees or
retainers may choose to defer receipt of their compensation. The
deferred amounts are converted to stock equivalents. The plan
requires settlement in shares of our common stock based on the
number of stock equivalents at the time of a participant’s
separation from the Board of Directors. This plan provides for
the issuance of up to 350,000 shares of common stock in
connection with the crediting of stock equivalents. As of
October 3, 2010, 263,424 shares of common stock were
available for future issuance under this plan.
In February 2006, the stockholders of the Company approved an
employee stock purchase plan (“ESPP”) for all eligible
employees to purchase shares of common stock at 95% of the fair
market value on the date of purchase. Employees may authorize us
to withhold up to 15% of their base compensation during any
offering period, subject to certain limitations. A maximum of
200,000 shares of common stock may be issued under the
plan. As of October 3, 2010, 143,072 shares of common
stock were available for future issuance under this plan.
Compensation expense
—
The
components of share-based compensation expense recognized in
each year are as follows
(in thousands)
:
| 2010 | 2009 | 2008 | ||||||||||
|
Stock options
|
$ | 7,234 | $ | 8,952 | $ | 7,880 | ||||||
|
Performance-vested stock awards
|
1,145 | (1,429 | ) | 1,381 | ||||||||
|
Nonvested stock awards
|
923 | 704 | 1,034 | |||||||||
|
Nonvested stock units
|
1,024 | 830 | - | |||||||||
|
Deferred compensation for directors
|
279 | 284 | 271 | |||||||||
|
Total share-based compensation expense
|
$ | 10,605 | $ | 9,341 | $ | 10,566 | ||||||
In November 2008, we modified the performance periods and goals
of our outstanding performance-vested stock awards to address
challenges associated with establishing long-term performance
measures. The modifications and changes to expectations
regarding achievement levels resulted in a $2.2 million
reduction in our expense.
Stock options
—
Prior to fiscal
2007, options granted had contractual terms of 10 or
11 years and employee options generally vested over a
four-year period. Beginning fiscal 2007, option grants have
contractual terms of 7 years and employee options vest over
a three-year period. Options may vest sooner for employees
meeting certain age and years of service thresholds. Options
granted to non-management directors vest at six months. All
option grants provide for an option exercise price equal to the
closing market value of the common stock on the date of grant.
The following is a summary of stock option activity for fiscal
2010:
|
Weighted
|
||||||||||||||||
|
Weighted
|
Average
|
Aggregate
|
||||||||||||||
|
Average
|
Remaining
|
Intrinsic
|
||||||||||||||
|
Exercise
|
Contractual
|
Value (in
|
||||||||||||||
| Shares | Price | Term (Years) | thousands) | |||||||||||||
|
Options outstanding at September 27, 2009
|
4,788,326 | $ | 21.31 | |||||||||||||
|
Granted
|
550,000 | 19.26 | ||||||||||||||
|
Exercised
|
(407,452 | ) | 12.73 | |||||||||||||
|
Forfeited
|
(33,417 | ) | 22.16 | |||||||||||||
|
Expired
|
(12,511 | ) | 13.05 | |||||||||||||
|
Options outstanding at October 3, 2010
|
4,884,946 | $ | 21.81 | 4.47 | $ | 25,606 | ||||||||||
|
Options exercisable at October 3, 2010
|
4,068,523 | $ | 21.95 | 4.22 | $ | 21,483 | ||||||||||
|
Options exercisable and expected to vest at October 3, 2010
|
4,853,860 | $ | 21.83 | 4.45 | $ | 25,411 | ||||||||||
F-28
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
We use a binomial-based model to determine the fair value of
options granted. Valuation models require the input of highly
subjective assumptions, including the expected volatility of the
stock price. The following weighted-average assumptions were
used for stock option grants in each year:
| 2010 | 2009 | 2008 | ||||||||||
|
Risk-free interest rate
|
1.97% | 3.01% | 2.85% | |||||||||
|
Expected dividends yield
|
0.00% | 0.00% | 0.00% | |||||||||
|
Expected stock price volatility
|
38.65% | 45.62% | 45.74% | |||||||||
|
Expected life of options (in years)
|
4.46 | 5.23 | 4.38 | |||||||||
In 2010, 2009 and 2008, the risk-free interest rate was
determined by a yield curve of risk-free rates based on
published U.S. Treasury spot rates in effect at the time of
grant and has a term equal to the expected life of the related
options.
The dividend yield assumption is based on the Company’s
history and expectations of dividend payouts.
The expected stock price volatility in all years represents an
average of the implied volatility and the Company’s
historical volatility.
The expected life of the options represents the period of time
the options are expected to be outstanding and is based on
historical trends.
The weighted-average grant-date fair value of options granted
was $6.54, $10.27 and $9.82 in 2010, 2009 and 2008,
respectively. The intrinsic value of stock options is defined as
the difference between the current market value and the grant
price. The total intrinsic value of stock options exercised was
$4.0 million, $4.4 million and $12.5 million in
2010, 2009 and 2008, respectively.
As of October 3, 2010, there was approximately
$4.1 million of total unrecognized compensation cost
related to stock options granted under our stock incentive
plans. That cost is expected to be recognized over a
weighted-average period of 1.72 years.
Performance-vested stock awards
—
Performance awards represent a right to receive a certain
number of shares of common stock upon achievement of performance
goals at the end of a three-year period. The expected cost of
the shares is based on the fair value of our stock on the date
of grant and is reflected over the performance period with a
reduction for estimated forfeitures. It is our intent to settle
these awards with shares of common stock.
The following is a summary of performance-vested stock award
activity for fiscal 2010:
|
Weighted-
|
||||||||
|
Average Grant
|
||||||||
|
Date Fair
|
||||||||
| Shares | Value | |||||||
|
Performance-vested stock awards outstanding at
September 27, 2009
|
323,975 | $ | 15.53 | |||||
|
Granted
|
225,440 | 19.19 | ||||||
|
Issued
|
(47,545 | ) | 15.56 | |||||
|
Canceled
|
(161,560 | ) | 15.56 | |||||
|
Forfeited
|
(46,008 | ) | 16.40 | |||||
|
Performance-vested stock awards outstanding at October 3,
2010
|
294,302 | $ | 18.18 | |||||
|
Vested and subject to release at October 3, 2010
|
40,017 | $ | 15.32 | |||||
As of October 3, 2010, there was approximately
$1.8 million of total unrecognized compensation cost
related to performance-vested stock awards. That cost is
expected to be recognized over a weighted-average period of
1.8 years. The weighted-average grant date fair value of
awards granted was $19.19, $15.56 and $15.56 in 2010, 2009 and
2008, respectively. The total fair value of awards that vested
during 2010, 2009 and 2008 was
F-29
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
$0.6 million, $0.7 million and $0.9 million,
respectively. In 2010, 2009 and 2008, the total grant date fair
value of shares issued was $0.7 million, $1.0 million
and $2.0 million, respectively.
Nonvested stock awards
—
We
generally issued nonvested stock awards (“RSAs”) to
certain executives under our share ownership guidelines.
Effective February 2008, we no longer issue these awards which
have been replaced by grants of nonvested stock units. Our RSAs
vest, subject to the discretion of our Board of Directors in
certain circumstances, upon retirement or termination based upon
years of service or ratably over a three-year period for
non-ownership grants as provided in the award agreements. These
awards are amortized to compensation expense over the estimated
vesting period based upon the fair value of our common stock on
the award date.
The following is a summary of RSA activity for fiscal 2010:
|
Weighted-
|
||||||||
|
Average Grant
|
||||||||
|
Date Fair
|
||||||||
| Shares | Value | |||||||
|
Nonvested stock awards outstanding at September 27, 2009
|
426,285 | $ | 15.04 | |||||
|
Released
|
(31,168 | ) | 17.75 | |||||
|
Nonvested stock awards outstanding at October 3, 2010
|
395,117 | $ | 14.82 | |||||
|
Vested at October 3, 2010
|
104,645 | $ | 12.19 | |||||
As of October 3, 2010, there was approximately
$2.7 million of total unrecognized compensation cost
related to RSAs, which is expected to be recognized over a
weighted-average period of 5.4 years. During 2008, we
granted 64,545 shares of RSAs with a grant date fair value
of $26.35. No shares of RSAs were granted in 2010 or 2009. The
total fair value of RSAs that vested was $0.2 million
during 2010 and 2009 and $0.4 million during 2008. In 2010,
2009 and 2008, the total grant date fair value of shares
released was $0.6 million, $1.3 million and
$0.04 million, respectively.
Nonvested stock units
—
In
February 2009, the Board of Directors approved the issuance of a
new type of stock award, nonvested stock units
(“RSUs”). RSUs replace RSAs previously issued to
certain executives under our share ownership guidelines and
annual option grants previously granted to our non-management
directors. Our RSUs vest, subject to the discretion of our Board
of Directors in certain circumstances, upon retirement or
termination based upon years of service. No such units were
vested as of October 3, 2010. These awards are amortized to
compensation expense over the estimated vesting period based
upon the fair value of our common stock on the award date.
The following is a summary of RSU activity for fiscal 2010:
|
Weighted-
|
||||||||
|
Average Grant
|
||||||||
|
Date Fair
|
||||||||
| Shares | Value | |||||||
|
Nonvested stock units outstanding at September 27, 2009
|
61,854 | $ | 21.46 | |||||
|
Granted
|
96,949 | 21.05 | ||||||
|
Released
|
(5,000 | ) | 20.07 | |||||
|
Nonvested stock units outstanding at October 3, 2010
|
153,803 | $ | 21.25 | |||||
As of October 3, 2010, there was approximately
$1.5 million of total unrecognized compensation cost
related to RSUs, which is expected to be recognized over a
weighted-average period of 7.0 years. During 2009, we
granted 61,854 shares of RSUs with a grant date fair value
of $21.46. The total fair value of RSUs that vested and were
released during 2010 was $0.1 million. No such awards
vested or were released in 2009.
Non-management directors’ deferred compensation
—
All awards outstanding under our
directors’ deferred compensation plan are accounted for as
equity-based awards and deferred amounts are converted into
stock
F-30
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
equivalents at the then-current market price of our common
stock. During fiscal 2009 and 2008, 59,949 and
26,627 shares of common stock were issued in connection
with director retirements having a grant date fair value of
$1.6 million and $0.4 million, respectively. No
deferrals were settled in 2010.
The following is a summary of the stock equivalent activity for
fiscal 2010:
|
Weighted-
|
||||||||
|
Average Grant
|
||||||||
|
Stock
|
Date Fair
|
|||||||
| Equivalents | Value | |||||||
|
Stock equivalents outstanding at September 27, 2009
|
162,404 | $ | 14.16 | |||||
|
Deferred directors’ compensation
|
7,914 | 20.85 | ||||||
|
Stock equivalents outstanding at October 3, 2010
|
170,318 | $ | 14.47 | |||||
Employee stock purchase plan
—
In
fiscal 2010, 2009 and 2008, 14,565, 15,548 and
15,567 shares, respectively, were purchased through the
ESPP at an average price of $19.32, $19.99 and $25.65,
respectively.
| 13. | STOCKHOLDERS’ EQUITY |
Preferred stock
—
We have
15,000,000 shares of preferred stock authorized for
issuance at a par value of $0.01 per share. No preferred shares
have been issued.
Repurchases of common stock
—
In
November 2007, the Board of Directors approved a program to
repurchase up to $200.0 million in shares of our common
stock over three years expiring November 9, 2010. During
2010, we repurchased approximately 4.9 million shares at an
aggregate cost of $97.0 million. As of October 3,
2010, the aggregate remaining amount authorized for repurchase
was $3.0 million. In November 2010, the Board of Directors
approved a new program to repurchase, within the next year, up
to $100.0 million in shares of our common stock.
Comprehensive income
—
Our total
comprehensive income, net of taxes, was as follows
(in
thousands)
:
| 2010 | 2009 | 2008 | ||||||||||
|
Net earnings
|
$ | 70,210 | $ | 118,408 | $ | 119,279 | ||||||
|
Cash flow hedges:
|
||||||||||||
|
Net change in fair value of derivatives
|
(837 | ) | (6,147 | ) | (5,223 | ) | ||||||
|
Amount of net loss reclassified to earnings during the year
|
4,719 | 6,189 | 2,013 | |||||||||
|
Total cash flow hedges
|
3,882 | 42 | (3,210 | ) | ||||||||
|
Tax effect
|
(1,481 | ) | (21 | ) | 1,226 | |||||||
| 2,401 | 21 | (1,984 | ) | |||||||||
|
Unrecognized periodic benefit costs
|
||||||||||||
|
Effect of unrecognized net actuarial gains (losses) and prior
service cost
|
3,625 | (102,912 | ) | 11,907 | ||||||||
|
Tax effect
|
(1,371 | ) | 39,254 | (4,628 | ) | |||||||
| 2,254 | (63,658 | ) | 7,279 | |||||||||
|
Total comprehensive income
|
$ | 74,865 | $ | 54,771 | $ | 124,574 | ||||||
F-31
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The components of accumulated other comprehensive loss, net of
taxes, were as follows as of October 3, 2010 and
September 27, 2009
(in thousands)
:
| 2010 | 2009 | |||||||
|
Unrecognized periodic benefit costs, net of tax benefits of
$48,379 and $49,750, respectively
|
$ | (78,334 | ) | $ | (80,588 | ) | ||
|
Net unrealized losses related to cash flow hedges, net of tax
benefits of $280 and $1,761, respectively
|
(453 | ) | (2,854 | ) | ||||
|
Accumulated other comprehensive loss
|
$ | (78,787 | ) | $ | (83,442 | ) | ||
| 14. | AVERAGE SHARES OUTSTANDING |
Our basic earnings per share calculation is computed based on
the weighted-average number of common shares outstanding. Our
diluted earnings per share calculation is computed based on the
weighted-average number of common shares outstanding adjusted by
the number of additional shares that would have been outstanding
had the potentially dilutive common shares been issued.
Potentially dilutive common shares include stock options,
nonvested stock awards and units, non-management director stock
equivalents and shares issuable under our employee stock
purchase plan. Performance-vested stock awards are included in
the average diluted shares outstanding each period if the
performance criteria have been met at the end of the respective
periods.
The following table reconciles basic weighted-average shares
outstanding to diluted weighted-average shares outstanding
(in thousands)
:
| 2010 | 2009 | 2008 | ||||||||||
|
Weighted-average shares outstanding – basic
|
55,070 | 56,795 | 58,249 | |||||||||
|
Effect of potentially dilutive securities:
|
||||||||||||
|
Stock options
|
512 | 619 | 879 | |||||||||
|
Nonvested stock awards and units
|
182 | 169 | 248 | |||||||||
|
Performance-vested stock awards
|
79 | 150 | 69 | |||||||||
|
Weighted-average shares outstanding – diluted
|
55,843 | 57,733 | 59,445 | |||||||||
|
Excluded from diluted weighted-average shares outstanding:
|
||||||||||||
|
Antidilutive
|
3,266 | 2,763 | 1,611 | |||||||||
|
Performance conditions not satisfied at the end of the period
|
160 | 179 | 261 | |||||||||
| 15. | COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS |
Commitments
—
We are principally
liable for lease obligations on various properties subleased to
third parties. We are also obligated under a lease guarantee
agreement associated with a Chi-Chi’s restaurant property.
Due to the bankruptcy of the Chi-Chi’s restaurant chain in
2003, previously owned by us, we are obligated to perform in
accordance with the terms of a guarantee agreement, as well as
three other lease agreements, which expire during the second
quarter of fiscal 2011. During fiscal 2003, we established an
accrual for these lease obligations and do not anticipate
incurring any additional charges in future years related to the
Chi-Chi’s bankruptcy.
As of October 3, 2010, we had unconditional purchase
obligations of $740.8 million, which primarily includes
contracts for goods related to restaurant operations.
Legal matters
—
We are subject to
normal and routine litigation. In the opinion of management,
based in part on the advice of legal counsel, the ultimate
liability from all pending legal proceedings, asserted legal
claims and known potential legal claims should not materially
affect our operating results, financial position or liquidity.
F-32
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
| 16. | SEGMENT REPORTING |
Reflecting the information currently being used in managing the
Company as a two-branded restaurant operations business, our
segments comprise results related to system restaurant
operations for our Jack in the Box and Qdoba brands. This
segment reporting structure reflects the Company’s current
management structure, internal reporting method and financial
information used in deciding how to allocate Company resources.
Based upon certain quantitative thresholds, both operating
segments are considered reportable segments.
We measure and evaluate our segments based on segment earnings
from operations. Summarized financial information concerning our
reportable segments is shown in the following table
(in
thousands)
:
| 2010 | 2009 | 2008 | ||||||||||
|
Revenues by Segment:
|
||||||||||||
|
Jack in the Box restaurant operations segment
|
$ | 1,731,130 | $ | 2,025,755 | $ | 2,146,596 | ||||||
|
Qdoba restaurant operations segment
|
168,424 | 143,206 | 117,740 | |||||||||
|
Distribution operations
|
397,977 | 302,135 | 275,225 | |||||||||
|
Consolidated revenues
|
$ | 2,297,531 | $ | 2,471,096 | $ | 2,539,561 | ||||||
|
Earnings from Operations by Segment:
|
||||||||||||
|
Jack in the Box restaurant operations segment
|
$ | 111,983 | $ | 218,740 | $ | 202,054 | ||||||
|
Qdoba restaurant operations segment
|
11,580 | 10,690 | 11,481 | |||||||||
|
Distribution operations
|
(1,653 | ) | 1,838 | 2,353 | ||||||||
|
Consolidated earnings from operations
|
$ | 121,910 | $ | 231,268 | $ | 215,888 | ||||||
|
Total Expenditures for Long-Lived Assets by Segment:
|
||||||||||||
|
Jack in the Box restaurant operations segment
|
$ | 80,855 | $ | 133,353 | $ | 161,803 | ||||||
|
Qdoba restaurant operations segment
|
13,572 | 19,189 | 15,241 | |||||||||
|
Distribution operations
|
1,183 | 958 | 1,561 | |||||||||
|
Consolidated expenditures for long-lived assets (from continuing
operations)
|
$ | 95,610 | $ | 153,500 | $ | 178,605 | ||||||
Interest income and expense, income taxes and total assets are
not reported for our segments, in accordance with our method of
internal reporting.
| 17. | SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION |
Additional information related to cash flows is as follows
(in thousands)
:
| 2010 | 2009 | 2008 | ||||||||||
|
Cash paid during the year for:
|
||||||||||||
|
Interest, net of amounts capitalized
|
$ | 17,719 | $ | 23,008 | $ | 25,732 | ||||||
|
Income tax payments
|
$ | 80,719 | $ | 79,392 | $ | 68,454 | ||||||
F-33
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
| 18. | SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION (in thousands) |
|
Oct. 3,
|
Sept. 27,
|
|||||||
| 2010 | 2009 | |||||||
|
Accounts and other receivables, net:
|
||||||||
|
Trade
|
$ | 48,006 | $ | 38,820 | ||||
|
Notes receivable
|
29,949 | 4,533 | ||||||
|
Other
|
4,386 | 6,142 | ||||||
|
Allowances for doubtful accounts
|
(1,191 | ) | (459 | ) | ||||
| $ | 81,150 | $ | 49,036 | |||||
|
Other assets, net:
|
||||||||
|
Company-owned life insurance policies
|
$ | 76,296 | $ | 68,234 | ||||
|
Deferred rent receivable
|
19,664 | 14,407 | ||||||
|
Other
|
55,144 | 32,653 | ||||||
| $ | 151,104 | $ | 115,294 | |||||
|
Accrued liabilities:
|
||||||||
|
Payroll and related taxes
|
$ | 31,259 | $ | 59,900 | ||||
|
Sales and property taxes
|
21,141 | 20,603 | ||||||
|
Insurance
|
37,655 | 37,505 | ||||||
|
Advertising
|
15,686 | 21,242 | ||||||
|
Gift card liability
|
3,171 | 3,684 | ||||||
|
Deferred franchise fees
|
2,541 | 2,190 | ||||||
|
Other
|
56,733 | 60,976 | ||||||
| $ | 168,186 | $ | 206,100 | |||||
|
Other long-term liabilities:
|
||||||||
|
Pension
|
$ | 101,443 | $ | 105,503 | ||||
|
Straight-line rent accrual
|
52,661 | 52,506 | ||||||
|
Deferred franchise fees
|
1,532 | 1,741 | ||||||
|
Other
|
94,804 | 74,440 | ||||||
| $ | 250,440 | $ | 234,190 | |||||
Notes receivable as of October 3, 2010 consists primarily
of temporary financing provided to franchisees to facilitate the
closing of certain refranchising transactions.
| 19. | UNAUDITED QUARTERLY RESULTS OF OPERATIONS (in thousands, except per share data) |
|
16 Weeks
|
13 Weeks
|
|||||||||||||||
| Ended | 12 Weeks Ended | Ended | ||||||||||||||
| Fiscal Year 2010 | Jan. 17, 2010 | Apr. 11, 2010 | July 4, 2010 | Oct. 3, 2010 | ||||||||||||
|
Revenues
|
$ | 681,318 | $ | 529,706 | $ | 523,294 | $ | 563,213 | ||||||||
|
Earnings from operations
|
43,730 | 31,150 | 41,848 | 5,182 | ||||||||||||
|
Net earnings
|
24,247 | 17,680 | 24,242 | 4,041 | ||||||||||||
|
Net earnings per share:
|
||||||||||||||||
|
Basic
|
$ | 0.43 | $ | 0.32 | $ | 0.44 | $ | 0.08 | ||||||||
|
Diluted
|
$ | 0.43 | $ | 0.32 | $ | 0.44 | $ | 0.07 | ||||||||
F-34
Table of Contents
JACK IN
THE BOX INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
16 Weeks
|
||||||||||||||||
| Ended | 12 Weeks Ended | |||||||||||||||
| Fiscal Year 2009 | Jan. 18, 2009 | Apr. 12, 2009 | July 5, 2009 | Sept. 27, 2009 | ||||||||||||
|
Revenues
|
$ | 776,673 | $ | 578,411 | $ | 575,722 | $ | 540,290 | ||||||||
|
Earnings from operations
|
54,376 | 53,110 | 57,119 | 66,663 | ||||||||||||
|
Net earnings
|
28,397 | 29,861 | 19,558 | 40,592 | ||||||||||||
|
Net earnings per share:
|
||||||||||||||||
|
Basic
|
$ | 0.50 | $ | 0.53 | $ | 0.34 | $ | 0.71 | ||||||||
|
Diluted
|
$ | 0.49 | $ | 0.52 | $ | 0.34 | $ | 0.70 | ||||||||
The results of operations for the quarter ending October 3,
2010 includes a charge related to the closure of 40 Jack in the
Box restaurants of $18.5 million, net of taxes, or $0.34
per basic and diluted share. Refer to Note 9,
Impairment, Disposal of Property and Equipment, and
Restaurants Closing Costs,
for additional information.
The results of operations for the quarter ending July 5,
2009 includes a charge of $14.1 million, net of taxes, or
$0.25 and $0.24 per basic and diluted share, respectively,
related to the sale of our Quick Stuff convenience stores. Refer
to Note 2,
Discontinued Operations,
for additional
information.
| 20. | FUTURE APPLICATION OF ACCOUNTING PRINCIPLES |
In June 2009, the FASB issued authoritative guidance for
consolidation, which changes the approach for determining which
enterprise has a controlling financial interest in variable
interest entity and requires more frequent reassessments of
whether an enterprise is a primary beneficiary. This guidance is
effective for annual periods beginning after November 15,
2009. We are currently in the process of assessing the impact
this guidance may have on our consolidated financial statements.
Other accounting standards that have been issued or proposed by
the FASB or other standards-setting bodies that do not require
adoption until a future date are not expected to have a material
impact on our consolidated financial statements upon adoption.
F-35
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement SchedulesItem 15(a) (1) Financial Statements. See Index To Consolidated Financial Statements on Page F-1 Of This ReportItem 15(a)Item 15(a) (2) Financial Statement Schedules. Not ApplicableItem 15(a) (3) ExhibitsItem 15(b) All Required Exhibits Are Filed Herein Or Incorporated By Reference As Described in Item 15(a)(3)Item 15(b)Item 15(c)