SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 1, 2000
COMMISSION FILE NUMBER 1-9390
Jack in the Box Inc.
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(Exact name of registrant as specified in its charter)
Delaware 95-2698708
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(State of Incorporation) (I.R.S. Employer Identification No.)
9330 Balboa Avenue, San Diego, CA 92123
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (858) 571-2121
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.01 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of November 30, 2000, computed by reference to the closing
price reported in the New York Stock Exchange - Composite Transactions, was
approximately $986 million.
Number of shares of common stock, $.01 par value, outstanding as of the
close of business November 30, 2000 - 38,453,734.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the 2001 Annual Meeting of Stockholders
are incorporated by reference into Part III hereof.
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ITEM 1. BUSINESS
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The Company
Overview. Jack in the Box Inc. (the "Company"), formerly Foodmaker, Inc.,
owns, operates and franchises JACK IN THE BOX(R)quick-service hamburger
restaurants. In fiscal 2000, we generated revenues of $1.6 billion. As of
October 1, 2000, the JACK IN THE BOX system included 1,634 restaurants, of which
1,311 were Company-operated and 323 were franchised. JACK IN THE BOX restaurants
are located primarily in the western and southern United States. Based on the
number of units, JACK IN THE BOX is the third largest quick-service hamburger
chain in most of its major markets.
JACK IN THE BOX restaurants offer a broad selection of distinctive,
innovative products targeted at the adult fast-food consumer. The
JACK IN THE BOX menu features a variety of hamburgers, specialty sandwiches,
Mexican foods, finger foods and side items. The core of the JACK IN THE BOX menu
is hamburgers, including the signature Jumbo Jack(R), Sourdough Jack(R) and
Ultimate Cheeseburger. In addition, we offer products unique to the hamburger
segment, such as the Teriyaki Chicken Bowl and Chicken Fajita Pita.
JACK IN THE BOX restaurants also offer value-priced product alternatives, known
as "Jack's Value Menu," to compete against price-oriented competitors. We
believe that our distinctive menu has been instrumental in developing brand
loyalty and is appealing to customers with a broader range of food preferences.
JACK IN THE BOX restaurants focus on guest service in providing a restaurant
experience which exceeds the guests' expectations.
The JACK IN THE BOX restaurant chain was the first to develop and expand
the concept of drive-thru only restaurants. In addition to drive-thru windows,
most 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 64%
of sales at Company-operated restaurants.
History. The first JACK IN THE BOX restaurant, which offered only
drive-thru service, opened in 1951, and the JACK IN THE BOX chain expanded its
operations to approximately 300 restaurants in 1968. After the Company was
purchased in 1968 by Ralston Purina Company we initiated a major expansion
program in an effort to penetrate the eastern and midwestern markets, and by
1979 our business grew to over 1,000 units. In 1979, we decided to divest of 232
restaurants in the east and midwest and concentrate our efforts and resources in
the western and southwestern markets, which we believed offered the greatest
growth and profit potential at that time. In 1985, we were acquired by a group
of private investors and, in 1987, completed a public offering of common stock.
In 1988, the outstanding publicly-held shares were acquired by private investors
through a tender offer. In 1992, we completed a recapitalization that included a
public offering of common stock and indebtedness.
Operating Strategy. Our operating strategy includes: (i) offering quality
products with high perceived value, (ii) providing fast and friendly customer
service, (iii) maintaining a strong brand image, and (iv) targeting an
attractive demographic segment. Beginning in 1994, we began a series of
operating initiatives to improve food quality and guest service. These
initiatives include improvements in food preparation and service methods,
product reformulations and innovations, and training and retention of employees.
In 1995, we launched our award-winning, irreverent advertising campaign
featuring our fictional founder "Jack" which has been instrumental in delivering
the message of product quality, innovation and value to customers. We believe
our menu and marketing campaign appeal to a broad segment of the population,
particularly our primary target market of men aged 18-34, the demographic group
with the highest incidence of fast-food consumption. The Company operates 80% of
the JACK IN THE BOX restaurants, one of the highest percentages in the
quick-service restaurant industry, which we believe enables us to implement our
operating strategy and introduce product innovations consistently across the
entire system better than other quick-service restaurant chains.
Menu Strategy. The menu strategy for JACK IN THE BOX restaurants is to
provide high quality products that represent good value and appeal to the
preferences of our customers. The menu features traditional hamburgers and side
items in addition to specialty sandwiches, Mexican foods, finger foods,
breakfast foods, unique side items and desserts.
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We recognize the advantages of improving existing products through
ingredient specifications and changes in preparation and cooking procedures.
Such major improvements are communicated to the public through point-of-purchase
and television media, with messages such as "We won't make it - `til you order
it." During fiscal 1999, we implemented our Assemble-to-Order ("ATO") program.
This program, along with the addition of new menu boards and order confirmation
screens have had a favorable impact on sales.
JACK IN THE BOX restaurants operate in the hamburger segment which is the
largest segment of the quick-service industry. Hamburgers, including the Jumbo
Jack, Sourdough Jack and the Ultimate Cheeseburger, accounted for approximately
one-quarter of our restaurant sales in fiscal 2000. However, we believe that, as
a result of our diverse menu, our restaurants are less dependent on the
commercial success of one or a few products than other quick-service chains, and
the menu appeals to guests with a broad range of food preferences.
Growth Strategy. Our business strategy is to (i) increase same store sales
and profitability through the continued implementation of our successful
operating strategy and (ii) capitalize on our strong brand name and proven
operating strategy by developing new restaurants.
We believe that our strategy of focusing on food quality and guest service
will allow us to differentiate ourselves from competitors and maintain our
restaurant level margins among the highest in the industry. Management intends
to continue to increase same store sales and profitability through improvements
in food quality and guest service, product innovations and creative marketing.
For example, in 1999, we implemented the ATO program by remodeling our
restaurant kitchens to improve food quality and to allow for more efficient
operations. Also, we installed new drive-thru menu boards which feature an
electronic order confirmation system that allows customers to read their order
on an electronic screen, which we believe will reduce errors and increase
customer satisfaction. In response to consumer demand we installed
self-serve drink stations in the vast majority of restaurants, improving guest
satisfaction and reducing labor.
We intend to capitalize on our strong brand name and proven operating
strategy to achieve attractive returns on investment by developing new
Company-operated restaurants and, to a lesser extent, franchised restaurants. We
opened 120 new Company-operated restaurants in fiscal 2000 and intend to open
and operate slightly increased levels of new restaurants in each of the next
several years. Newly-opened restaurants typically have sales levels similar to
existing restaurants. We believe that our brand is underpenetrated in many of
our existing markets and intend to leverage media and food delivery costs by
increasing our market penetration. In addition, we believe that we can further
leverage the JACK IN THE BOX brand name by expanding to contiguous and selected
high growth new markets. We have also begun opening a limited number of
restaurants on nontraditional sites, such as adjacent to convenience stores and
gas stations, and intend to continue to add nontraditional sites to increase our
penetration of existing markets.
Site selections for all new JACK IN THE BOX restaurants are made after an
extensive review of demographic data and other information relating to
population density, restaurant visibility and access, available parking,
surrounding businesses and opportunities for market penetration. JACK IN THE BOX
restaurants developed by franchisees are built to our specifications on sites
which have been approved by us.
New JACK IN THE BOX restaurants are built using several configurations,
with the largest restaurants seating approximately 100 customers and the
smallest, 40 customers. Management believes that the flexibility provided by the
alternative configurations enables us to match the restaurant configuration with
specific economic, demographic and geographic characteristics of the site. The
typical development costs for new restaurants range from approximately $1.4
million to $1.7 million. We use lease financing and other means to lower our
cash investment in a typical leased restaurant to approximately $300,000 to
$400,000.
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The following table summarizes the growth in Company-operated and
franchised JACK IN THE BOX restaurants since the beginning of fiscal 1996:
Fiscal Year
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1996 1997 1998 1999 2000
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Company-operated restaurants:
Opened ....................... 26 75 102 115 120
Sold to franchisees .......... - (8) (2) - (13)
Closed ....................... (15) (6) (8) (6) (4)
Acquired from franchisees .... 5 23 14 13 17
End of period total .......... 879 963 1,069 1,191 1,311
Franchised restaurants:
Opened ....................... 10 5 2 2 1
Acquired from Company ........ - 8 2 - 13
Closed ....................... (3) (21) (5) (8) -
Sold to Company .............. (5) (23) (14) (13) (17)
End of period total .......... 391 360 345 326 323
System end of period total ...... 1,270 1,323 1,414 1,517 1,634
The following table summarizes, by state, the geographical locations of
JACK IN THE BOX restaurants at October 1, 2000:
Company-
operated Franchised Total
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Arizona ........................... 86 44 130
California ........................ 515 234 749
Hawaii ............................ 28 1 29
Idaho ............................. 20 - 20
Illinois .......................... 13 - 13
Louisiana ......................... 6 - 6
Missouri .......................... 45 - 45
Nevada ............................ 36 10 46
New Mexico ........................ - 2 2
North Carolina .................... 8 - 8
Oregon ............................ 30 2 32
South Carolina .................... 1 - 1
Tennessee ......................... 9 - 9
Texas ............................. 414 30 444
Washington ........................ 100 - 100
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Total ........................... 1,311 323 1,634
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Restaurant Operations. We devote significant resources ensuring that all
JACK IN THE BOX restaurants offer the highest quality food and service. Emphasis
is placed on ensuring that quality ingredients are delivered to the restaurants,
restaurant food production systems are continuously developed and improved, and
we train all our employees to be dedicated to delivering consistently high
quality food and service. Through our network of corporate quality assurance,
facilities services and restaurant management personnel, including regional vice
presidents, area managers and restaurant managers, we standardize specifications
for food preparation and service, employee conduct and appearance, and the
maintenance and repair of our premises. Operating specifications and procedures
are documented in a series of manuals and video presentations. Most restaurants,
including franchised units, receive approximately four quality and image
inspections and 26 mystery guest reviews each year.
Each JACK IN THE BOX restaurant is operated by a Company-employed manager
or a franchisee who normally attends an extensive range of management training
classes. Our management training program involves a combination of classroom
instruction and on-the-job training in specially designated training
restaurants. Restaurant managers and supervisory personnel train other
restaurant employees in accordance with detailed procedures and guidelines using
training aids and video equipment available at each location. The restaurant
managers are directly responsible for the operation of the restaurants,
including product quality, food handling safety, cleanliness, service,
inventory, cash control and the conduct and appearance of employees.
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Restaurant managers are supervised by area managers, each of whom is
responsible for approximately 15-20 restaurants. The area managers are
supervised by ten regional vice presidents. Under our performance system,
regional vice presidents, and area and restaurant managers are eligible for
quarterly bonuses based on a percentage of location operating profit and profit
improvement over the prior year.
Our "farm-to-fork" food safety and quality assurance program is designed to
maintain high standards for the food products and food preparation procedures
used by Company-operated and franchised restaurants. We maintain product
specifications and approve sources for obtaining such products. We have a
comprehensive, restaurant-based Hazard Analysis & Critical Control Points
("HACCP") system for managing food safety and quality. HACCP combines employee
training, testing by suppliers, and detailed attention to product quality at
every stage of the food preparation cycle. Our HACCP program has been recognized
as a leader in the industry by the USDA, FDA and the Center for Science in the
Public Interest.
We provide purchasing, warehouse and distribution services for both
Company-operated and some franchised restaurants. Some products, primarily dairy
and bakery items, are delivered directly by approved suppliers to both
Company-operated and franchised restaurants. Prior to 1996, most JACK IN THE BOX
franchisees used our distribution services to the full extent available even
though they were permitted to purchase products directly from any approved
source. In 1996, JACK IN THE BOX franchisees formed a purchasing cooperative and
contracted with another supplier for distribution services. This transition by
most franchisees resulted in a substantial decline in distribution sales, but
had only a minor impact on profitability since distribution is a low margin
business.
The primary commodities purchased by JACK IN THE BOX restaurants are beef,
poultry, pork, cheese and produce. We monitor the primary commodities we
purchase in order to minimize the impact of fluctuations in price and
availability, and make advance purchases of commodities when considered to be
advantageous. However, certain commodities remain subject to price fluctuations.
All essential food and beverage products are available, or upon short notice can
be made available, from alternative qualified suppliers.
We have centralized financial and accounting controls for Company-operated
JACK IN THE BOX restaurants which we believe are important in analyzing profit
margins. JACK IN THE BOX restaurants use a specially designed computerized
reporting and cash register system. The system provides point-of-sale
transaction data and accumulates marketing information. Our management collects
and analyzes sales data on a weekly basis.
Franchising Program. The growth of the JACK IN THE BOX concept occurs
primarily through the building of new Company-operated restaurants. Although we
do not actively recruit new franchisees, our franchising strategy allows
selected franchisee restaurant development in existing franchised markets. 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 prepay one-half of the franchise fees for restaurants to be opened
in the future and may forfeit such fees and lose their rights to future
developments if they do not maintain the required schedule of openings.
Our current franchise agreement provides for an initial franchise fee of
$50,000 per restaurant, royalties of 5% of gross sales, marketing fees of 5% of
gross sales and, in most instances, a 20-year term. Some existing agreements
provide for royalties and marketing fees at rates as low as 4%. In connection
with the conversion of a Company-operated restaurant, the restaurant equipment
and the right to do business at that location, known as "Trading Area Rights,"
are sold to the franchisee, in most cases for cash. The aggregate price is equal
to the negotiated fair market value of the restaurant as a going concern, which
depends on various factors including the history of the restaurant, its location
and cash flow potential. In addition, the land and building are leased or
subleased to the franchisee at a negotiated rent, generally equal to the greater
of a minimum base rent or a percentage of gross sales (typically 8 1/2%). The
franchisee is required to pay property taxes, insurance and maintenance costs.
Our franchise agreement also provides us a right of first refusal on each
proposed sale of a franchised restaurant, which we exercise from time to time
when the proposed sale price and terms are acceptable to us.
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We view our non-franchised JACK IN THE BOX units as a potential resource
which, on a selected basis, can be sold to a franchisee to generate additional
immediate cash flow and revenues while still maintaining future cash flows and
earnings through franchise rents and royalties. Franchised units totaled 323 of
the 1,634 JACK IN THE BOX restaurants at October 1, 2000. The ratio of
franchised to Company-operated restaurants is low relative to our major
competitors.
Advertising and Promotion. JACK IN THE BOX restaurants participate in
substantial marketing programs and activities. Advertising costs are paid from a
fund comprised of (i) an amount contributed each year by us equal to at least 5%
of the gross sales of our Company-operated restaurants and (ii) the marketing
fees paid by franchisees. Our use of advertising is limited to regional and
local campaigns on television and radio and in print media. We spent
approximately $94.9 million on advertising and promotions in fiscal 2000,
including franchisee contributions of $18.0 million. Our current advertising
campaign relies on a series of television and radio spot advertisements to
promote individual products and to develop the JACK IN THE BOX brand. We also
spent $.9 million in fiscal 2000 for local marketing purposes. Franchisees are
also encouraged to, and generally do, spend additional funds for local marketing
programs.
Employees. At October 1, 2000, we had approximately 40,200 employees, of
whom approximately 37,700 were restaurant employees, 570 were corporate
personnel, 370 were distribution employees and 1,560 were field management and
administrative personnel. Employees are paid on an hourly basis, except
restaurant managers, corporate and field management, and administrative
personnel. A majority of our restaurant employees are employed on a part-time,
hourly basis to provide services necessary during peak periods of restaurant
operations. We have not experienced any significant work stoppages and believe
our labor relations are good. We compete in the job market for qualified
employees and believe our wage rates are comparable to those of our competitors.
Trademarks and Service Marks
The JACK IN THE BOX name is of material importance to us and is a
registered trademark and service mark in the United States and in certain
foreign countries. In addition, we have registered numerous service marks and
trade names for use in our business, including the JACK IN THE BOX logo and
various product names and designs.
Competition and Markets
The restaurant business is highly competitive and is affected by
competitive changes in a geographic area, changes in the public's eating habits
and preferences, local and national economic conditions affecting consumer
spending habits, population trends and traffic patterns. Key elements of
competition in the industry are the quality and value of the food products
offered, quality and speed of service, advertising, name identification,
restaurant location and attractiveness of facilities.
Each JACK IN THE BOX restaurant competes directly and indirectly with a
large number of national and regional restaurant chains as well as with
locally-owned quick-service restaurants and coffee shops. In selling franchises,
we compete with many other restaurant franchisers, some of whom have
substantially greater financial resources and higher total sales volume.
Regulation
Each JACK IN THE BOX restaurant is subject to regulation by federal
agencies and to licensing and regulation by state and local health, sanitation,
safety, fire and other departments. Difficulties or failures in obtaining any
required licensing or approval could result in delays or cancellations in the
opening of new restaurants.
We are also subject to federal and a substantial number of state laws
regulating the offer and sale of franchises. Such laws impose registration and
disclosure requirements on franchisers in the offer and sale of franchises and
may also apply substantive standards to the relationship between franchiser and
franchisee, including limitations on the ability of franchisers to terminate
franchisees and alter franchise arrangements. We believe we are operating in
substantial compliance with applicable laws and regulations governing our
operations.
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We are subject to the Fair Labor Standards Act and various state laws
governing such matters as minimum wages, overtime and other working conditions.
A significant number of our food service personnel are paid at rates related to
the federal and state minimum wage, and accordingly, increases in the minimum
wage increase our labor costs.
In addition, various proposals which would require employers to provide
health insurance for all of their employees are being considered from time to
time in Congress and various states. The imposition of any requirement that we
provide health insurance to all employees would have a material adverse impact
on the consolidated operations and financial condition of the Company and the
restaurant industry.
We are subject to certain guidelines under the Americans with Disabilities
Act of 1990 ("ADA") and various state codes and regulations which require
restaurants to provide full and equal access to persons with physical
disabilities. To comply with such laws and regulations, the cost of remodeling
and developing restaurants has increased, principally due to the need to provide
certain older restaurants with ramps, wider doors, larger restrooms and other
conveniences.
We are also subject to various federal, state and local laws regulating the
discharge of materials into the environment. The cost of developing restaurants
has increased to comply with these laws. Additional costs relate primarily to
the necessity of obtaining more land, landscaping and below surface storm
drainage and the cost of more expensive equipment necessary to decrease the
amount of effluent emitted into the air and ground.
Forward-Looking Statements and Risk Factors
This Form 10-K contains "forward-looking statements" within the meaning of
the securities laws. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, and have based these expectations on
our beliefs as well as assumptions we have made, such expectations may prove to
be materially incorrect due to known and unknown risks and uncertainties.
These forward-looking statements are principally contained in the sections
captioned "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Statements regarding our future
financial performance, including growth in net sales, earnings, cash flows from
operations and sources of liquidity; expectations regarding effective tax rates;
the number of new restaurants to be opened in the future and continuing
investment in new restaurants and refurbishment of existing facilities are
forward-looking statements. In those and other portions of this Form 10-K, the
words "anticipates," "believes," "estimates," "seeks," "expects," "plans,"
"intends" and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the following cautionary statements identify
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statements. In addition to the factors
discussed in this Form 10-K, other factors that could cause results to differ
materially are: the effectiveness and cost of advertising and promotional
efforts; the degree of success of product offerings; weather conditions;
difficulties in obtaining ingredients and variations in ingredient costs; the
ability to control operating, general and administrative costs and to raise
prices sufficiently to offset cost increases; the ability to recognize value
from any current or future co-branding efforts; competitive products and pricing
and promotions; the impact of any wide-spread negative publicity; the impact on
consumer eating habits of new scientific information regarding diet, nutrition
and health; competition for labor; general economic conditions; changes in
consumer tastes and in travel and dining-out habits; the impact on operations
and the costs to comply with laws and regulations and other activities of
governing entities; the costs and other effects of legal claims by franchisees,
customers, vendors and others, including settlement of those claims; and the
effectiveness of management strategies and decisions.
Risks Related to the Food Service Industry. Food service businesses are
often affected by changes in consumer tastes, national, regional and local
economic conditions and demographic trends. The performance of individual
restaurants may be adversely affected by factors such as traffic patterns,
demographics and the type, number and location of competing restaurants.
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Multi-unit food service businesses such as ours can also be materially and
adversely affected by publicity resulting from poor food quality, illness,
injury or other health concerns with respect to the nutritional value of certain
food.
In early 1993, our business was severely disrupted as a result of an
outbreak of food-borne illness bacteria attributed to hamburgers served in
JACK IN THE BOX restaurants, principally in the state of Washington. To minimize
the risk of any such occurrence in the future, we have implemented a HACCP
system for managing food safety and quality. Nevertheless, the risk of
food-borne illness cannot be completely eliminated. Any outbreak of such illness
attributed to JACK IN THE BOX restaurants or within the food service industry
could have a material adverse effect on our financial condition and results of
operations.
Dependence on frequent deliveries of fresh produce and groceries subjects
food service businesses, such as ours, to the risk that shortages or
interruptions in supply, caused by adverse weather or other conditions, could
adversely affect the availability, quality and cost of ingredients. In addition,
unfavorable trends or developments concerning factors such as inflation,
increased food, labor and employee benefit costs (including increases in hourly
wage and unemployment tax rates), increases in the number and locations of
competing restaurants, regional weather conditions and the availability of
experienced management and hourly employees may also adversely affect the food
service industry in general and our financial condition and results of
operations in particular. Changes in economic conditions affecting our customers
could reduce traffic in some or all of our restaurants or impose practical
limits on pricing, either of which could have a material adverse effect on our
financial condition and results of operations. Our continued success will depend
in part on our ability to anticipate, identify and respond to changing
conditions.
Risks Associated with Development. We intend to grow primarily by
developing additional Company-owned restaurants. Development involves
substantial risks, including the risk of (i) development costs exceeding
budgeted or contracted amounts, (ii) delays in completion of construction, (iii)
failing to obtain all necessary zoning and construction permits, (iv) the
inability to identify or the unavailability of suitable sites, both traditional
and nontraditional, on acceptable leasing or purchase terms, (v) developed
properties not achieving desired revenue or cash flow levels once opened, (vi)
competition for suitable development sites from competitors (some of which have
greater financial resources than us), (vii) incurring substantial unrecoverable
costs in the event a development project is abandoned prior to completion,
(viii) changes in governmental rules, regulations, and interpretations
(including interpretations of the requirements of the ADA) and (ix) general
economic and business conditions.
Although we intend to manage our development to reduce such risks, we
cannot assure you that present or future developments will perform in accordance
with our expectations. We cannot assure you that we will complete the
development and construction of the facilities or that any such developments
will be completed in a timely manner or within budget or that such restaurants
will generate our expected returns on investment. Our inability to expand in
accordance with our plans or to manage our growth could have a material adverse
effect on our results of operations and financial condition.
Risks Associated with Growth. Our development plans will require the
implementation of enhanced operational and financial systems and will require
additional management, operational, and financial resources. For example, we
will be required to recruit and train managers and other personnel for each new
Company-owned restaurant as well as additional development and accounting
personnel. We cannot assure you that we will be able to manage our expanding
operations effectively. The failure to implement such systems and add such
resources on a cost-effective basis could have a material adverse effect on our
results of operations and financial condition.
Reliance on Certain Markets. Because our business is regional, with
approximately three-fourths of JACK IN THE BOX restaurants located in the states
of California and Texas, the economic conditions, state and local government
regulations and weather conditions affecting those states may have a material
impact upon our results.
Risks Related to Entering New Markets. During fiscal 2001 we expect to open
restaurants in new markets. We cannot assure you that we will be able to
successfully enter into new geographical markets, as we may encounter
well-established competitors with substantially greater financial resources. We
may be unable to find attractive locations, successfully market our products and
attract customers. Competitive circumstances and consumer characteristics in new
markets may differ substantially from those in the markets in which we have
substantial experience. We cannot assure you that we will be able to
successfully integrate or profitably operate new Company-operated or franchised
restaurants located in our new markets.
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Competition. The restaurant industry is highly competitive with respect to
price, service, location and food quality, and there are many well-established
competitors. Certain of our competitors have engaged in substantial price
discounting in recent years and may continue to do so in the future. In
addition, factors such as increased food, labor and benefits costs and the
availability of experienced management and hourly employees may adversely affect
the restaurant industry in general and our restaurants in particular. Each
JACK IN THE BOX restaurant competes directly and indirectly with a large number
of national and regional restaurant chains as well as with locally-owned
quick-service restaurants and coffee shops. Some of our competitors have
substantially greater financial resources and higher total sales volume. Any
changes in these factors could adversely affect our profitability.
Exposure to Commodity Pricing. Although we may take hedging positions in
certain commodities from time to time and opportunistically contract for some of
these items in advance of a specific need, we cannot assure you that we will not
be subject to the risk of substantial and sudden price increases, shortages or
interruptions in supply of such items, which could have a material adverse
effect on us.
Risks Related to Increased Labor Costs. We have a substantial number of
employees who are paid wage rates at or slightly above the minimum wage. As
federal and state minimum wage rates increase, we may need to increase not only
the wages of our minimum wage employees but also the wages paid to the employees
at wage rates which are above minimum wage. If competitive pressures or other
factors prevent us from offsetting the increased costs by increases in prices,
our profitability may decline. In addition, various proposals which would
require employers to provide health insurance for all of their employees are
being considered from time to time in Congress and various states. The
imposition of any requirement that we provide health insurance to all employees
would have a material adverse impact on the operations and financial condition
of the Company and the restaurant industry.
Taxes. Because of losses incurred in past years, we have been required to
establish valuation allowances against deferred tax assets recorded for certain
types of loss carryforwards. Our effective tax rates would be impacted if
sufficient evidence becomes available that indicates that we will be able to
realize such deferred tax assets through offsetting taxable gains. In addition,
from time to time, we may take positions for filing our tax returns which differ
from the treatment of the same item for financial reporting purposes. If we
prevail in our tax return filing positions, our effective tax rate will be
affected.
Leverage. We are highly leveraged. Our substantial indebtedness may limit
our ability to respond to changing business and economic conditions. The
contracts under which we acquired our debt impose significant operating and
financial restrictions which limit our ability to borrow money, sell assets or
make capital expenditures or investments without the approval of certain
lenders. In addition to cash flows generated by operations, other financing
alternatives may be required in order to repay our substantial debt as it comes
due. We cannot assure you that we will be able to refinance our debt or obtain
additional financing or that any such financing will be on terms favorable to
us.
Risks Related to Franchise Operations. At October 1, 2000, we had 323
franchised JACK IN THE BOX restaurants. The opening and success of franchised
restaurants depends on various factors, including the availability of suitable
sites, the negotiation of acceptable lease or purchase terms for new locations,
permitting and regulatory compliance, the ability to meet construction schedules
and the financial and other capabilities of our franchisees and developers. We
cannot assure you that developers planning the opening of franchised restaurants
will have the business abilities or sufficient access to financial resources
necessary to open the restaurants required by their agreements. We cannot assure
you that franchisees will successfully operate their restaurants in a manner
consistent with our concept and standards. In addition, certain federal and
state laws govern our relationships with our franchisees. See "Risks Related to
Government Regulations" below.
Dependence on Key Personnel. We believe that our success will depend in
part on the continuing services of our key executives, including Robert J.
Nugent, President and Chief Executive Officer, Charles W. Duddles, Executive
Vice President, Chief Financial Officer and Chief Administrative Officer and
Kenneth R. Williams, Executive Vice President, Marketing and Operations, none of
whom are employed pursuant to an employment agreement. The loss of the services
of any of such executives could have a material adverse effect on our business,
and we cannot assure you that qualified replacements would be available. Our
continued growth will also depend in part on our ability to attract and retain
additional skilled management personnel.
9
<PAGE>
Risks Related to Government Regulations. The restaurant industry is subject
to extensive federal, state and local governmental regulations, including those
relating to the preparation and sale of food and those relating to building and
zoning requirements. We and our franchisees are also subject to laws governing
our relationships with employees, including minimum wage requirements, overtime,
working and safety conditions and citizenship requirements. See "Risks Related
to Increased Labor Costs" above. We are also subject to federal regulation and
certain state laws which govern the offer and sale of franchises. Many state
franchise laws impose substantive requirements on franchise agreements,
including limitations on noncompetition provisions and on provisions concerning
the termination or nonrenewal of a franchise. Some states require that certain
materials be registered before franchises can be offered or sold in that state.
The failure to obtain or retain licenses or approvals to sell franchises could
adversely affect us and our franchisees. Changes in government regulations could
have a material adverse effect on us.
Environmental Risks and Regulations. As is the case with any owner or
operator of real property, we are subject to a variety of federal, state and
local governmental regulations relating to the use, storage, discharge, emission
and disposal of hazardous materials. Failure to comply with environmental laws
could result in the imposition of severe penalties or restrictions on operations
by governmental agencies or courts of law which could adversely affect
operations. We do not have environmental liability insurance, nor do we maintain
a reserve, to cover such events. We have engaged and may engage in real estate
development projects and own or lease several parcels of real estate on which
our restaurants are located. We are unaware of any significant environmental
hazards on properties we own or have owned, or operate or have operated. In the
event of the determination of contamination on such properties, the Company, as
owner or operator, can be held liable for severe penalties and costs of
remediation. We also operate motor vehicles and warehouses and handle various
petroleum substances and hazardous substances, but are not aware of any current
material liability related thereto.
10
<PAGE>
ITEM 2. PROPERTIES
----------
At October 1, 2000, we owned 637 JACK IN THE BOX restaurant buildings,
including 419 located on leased land. In addition, we leased 914 restaurants
where both the land and building are leased, including 141 restaurants operated
by franchisees. At October 1, 2000, franchisees directly owned or leased 83
restaurants.
Number of restaurants
-------------------------------
Company- Franchise
operated -operated Total
--------- ------------ --------
Company-owned restaurant buildings:
On Company-owned land.................... 165 53 218
On leased land........................... 373 46 419
----- --- -----
Subtotal................................. 538 99 637
Company-leased restaurant buildings
on leased land........................... 773 141 914
Franchise directly-owned or directly-
leased restaurant buildings.............. - 83 83
----- --- -----
Total restaurant buildings.................. 1,311 323 1,634
===== === =====
Our leases generally provide for fixed rental payments (with cost-of-living
index adjustments) plus real estate taxes, insurance and other expenses; in
addition, many of the leases provide for contingent rental payments of between
2% and 10% of the restaurant's gross sales. We have generally been able to renew
our restaurant leases as they expire at then current market rates. The remaining
lease terms of ground leases range from approximately one year to 54 years,
including optional renewal periods. The remaining lease terms of our other
leases range from approximately one year to 40 years, including optional renewal
periods. At October 1, 2000, the leases had initial terms expiring as follows:
Number of restaurants
-----------------------------
Land and
Ground building
leases leases
-------------- --------------
2001 - 2005................................... 161 228
2006 - 2010................................... 102 254
2011 - 2015................................... 56 154
2016 and later................................ 100 278
We own our principal executive offices in San Diego, California, consisting
of approximately 150,000 square feet. We own one warehouse and lease an
additional six with remaining terms ranging from one to 19 years, including
optional renewal periods.
Certain of our real and personal property are pledged as collateral for
various components of our long-term debt.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
-----------------
On February 2, 1995, an action by Concetta Jorgensen was filed against us
in the U.S. District Court in San Francisco, California alleging that restrooms
at a JACK IN THE BOX restaurant failed to comply with laws regarding disabled
persons and seeking damages in unspecified amounts, punitive damages, injunctive
relief, attorneys' fees and prejudgment interest. In an amended complaint,
damages were also sought on behalf of all physically disabled persons who were
allegedly denied access to restrooms at the restaurant. In February 1997, the
Court ordered that the action for injunctive relief proceed as a nationwide
class action on behalf of all persons in the United States with mobility
disabilities. We have reached agreement on settlement terms both as to the
individual plaintiff Concetta Jorgensen and the claims for injunctive relief,
and the settlement agreement has been approved by the U.S. District Court. The
settlement requires us to make access improvements at Company-operated
restaurants to comply with the standards set forth in the ADA Access Guidelines.
The settlement requires compliance at Company-operated restaurants by October
2005. We have begun to make modifications to our restaurants to improve
accessibility and anticipate investing an estimated $24 million in capital
improvements in connection with these modifications, including approximately
$11 million spent through October 1, 2000. Similar claims have been made against
JACK IN THE BOX franchisees and us relating to franchised locations which may
not be in compliance with the ADA. A settlement agreement has been reached which
provides for injunctive relief requiring franchisees to bring their franchised
restaurants into compliance with the ADA, and requiring payment by us of
monitoring expenses to ensure compliance and attorney's fees.
We are also subject to normal and routine litigation. The amount of
liability from the claims and actions against us cannot be determined with
certainty, but in our opinion, the ultimate liability from all pending legal
proceedings, asserted legal claims and known potential legal claims which are
probable of assertion should not materially affect our results of operations and
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
fiscal quarter ended October 1, 2000.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The following table sets forth the high and low closing sales prices for
our common stock during the fiscal quarters indicated, as reported on the New
York Stock Exchange-Composite Transactions:
12 weeks ended
16 weeks ended ------------------------------ 13 weeks ended
Jan. 17, 1999 Apr. 11, 1999 July 4, 1999 Oct. 3, 1999
-------------- ------------- ------------ --------------
High...... $23.06 $26.63 $28.56 $29.31
Low....... 13.06 22.00 22.38 22.44
12 weeks ended
16 weeks ended -----------------------------------------------
Jan. 23, 2000 Apr. 16, 2000 July 9, 2000 Oct. 1, 2000
-------------- ------------- ------------ -------------
High...... $27.00 $26.00 $26.88 $26.88
Low....... 18.50 18.81 22.94 20.00
We have not paid any cash or other dividends (other than the issuance of
the Rights, as described in Note 8 to the Consolidated Financial Statements)
during our last two fiscal years and do not anticipate paying dividends in the
foreseeable future. Our credit agreements prohibit and our public debt
instruments restrict our right to declare or pay dividends or make other
distributions with respect to shares of our capital stock.
As of October 1, 2000, there were approximately 500 stockholders of record.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Our fiscal year is 52 or 53 weeks, ending the Sunday closest to
September 30. Fiscal year 1999 includes 53 weeks and all other years include
52 weeks. The following selected financial data of Jack in the Box Inc. for each
fiscal year is extracted or derived from financial statements which have been
audited by KPMG LLP, independent auditors.
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Restaurant sales....................... $ 1,529,328 $ 1,372,899 $ 1,112,005 $ 986,583 $ 892,029
Distribution and other sales........... 59,091 41,828 26,407 45,233 132,421
Franchise rents and royalties.......... 41,432 39,863 35,904 35,426 34,048
Other revenues (1)..................... 3,461 2,309 49,740 4,500 4,324
----------- ----------- ----------- ----------- ----------
Total revenues....................... 1,633,312 1,456,899 1,224,056 1,071,742 1,062,822
----------- ----------- ----------- ----------- ----------
Costs of revenues (2).................... 1,301,924 1,142,995 951,619 869,721 882,270
Selling, general and
administrative expenses................ 182,794 164,297 134,926 116,459 109,075
Interest expense......................... 25,830 28,249 33,058 40,359 46,126
----------- ----------- ----------- ----------- ----------
Earnings before income
taxes and extraordinary item........... 122,764 121,358 104,453 45,203 25,351
Income taxes (3)......................... 22,500 44,900 33,400 9,900 5,300
----------- ----------- ----------- ----------- ----------
Earnings before
extraordinary item..................... $ 100,264 $ 76,458 $ 71,053 $ 35,303 $ 20,051
=========== =========== =========== =========== ==========
Earnings per share
before extraordinary item:
Basic................................ $ 2.62 $ 2.00 $ 1.82 $ .91 $ .52
Diluted.............................. 2.55 1.95 1.77 .89 .51
Balance Sheet Data (at end of period):
Total assets............................. $ 906,828 $ 833,644 $ 743,588 $ 681,758 $ 653,638
Long-term debt........................... 282,568 303,456 320,050 346,191 396,340
Stockholders' equity..................... 316,352 217,837 136,980 87,879 51,384
<FN>
----------
(1) Includes the recognition of a $45.8 million Litigation Settlement
in 1998 as described in Item 7 - Revenues.
(2) Reflects an $18.0 million reduction of restaurant operating costs in 1999
as described in Item 7 - Costs and Expenses.
(3) Includes the recognition of $22.9 million in tax benefits in 2000 primarily
resulting from the settlement of a tax case as described in Item 7 - Costs
and Expenses.
</FN>
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------------------------------------------------------------------------
OF OPERATIONS
-------------
Results of Operations
All comparisons under this heading between 2000, 1999 and 1998 refer to the
52-week period ended October 1, 2000, the 53-week period ended October 3, 1999,
and the 52-week period ended September 27, 1998, respectively, unless otherwise
indicated.
Revenues
Company-operated restaurant sales were $1,529.3 million, $1,372.9 million
and $1,112.0 million in 2000, 1999 and 1998, respectively. Restaurant sales
improved from the prior year by $156.4 million, or 11.4%, in 2000 and $260.9
million, or 23.5%, in 1999, reflecting increases in the average number of
Company-operated restaurants and per store average ("PSA") sales. The increase
in 1999 also included restaurant sales of approximately $28 million for the
additional week. The average number of Company-operated restaurants grew to
1,242 in 2000 from 1,120 in 1999 and 998 in 1998 with new restaurant openings of
120, 115 and 102, respectively. PSA weekly sales for comparable restaurants
increased 3.3% in 2000, 8.7% in 1999 and 2.8% in 1998 compared to the respective
prior year, due to increases in both the number of transactions and the average
transaction amounts. We believe restaurant sales improvements result from our
two-tier marketing strategy featuring both premium sandwiches and value-priced
alternatives, as well as to a popular brand-building advertising campaign that
features our fictional founder, "Jack". Also contributing to sales growth were
our strategic initiatives, including an Assemble-to-Order ("ATO") program in
which sandwiches are made when customers order them, menu boards that showcase
combo meals and an order confirmation system at the drive-thru.
Distribution and other sales were $59.1 million, $41.8 million and $26.4
million in 2000, 1999 and 1998, respectively. Distribution sales of food and
supplies to franchisees and others were $31.2 million in 2000, $30.9 million in
1999 and $24.3 million in 1998, reflecting increases in the number of
restaurants serviced by our distribution division and PSA sales growth at
franchise restaurants. Other sales from fuel and convenience store operations
increased to $27.9 million in 2000 from $10.9 million in 1999 and $2.1 million
in 1998 as the number of locations we operate was seven during 2000 having grown
to that level principally during 1999.
Franchise rents and royalties were $41.4 million, $39.9 million and $35.9
million in 2000, 1999 and 1998, respectively, or 10.6% of sales at
franchise-operated restaurants in 2000 and 10.4% in 1999 and 1998. Franchise
restaurant sales were $391.9 million in 2000, $384.7 million in 1999 and $345.9
million in 1998. The percentage of sales in 2000 grew primarily due to increases
in percentage rents at certain franchised restaurants.
In 2000, other revenues, typically interest income from investments and
notes receivable, also included $1.9 million received for refranchising 13
restaurants and fees that franchisees paid to extend the term of their
franchises for three years. In 1998, other revenues also included a litigation
settlement received from various meat suppliers of $58.5 million, of which $45.8
million (the "Litigation Settlement") was realized after litigation costs.
Excluding the unusual items, other revenues were $1.6 million, $2.3 million and
$4.0 million in 2000, 1999 and 1998, respectively, reflecting lower investments
as cash has been utilized in refinancing activities.
Costs and Expenses
Restaurant costs of sales, which include food and packaging costs,
increased with sales growth and the addition of Company-operated restaurants to
$473.4 million in 2000 from $432.2 million in 1999 and $353.5 million in 1998.
As a percent of restaurant sales, costs of sales were 31.0% in 2000, 31.5% in
1999 and 31.8% in 1998. The restaurant costs of sales percentages decreased in
2000 and 1999 compared to 1998 primarily due to favorable ingredient costs,
principally dairy, shortening and bakery in 2000 and beef, pork and beverages
costs in 1999.
14
<PAGE>
Restaurant operating costs were $750.6 million, $646.8 million and $549.2
million in 2000, 1999 and 1998, respectively. In 1999, we reduced accrued
liabilities and restaurant operating costs by $18.0 million, primarily due to a
change in estimates resulting from improvements to our loss prevention and risk
management programs, which have been more successful than anticipated. This
change in estimates was supported by an independent actuarial study conducted to
evaluate the self-insured portion of our workers' compensation, general
liability and other insurance programs. Restaurant operating costs were 49.1% of
restaurant sales in 2000, 48.4% in 1999, excluding the change in estimates, and
49.4% in 1998. The percentage in 2000 increased compared to 1999 primarily
reflecting costs related to initiatives designed to improve the overall guest
experience and slightly higher labor-related costs. The restaurant operating
costs percentage declined in 1999 compared to 1998, reflecting improved rates of
labor-related costs and occupancy expenses, which increased at lesser rates than
PSA sales growth.
Costs of distribution and other sales were $57.8 million in 2000, $41.2
million in 1999 and $25.8 million in 1998, reflecting an increase in the related
sales. Costs of distribution and other sales were 97.8% of related sales in
2000, 98.5% in 1999 and 97.8% in 1998. The higher percentage in 1999 was
primarily due to start-up costs related to fuel and convenience store
operations.
Franchised restaurant costs, which consist principally of rents and
depreciation on properties leased to franchisees and other miscellaneous costs,
were $20.1 million, $22.7 million and $23.0 million in 2000, 1999 and 1998,
respectively. The declines in 2000 and 1999 compared to 1998 principally reflect
decreases in franchise-related legal expenses.
Selling, general and administrative expenses were $182.8 million, $164.3
million and $134.9 million in 2000, 1999 and 1998, respectively. Advertising and
promotion costs were $77.8 million in 2000, $70.3 million in 1999 and $58.3
million in 1998, representing approximately 5.1% of restaurant sales in 2000 and
1999 and 5.2% in 1998. General, administrative and other costs were
approximately 6.4% of revenues in 2000, 6.5% in 1999 and 6.3% in 1998. The
higher percentage in 1999 reflects costs associated with the implementation of
the ATO program and other guest initiatives, accelerated restaurant growth,
higher incentive compensation attributable to our earnings improvement and
increased pension expense. In 1998, such costs included a non-cash charge of
approximately $8 million, primarily related to facilities and customer service
improvement projects.
Interest expense declined to $25.8 million in 2000 from $28.2 million in
1999 and $33.1 million in 1998, principally due to a reduction in total debt
outstanding and lower interest rates. Over this three-year period, total
long-term debt has been reduced by $63.6 million and certain debt has been
refinanced at lower rates.
The tax provisions reflect effective annual tax rates of 18%, 37% and 32%
of pre-tax earnings in 2000, 1999 and 1998, respectively. The favorable income
tax rates in each year result from our ability to realize, as our profitability
has improved, previously unrecognized tax benefits such as business tax credit,
tax loss and minimum tax credit carryforwards. Also contributing to the
effective rate decline in 2000 was our settlement with the U.S. Internal Revenue
Service of a tax case related to the disposition in November 1995 of our
interest in Family Restaurants, Inc. We recognized tax benefits of $22.9 million
primarily as a result of this settlement.
In 1998, we incurred an extraordinary loss of $7.0 million, less income tax
benefits of $2.6 million, on the early extinguishment of $125 million each of
9 1/4% senior notes and 9 3/4% senior subordinated notes.
Net earnings were $100.3 million, or $2.55 per diluted share in 2000, $76.5
million, or $1.95 per diluted share, in 1999 and $66.7 million, or $1.66 per
diluted share, in 1998. Each year includes unusual items, which increased our
net earnings. In 2000, we reached a final agreement with the U.S. Internal
Revenue Service to settle a tax case as described above. This settlement
increased 2000 net earnings by $22.9 million or $.58 per diluted share. In 1999,
restaurant operating costs were reduced by $18.0 million due to a change in
estimates as described above. This change in estimates increased 1999 net
earnings by $11.4 million, or $.29 per diluted share, net of income taxes. In
addition, 1999 included a 53rd week that contributed an extra $1.4 million in
net earnings, or $.04 per diluted share. In 1998, net earnings included
approximately $25.7 million, or $.64 per diluted share, net of income taxes,
from the Litigation Settlement income offset by the aforementioned non-cash
charge, and the extraordinary loss of $4.4 million, or $.11 per share. Excluding
these unusual items, earnings increased 22% to $77.4 million or $1.97 per
diluted share in 2000 from $63.7 million or $1.62 per diluted share, in 1999,
which had increased 40% from $45.4 million, or $1.13 per diluted share in 1998.
15
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents decreased $4.1 million to approximately $6.8
million at October 1, 2000 from approximately $10.9 million at the beginning of
the fiscal year. We expect to maintain low levels of cash and cash equivalents,
reinvesting available cash flows from operations to develop new or enhance
existing restaurants and to reduce borrowings under the revolving credit
agreement.
Our working capital deficit decreased $22.7 million to $109.1 million at
October 1, 2000 from $131.8 million at October 3, 1999, principally due to a
decline in income tax liabilities. The Company and the restaurant industry in
general, maintain relatively low levels of accounts receivable and inventories
and vendors grant trade credit for purchases such as food and supplies. We also
continually invest in our business through the addition of new units and
refurbishment of existing units, which are reflected as long-term assets and not
as part of working capital.
Our revolving bank credit agreement provides for a credit facility expiring
in 2003 of up to $175 million, including letters of credit of up to $25 million.
At October 1, 2000, we had borrowings of $66.0 million and approximately $98.7
million of availability under the agreement. Total debt outstanding has
decreased $20.6 million to $284.6 million at October 1, 2000 from $305.2 million
at the beginning of fiscal year 2000.
We are subject to a number of covenants under our various debt instruments
including limitations on additional borrowings, capital expenditures, lease
commitments and dividend payments, and requirements to maintain certain
financial ratios, cash flows and net worth. In September 1999, the collateral
securing the bank credit facility was released. However, real and personal
property previously held as collateral for the bank credit facility cannot be
used to secure other indebtedness of the Company. In addition, certain of our
real and personal property secure other indebtedness.
We require capital principally to grow the business through new restaurant
construction, as well as to maintain, improve and refurbish existing
restaurants, and for general operating purposes. Our primary sources of
liquidity are expected to be cash flows from operations, the revolving bank
credit facility, and the sale and leaseback of restaurant properties. Additional
potential sources of liquidity include financing opportunities and the
conversion of Company-operated restaurants to franchised restaurants.
Based upon current levels of operations and anticipated growth, we expect
that sufficient cash flows will be generated from operations so that, combined
with available financing alternatives, we will be able to meet debt service,
capital expenditure and working capital requirements.
Although the amount of liability from claims and actions described in Note
10 of the Consolidated Financial Statements cannot be determined with certainty,
management believes the ultimate liability of such claims and actions should not
materially affect our results of operations and liquidity.
On December 3, 1999, our Board of Directors authorized the purchase of our
outstanding common stock in the open market for an aggregate amount not to
exceed $10 million. At October 1, 2000, we had acquired 305,800 shares under
this authorization for an aggregate cost of $5.8 million.
Seasonality
Our restaurant sales and profitability are subject to seasonal fluctuations
and are traditionally higher during the spring and summer months because of
factors such as increased travel and improved weather conditions which affect
the public's dining habits.
Future Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This Statement was amended by SFAS 137 which deferred the effective date to all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133, as
amended by SFAS 137 and SFAS 138, is effective for our first quarter in the
fiscal year ending September 30, 2001 and is not expected to have a material
effect on our financial position or results of operations.
16
<PAGE>
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB101), Revenue Recognition in Financial Statements,
summarizing their views for applying generally accepted accounting principles to
revenue recognition in financial statements. Although we have determined that
the adoption of SAB101 should not have a material effect on our annual results
of operations, it will impact the reporting of our franchise percentage rent
between quarters within the year. As permitted by SAB101, we plan to adopt the
new standard in the fourth quarter of fiscal year 2001 at which time we will
restate the earlier quarters of the year.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Our primary exposure relating to financial instruments is to changes in
interest rates. We use interest rate swap agreements to reduce exposure to
interest rate fluctuations. At October 1, 2000, we had a $25 million notional
amount interest rate swap agreement expiring in June 2001. This agreement
effectively converts a portion of our variable rate bank debt to fixed rate debt
and has a pay rate of 6.38%.
Our $175 million credit facility bears interest at an annual rate equal to
the prime rate or the London Interbank Offered Rate ("LIBOR") plus an applicable
margin based on a financial leverage ratio. As of October 1, 2000, our
applicable margin was set at .625%. In fiscal year 2000, the average interest
rate paid on the credit facility was approximately 6.9%.
At October 1, 2000, a hypothetical one percentage point increase in
short-term interest rates would result in a reduction of $.4 million in annual
pre-tax earnings. The estimated reduction is based on holding the unhedged
portion of bank debt at its October 1, 2000 level.
At October 1, 2000, we had no other material financial instruments subject
to significant market exposure.
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.
17
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The following table sets forth the name, age (as of January 1, 2001) and
position of each person who is a director or executive officer of Jack in the
Box Inc.
Name Age Positions
---------------------------- --- --------------------------------------
Robert J. Nugent(3)......... 59 President, Chief Executive Officer
and Director
Charles W. Duddles.......... 60 Executive Vice President, Chief
Financial Officer, Chief
Administrative Officer and Director
Kenneth R. Williams......... 58 Executive Vice President, Marketing
and Operations
Lawrence E. Schauf.......... 55 Executive Vice President and
Secretary
Paul L. Schultz............. 46 Senior Vice President, Operations
and Franchising
Karen C. Bachmann........... 49 Vice President, Corporate
Communications
Carlo E. Cetti.............. 56 Vice President, Human Resources and
Strategic Planning
Stephanie Cline............. 55 Vice President, Chief Information
Officer
Karen Gentry................ 40 Vice President, Franchising
Linda A. Lang............... 42 Vice President and Regional Vice
President, Southern California
William F. Motts............ 57 Vice President, Restaurant Development
Harold L. Sachs............. 55 Vice President, Treasurer
David M. Theno, Ph.D........ 50 Vice President, Technical Services
Charles E. Watson........... 45 Vice President, Real Estate and
Construction
Darwin J. Weeks............. 54 Vice President, Controller and Chief
Accounting Officer
Jack W. Goodall(3).......... 62 Chairman of the Board
Michael E. Alpert(4)(5)..... 58 Director
Jay W. Brown(3)(5).......... 55 Director
Paul T. Carter(1)(2)(5)..... 78 Director
Edward W. Gibbons(4)(5)..... 64 Director
Alice B. Hayes, Ph.D.(2)(5). 63 Director
Murray H. Hutchison(1)(2)... 62 Director
L. Robert Payne(1)(4)....... 67 Director
----------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Executive Committee.
(4) Member of the Finance Committee.
(5) Member of the Nominating and Governance Committee.
18
<PAGE>
Mr. Nugent has been President and Chief Executive Officer since April 1996.
The Company has announced that Mr. Nugent will become Chairman of the Board and
Chief Executive Officer effective February 23, 2001, upon his re-election to the
Board of Directors. He was Executive Vice President from February 1985 to April
1996. He has been a director since February 1988. Mr. Nugent has 21 years of
experience with the Company in various executive and operations positions.
Mr. Duddles has been Executive Vice President and Chief Administrative
Officer since May 1988. He has been Chief Financial Officer since October 1985.
He has been a director since February 1988. Mr. Duddles has 21 years of
experience with the Company in various finance positions.
Mr. Williams has been Executive Vice President, Marketing and Operations
since May 1996. The Company has announced that Mr. Williams will become
President and Chief Operating Officer effective February 23, 2001, upon
Mr. Nugent's vacation of the office of President. He was Senior Vice President
from January 1993 to May 1996. Mr. Williams has 35 years of experience with the
Company in various operations positions.
Mr. Schauf has been Executive Vice President and Secretary since August
1996. Prior to joining the Company he was Senior Vice President, General Counsel
and Secretary of Wendy's International, Inc. from February 1991 to August 1996.
Mr. Schultz has been Senior Vice President, Operations and Franchising
since August 1999, and was Vice President from May 1988 to August 1999.
Mr. Schultz has 27 years of experience with the Company in various operations
positions.
Ms. Bachmann has been Vice President, Corporate Communications since
November 1999. She was Division Vice President, Corporate Communications from
December 1994 until November 1999.
Mr. Cetti has been Vice President, Human Resources and Strategic Planning
since March 1994. Mr. Cetti has 20 years of experience with the Company in
various human resources and training positions.
Ms. Cline has been a Vice President, of the Company since August 2000 and
Chief Information Officer since May 2000. She was Division Vice President of
Systems Development from August 1993 to May 2000. Ms. Cline has 23 years of
experience with the Company in various management information systems positions.
Ms. Gentry has been Vice President, Franchising since August 2000. From
November 1994 to August 2000 she was Division Vice President, Franchising.
Ms. Gentry has 21 years of experience with the Company in various operations and
franchise positions.
Ms. Lang (formerly Vaughan) has been Vice President and Regional Vice
President, Southern California Region since April 2000. She was Vice President,
Marketing from March 1999 to April 2000 and Vice President, Products, Promotions
and Consumer Research from February 1996 until March 1999. She was Division Vice
President, New Products and Promotions from November 1994 until February 1996.
Ms. Lang has 13 years of experience with the Company in various marketing,
finance and operations positions.
Mr. Motts has been Vice President, Restaurant Development since September
1988. Mr. Motts has 18 years of experience with the Company in various
restaurant development positions.
Mr. Sachs has been Vice President, Treasurer since November 1999. He was
Treasurer from January 1986 to November 1999. Mr. Sachs has 22 years of
experience with the Company in various finance positions.
Dr. Theno has been Vice President, Technical Services (formerly Quality
Assurance, Research and Development and Product Safety) since April 1994. He was
Vice President, Quality Assurance and Product Safety from March 1993 to April
1994.
Mr. Watson has been Vice President, Real Estate and Construction since
April 1997. From July 1995 to March 1997, he was Vice President, Real Estate and
Construction of Boston Chicken, Inc. He was Division Vice President, Real Estate
and Construction of the Company from November 1991 through June 1995. Mr. Watson
has 15 years of experience with the Company in various real estate and
construction positions.
19
<PAGE>
Mr. Weeks has been Vice President, Controller and Chief Accounting Officer
since August 1995 and was previously Division Vice President and Assistant
Controller from April 1982 through July 1995. Mr. Weeks has 24 years of
experience with the Company in various finance positions.
Mr. Goodall has been Chairman of the Board since October 1985. He has
announced his retirement from the Board of Directors effective February 23,
2001. For more than five years prior to his retirement in April 1996, he was
President and Chief Executive Officer of the Company. Mr. Goodall is a director
of Ralcorp Holdings, Inc.
Mr. Alpert has been a director of the Company since August 1992. Mr. Alpert
was a partner in the San Diego office of the law firm of Gibson, Dunn & Crutcher
LLP for more than 5 years prior to his retirement in August 1992. He is
currently Advisory Counsel to Gibson, Dunn & Crutcher LLP. Gibson, Dunn &
Crutcher LLP provides legal services to us from time to time.
Mr. Brown has been a director of the Company since February 1997. He is
currently a principal with Westgate Group, LLC. From April 1995 to September
1998, Mr. Brown was President and CEO of Protein Technologies International,
Inc., the world's leading supplier of soy-based proteins to the food and paper
processing industries. He was Chairman and CEO of Continental Baking Company
from October 1984 to July 1995 and President of Van Camp Seafood Company from
August 1983 to October 1984. From July 1981 through July 1983, he served as Vice
President of Marketing for us. Mr. Brown is a director of Agribrands
International, Inc. and Cardinal Brands, Inc.
Mr. Carter has been a director of the Company since June 1991. Mr. Carter
has been an insurance consultant for the Government Division of Corroon & Black
Corporation since February 1987. He retired in February 1987 as Chairman and
Chief Executive Officer of Corroon & Black Corporation, Southwestern Region and
as Director and Senior Vice President of Corroon & Black Corporation. Mr. Carter
is a director of Borrego Springs National Bank.
Mr. Gibbons has been a director of the Company since October 1985 and has
been a general partner of Gibbons, Goodwin, van Amerongen, an investment banking
firm, for more than five years. Mr. Gibbons is also a director of Robert Half
International, Inc. and Summer Winds Garden Centers, Inc.
Dr. Hayes has been a director of the Company since September 1999. She has
been the President of the University of San Diego since 1995. From 1989 to 1995,
Dr. Hayes served as Executive Vice President and Provost of Saint Louis
University. Previously, she spent 27 years at Loyola University of Chicago,
where she served in various executive positions. Dr. Hayes is also a director of
the Pulitzer Publishing Company, the Old Globe Theatre, Independent Colleges of
Southern California, The San Diego Foundation, Loyola University of Chicago and
Catholic Charities, Diocese of San Diego.
Mr. Hutchison has been a director of the Company since May 1998. He served
18 years as Chief Executive Officer and Chairman of International Technology
Corp., one of the largest publicly traded environmental engineering firms in the
U.S., until his retirement in 1996. Mr. Hutchison is the Chairman of the Board
of Sunrise Medical, Inc. and the Huntington Hotel Corp. and serves as a director
of Cadiz Inc., Senior Resource Corp. and the Olson Company.
Mr. Payne has been a director of the Company since August 1986. He has been
President and Chief Executive Officer of Multi-Ventures, Inc. since February
1976 and was Chairman of the Board of Grossmont Bank, a wholly-owned subsidiary
of Bancomer, S.A., from February 1974 until October 1995. Multi-Ventures, Inc.
is a real estate development and investment company that is also the managing
partner of the San Diego Mission Valley Hilton and the Red Lion Hanalei Hotel.
He was a principal in the Company prior to its acquisition by its former parent,
Ralston Purina Company, in 1968.
That portion of our definitive Proxy Statement appearing under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" to be filed with the
Commission pursuant to Regulation 14A within 120 days after October 1, 2000 and
to be used in connection with our 2001 Annual Meeting of Shareholders is hereby
incorporated by reference.
20
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
----------------------
That portion of our definitive Proxy Statement appearing under the caption
"Executive Compensation" to be filed with the Commission pursuant to Regulation
14A within 120 days after October 1, 2000 and to be used in connection with our
2001 Annual Meeting of Stockholders is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
That portion of our definitive Proxy Statement appearing under the caption
"Security Ownership of Certain Beneficial Owners and Management" to be filed
with the Commission pursuant to Regulation 14A within 120 days after October 1,
2000 and to be used in connection with our 2001 Annual Meeting of Stockholders
is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
That portion of our definitive Proxy Statement appearing under the caption
"Certain Transactions" to be filed with the Commission pursuant to Regulation
14A within 120 days after October 1, 2000 and to be used in connection with our
2001 Annual Meeting of Stockholders is hereby incorporated by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
ITEM 14(a)(1) Financial Statements. See Index to Consolidated Financial
Statements on page F-1 of this report.
ITEM 14(a)(2) Financial Statement Schedules. Not applicable.
21
<PAGE>
ITEM 14(a)(3) Exhibits.
Number Description
------ -----------
3.1 Restated Certificate of Incorporation, as amended(9)
3.2 Restated Bylaws(9)
4.1 Indenture for the 8 3/8% Senior Subordinated Notes due 2008(6)
(Instruments with respect to the registrant's long-term debt
not in excess of 10% of the total assets of the registrant and
its subsidiaries on a consolidated basis have been omitted. The
registrant agrees to furnish supplementally a copy of any such
instrument to the Commission upon request.)
10.1.1 Revolving Credit Agreement dated as of April 1, 1998 by and
between Foodmaker, Inc. and the Banks named therein(6)
10.1.2 First Amendment dated as of August 24, 1998 to the Revolving
Credit Agreement dated as of April 1, 1998 by and between
Foodmaker, Inc. and the Banks named therein(7)
10.1.3 Second Amendment dated as of February 27, 1999 to the Revolving
Credit Agreement dated as of April 1, 1998 by and between
Foodmaker, Inc. and the Banks named therein(8)
10.1.4 Third Amendment dated as of September 17, 1999 to the Revolving
Credit Agreement dated as of April 1, 1998 by and between
Foodmaker, Inc. and the Banks named therein(9)
10.1.5 Fourth Amendment dated as of December 6, 1999 to the Revolving
Credit Agreement dated as of April 1, 1998 by and between
Foodmaker Inc. and the Banks named therein(10)
10.1.6 Fifth Amendment dated as of May 3, 2000 to the Revolving Credit
Agreement dated as of April 1, 1998 by and between
Jack in the Box Inc. and the Banks named therein(11)
10.2 Purchase Agreements dated as of January 22, 1987 between
Foodmaker, Inc. and FFCA/IIP 1985 Property Company and FFCA/IIP
1986 Property Company(1)
10.3 Land Purchase Agreements dated as of February 18, 1987, by and
between Foodmaker, Inc. and FFCA/IPI 1984 Property Company and
FFCA/IPI 1985 Property Company and Letter Agreement relating
thereto(1)
10.4 Amended and Restated 1992 Employee Stock Incentive Plan(4)
10.5 Capital Accumulation Plan for Executives(2)
10.6 Supplemental Executive Retirement Plan(2)
10.7 Performance Bonus Plan(7)
10.8 Deferred Compensation Plan for Non-Management Directors(3)
10.9 Amended and Restated Non-Employee Director Stock Option Plan(9)
10.10 Form of Compensation and Benefits Assurance Agreement for
Executives(5)
23.1 Consent of KPMG LLP
27 Financial Data Schedule (included only with electronic filing)
----------
(1) Previously filed and incorporated herein by reference from registrant's
Registration Statement on Form S-1 (No. 33-10763) filed
February 24, 1987.
(2) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 30, 1990.
(3) Previously filed and incorporated herein by reference from registrant's
Definitive Proxy Statement dated January 17, 1995 for the Annual Meeting
of Stockholders on February 17, 1995.
(4) Previously filed and incorporated herein by reference from registrant's
Registration Statement on Form S-8 (No. 333-26781) filed May 9, 1997.
(5) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 28, 1997.
(6) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended April 12, 1998.
(7) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 27, 1998.
(8) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended April 11, 1999.
22
<PAGE>
(9) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended October 3, 1999.
(10) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended January 23, 2000.
(11) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended July 9, 2000.
ITEM 14(b) We did not file any reports on Form 8-K with the Securities
and Exchange Commission during the fourth quarter ended October 1,
2000.
ITEM 14(c) All required exhibits are filed herein or incorporated by
reference as described in Item 14(a)(3).
ITEM 14(d) All supplemental schedules are omitted as inapplicable or
because the required information is included in the Consolidated
Financial Statements or notes thereto.
23
<PAGE>
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: CHARLES W. DUDDLES
------------------
Charles W. Duddles
Executive Vice President,
Chief Financial Officer, Chief
Administrative Officer and Director
Date: December 13, 2000
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
--------------------- -------------------------------- -----------------
JACK GOODALL Chairman of the Board December 13, 2000
---------------------
Jack Goodall
ROBERT J. NUGENT President, Chief Executive Officer December 13, 2000
--------------------- and Director (Principal Executive
Robert J. Nugent Officer)
CHARLES W. DUDDLES Executive Vice President, Chief December 13, 2000
--------------------- Financial Officer, Chief
Charles W. Duddles Administrative Officer and Director
(Principal Financial Officer)
DARWIN J. WEEKS Vice President, Controller and December 13, 2000
--------------------- Chief Accounting Officer (Principal
Darwin J. Weeks Accounting Officer)
MICHAEL E. ALPERT Director December 13, 2000
---------------------
Michael E. Alpert
JAY W. BROWN Director December 13, 2000
---------------------
Jay W. Brown
PAUL T. CARTER Director December 13, 2000
---------------------
Paul T. Carter
EDWARD W. GIBBONS Director December 13, 2000
---------------------
Edward Gibbons
ALICE B. HAYES Director December 13, 2000
---------------------
Alice B. Hayes
MURRAY H. HUTCHISON Director December 13, 2000
---------------------
Murray H. Hutchison
L. ROBERT PAYNE Director December 13, 2000
---------------------
L. Robert Payne
24
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Earnings......................... F-4
Consolidated Statements of Cash Flows....................... F-5
Consolidated Statements of Stockholders' Equity............. F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Jack in the Box Inc.:
We have audited the accompanying consolidated balance sheets of
Jack in the Box Inc. and subsidiaries as of October 1, 2000 and October 3, 1999,
and the related consolidated statements of earnings, cash flows and
stockholders' equity for the fifty-two weeks ended October 1, 2000, the
fifty-three weeks ended October 3, 1999, and the fifty-two weeks ended
September 27, 1998. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Jack in the Box Inc. and subsidiaries as of October 1, 2000 and October 3, 1999,
and the results of their operations and their cash flows for the fifty-two weeks
ended October 1, 2000, the fifty-three weeks ended October 3, 1999, and the
fifty-two weeks ended September 27, 1998, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
San Diego, California
November 6, 2000
F-2
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
October 1, October 3,
2000 1999
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents........................... $ 6,836 $ 10,925
Accounts receivable, net............................ 13,667 11,991
Inventories......................................... 25,722 19,889
Prepaid expenses.................................... 19,329 15,657
Assets held for sale and leaseback.................. 33,855 38,772
---------- ----------
Total current assets............................. 99,409 97,234
---------- ----------
Property and equipment:
Land................................................ 88,617 89,352
Buildings........................................... 429,845 379,595
Restaurant and other equipment...................... 393,885 334,577
Construction in progress............................ 55,485 55,161
---------- ----------
967,832 858,685
Less accumulated depreciation and amortization...... 288,474 251,401
---------- ----------
679,358 607,284
---------- ----------
Other assets, net..................................... 128,061 129,126
---------- ----------
$ 906,828 $ 833,644
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................ $ 2,034 $ 1,695
Accounts payable.................................... 53,082 44,180
Accrued liabilities................................. 153,356 183,151
---------- ----------
Total current liabilities........................ 208,472 229,026
---------- ----------
Long-term debt, net of current maturities............. 282,568 303,456
Other long-term liabilities........................... 86,968 75,270
Deferred income taxes................................. 12,468 8,055
Stockholders' equity:
Preferred stock..................................... - -
Common stock $.01 par value, 75,000,000 authorized,
41,483,369 and 41,105,434 issued, respectively... 415 411
Capital in excess of par value...................... 294,380 290,336
Retained earnings (accumulated deficit)............. 61,817 (38,447)
Treasury stock, at cost, 3,134,774 and 2,828,974
shares, respectively.............................. (40,260) (34,463)
---------- ----------
Total stockholders' equity....................... 316,352 217,837
---------- ----------
$ 906,828 $ 833,644
========== ==========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Fiscal year
-----------------------------------
2000 1999 1998
---------- ---------- -----------
Revenues:
Restaurant sales.......................... $1,529,328 $1,372,899 $1,112,005
Distribution and other sales.............. 59,091 41,828 26,407
Franchise rents and royalties............. 41,432 39,863 35,904
Other..................................... 3,461 2,309 49,740
---------- ---------- ----------
1,633,312 1,456,899 1,224,056
---------- ---------- ----------
Costs and expenses:
Costs of revenues:
Restaurant costs of sales............... 473,373 432,231 353,534
Restaurant operating costs.............. 750,620 646,815 549,221
Costs of distribution and other sales... 57,812 41,217 25,821
Franchised restaurant costs............. 20,119 22,732 23,043
Selling, general and administrative...... 182,794 164,297 134,926
Interest expense......................... 25,830 28,249 33,058
--------- ---------- -----------
1,510,548 1,335,541 1,119,603
--------- ----------- ----------
Earnings before income taxes
and extraordinary item................... 122,764 121,358 104,453
Income taxes............................... 22,500 44,900 33,400
--------- ---------- -----------
Earnings before extraordinary item......... 100,264 76,458 71,053
Extraordinary item - loss on early
extinguishment of debt, net of taxes..... - - (4,378)
--------- ---------- -----------
Net earnings............................... $ 100,264 $ 76,458 $ 66,675
========= ========== ===========
Earnings per share - basic:
Earnings before extraordinary item....... $ 2.62 $ 2.00 $ 1.82
Extraordinary item....................... - - (.11)
---------- ---------- -----------
Net earnings per share................... $ 2.62 $ 2.00 $ 1.71
========= ========== ===========
Earnings per share - diluted:
Earnings before extraordinary item....... $ 2.55 $ 1.95 $ 1.77
Extraordinary item....................... - - (.11)
--------- ---------- --- -------
Net earnings per share................... $ 2.55 $ 1.95 $ 1.66
========= ========== ===========
Weighted average shares outstanding:
Basic.................................... 38,267 38,144 39,092
Diluted.................................. 39,334 39,281 40,113
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal year
------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings before extraordinary item................ $ 100,264 $ 76,458 $ 71,053
Non-cash items included in operations:
Depreciation and amortization....................... 56,766 45,857 40,201
Deferred finance cost amortization.................. 1,664 1,794 1,913
Deferred income taxes............................... 4,413 5,708 585
Decrease (increase) in receivables.................... (1,676) 3,125 (2,183)
Decrease (increase) in inventories.................... (5,833) (1,950) 361
Increase in prepaid expenses.......................... (3,672) (3,319) (1,184)
Increase (decrease) in accounts payable............... 8,902 (7,906) 12,511
Increase (decrease) in other accrued liabilities...... (18,768) 35,537 25,925
---------- ---------- ----------
Cash flows provided by operating activities....... 142,060 155,304 149,182
---------- ---------- ----------
Cash flows from investing activities:
Additions to property and equipment................... (127,361) (134,333) (111,098)
Dispositions of property and equipment................ 5,938 12,172 5,431
Increase in trading area rights....................... (2,656) (3,864) (6,763)
Decrease (increase) in assets held for sale
and leaseback....................................... 4,917 (11,695) 1,297
Other................................................. (4,286) (4,024) (8,358)
---------- ---------- ----------
Cash flows used in investing activities........... (123,448) (141,744) (119,491)
---------- ---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt, including
current maturities.................................. (1,777) (9,833) (251,504)
Proceeds from issuance of long-term debt.............. 825 4,347 127,690
Borrowings under revolving bank loans................. 386,000 334,000 224,500
Principal repayments under revolving bank loans....... (406,000) (345,500) (127,000)
Extraordinary loss on retirement of debt,
net of taxes........................................ - - (4,378)
Repurchase of common stock............................ (5,797) - (20,000)
Proceeds from issuance of common stock................ 4,048 4,399 2,426
---------- ---------- ----------
Cash flows used in financing activities........... (22,701) (12,587) (48,266)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.... $ (4,089) $ 973 $ (18,575)
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized................ $ 24,392 $ 26,873 $ 30,551
Income tax payments................................. 41,110 26,451 28,519
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Common stock Retained
--------------------- Capital in earnings
Number of excess of (accumulated Treasury
shares Amount par value deficit) stock Total
---------- ------ ---------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 28, 1997....... 40,509,469 $ 405 $ 283,517 $ (181,580) $(14,463) $ 87,879
Exercise of stock options and
warrants.......................... 247,430 3 1,701 - - 1,704
Tax benefit associated with
exercise of stock options......... - - 722 - - 722
Purchases of treasury stock......... - - - - (20,000) (20,000)
Net earnings........................ - - - 66,675 - 66,675
---------- ----- --------- ---------- -------- ---------
Balance at September 27, 1998....... 40,756,899 408 285,940 (114,905) (34,463) 136,980
Exercise of stock options and
warrants.......................... 348,535 3 2,733 - - 2,736
Tax benefit associated with
exercise of stock options......... - - 1,663 - - 1,663
Net earnings........................ - - - 76,458 - 76,458
---------- ----- --------- ---------- -------- ---------
Balance at October 3, 1999.......... 41,105,434 411 290,336 (38,447) (34,463) 217,837
Exercise of stock options .......... 377,935 4 1,455 - - 1,459
Tax benefit associated with
exercise of stock options......... - - 2,589 - - 2,589
Purchases of treasury stock......... - - - - (5,797) (5,797)
Net earnings........................ - - - 100,264 - 100,264
---------- ----- --------- ---------- -------- ---------
Balance at October 1, 2000.......... 41,483,369 $ 415 $ 294,380 $ 61,817 $(40,260) $ 316,352
========== ===== ========= ========== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations - On October 4, 1999, Foodmaker, Inc. changed its name
to Jack in the Box Inc. (the "Company"). We operate and franchise
JACK IN THE BOX quick-serve restaurants, principally in the western and
southern United States.
Basis of presentation and fiscal year - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions are eliminated. Certain prior year
amounts in the consolidated financial statements have been reclassified to
conform with the 2000 presentation. Our fiscal year is 52 or 53 weeks ending
the Sunday closest to September 30. Fiscal year 1999 includes 53 weeks and
all other years include 52 weeks.
Financial instruments - The fair value of cash and cash equivalents, accounts
receivable and accounts payable approximate the carrying amounts due to their
short maturities. The fair values of each of our long-term debt instruments
are based on quoted market values, where available, or on the amount of
future cash flows associated with each instrument discounted using our
current borrowing rate for similar debt instruments of comparable maturity.
The estimated fair values of our long-term debt at October 1, 2000 and
October 3, 1999 approximate their carrying values.
We use commodities hedging instruments to reduce the risk of price
fluctuations related to future raw materials requirements for commodities
such as beef and pork. The terms of such instruments generally do not exceed
twelve months, and depend on the commodity and other market factors. Gains
and losses are deferred and subsequently recorded as cost of products sold in
the statement of earnings in the same period as the hedged transactions.
We use interest rate swap agreements in the management of interest rate
exposure. The interest rate differential to be paid or received is normally
accrued as interest rates change, and is recognized as a component of
interest expense over the life of the agreements. At October 1, 2000, we had
a $25 million notional amount interest rate swap agreement expiring in
June 2001. This agreement effectively converts a portion of our variable rate
bank debt to fixed rate debt and has a pay rate of 6.38%.
At October 1, 2000, we had no other material financial instruments subject to
significant market exposure.
Cash and cash equivalents - We invest cash in excess of operating
requirements in short term, highly liquid investments with original
maturities of three months or less, which are considered cash equivalents.
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Assets held for sale and leaseback primarily represent the costs for new
sites that will be sold and leased back when construction is completed. Gains
and losses realized on the sale leaseback transactions are deferred and
credited to income over the lease terms. The leases are classified in
accordance with Statement of Financial Accounting Standards ("SFAS") 13,
Accounting for Leases.
Preopening costs are those typically associated with the opening of a new
restaurant and consist primarily of employee training costs. Preopening costs
are expensed as incurred.
F-7
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and equipment at cost - Expenditures for new facilities and
equipment and those that substantially increase the useful lives of the
property are capitalized. Facilities leased under capital leases are stated
at the present value of minimum lease payments at the beginning of the lease
term, not to exceed fair value. Maintenance repairs, and minor renewals are
expensed as incurred. When properties are retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts
and gains or losses on the dispositions are reflected in results of
operations.
Buildings, equipment and leasehold improvements are depreciated using the
straight-line method based on the estimated useful lives of the assets or
over the lease term for certain capital leases (buildings 15 to 33 years and
equipment 3 to 30 years).
Other assets primarily include trading area rights, lease acquisition costs,
deferred franchise contract costs, deferred finance costs and goodwill.
Trading area rights represent the amount allocated under purchase accounting
to reflect the value of operating existing restaurants within their specific
trading area. These rights are amortized on a straight-line basis over the
period of control of the property, not exceeding 40 years, and are retired
when a restaurant is franchised or sold.
Lease acquisition costs represent the acquired values of existing lease
contracts having lower contractual rents than fair market rents and are
amortized over the remaining lease term.
Also included in other assets are deferred franchise contract costs which
represent the acquired value of franchise contracts in existence at the time
the Company was acquired in 1988 and are amortized over the term of the
franchise agreement, usually 20 years; deferred finance costs which are
amortized using the interest method over the terms of the respective loan
agreements, from 4 to 10 years; and goodwill which represents the excess of
purchase price over the fair value of net assets acquired and is amortized on
a straight-line basis over 40 years.
Impairment of Long-Lived Assets - We evaluate impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. We also
account for long-lived assets that are held for disposal at the lower of cost
or fair value.
Franchise operations - Franchise arrangements generally provide for initial
license fees of $50 (formerly $25) per restaurant and continuing payments to
us based on a percentage of sales. Among other things, the franchisee may be
provided the use of land and building, generally for a period of 20 years,
and is required to pay negotiated rent, property taxes, insurance and
maintenance. Franchise fees are recorded as revenue when we have
substantially performed all of our contractual obligations. Expenses
associated with the issuance of the franchise are expensed as incurred.
Franchise rents and royalties are recorded as income on an accrual basis.
Gains on sales of restaurant businesses to franchisees, which have not been
material, are recorded as other revenues when the sales are consummated and
certain other criteria are met.
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.
F-8
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net earnings per share - Basic earnings per share is computed using the
weighted average number of shares outstanding during the period. Diluted
earnings per share is computed using the additional dilutive effect of all
potential common stock and includes the dilutive impact of stock options and
warrants.
Stock options - Stock options are accounted for under the intrinsic value
based method, whereby compensation expense is recognized for the excess, if
any, of the quoted market price of the Company stock at the date of grant
over the option price. Our policy is to grant stock options at fair value at
the date of grant. We have included pro forma information in Note 7, as
required by SFAS 123, Accounting for Stock-Based Compensation.
Advertising costs - The Company maintains a marketing fund consisting of
funds contributed by us equal to at least 5% of gross sales of all
Company-operated JACK IN THE BOX restaurants and contractual marketing fees
paid monthly by franchisees. Production costs of commercials, programming and
other marketing activities are expensed to the marketing fund when the
advertising is first used and the costs of advertising are charged to
operations as incurred. Our contributions to the marketing fund and other
marketing expenses, which are included in selling, general and administrative
expenses in the accompanying consolidated statements of earnings, were
$77,788, $70,297 and $58,256 in 2000, 1999 and 1998, respectively.
Segment reporting - An operating segment is defined as a component of an
enterprise that engages in business activities from which it may earn
revenues and incur expenses, and about which separate financial information
is regularly evaluated by the chief operating decision maker in deciding how
to allocate resources. Similar operating segments can be aggregated into a
single operating segment if the businesses are similar. We believe we operate
in a single segment.
Estimations - In preparing the consolidated financial statements in
conformity with generally accepted accounting principles, management is
required to make certain assumptions and estimates that affect reported
amounts of assets, liabilities, revenues, expenses and the disclosure of
contingencies. In making these assumptions and estimates, management may from
time to time seek advice from and consider information provided by actuaries
and other experts in a particular area. Actual amounts could differ from
these estimates.
In 1999, we reduced accrued liabilities and restaurant operating costs by
$18.0 million, primarily due to a change in estimates resulting from
improvements to our loss prevention and risk management programs, which have
been more successful than anticipated. This change in estimates was supported
by an independent actuarial study conducted to evaluate the self-insured
portion of our workers' compensation, general liability and other insurance
programs.
F-9
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
2. LONG-TERM DEBT
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
The detail of long-term debt at each year end follows:
Bank loans, variable interest rate based on established market
indicators which approximate the prime rate or less, 7.5% at
October 1, 2000............................................................. $ 66,000 $ 86,000
Senior subordinated notes, 8 3/8% interest, net of discount of $158
and $179, respectively, reflecting an 8.4% effective interest rate
due April 15, 2008, redeemable beginning April 15, 2003.................... 124,842 124,821
Financing lease obligations, net of discounts of $1,031 and $1,413
reflecting a 10.3% effective interest rate, semi-annual payments of $3,413
and $747 to cover interest and sinking fund requirements,
due in equal installments on January 1, 2003 and November 1, 2003........... 68,969 68,587
Secured notes, 11 1/2% interest, due in monthly
installments through May 1, 2005............................................ 6,139 7,011
Capitalized lease obligations, 11% average interest rate....................... 16,229 16,842
Other notes, principally unsecured, 10% average interest rate ................. 2,423 1,890
---------- ----------
284,602 305,151
Less current portion........................................................... 2,034 1,695
---------- ----------
$ 282,568 $ 303,456
========== ==========
</TABLE>
On April 1, 1998, we entered into a revolving bank credit agreement, which
expires March 31, 2003 and provides for a credit facility of up to $175
million, including letters of credit of up to $25 million. The credit
agreement requires the payment of an annual commitment fee of approximately
.2% of the unused credit line. At October 1, 2000, we had borrowings of $66.0
million and approximately $98.7 million of availability under the agreement.
In 1998, we repaid $125 million of our 9 1/4% senior notes and $125 million
of our 9 3/4% senior subordinated notes due 2002, and incurred an
extraordinary loss of $6,978, less income tax benefits of $2,600, relating to
the early extinguishment of the debt.
We are subject to a number of covenants under our various credit agreements,
including limitations on additional borrowings, capital expenditures, lease
commitments and dividend payments, and requirements to maintain certain
financial ratios, cash flows and net worth. In September 1999, the collateral
securing the bank loans was released. However, real and personal property
previously held as collateral for the bank loans cannot be used to secure
other indebtedness of the Company. In addition, certain of our real and
personal property secure other indebtedness.
In January 1994, we entered into financing lease arrangements with two
limited partnerships (the "Partnerships"), in which interests in 76
restaurants for a specified period of time were sold. The acquisition of the
properties, including costs and expenses, was funded through the issuance by
a special purpose corporation acting as agent for the Partnerships of $70
million of senior secured notes. On January 1, 2003 and November 1, 2003, we
must make offers to reacquire 50% of the properties at each date at a price
which is sufficient, in conjunction with previous sinking fund deposits, to
retire the notes. If the Partnerships reject the offers, we may purchase the
properties at less than fair market value or cause the Partnerships to fund
the remaining principal payments on the notes and, at our option, cause the
Partnerships to acquire our residual interest in the properties. If the
Partnerships are allowed to retain their interests, we have available options
to extend the leases for total terms of up to 35 years, at which time the
ownership of the property will revert to us. The transactions are reflected
as financings with the properties remaining in our consolidated financial
statements.
F-10
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
2. LONG-TERM DEBT (continued)
Aggregate maturities and sinking fund requirements on all long-term debt are
$3,529, $3,750, $90,773, $37,680 and $2,336 for the years 2001 through 2005,
respectively. The 2003 amount is net of $12,706 of accumulated sinking fund
payments.
Interest capitalized during the construction period of restaurants was
$2,259, $1,469 and $1,203 in 2000, 1999 and 1998, respectively.
3. LEASES
As Lessee - We lease restaurant and other facilities under leases having
terms expiring at various dates through 2054. The leases generally have
renewal clauses of 5 to 20 years exercisable at our option and, in some
instances, have provisions for contingent rentals based upon a percentage of
defined revenues. Total rent expense for all operating leases was $123,465,
$108,700 and $94,275, including contingent rentals of $6,551, $6,066 and
$4,561 in 2000, 1999 and 1998, respectively.
Future minimum lease payments under capital and operating leases are as
follows:
Fiscal Capital Operating
year leases leases
-------------------------------------------------- -------- -----------
2001.......................................... $ 2,376 $ 107,422
2002.......................................... 2,376 105,608
2003.......................................... 2,376 103,279
2004.......................................... 2,376 100,644
2005.......................................... 2,359 90,436
Thereafter.................................... 20,160 652,461
-------- -----------
Total minimum lease payments...................... 32,023 $ 1,159,850
===========
Less amount representing interest................. 15,794
--------
Present value of obligations under capital leases. 16,229
Less current portion.............................. 664
--------
Long-term capital lease obligations............... $ 15,565
========
Building assets recorded under capital leases were $14,651 and $15,466, net
of accumulated amortization of $6,284 and $5,470, as of October 1, 2000 and
October 3, 1999, respectively.
As Lessor - We lease or sublease restaurants to certain franchisees and
others under agreements which generally provide for the payment of percentage
rentals in excess of stipulated minimum rentals, usually for a period of 20
years. Total rental revenue was $25,900, $25,134 and $22,747, including
contingent rentals of $10,642, $9,655 and $6,976 in 2000, 1999 and 1998,
respectively.
F-11
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
3. LEASES (continued)
The minimum rents receivable under these non-cancelable leases are as
follows:
Fiscal Sales-type Operating
year leases leases
------------------------------------------------------------------------
2001............................................. $ 44 $ 16,769
2002............................................. 44 16,172
2003............................................. 44 15,224
2004............................................. 44 14,353
2005............................................. 45 13,186
Thereafter....................................... 34 62,247
------- ----------
Total minimum future rentals......................... 255 $ 137,951
==========
Less amount representing interest.................... 67
-------
Net investment (included in other assets)............ $ 188
=======
Land and building assets held for lease were $42,531 and $44,962, net of
accumulated amortization of $21,697 and $20,814, as of October 1, 2000 and
October 3, 1999, respectively.
4. INCOME TAXES
The fiscal year income taxes consist of the following:
2000 1999 1998
-------- -------- --------
Federal - current.......................... $ 14,036 $ 31,227 $ 24,618
- deferred......................... 3,535 6,709 3,707
State - current.......................... 4,051 7,965 5,597
- deferred......................... 878 (1,001) (3,122)
-------- -------- --------
Subtotal .................................. 22,500 44,900 30,800
Income tax benefit of extraordinary item... - - 2,600
-------- -------- --------
Income taxes............................... $ 22,500 $ 44,900 $ 33,400
======== ======== ========
Fiscal year income taxes reconcile with the amounts computed at the statutory
federal rate of 35% as follows:
2000 1999 1998
-------- -------- ---------
Computed at federal statutory rate......... $ 42,968 $ 42,475 $ 36,559
State income taxes, net of federal effect.. 3,204 4,526 1,609
Jobs tax credit wages...................... (1,271) (1,281) (861)
Adjustment of tax loss, contribution and
tax credit carryforwards.............. - 425 584
Reduction to valuation allowance........... (23,579) (1,842) (4,581)
Other, net................................. 1,178 597 90
-------- -------- --------
$ 22,500 $ 44,900 $ 33,400
======== ======== ========
F-12
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
4. INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at each year end
are presented below:
2000 1999
-------- ---------
Deferred tax assets:
Tax loss and tax credit carryforwards........... $ 3,386 $ 25,123
Accrued insurance............................... 10,513 15,377
Accrued pension and postretirement benefits..... 18,247 13,296
Accrued vacation pay expense.................... 8,542 7,686
Other reserves and allowances................... 5,471 7,422
Deferred income................................. 11,279 9,819
Other, net...................................... 8,599 8,515
-------- --------
Total gross deferred tax assets................. 66,037 87,238
Less valuation allowance........................ 3,386 26,965
-------- --------
Net deferred tax assets......................... 62,651 60,273
-------- --------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation................... 65,941 57,776
Intangible assets............................... 9,178 10,552
-------- --------
Total gross deferred tax liabilities............ 75,119 68,328
-------- --------
Net deferred tax liabilities.................... $ 12,468 $ 8,055
======== ========
During fiscal year 2000, we reached a final agreement with the U.S. Internal
Revenue Service ("IRS") to settle a tax case related to the disposition in
November 1995 of our interest in Family Restaurants, Inc. We recognized tax
benefits of $22,900 primarily as a result of this settlement which reduced
our fiscal year 2000 provision for income taxes.
At October 1, 2000, we had tax loss carryforwards that expire in 2001. The
valuation allowance of $3,386 as of October 1, 2000 and $26,965 as of
October 3, 1999 represents deferred tax assets that may not be realized by
the reversal of future taxable differences. The valuation allowance decreased
$23,579 in fiscal year 2000 primarily due to the IRS settlement and $2,850 in
fiscal year 1999. Other decreases in each year related to the expected future
use of deferred tax assets. We believe it is more likely than not that the
net deferred tax assets will be realized through future taxable income or
alternative tax strategies.
From time to time, we may take positions for filing our tax returns which may
differ from the treatment of the same item for financial reporting purposes.
The ultimate outcome of these items will not be known until such time as the
IRS has completed its examination or until the statute of limitations has
expired. As of October 1, 2000, the IRS had completed its examinations of our
federal income tax returns through fiscal year 1996.
F-13
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
5. RETIREMENT, SAVINGS AND BONUS PLANS
We have non-contributory defined benefit pension plans covering substantially
all salaried and hourly employees meeting certain eligibility requirements.
These plans are subject to modification at any time. The plans provide
retirement benefits based on years of service and compensation. It is our
practice to fund retirement costs as necessary.
<TABLE>
<CAPTION>
Qualified plans Non-qualified plan
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year......... $ 68,942 $ 65,369 $ 17,391 $ 16,294
Service cost.................................... 4,706 4,744 245 408
Interest cost................................... 4,991 4,541 1,305 1,153
Actuarial gain.................................. (10,097) (4,192) (774) (24)
Benefits paid................................... (1,703) (1,520) (438) (440)
Plan amendment.................................. - - 148 -
--------- --------- --------- ---------
Benefit obligation at end of year............... $ 66,839 $ 68,942 $ 17,877 $ 17,391
========= ========= ========= =========
Change in plan assets:
Fair value of plan assets at beginning of year.. $ 60,852 $ 55,454 $ - $ -
Actual return on plan assets.................... 8,419 2,214 - -
Employer contributions.......................... 982 4,704 438 440
Benefits paid................................... (1,703) (1,520) (438) (440)
--------- --------- --------- ---------
Fair value of plan assets at end of year........ $ 68,550 $ 60,852 $ - $ -
========= ========= ========= =========
Reconciliation of funded status:
Funded status................................... $ 1,712 $ (8,090) $ (17,877) $ (17,391)
Unrecognized net (gain) loss.................... (5,596) 8,026 1,798 2,664
Unrecognized prior service cost................. (103) (138) 4,111 4,431
Unrecognized net transition asset............... 9 19 31 58
--------- --------- --------- ---------
Net liability recognized........................ $ (3,978) $ (183) $ (11,937) $ (10,238)
========= ========= ========= =========
Amounts recognized in the statement of
financial position consist of:
Accrued benefit liability...................... $ (3,978) $ (183) $ (15,565) $ (13,599)
Intangible asset............................... - - 3,628 3,361
--------- --------- --------- ---------
Net liability recognized....................... $ (3,978) $ (183) $ (11,937) $ (10,238)
========= ========= ========= =========
</TABLE>
In determining the present values of benefit obligations, our actuaries
assumed discount rates of 8.0% and 7.5% at the measurement dates of June 30,
2000 and 1999, respectively. The assumed rate of increase in compensation
levels was 4% for the qualified plans and 5% for the non-qualified plan in
2000 and 1999. The long-term rate of return on assets was 8.5% in both years.
Assets of the qualified plans consist primarily of listed stocks and bonds.
F-14
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
5. RETIREMENT, SAVINGS AND BONUS PLANS (continued)
The components of the fiscal year net defined benefit pension cost are as
follows:
<TABLE>
<CAPTION>
Qualified plans Non-qualified plan
--------------------------------- --------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost..................... $ 4,706 $ 4,744 $ 3,116 $ 245 $ 408 $ 342
Interest cost.................... 4,991 4,541 4,047 1,305 1,153 1,006
Expected return on plan assets... (5,082) (5,257) (4,458) - - -
Net amortization................. 162 426 (26) 587 601 495
-------- -------- -------- -------- -------- --------
Net periodic pension cost........ $ 4,777 $ 4,454 $ 2,679 $ 2,137 $ 2,162 $ 1,843
======== ======== ======== ======== ======== ========
</TABLE>
We maintain a savings plan pursuant to Section 401(k) of the Internal Revenue
Code, which allows administrative and clerical employees who have satisfied
the service requirements and reached age 21, to defer from 2% to 12% of their
pay on a pre-tax basis. We contribute an amount equal to 50% of the first 4%
of compensation that is deferred by the participant. Our contributions under
this plan were $1,426, $1,328 and $1,141 in 2000, 1999 and 1998,
respectively. We also maintain an unfunded, non-qualified deferred
compensation plan, which was created in 1990 for key executives and other
members of management who were then excluded from participation in the
qualified savings plan. This plan allows participants to defer up to 15% of
their salary on a pre-tax basis. We contribute an amount equal to 100% of the
first 3% contributed by the employee. Our contributions under the
non-qualified deferred compensation plan were $609, $481 and $372 in 2000,
1999 and 1998, respectively. In each plan, a participant's right to Company
contributions vests at a rate of 25% per year of service.
We maintain a bonus plan that allows certain officers and management of the
Company to earn annual bonuses based upon achievement of certain financial
and performance goals approved by the compensation committee of our Board of
Directors. Under this plan, $4,654, $6,390 and $3,834 was expensed in 2000,
1999 and 1998, respectively.
We maintain a deferred compensation plan for non-management directors. Under
the plan's equity option, those who are eligible to receive directors' fees
or retainers may choose to defer receipt of their compensation. The amounts
deferred are converted into stock equivalents at the then current market
price of our common stock. We provide a deferment credit equal to 25% of the
compensation initially deferred. Under this plan, a total of $0, $562 and
$262 was expensed in 2000, 1999 and 1998, respectively, for both the
deferment credit and the stock appreciation on the deferred compensation.
F-15
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
6. POSTRETIREMENT BENEFIT PLAN
We sponsor a health care plan that provides postretirement medical benefits
for employees who meet minimum age and service requirements. The plan is
contributory, with retiree contributions adjusted annually, and contains
other cost-sharing features such as deductibles and coinsurance. Our policy
is to fund the cost of medical benefits in amounts determined at the
discretion of management.
2000 1999
-------- --------
Change in benefit obligation:
Benefit obligation at beginning of year......... $ 16,465 $ 16,270
Service cost.................................... 586 638
Interest cost................................... 1,233 1,137
Actuarial gain.................................. (1,420) (1,403)
Benefits paid................................... (95) (177)
-------- --------
Benefit obligation at end of year............... $ 16,769 $ 16,465
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year.. $ - $ -
Employer contributions.......................... 95 177
Benefits paid................................... (95) (177)
-------- --------
Fair value of plan assets at end of year........ $ - $ -
======== ========
Reconciliation of funded status:
Funded status................................... $(16,769) $(16,465)
Unrecognized net gain........................... (3,351) (1,965)
-------- --------
Net liability recognized........................ $(20,120) $(18,430)
======== ========
All of the net liability recognized in the reconciliation of funded status is
included as an accrued benefit liability in the statements of financial
position.
In determining the above information, our actuaries assumed a discount rate
of 8.0% and 7.5% at the measurement dates of June 30, 2000 and 1999,
respectively.
The components of the fiscal year net periodic postretirement benefit cost
are as follows:
2000 1999 1998
------- -------- --------
Service cost.......................... $ 586 $ 638 $ 517
Interest cost......................... 1,233 1,137 1,021
Net amortization...................... (34) - (88)
------- -------- --------
Net periodic pension cost............. $ 1,785 $ 1,775 $ 1,450
======= ======== ========
For measurement purposes, an 8.0% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed for
2000 for plan participants under age 65, the rate was assumed to decrease .5%
per year to 5.0% by the year 2006 and remain at that level thereafter. For
plan participants age 65 years or older, a 6.0% annual health care cost trend
rate was assumed for 2000, the rate was assumed to decrease .5% per year to
4.0% by the year 2004 and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts reported.
For example, increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of October 1, 2000 by $3,553, or 21%, and the aggregate
of the service and interest cost components of net periodic postretirement
benefit cost for 2000 by $483 or 27%.
F-16
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
7. STOCK OPTIONS
We offer stock option plans to attract, retain and motivate key officers,
non-employee directors and employees by providing for or increasing the
proprietary interests of such persons to work toward the future financial
success of the Company.
In January 1992, we adopted the 1992 Employee Stock Incentive Plan (the "1992
Plan") and, as part of a merger, assumed outstanding options to employees
under our predecessor's 1990 Stock Option Plan and assumed contractually the
options to purchase 42,750 shares of common stock granted to two non-employee
directors of the Company. Under the 1992 Plan, employees are eligible to
receive stock options, restricted stock and other various stock-based awards.
Subject to certain adjustments, up to a maximum of 3,775,000 shares of common
stock may be sold or issued under the 1992 Plan. No awards shall be granted
after January 16, 2002, although stock may be issued thereafter pursuant to
awards granted prior to such date.
In August 1993, we adopted the 1993 Stock Option Plan (the "1993 Plan").
Under the 1993 Plan, employees who do not receive stock options under the
1992 Plan are eligible to receive annually stock options with an aggregate
exercise price equivalent to a percentage of their eligible earnings. Subject
to certain adjustments, up to a maximum of 3,000,000 shares of common stock
may be sold or issued under the 1993 Plan. No awards shall be granted after
December 11, 2003, although common stock may be issued thereafter pursuant to
awards granted prior to such date.
In February 1995, we adopted the Non-Employee Director Stock Option Plan (the
"Director Plan"). Under the Director Plan, any eligible director of Jack in
the Box Inc. who is not an employee of the Company or its subsidiaries is
granted annually an option to purchase shares of common stock at fair market
value. The actual number of shares that may be purchased under the option is
based on the relationship of a portion of each director's compensation to the
fair market value of the common stock, but is limited to fewer than 10,000
shares. Subject to certain adjustments, up to a maximum of 650,000 shares of
common stock may be sold or issued under the Director Plan. Unless sooner
terminated, no awards shall be granted after February 17, 2005, although
common stock may be issued thereafter pursuant to awards granted prior to
such date.
The terms and conditions of the stock-based awards under the plans are
determined by a committee of the Board of Directors on each award date and
may include provisions for the exercise price, expirations, vesting,
restriction on sales and forfeiture, as applicable. Options granted under the
plans have terms not exceeding 11 years and provide for an option exercise
price of not less than 100% of the quoted market value of the common stock at
the date of grant.
F-17
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
7. STOCK OPTIONS (continued)
The following is a summary of stock option activity for the three fiscal
years ended October 1, 2000:
Option exercise price per share
-------------------------------
Weighted
Shares Range average
--------- ------------- ----------
Balance at September 28, 1997..... 3,157,034 $ .96-12.63 $ 7.90
Granted....................... 761,046 17.44-19.06 18.93
Exercised..................... (198,200) 1.13-12.63 8.27
Canceled...................... (108,759) 5.75-19.06 11.37
---------
Balance at September 27, 1998..... 3,611,121 .96-19.06 10.10
Granted....................... 655,541 13.56-26.63 26.24
Exercised..................... (297,148) .96-19.06 9.00
Canceled...................... (105,801) 5.75-26.63 15.27
---------
Balance at October 3, 1999........ 3,863,713 .96-26.63 12.78
Granted....................... 699,574 23.25-23.88 23.25
Exercised..................... (377,935) .96-19.06 3.92
Canceled...................... (128,922) 5.75-26.63 20.39
---------
Balance at October 1, 2000........ 4,056,430 1.13-26.63 15.16
=========
The following is a summary of stock options outstanding at October 1, 2000:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------- ------------------------
Weighted average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life in years price exercisable price
--------------- ----------- ---------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.13 - 6.38 627,661 3.19 $ 3.87 626,838 $ 3.87
6.50 - 11.00 894,764 3.83 8.78 857,022 8.83
12.13 - 19.06 1,272,288 7.48 15.73 808,786 14.64
23.25 - 26.63 1,261,717 9.47 24.72 222,127 24.98
--------- ---------
1.13 - 26.63 4,056,430 6.63 15.16 2,514,773 10.90
========= =========
</TABLE>
At October 1, 2000, October 3, 1999 and September 27, 1998, the number of
options exercisable were 2,514,773, 2,503,009 and 2,239,930, respectively,
and the weighted average exercise price of those options were $10.90, $8.62
and $7.32, respectively.
For purposes of the following pro forma disclosures required by SFAS 123, the
fair value of each option granted after fiscal year 1995 has been estimated
on the date of grant using the Black-Scholes option-pricing model. Valuation
models require the input of highly subjective assumptions, including the
expected volatility of the stock price. Therefore, in management's opinion,
the existing models do not provide a reliable single measure of the value of
employee stock options. The following assumptions were used for grants:
risk-free interest rates of 5.9%, 5.5% and 5.7% in 2000, 1999 and 1998,
respectively; expected volatility of 40%, 35% and 34%, respectively; and an
expected life of six years in each year. We have not paid any cash or other
dividends and do not anticipate paying dividends in the foreseeable future,
therefore the expected dividend yield is zero.
F-18
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
7. STOCK OPTIONS (continued)
The weighted average fair value of options granted was $11.26 in 2000, $11.58
in 1999 and $8.32 in 1998. Had compensation expense been recognized for
stock-based compensation plans in accordance with provisions of SFAS 123, the
Company would have recorded net earnings of $97,620, or $2.55 per basic
share and $2.48 per diluted share, in 2000; $74,391, or $1.95 per basic share
and $1.89 per diluted share, in 1999 and $65,011, or $1.66 per basic share
and $1.62 per diluted share, in 1998.
For the pro forma disclosures, the options' estimated fair values were
amortized over their vesting periods of up to five years. The pro forma
disclosures do not include a full five years of grants since SFAS 123 does
not apply to grants before 1995. Therefore, these pro forma amounts are not
indicative of anticipated future disclosures.
8. STOCKHOLDERS' EQUITY
We have 15,000,000 shares of preferred stock authorized for issuance at a par
value of $.01 per share. No shares have been issued.
On July 26, 1996, the Board of Directors declared a dividend of one preferred
stock purchase right (a "Right") for each outstanding share of our common
stock, which Rights expire on July 26, 2006. Each Right entitles a
stockholder to purchase for an exercise price of $40, subject to adjustment,
one one-hundredth of a share of the Company's Series A Junior Participating
Cumulative Preferred Stock, or, under certain circumstances, shares of common
stock of Jack in the Box Inc. or a successor company with a market value
equal to two times the exercise price. The Rights would only become
exercisable for all other persons when any person has acquired or commences
to acquire a beneficial interest of at least 20% of the Company's outstanding
common stock. The Rights have no voting privileges and may be redeemed by the
Board of Directors at a price of $.001 per Right at any time prior to or
shortly after the acquisition of a beneficial ownership of 20% of the
outstanding common shares. There are 383,486 shares of Series A Junior
Participating Cumulative Preferred Stock reserved for issuance upon exercise
of the Rights.
At October 1, 2000, we had 6,068,724 shares of common stock reserved for
issuance upon the exercise of stock options.
F-19
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
9. AVERAGE SHARES OUTSTANDING
Fiscal year net earnings per share is based on the weighted average number
of shares outstanding during the year, determined as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Shares outstanding, beginning of fiscal year.... 38,276,460 37,927,925 39,096,815
Effect of common stock issued................... 200,074 215,635 144,739
Effect of common stock reacquired............... (209,048) - (150,047)
---------- ---------- ----------
Weighted average shares outstanding - basic..... 38,267,486 38,143,560 39,091,507
Assumed additional shares issued upon exercise
of stock options and warrants, net of shares
reacquired at the average market price........ 1,066,579 1,136,949 1,021,378
---------- ---------- ----------
Weighted average shares outstanding - diluted... 39,334,065 39,280,509 40,112,885
========== ========== ==========
</TABLE>
The diluted weighted average shares outstanding computation excludes
1,047,684, 345,040 and 290,042 antidilutive stock options in 2000, 1999 and
1998, respectively.
10. CONTINGENCIES AND LEGAL MATTERS
In 1998, we settled litigation filed against various meat suppliers seeking
reimbursement for all damages, costs and expenses incurred in connection
with food-borne illness attributed to hamburgers served at JACK IN THE BOX
restaurants in 1993. In the settlement we received approximately $58.5
million, of which a net of approximately $45.8 million was realized after
litigation costs and before income taxes (the "Litigation Settlement"). The
net Litigation Settlement is reflected in other revenues in 1998.
On February 2, 1995, an action by Concetta Jorgensen was filed against us in
the U.S. District Court in San Francisco, California alleging that restrooms
at a JACK IN THE BOX restaurant failed to comply with laws regarding
disabled persons and seeking damages in unspecified amounts, punitive
damages, injunctive relief, attorneys' fees and prejudgment interest. In an
amended complaint, damages were also sought on behalf of all physically
disabled persons who were allegedly denied access to restrooms at the
restaurant. In February 1997, the Court ordered that the action for
injunctive relief proceed as a nationwide class action on behalf of all
persons in the United States with mobility disabilities. We have reached
agreement on settlement terms both as to the individual plaintiff Concetta
Jorgensen and the claims for injunctive relief, and the settlement agreement
has been approved by the U.S. District Court. The settlement requires us to
make access improvements at Company-operated restaurants to comply with the
standards set forth in the ADA Access Guidelines. The settlement requires
compliance at Company-operated restaurants by October 2005. We have begun to
make modifications to our restaurants to improve accessibility and
anticipate investing an estimated $24 million in capital improvements in
connection with these modifications, including approximately $11 million
spent through October 1, 2000. Similar claims have been made against
JACK IN THE BOX franchisees and us relating to franchised locations which
may not be in compliance with the ADA. A settlement agreement has been
reached which provides for injunctive relief requiring franchisees to bring
their franchised restaurants into compliance with the ADA, and requiring
payment by us of monitoring expenses to ensure compliance and attorney's
fees.
We are also subject to normal and routine litigation. The amount of
liability from the claims and actions against us cannot be determined with
certainty, but in the opinion of management, the ultimate liability from all
pending legal proceedings, asserted legal claims and known potential legal
claims which are probable of assertion should not materially affect our
results of operations and liquidity.
F-20
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
10. CONTINGENCIES AND LEGAL MATTERS (continued)
We have six wholly-owned subsidiaries, consisting of CP Distribution Co., CP
Wholesale Co., Jack in the Box, Inc. (an inactive New Jersey corporation),
Foodmaker International Franchising Inc. (collectively, the "Subsidiary
Guarantors") and two other non-guarantor subsidiaries (collectively, the
"Non-Guarantor Subsidiaries"). The Subsidiary Guarantors comprise all of the
direct and indirect subsidiaries of the Company (other than the
Non-Guarantor Subsidiaries which conduct no material operations, have no
significant assets on a consolidated basis and account for only an
insignificant share of our consolidated revenues). Each of the Subsidiary
Guarantors' guarantees of our $125 million senior subordinated notes is
full, unconditional and joint and several. The Subsidiary Guarantors have no
significant operations or any significant assets or liabilities on a
consolidated basis, other than guarantees of indebtedness of the Company,
and therefore, no separate financial statements of the Subsidiary Guarantors
are presented because management has determined that they are not material
to investors.
F-21
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
11. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
October 1, October 3,
2000 1999
---------- ----------
Accounts receivable:
Trade........................................ $ 5,871 $ 7,989
Construction advances........................ 4,857 2,835
Notes........................................ 455 67
Other........................................ 3,579 2,929
Allowances for doubtful accounts............. (1,095) (1,829)
---------- ----------
$ 13,667 $ 11,991
========== ==========
Other Assets:
Trading area rights, net of amortization
of $33,183 and $29,057, respectively....... $ 71,565 $ 73,033
Lease acquisition costs, net of amortization
of $26,088 and $24,625, respectively....... 13,746 15,352
Other, net of amortization
of $16,071 and $14,681, respectively....... 42,750 40,741
---------- ----------
$ 128,061 $ 129,126
========== ==========
Accrued liabilities:
Payroll and related taxes.................... $ 47,842 $ 43,066
Sales and property taxes..................... 15,364 17,978
Insurance.................................... 27,696 28,548
Advertising.................................. 11,419 15,517
Capital improvements......................... 13,142 14,753
Interest..................................... 6,864 7,092
Income tax liabilities....................... 5,887 30,767
Other........................................ 25,142 25,430
---------- ----------
$ 153,356 $ 183,151
========== ==========
F-22
<PAGE>
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
12. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
16 weeks 12 weeks ended 13 weeks
ended --------------------- ended
Jan. 17, Apr. 11, July 4, Oct. 3,
Fiscal Year 1999 1999 1999 1999 1999
--------------------------- -------- -------- -------- --------
Revenues................... $407,134 $321,973 $342,448 $385,344
Gross profit............... 78,873 81,047 71,495 82,489
Net earnings............... 15,751 24,987 17,377 18,343
Net earnings per share:
Basic.................. .41 .66 .45 .48
Diluted................ .40 .64 .44 .47
16 weeks 12 weeks ended
ended ----------------------------------
Jan. 23, Apr. 16, July 9, Oct. 1,
Fiscal Year 2000 2000 2000 2000 2000
--------------------------- -------- -------- -------- --------
Revenues................... $476,806 $370,495 $390,311 $395,700
Gross profit............... 94,110 74,243 82,150 80,885
Net earnings............... 20,392 16,085 20,808 42,979
Net earnings per share:
Basic.................. .53 .42 .54 1.12
Diluted................ .52 .41 .53 1.09
F-23
