equity compensation plans under which Company common stock may be issued as of September 27, 2009.October 3, 2010. Stockholders of the Company approved all plans.
| | | | | | | | | | | | |
| | | | (b) Weighted-
| | (c) Number of Securities
|
| | (a) Number of Securities to
| | Average
| | Remaining for Future Issuance
|
| | be Issued Upon Exercise of
| | Exercise Price
| | Under Equity Compensation
|
| | Outstanding Options, Warrants
| | of Outstanding
| | Plans (Excluding Securities
|
| | and Rights(1) | | Options(1) | | Reflected in Column (a))(2) |
|
Equity compensation plans approved by security holders. | | | 5,274,705 | | | $ | 21.31 | | | | 1,762,721 | |
| | | | | | | | | | | | |
| | | | (b) Weighted-
| | |
| | | | average
| | (c) Number of securities
|
| | (a) Number of securities to
| | exercise price
| | remaining for future issuance
|
| | be issued upon exercise of
| | of
| | under equity compensation
|
| | outstanding options, warrants
| | outstanding
| | plans (excluding securities
|
| | and rights (1) | | options (1) | | reflected in column (a))(2) |
|
Equity compensation plans approved by security holders (3) | | | 5,503,369 | | | $ | 21.81 | | | | 2,371,672 | |
| | |
(1) | | Includes shares issuable in connection with our outstanding stock options, performance-vested stock awards, nonvested stock awards and units, and non-management director deferred stock equivalents. The weighted-average exercise price in column (b) includes the weighted-average exercise price of stock options only. |
|
(2) | | Includes 157,637143,072 shares that are reserved for issuance under our Employee Stock Purchase Plan. |
|
(3) | | For a description of our equity compensation plans, refer to Note 12,Share-Based Employee Compensation, of the notes to the consolidated financial statements. |
18
Performance Graph. The following graph compares the cumulative return to holders of the Company’s common stock at September 30th of each year (except 20042010 when the comparison date is October 3 due to the fifty-third week in fiscal 2004)2010) to the yearly weighted cumulative return of a Restaurant Peer Group Index and to the Standard & Poor’s (“S&P”) 500 Index for the same period. In 2009, we updated the composition of our peer group to maintain consistency with the peer group used by the Company for compensation purposes. In the year of transition, both the old and new peer groups have been included in the performance graph.
The below comparison assumes $100 was invested on September 30, 20042005 in the Company’s common stock and in the comparison group and assumes reinvestment of dividends. The Company paid no dividends during these periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2004 | | | | 2005 | | | | 2006 | | | | 2007 | | | | 2008 | | | | 2009 | |
Jack in the Box Inc. | | | $ | 100 | | | | $ | 94 | | | | $ | 164 | | | | $ | 204 | | | | $ | 133 | | | | $ | 129 | |
S & P 500 Index | | | $ | 100 | | | | $ | 112 | | | | $ | 124 | | | | $ | 145 | | | | $ | 113 | | | | $ | 105 | |
New Restaurant Peer Group(1) | | | $ | 100 | | | | $ | 117 | | | | $ | 141 | | | | $ | 164 | | | | $ | 160 | | | | $ | 166 | |
Old Restaurant Peer Group(2) | | | $ | 100 | | | | $ | 112 | | | | $ | 131 | | | | $ | 122 | | | | $ | 85 | | | | $ | 91 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | | | 2006 | | | | 2007 | | | | 2008 | | | | 2009 | | | | 2010 | |
Jack in the Box Inc. | | | $ | 100 | | | | $ | 174 | | | | $ | 217 | | | | $ | 141 | | | | $ | 137 | | | | $ | 144 | |
S&P 500 Index | | | $ | 100 | | | | $ | 111 | | | | $ | 129 | | | | $ | 101 | | | | $ | 94 | | | | $ | 103 | |
Restaurant Peer Group (1) | | | $ | 100 | | | | $ | 121 | | | | $ | 141 | | | | $ | 138 | | | | $ | 143 | | | | $ | 193 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Jack in the Box Inc. New Restaurant Peer Group Index is comprised of the following companies: Brinker International, Inc.; CKE Restaurants, Inc.; Cracker Barrel Old Country Store, Inc.; Darden Restaurants Inc.; DineEquity, Inc.; McDonalds Corp.; Panera Bread Company; PF Chang’s China Bistro Inc.; Ruby Tuesday, Inc.; Sonic Corp.; Starbucks Corp.; The Cheesecake Factory Inc.; and Yum! Brands Inc. |
|
(2) | | Jack in the Box Inc. Old Restaurant Peer Group Index is comprised of the following companies: Brinker International, Inc.; Cracker Barrel Old Country Store, Inc.; Cheesecake Factory Inc.; CKE Restaurants, Inc.; Darden Restaurants Inc.; Panera Bread Company; PF Chang’s China Bistro Inc.; Ruby Tuesday, Inc.; Sonic Corp. andWendys-Arbys Group Inc. |
1918
| |
ITEM 6. | SELECTED FINANCIAL DATA |
Our fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30. All years presented include 52 weeks, except for 2010 which includes 53 weeks. The selected financial data reflects Quick Stuff as a discontinued operationoperations for allfiscal years presented.2006 through 2009. The following selected financial data of Jack in the Box Inc. for each fiscal year was extracted or derived from our audited financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | | Fiscal Year | |
| | 2009 | | 2008 | | 2007 | | 2006 | | 2005 | | | 2010 | | 2009 | | 2008 | | 2007 | | 2006 | |
| | (In thousands, except per share data) | | | (in thousands, except per share data) | |
|
Statements of Earnings Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 2,471,096 | | | $ | 2,539,561 | | | $ | 2,513,431 | | | $ | 2,381,244 | | | $ | 2,269,477 | | | $ | 2,297,531 | | | $ | 2,471,096 | | | $ | 2,539,561 | | | $ | 2,513,431 | | | $ | 2,381,244 | |
Costs of revenues | | | 2,035,794 | | | | 2,102,467 | | | | 2,042,781 | | | | 1,945,947 | | | | 1,871,128 | | |
Selling, general and administrative expenses | | | 282,676 | | | | 287,555 | | | | 291,745 | | | | 298,436 | | | | 272,087 | | |
Gains on sale of company-operated restaurants | | | (78,642 | ) | | | (66,349 | ) | | | (38,091 | ) | | | (40,464 | ) | | | (22,093 | ) | |
Total operating costs and expenses | | | | 2,230,609 | | | | 2,318,470 | | | | 2,390,022 | | | | 2,334,526 | | | | 2,244,383 | |
Gains on the sale of company-operated restaurants, net | | | | (54,988 | ) | | | (78,642 | ) | | | (66,349 | ) | | | (38,091 | ) | | | (40,464 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Total operating costs and expenses | | | 2,239,828 | | | | 2,323,673 | | | | 2,296,435 | | | | 2,203,919 | | | | 2,121,122 | | |
Total operating costs and expenses, net | | | | 2,175,621 | | | | 2,239,828 | | | | 2,323,673 | | | | 2,296,435 | | | | 2,203,919 | |
| | | | | | | | | | | | | | | | | | | | | | |
Earnings from operations | | | 231,268 | | | | 215,888 | | | | 216,996 | | | | 177,325 | | | | 148,355 | | | | 121,910 | | | | 231,268 | | | | 215,888 | | | | 216,996 | | | | 177,325 | |
| | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net(1) | | | 20,767 | | | | 27,428 | | | | 23,335 | | | | 12,056 | | | | 13,389 | | |
Interest expense, net | | | | 15,894 | | | | 20,767 | | | | 27,428 | | | | 23,335 | | | | 12,056 | |
Income taxes | | | 79,455 | | | | 70,251 | | | | 68,982 | | | | 58,845 | | | | 45,405 | | | | 35,806 | | | | 79,455 | | | | 70,251 | | | | 68,982 | | | | 58,845 | |
| | | | | | | | | | | | | | | | | | | | | | |
Earnings from continuing operations | | $ | 131,046 | | | $ | 118,209 | | | $ | 124,679 | | | $ | 106,424 | | | $ | 89,561 | | | $ | 70,210 | | | $ | 131,046 | | | $ | 118,209 | | | $ | 124,679 | | | $ | 106,424 | |
| | | | | | | | | | | | | | | | | | | | | | |
Earnings per Share and Share Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings per share from continuing operations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 2.31 | | | $ | 2.03 | | | $ | 1.91 | | | $ | 1.52 | | | $ | 1.26 | | | $ | 1.27 | | | $ | 2.31 | | | $ | 2.03 | | | $ | 1.91 | | | $ | 1.52 | |
Diluted | | $ | 2.27 | | | $ | 1.99 | | | $ | 1.85 | | | $ | 1.48 | | | $ | 1.21 | | | $ | 1.26 | | | $ | 2.27 | | | $ | 1.99 | | | $ | 1.85 | | | $ | 1.48 | |
Weighted-average shares outstanding — Diluted(2) | | | 57,733 | | | | 59,445 | | | | 67,263 | | | | 71,834 | | | | 73,876 | | |
Weighted-average shares outstanding – Diluted (1) | | | | 55,843 | | | | 57,733 | | | | 59,445 | | | | 67,263 | | | | 71,834 | |
Market price at year-end | | $ | 20.07 | | | $ | 22.06 | | | $ | 32.42 | | | $ | 26.09 | | | $ | 14.95 | | | $ | 21.47 | | | $ | 20.07 | | | $ | 22.06 | | | $ | 32.42 | | | $ | 26.09 | |
Other Operating Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Jack in the Box restaurants: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Company-operated average unit volume | | $ | 1,420 | | | $ | 1,439 | | | $ | 1,430 | | | $ | 1,358 | | | $ | 1,295 | | |
Change in company-operatedsame-store sales | | | (1.2 | )% | | | 0.2 | % | | | 6.1 | % | | | 4.8 | % | | | 2.4 | % | |
Company-operated average unit volume (3) | | | $ | 1,297 | | | $ | 1,420 | | | $ | 1,439 | | | $ | 1,430 | | | $ | 1,358 | |
Change in company-operated same-store sales (4) | | | | (8.6 | )% | | | (1.2 | )% | | | 0.2% | | | | 6.1% | | | | 4.8% | |
Change in franchise-operated same-store sales (4) | | | | (7.8 | )% | | | (1.3 | )% | | | 0.1% | | | | 5.3% | | | | 3.5% | |
Change in system same-store sales (4) | | | | (8.2 | )% | | | (1.3 | )% | | | 0.2% | | | | 5.8% | | | | 4.5% | |
Qdoba restaurants: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
System average unit volume | | $ | 905 | | | $ | 946 | | | $ | 953 | | | $ | 933 | | | $ | 919 | | |
Change in system same-store sales | | | (2.3 | )% | | | 1.6 | % | | | 4.6 | % | | | 5.9 | % | | | 11.4 | % | |
Restaurant operating margin | | | 16.2 | % | | | 16.1 | % | | | 17.9 | % | | | 17.5 | % | | | 16.9 | % | |
System average unit volume (3) | | | $ | 923 | | | $ | 905 | | | $ | 946 | | | $ | 953 | | | $ | 933 | |
Change in system same-store sales(4) | | | | 2.8% | | | | (2.3 | )% | | | 1.6% | | | | 4.6% | | | | 5.9% | |
SG&A rate | | | 11.4 | % | | | 11.3 | % | | | 11.6 | % | | | 12.5 | % | | | 12.0 | % | | | 10.6% | | | | 10.5% | | | | 10.4% | | | | 11.6% | | | | 12.5% | |
Capital expenditures from continuing operations | | $ | 153,500 | | | $ | 178,605 | | | $ | 148,508 | | | $ | 135,022 | | | $ | 110,133 | | |
Capital expenditures related to continuing operations | | | $ | 95,610 | | | $ | 153,500 | | | $ | 178,605 | | | $ | 148,508 | | | $ | 135,022 | |
Balance Sheet Data (at end of period): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 1,455,910 | | | $ | 1,498,418 | | | $ | 1,374,690 | | | $ | 1,513,499 | | | $ | 1,332,606 | | | $ | 1,407,092 | | | $ | 1,455,910 | | | $ | 1,498,418 | | | $ | 1,374,690 | | | $ | 1,513,499 | |
Long-term debt(1) | | | 357,270 | | | | 516,250 | | | | 427,516 | | | | 254,231 | | | | 290,213 | | | | 352,630 | | | | 357,270 | | | | 516,250 | | | | 427,516 | | | | 254,231 | |
Stockholders’ equity(3)(2) | | | 524,489 | | | | 457,111 | | | | 409,585 | | | | 706,633 | | | | 562,085 | | | | 520,463 | | | | 524,489 | | | | 457,111 | | | | 409,585 | | | | 706,633 | |
| | |
(1) | | Fiscal 2009, 2008 and 2007 reflect higher bank borrowings associated with our revolver and credit facility. |
|
(2) | | Weighted-average shares reflect the impact of common stock repurchases under Board approvedBoard-approved programs. |
|
(3)(2) | | Fiscal 2007 includes a reduction in stockholders’ equity of $363.4 million related to shares repurchased and retired during the year. |
|
(3) | | 2010 average unit volume is adjusted to exclude the 53rd week for the purpose of comparison to prior years. |
|
(4) | | Same-store sales, sales growth and average unit volume presented on a system-wide basis include company and franchise restaurants. Franchise sales represent sales at all franchise restaurants and are revenues to our franchisees. We do not record franchise sales as revenues; however, our royalty revenues are calculated based on a percentage of franchise sales. We believe franchise and system sales growth information is useful to investors as a significant indicator of the overall strength of our business as it incorporates our significant revenue drivers which are company and franchise same-store sales as well as net unit development. Company, franchise and system same-store sales growth includes the results of all restaurants that have been open more than one year. |
2019
| |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
GENERAL
For an understanding of the significant factors that influenced our performance during the past three fiscal years, we believe our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and related Notes included in this Annual Report as indexed onpage F-1.
All comparisonsComparisons under this heading among 2009, 2008 and 2007 refer to the 53-week period ended October 3, 2010 and the 52-week periods ended September 27, 2009 and September 28, 2008 for 2010, 2009 and September 30, 2007,2008, respectively, unless otherwise indicated.
Our MD&A consists of the following sections:
| | |
| • | Overview— a general description of our business, the quick-service dining segment of the restaurant industry and fiscal 20092010 highlights. |
|
| • | Financial reporting— a discussion of changes in presentation. |
|
| • | Results of operations— an analysis of our consolidated statements of earnings for the three years presented in our consolidated financial statements. |
|
| • | Liquidity and capital resources— an analysis of cash flows including capital expenditures, aggregate contractual obligations, share repurchase activity, known trends that may impact liquidity, and the impact of inflation. |
|
| • | Discussion of critical accounting estimates— a discussion of accounting policies that require critical judgments and estimates. |
|
| • | Future application of accounting principles— a discussion of new accounting pronouncements, dates of implementation and impact on our consolidated financial position or results of operations, if any. |
OVERVIEW
Our primary source of revenue is from retail sales at Jack inthe BoxJack in the Box and Qdoba company-operated restaurants. We also derive revenue from Jack inthe BoxJack in the Box and Qdoba franchisedfranchise restaurants, including royalties based(based upon a percent of sales,sales), rents, franchise fees and distribution sales of food and packaging commodities. In addition, we recognize gains from the sale of company-operated restaurants to franchisees, which are presented as a reduction of operating costs and expenses, net in the accompanying consolidated statements of earnings.
The quick-service restaurant industry is complex and challenging. Challenges currently facing the sector include higher levels of consumer expectations, intense competition with respect to market share, restaurant locations, labor, menu and product development, changes in the economy, including the current recessionary environment, significant promotional and discounting activity in the QSR and casual dining segmentshigh rates of the industry,unemployment, costs of commodities and trends for healthier eating. In light of these challenges, we were able to grow earnings in fiscal 2009 due in large part to the successful execution of strategic initiatives, such as refranchising, new unit growth and improving our cost structure.
The following summarizes the most significant events occurring in fiscal 2009:2010 and certain trends compared to prior years:
| | |
| • | Earnings from Continuing Operations per Diluted Share. Earnings per diluted share of $2.27 in fiscal 2009 represented an increase of more than 14% over fiscal 2008. |
|
| • | Restaurant Sales. The recessionary environment negatively impacted discretionary spending and sales throughout the restaurant industry. Sales at Jack inthe BoxJack in the Box company-operated restaurants open more than one year (“same-store sales”) decreased 8.6% in fiscal 2010 and 1.2% in 2009. Same-store sales at franchise-operated restaurants decreased 7.8% in fiscal 2009 versus an increase of 0.2%2010 and 1.3% in 2008.2009. System same-store sales at Qdoba decreasedincreased 2.8% versus a decrease of 2.3% versus an increase of 1.6% last fiscal year. Sales at Jack in the Box restaurants continue to be impacted by high unemployment rates in our major markets for our key customer demographics. |
|
| • | Restaurant Operating Margin. Our consolidated restaurant operating margin improved to 16.2%, despite the deleverage in same-store sales. |
|
| • | Commodity Costs. Pressures from higher commodity costs, havewhich negatively impacted our business. However, as expected,business in fiscal 2009, moderated somewhat in 2010. Overall commodity costs moderatedat Jack in 2009,the Box restaurants decreased approximately 1.4% after increasing approximately 2.0% over last year,in 2009, as higherlower costs for bakery, potatoesbeef, shortening, poultry and beefbakery were partially offset by lower cheesehigher costs for produce and dairy. In 2009, food and packaging costs decreased 100 basis points compared with 2008 when such costs increased 150 basis points over the prior year.pork. |
2120
| | |
| • | New Restaurant Growth.Closures. Unit expansion was strong during In the year, with the opening of 126 newfourth quarter, we closed 40 underperforming Jack in the Box restaurants located primarily in the Southeast and Qdoba company-operatedTexas resulting in a charge of $18.5 million, net of taxes, or $0.33 per diluted share. These closures are expected to have a positive impact on future earnings and franchised restaurants. Both brands opened restaurants in new markets during the year, with sales volumes above system averages.cash flows. |
|
| • | Re-Image Program.New Unit Development. We continued to executegrow our strategic initiative to reinventbrands with the opening of new company-operated and franchise restaurants. In 2010, we opened 46 Jack in the Box brand, which includes comprehensive enhancements to locations, including several in our restaurant facilities. As of September 27, 2009, approximately 46% of allJack in the Box restaurants were fully re-imagednewer markets, and 96% of theJack in the Box system featured the exterior elements of the program.36 Qdoba locations. |
|
| • | Franchising Program. We continued on pace with our strategic initiative to expand franchising (through sales of company-operated restaurants to franchisees and new restaurant development), despite tight credit markets. We refranchised 194219 Jack in the Box restaurants, andwhile Qdoba andJack in the Box franchisees opened 5937 restaurants in 2009.2010. We also have signed development agreements with franchisees representing commitmentsremain on track to open a totalachieve our goal to increase the percentage of 78 and 201 newfranchise ownership in the Jack in the Box system to70-80% by the end of fiscal year 2013, and Qdoba restaurants, respectively, over the next five years.we ended fiscal 2010 at 57% franchised. |
|
| • | Discontinued Operations.Credit Facility. In September 2008, the During 2010, we entered into a new credit agreement consisting of a $400 million revolving credit facility and a $200 million term loan, both with a five-year maturity. |
|
| • | Share Repurchases. Pursuant to a share repurchase program authorized by our Board of Directors, approved plans to sellwe repurchased 4.9 million shares of our Quick Stuff convenience stores to maximize the potentialcommon stock at an average price of theJack in the Box and Qdoba Brands. In the fourth quarter of fiscal 2009, we successfully completed the sale of all 61 locations.$19.71 per share. |
FINANCIAL REPORTING
In 2010, we separated impairment and other charges, net from selling, general and administrative expenses in our consolidated statements of earnings. Prior year amounts have been reclassified to conform to this new presentation.
The results of operations and cash flows for Quick Stuff, which was sold in 2009, are reflected as discontinued operations for all periods presented. Refer to Note 2,Discontinued Operations, in the notes to our consolidated financial statements for more information.
In 2009, restaurant operating costs have been separated into two components: “Payroll and employee benefits” and “Occupancy and other.” Prior year amounts have been adjusted to conform to this new method of presentation.
RESULTS OF OPERATIONS
The following table sets forth, unless otherwise indicated, the percentage relationship to total revenues ofpresents certain income and expense items included in our consolidated statements of earnings. This information is derived from the consolidated statementsearnings as a percentage of earnings found elsewhere in this report.total revenues, unless otherwise indicated:
CONSOLIDATED STATEMENTS OF EARNINGS DATA
| | | | | | | | | | | | |
| | Fiscal Year | |
| | 2009 | | | 2008 | | | 2007 | |
|
Revenues: | | | | | | | | | | | | |
Restaurant sales | | | 80.0 | % | | | 82.8 | % | | | 85.6 | % |
Distribution sales | | | 12.2 | % | | | 10.8 | % | | | 8.9 | % |
Franchised restaurant revenues | | | 7.8 | % | | | 6.4 | % | | | 5.5 | % |
| | | | | | | | | | | | |
Total revenues | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | | | | | |
Operating costs and expenses: | | | | | | | | | | | | |
Food and packaging costs(1) | | | 32.4 | % | | | 33.4 | % | | | 31.9 | % |
Payroll and employee benefits(1) | | | 29.7 | % | | | 29.7 | % | | | 30.0 | % |
Occupancy and other(1) | | | 21.7 | % | | | 20.9 | % | | | 20.3 | % |
Company restaurant costs(1) | | | 83.8 | % | | | 83.9 | % | | | 82.1 | % |
Distribution costs of sales(1) | | | 99.6 | % | | | 99.3 | % | | | 99.0 | % |
Franchised restaurant costs(1) | | | 40.6 | % | | | 39.9 | % | | | 40.4 | % |
Selling, general and administrative expenses | | | 11.4 | % | | | 11.3 | % | | | 11.6 | % |
Gains on the sale of company-operated restaurants | | | (3.2 | )% | | | (2.6 | )% | | | (1.5 | )% |
Earnings from operations | | | 9.4 | % | | | 8.5 | % | | | 8.6 | % |
Income tax rate(2) | | | 37.7 | % | | | 37.3 | % | | | 35.6 | % |
| | | | | | | | | | | | |
| | Fiscal Year | |
| | 2010 | | | 2009 | | | 2008 | |
|
Revenues: | | | | | | | | | | | | |
Company restaurant sales | | | 72.6% | | | | 80.0% | | | | 82.8% | |
Distribution sales | | | 17.3% | | | | 12.2% | | | | 10.8% | |
Franchise revenues | | | 10.1% | | | | 7.8% | | | | 6.4% | |
| | | | | | | | | | | | |
Total revenues | | | 100.0% | | | | 100.0% | | | | 100.0% | |
| | | | | | | | | | | | |
Total operating costs and expenses, net: | | | | | | | | | | | | |
Company restaurant costs: | | | | | | | | | | | | |
Food and packaging (1) | | | 31.8% | | | | 32.4% | | | | 33.3% | |
Payroll and employee benefits(1) | | | 30.3% | | | | 29.7% | | | | 29.7% | |
Occupancy and other (1) | | | 23.9% | | | | 21.7% | | | | 20.9% | |
Total company restaurant costs (1) | | | 85.9% | | | | 83.8% | | | | 83.9% | |
Distribution costs (1) | | | 100.4% | | | | 99.6% | | | | 99.3% | |
Franchise costs (1) | | | 45.4% | | | | 40.6% | | | | 39.9% | |
Selling, general and administrative expenses | | | 10.6% | | | | 10.5% | | | | 10.4% | |
Impairment and other charges, net | | | 2.1% | | | | 0.9% | | | | 0.9% | |
Gains on the sale of company-operated restaurants, net | | | (2.4)% | | | | (3.2)% | | | | (2.6)% | |
Earnings from operations | | | 5.3% | | | | 9.4% | | | | 8.5% | |
| | | | | | | | | | | | |
Income tax rate (2) | | | 33.8% | | | | 37.7% | | | | 37.3% | |
| | |
(1) | | As a percentage of the related sales and/or revenues. |
|
(2) | | As a percentage of earnings from continuing operations and before income taxes. |
2221
Revenues
Restaurant sales decreased 6.0% in 2009 and 2.3% 2008, primarily reflectingAs we execute our refranchising strategy, which includes the sale of Jack inthe Boxrestaurants to franchisees, we expect the number of company-operated restaurants and the related sales to franchisees. To a lesser extent,continually decrease while revenues from franchise restaurants increase. Company restaurant sales decreased $307.3 million in 2010 and $125.7 million in 2009 compared with the prior years. The decrease in restaurant sales in both years is due primarily to decreases in the average number of Jack in the Box company-operated restaurants and declines in same-store sales at Jack inthe BoxrestaurantsJack in 2009 and Qdobathe Box restaurants, in both years also contributed to the sales decline. Additionally, in 2008, the loss of approximately 1,300 restaurant operating days due to the impact of Hurricane Ike contributed to the decline in restaurant sales. These decreases were partially offset by an increase in the number of Qdoba company-operated restaurants and, in 2008, modest2010, additional sales of $28.9 million from a 53rd week. The following table presents the approximate impact of these increases and decreases on restaurant sales (dollars in per store average (“PSA”millions) sales at Jack inthe Box company-operated restaurants. :
| | | | | | | | |
| | Increase/(Decrease) | |
| | 2010 vs 2009 | | | 2009 vs 2008 | |
|
Reduction in the average number of company-operated restaurants | | $ | (176.6) | | | $ | (85.5) | |
Jack in the Box same-store sales declines | | | (156.1) | | | | (27.4) | |
53rd week | | | 28.9 | | | | - | |
Other | | | (3.5) | | | | (12.8) | |
| | | | | | | | |
Total change in restaurant sales | | $ | (307.3) | | | $ | (125.7) | |
| | | | | | | | |
Same-store sales at Jack inthe Box company-operatedJack in the Box restaurants decreaseddeclined 8.6% in 2010 and 1.2% in 2009. The average check decreased 1.5% in 2010 and increased 1.8% in 2009, compared with a 0.2% increase in 2008 and includeincluding the impact of price increases of approximately 2.8%1.7% and 2.2%2.8%, respectively. The 2010 decline reflects unfavorable product mix changes, promotions and discounting. Sales continue to be impacted by high unemployment rates in our major markets.
Distribution sales to Jack inthe BoxJack in the Box and Qdoba franchisees grew to $302.1$95.8 million in 2010 and $26.9 million in 2009 from $275.2 million in 2008 and $222.6 million in 2007.compared with the prior year. The increase in distribution sales in 2009 and 2008both years primarily relates to an increase in the number ofJack in the Box and Qdoba franchisedfranchise restaurants serviced by our distribution centers, which contributed additional sales of approximately $108.4 million and $39.6 million in 2010 and 2009, respectively, and were partially offset by lower per store average (“PSA”) volumes in 2009. Higher food costsboth years. The increase in 20082010 also contributed toincludes sales of approximately $11.2 million from the sales increase per comparison with 2007.53rd week.
Franchise revenues increased $37.9 million and $30.4 million in 2010 and 2009, respectively, primarily reflecting an increase in the average number of Jack in the Box franchise restaurants and, in 2010, additional revenues of $4.6 million from a 53rd week, offset in part by a decline in same-store sales at Jack in the Box franchise restaurants. The increase in the average number of restaurants due to refranchising activity contributed additional royalties, rents and fees of approximately $39.0 million and $31.2 million in 2010 and 2009, respectively. The following table reflects the detail of our franchised restaurantfranchise revenues in each year and other information we believe is useful in analyzing the change in franchise revenues (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Royalties | | $ | 79,690 | | | $ | 68,811 | | | $ | 58,070 | | | $ | 91,216 | | | $ | 79,690 | | | $ | 68,811 | |
Rents | | | 103,784 | | | | 86,310 | | | | 72,830 | | | | 128,143 | | | | 103,784 | | | | 86,310 | |
Franchise fees and other(1) | | | 9,645 | | | | 7,639 | | | | 8,986 | | |
Re-image contributions to franchisees | | | | (1,455) | | | | (3,700) | | | | (2,100) | |
Franchise fees and other | | | | 13,123 | | | | 13,345 | | | | 9,739 | |
| | | | | | | | | | | | | | |
Franchised restaurant revenues | | $ | 193,119 | | | $ | 162,760 | | | $ | 139,886 | | |
Franchise revenues | | | $ | 231,027 | | | $ | 193,119 | | | $ | 162,760 | |
| | | | | | | | | | | | | | |
% change | | | 18.7 | % | | | 16.4 | % | | | 27.5 | % | | | 19.6% | | | | 18.7% | | | | 16.4% | |
Average number of franchised restaurants | | | 1,215 | | | | 1,068 | | | | 918 | | | | 1,424 | | | | 1,215 | | | | 1,068 | |
Jack in the Box effective royalty rate | | | 5.3 | % | | | 5.1 | % | | | 5.0 | % | |
Qdoba effective royalty rate | | | 5.0 | % | | | 5.0 | % | | | 5.0 | % | |
% change | | | | 17.2% | | | | 13.8% | | | | | |
| | |
Change in Jack in the Box franchise-operated same-store sales | | | | (7.8)% | | | | (1.3)% | | | | 0.1% | |
| | |
Royalties as a percentage of estimated franchised restaurant sales: | | | | | | | | | | | | | |
Jack in the Box | | | | 5.3% | | | | 5.3% | | | | 5.1% | |
Qdoba | | | | 5.0% | | | | 5.0% | | | | 5.0% | |
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| | |
(1) | | Includes re-image contributions to franchisees of $3.7 million, $2.1 million and $0.1 million in 2009, 2008 and 2007, respectively, which were recorded as a reduction of franchised restaurant revenues. |
The increase in franchised restaurant revenues is primarily attributable to an increase in the number of franchised restaurants reflecting the franchising ofJack in the Box company-operated restaurants and new restaurant development by Qdoba andJack in the Boxfranchisees.
Operating Costs and Expenses
Food and packaging costs decreased to 32.4%31.8% of company restaurant sales in 2010 from 32.4% in 2009 from 33.4%and 33.3% in 20082008. In 2010, lower commodity costs (including beef, shortening, poultry and compared with 31.9% in 2007.bakery), margin improvement initiatives and modest selling price increases more than offset the impact of unfavorable product mix and promotions. The decline in 2009 included the benefit of selling price increases, favorable product mix changes and margin improvement initiatives, offset in part by commodity cost increases of approximately 2.0%. In 2008, higher commodity costs, primarily cheese, shortening, eggs, and beef were partially offset by selling price increases.
Payroll and employee benefit costs improved to 29.7%were 30.3% of company restaurant sales in 2010 and 29.7% in 2009 and 20082008. The increase in 2010 reflects the impact of same-store sales deleverage and higher workers’ compensation costs of approximately 50 basis points, which more than offset the benefits derived from 30.0% in 2007, due primarily toour labor productivity initiatives. Workers’ compensation costs have increased as the cost per claim is trending higher although the number of claims is lower. In 2009 labor productivity initiatives and lower workers’ compensation costs which more than offset minimum wage increases.
Occupancy and other costs were 21.7%23.9% of company restaurant sales in 2010, 21.7% in 2009 and 20.9% in 20082008. The higher percentage in 2010 is due primarily to sales deleverage and 20.3%higher depreciation from the ongoing re-image program at Jack in 2007.the Box, which were partially offset by lower utilities expense. The percent of sales increase in 2009 was due primarily to higher depreciation expense related to the ongoing re-image program atJack in the Boxrestaurants re-image program and a kitchen enhancement project completed in 2008, higher rent and depreciation related to new restaurant development at Qdoba and sales deleverage atJack in the Boxand Qdoba restaurants, which were partially offset by lower utility costs. The percentage increase in 2008 is primarily attributable to higher utility costs and an increase in depreciation expense related to our re-image and kitchen enhancement programs.
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Distribution costs of sales increased to $399.7 million in 2010 from $300.9 million in 2009 fromand $273.4 million in 2008, and $220.2 million in 2007, primarily reflecting increases in the related sales. These costs were 99.6%increased to 100.4% of distribution sales in 2010, compared with 99.6% in 2009 and 99.3% in 2008, and 99.0% in 2007. The percentage increase in 2009 compared with 2008 is due primarily to costs incurreddeleverage from lower PSA sales at Jack in connection with outsourcing our transportation services and lower volumes. The percentage increase in 2008 primarily relates to higher fuel and delivery costs compared with 2007.the Box franchise restaurants.
Franchised restaurantFranchise costs, principally rents and depreciation on properties leased to Jack inthe BoxJack in the Box franchisees, increased $26.4 million in 2010 and $13.4 million in 2009, and $8.5 million in 2008, due primarily to an increase in the number of franchisedfranchise restaurants that sublease property from us as a result of our refranchising activities. Franchise costs increased to 45.4% of the related revenues in 2010 from 40.6% in 2009 and 39.9% in 2008 primarily due to revenue deleverage from lower sales at franchised restaurants and higher PSA rent and depreciation expense.
The following table sets forthpresents the change in selling, general and administrative (“SG&A”) expense components between periods(expenses in thousands)each period compared with the prior year (in thousands):
| | | | | | | | |
| | Increase/(Decrease) | |
| | 2009 vs. 2008 | | | 2008 vs. 2007 | |
|
Advertising declines primarily related to refranchising strategy | | $ | (6,807 | ) | | $ | (2,318 | ) |
Refranchising strategy overhead reduction | | | (1,412 | ) | | | (5,006 | ) |
Severance | | | 2,079 | | | | — | |
Incentive compensation | | | (25 | ) | | | (9,631 | ) |
Preopening expenses | | | 2,452 | | | | (272 | ) |
Facility charges including impairment and accelerated depreciation | | | (667 | ) | | | 2,674 | |
Cash surrender value of insurance products used to fund certain nonqualified retirement plans, net | | | (2,731 | ) | | | 6,033 | |
Insurance losses and legal settlements, net | | | 72 | | | | 4,847 | |
Other | | | 2,160 | | | | (517 | ) |
| | | | | | | | |
| | $ | (4,879 | ) | | $ | (4,190 | ) |
| | | | | | | | |
| | | | | | | | |
| | Increase/(Decrease) | |
| | 2010 vs 2009 | | | 2009 vs 2008 | |
|
Advertising | | $ | (11,689 | ) | | $ | (6,807 | ) |
Refranchising strategy | | | (14,818 | ) | | | 4,217 | |
Severance | | | (1,366 | ) | | | 2,079 | |
Incentive compensation | | | (6,062 | ) | | | (25 | ) |
Cash surrender value of COLI policies, net | | | (2,954 | ) | | | (2,731 | ) |
Pension and postretirement benefits | | | 17,632 | | | | (2,190 | ) |
Hurricane Ike insurance proceeds | | | (4,223 | ) | | | - | |
Pre-opening | | | (1,540 | ) | | | 1,861 | |
53rd week | | | 3,597 | | | | - | |
Other | | | 4,114 | | | | (540 | ) |
| | | | | | | | |
| | $ | (17,309 | ) | | $ | (4,136 | ) |
| | | | | | | | |
Our refranchising strategy has resulted in a decrease in the number of company-operated restaurants and the related overhead expenses to manage and support those restaurants. Advertising costs, primarily contributions to theour marketing fund whichthat are generally determined as a percentage of company restaurant sales, decreased primarily due toreflecting our refranchising strategy and contributed tolower PSA sales at Jack in the declineBox company-operated restaurants, and were partially offset by incremental Company contributions of approximately $6.5 million in SG&A expenses2010. The decrease in both 2009 and 2008. Additionally,incentive compensation in 2009,2010 reflects the partial recovery of prior year losses related todecrease in the Company’s performance. Changes in the cash surrender value of our COLI policies, net of changes in our non-qualified deferred compensation obligation supported by these policies also contributedare subject to market fluctuations. The market adjustments of the decrease. Ininvestments include a net benefit of
23
$2.7 million in 2010 compared with negative impacts of $0.3 million in 2009 these decreases were partially offset by higher preopeningand $3.0 million in 2008. The increase in pension and postretirement benefits expense in 2010 principally relates to a decrease in our discount rate. The fluctuations in pre-opening costs relatedprimarily relate to changes in the openingnumber of 43new Jack in the Box restaurants versusopened which decreased to 30 locations in 2010, compared with 43 in 2009 and 23 in 2008,2008.
Impairment and severance costs. In 2008,other charges, net is comprised of the decrease following(in SG&A expenses also relatesthousands):
| | | | | | | | | | | | |
| | 2010 | | | 2009 | | | 2008 | |
|
Impairment | | $ | 12,970 | | | $ | 6,586 | | | $ | 3,507 | |
Losses on disposition of property and equipment, net | | | 10,757 | | | | 11,418 | | | | 17,373 | |
Costs of closed restaurants (primarily lease obligations) | | | 22,262 | | | | 2,080 | | | | (21 | ) |
Other | | | 2,898 | | | | 1,930 | | | | 1,898 | |
| | | | | | | | | | | | |
| | $ | 48,887 | | | $ | 22,014 | | | $ | 22,757 | |
| | | | | | | | | | | | |
Impairment and other charges, net increased $26.9 million in 2010 and decreased slightly in 2009 compared to lower incentive compensation and the impact of our refranchising strategy on field management and administrative expenses. These decreases were offset in part by losses on the cash surrender value of our COLI policies, net, losses related to hurricanes and anprior years. The increase in facility charges related2010 is due primarily to the closure of 40 underperforming Jack in the Box re-image program, restaurants in the kitchen enhancement projectfourth quarter of the fiscal year. The decision to close these restaurants was based on a comprehensive analysis performed that took into consideration levels of return on investment and theother key operating performance metrics. In connection with these closures, we recorded a total charge of $28.0 million which included property and equipment impairment charges of seven restaurants we continue$8.4 million and $19.0 million related to operate.future lease commitments.
Gains on the sale of company-operated restaurants to franchisees, net are detailed in the following table (dollars in thousands):
| | | | | | | | | | | | |
| | 2010 | | | 2009 | | | 2008 | |
| |
|
Number of restaurants sold to franchisees | | | 219 | | | | 194 | | | | 109 | |
Gains on the sale of company-operated restaurants | | $ | 54,988 | | | $ | 81,013 | | | $ | 66,349 | |
Loss on expected sale of underperforming market | | | - | | | | (2,371 | ) | | | - | |
| | | | | | | | | | | | |
Gains on the sale of company-operated restaurants, net | | $ | 54,988 | | | $ | 78,642 | | | $ | 66,349 | |
| | | | | | | | | | | | |
Average gain on restaurants sold | | $ | 251 | | | $ | 418 | | | $ | 609 | |
Gains were $78.6 million, $66.3 million and $38.1 million in 2009, 2008 and 2007, respectively. The change in gains relates toimpacted by the number of restaurants sold and changes in average gains recognized, which relate to the specific sales and cash flows of those restaurants. In 2009, we sold 194gains on the sale of company-operated restaurants to franchisees, net included a loss of $2.4 million relating to the anticipated sale of a lower performing Jack in the Box restaurants, compared with 109 in 2008, and 76 in 2007. market.
Interest Expense, Net
Interest expense, was $22.2net is comprised of the following (in thousands):
| | | | | | | | | | | | |
| | 2010 | | | 2009 | | | 2008 | |
| |
|
Interest expense | | $ | 17,011 | | | $ | 22,155 | | | $ | 28,070 | |
Interest income | | | (1,117 | ) | | | (1,388 | ) | | | (642 | ) |
| | | | | | | | | | | | |
Interest expense, net | | $ | 15,894 | | | $ | 20,767 | | | $ | 27,428 | |
| | | | | | | | | | | | |
Interest expense, net decreased $4.9 million $28.1 million,in 2010 and $32.1$6.7 million in 2009 2008 and 2007, respectively. The decreases in interest expense in 2009 and 2008due primarily relate to lower average interest rates which wererates. In 2010, lower average borrowings, partially offset by higher average borrowings in 2009. Fiscal 2007 also included a $1.9$0.5 million charge in the first quarter to write-offwrite off deferred financing fees in connection with the replacementrefinancing of our credit facility.
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Interest Income
Interest income was $1.4 million, $0.6 million, and $8.8 million, infacility, also contributed to the decrease. In 2009, 2008 and 2007, respectively. The increase in 2009 from a year ago primarily reflectshigher average borrowings partially offset the impact of lower interest earned on notes receivable. The decrease in 2008 compared with 2007 is due to lower average cash balances.rates.
Income Taxes
The income tax provisions reflect effective tax rates of 37.7%33.8%, 37.3%,37.7% and 35.6%37.3% of pretax earnings from continuing operations in 2009, 2008 and 2007, respectively. The higher tax rates in2010, 2009 and 2008, are primarilyrespectively. The lower tax rate in 2010 is largely attributable to the impact of impairment and other charges, higher work opportunity tax credits and the market performance of insurance investment products used to fund certain non-qualified retirement plans. Changes in the cash value of the insurance products are not deductible or taxable.included in taxable income.
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Earnings from Continuing Operations
Earnings from continuing operations were $70.2 million, or $1.26 per diluted share, in 2010; $131.0 million, or $2.27 per diluted share, in 2009; and $118.2 million, or $1.99 per diluted share, in 2008; and $124.72008. We estimate that the extra 53rd week benefitted net earnings by approximately $1.8 million, or $1.85$0.03 per diluted share, in 2007.fiscal 2010.
Earnings from Discontinued Operations, Net
As described in the “Financial Reporting” section, Quick Stuff’s results of operations have been reported as discontinued operations. In 2009, the loss from discontinued operations, net was $12.6 million, reflecting the $15.0 million net of tax loss from the sale of Quick Stuff in the fourth quarter. Earnings from discontinued operations, net were $1.1 million and $0.9 million in 2008 and 2007, respectively.2008.
LIQUIDITY AND CAPITAL RESOURCES
General. Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations, the revolving bank credit facility, the sale of company-operated restaurants to franchisees and the sale and leaseback of certain restaurant properties.
Our cash requirements consist principally of:
| | |
| • | working capital; |
|
| • | capital expenditures for new restaurant construction and restaurant renovations; |
|
| • | income tax payments; |
|
| • | debt service requirements; and |
|
| • | obligations related to our benefit plans. |
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with other financing alternatives in place or available, will be sufficient to meet our capital expenditure, working capital and debt service requirements for the foreseeable future.
As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories and our vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. As a result, we typically maintain current liabilities in excess of current assets, that resultwhich results in a working capital deficit.
Cash and cash equivalents increased $5.1decreased $42.4 million to $53.0$10.6 million at September 27, 2009October 3, 2010 from $47.9$53.0 million at the beginning of the fiscal year. This increasedecrease is primarily due to repurchases of common stock, net repayments under our credit facility, and property and equipment expenditures. These uses of cash were offset in part by proceeds from the sale and leaseback of restaurant properties, cash flows provided by operating activities, and proceeds receivedand collections of notes receivable from the sale of Quick Stuff and company-operated restaurants and collections on notes receivable. These cash inflows were partially offset by cash used to repay borrowings under our revolving credit facility and purchase property and equipment.franchisees. We generally reinvest available cash flows from operations to develop new restaurants or enhance existing restaurants, to reduce debt and to repurchase shares of our common stock and to reduce debt.stock.
25
2010. We are currently in the process of assessing the impact this guidance may have on our consolidated financial statements related to our nonfinancial assets and liabilities.
In June 2009, the FASB issued authoritative guidance for consolidation, which changes the approach for determining which enterprise has a controlling financial interest in a variable interest entity and requires more frequent reassessments of whether an enterprise is a primary beneficiary. This guidance is effective for annual periods beginning after November 15, 2009. We are currently in the process of assessing the impact this guidance may have on our consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.
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ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our primary exposure to risks relating to financial instruments is changes in interest rates. Our credit facility, which is comprised of a revolving credit facility and a term loan, bears interest at an annual rate equal to the prime rate or LIBOR plus an applicable margin based on a financial leverage ratio. As of September 27, 2009,October 3, 2010, the applicable margin for the LIBOR-based revolving loans and term loan was set at 1.125%2.50%.
We use interest rate swap agreements to reduce exposure to interest rate fluctuations. At September 27, 2009,In August 2010, we hadentered into two interest rate swap agreements having an aggregate notional amount of $200.0 million expiring April 1, 2010. These agreementsthat will effectively convert a portion$100.0 million of our variable rate bank debtterm loan borrowings to a fixed-rate debt andbasis beginning September 2011 through September 2014. Based on the term loan’s applicable margin of 2.50% as of October 3, 2010, these agreements would have an average pay rate of 4.875%1.54%, yielding a fixed-ratefixed rate of 6.00% including the term loan’s applicable margin of 1.125%4.04%.
A hypothetical 100 basis point increase in short-term interest rates, based on the outstanding unhedged balance of our revolving credit facility and term loan at September 27, 2009October 3, 2010, would result in an estimated increase of $2.2$3.6 million in annual interest expense.
We are also exposed to the impact of commodity and utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs through higher prices is limited by the competitive environment in which we operate. From time to time, we enter into futures and option contracts to manage these fluctuations. At September 27, 2009,October 3, 2010, we had 20 natural gas Over the Counter Call Option agreementsno such contracts in place that represent approximately 33% of our total requirements for natural gas for the months of November 2009 through March 2010.place.
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The consolidated financial statements and related financial information required to be filed are indexed onpage F-1 and are incorporated herein.
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ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
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ITEM 9A. | CONTROLS AND PROCEDURES |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13(a) —– 15(e) and 15(d) —– 15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s fiscal year ended September 27, 2009,October 3, 2010, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) have concluded that the Company’s disclosure controls and procedures were effective.
31
Changes in Internal Control Over Financial Reporting
There have been no significant changes in the Company’s internal control over financial reporting that occurred
31
during the Company’s fiscal quarter ended September 27, 2009October 3, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined inRule 13a-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 27, 2009.October 3, 2010. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Management has concluded that, as of September 27, 2009,October 3, 2010, the Company’s internal control over financial reporting was effective based on these criteria.
The Company’s independent registered public accounting firm, KPMG LLP, has issued an audit report on the effectiveness of our internal control over financial reporting, which follows.
32
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Jack in the Box Inc.:
We have audited Jack in the Box Inc.’s (the Company’s) internal control over financial reporting as of September 27, 2009,October 3, 2010, based on criteria established inInternal Control —– Integrated Framework,issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Jack in the Box Inc. maintained, in all material respects, effective internal control over financial reporting as of September 27, 2009,October 3, 2010, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Jack in the Box Inc. and subsidiaries as of October 3, 2010 and September 27, 2009, and September 28, 2008, and the related consolidated statements of earnings, cash flows, and stockholders’ equity for the fifty-three weeks ended October 3, 2010, and the fifty-two weeks ended September 27, 2009 and September 28, 2008, and September 30, 2007, and our report dated November 19, 2009,23, 2010, expressed an unqualified opinion on those consolidated financial statements.
San Diego, California
November 19, 200923, 2010
33
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ITEM 9B. | OTHER INFORMATION |
Not applicable.
PART III
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ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
That portion of our definitive Proxy Statement appearing under the captions “Election of Directors —– Committees of the Board of Directors Member Qualifications” and “Section 16(a) Beneficial Ownership Reporting Compliance” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2009October 3, 2010 and to be used in connection with our 20102011 Annual Meeting of Stockholders is hereby incorporated by reference.
Information regarding executive officers is set forth in Item 1 of Part I of this Report under the caption “Executive Officers.”
That portion of our definitive Proxy Statement appearing under the caption “Audit Committee,” relating to the members of the Company’s Audit Committee and the Audit Committee financial expert, is also incorporated herein by reference.
That portion of our definitive Proxy Statement appearing under the caption “Other Business,” relating to the procedures by which stockholders may recommend candidates for director to the Nominating and Governance Committee of the Board of Directors, is also incorporated herein by reference.
We have adopted a Code of Ethics, which applies to all Jack in the Box Inc. directors, officers and employees, including the Chief Executive Officer, Chief Financial Officer, Controller and all of the financial team. The Code of Ethics is posted on the Company’s website, www.jackinthebox.com (under the “Investors —– Corporate Governance —– Code of Conduct” caption). We intend to satisfy the disclosure requirement regarding any amendment to, or waiver of, a provision of the Code of Ethics for the Chief Executive Officer, Chief Financial Officer and Controller or persons performing similar functions, by posting such information on our website. No such waivers have been issued during fiscal 2009.2010.
We have also adopted a set of Corporate Governance Principles and Practices and charters for all of our Board Committees, including the Audit, Compensation, and Nominating and Governance Committees. The Corporate Governance Principles and Practices and committee charters are available on our website at www.jackinthebox.com and in print free of charge to any shareholder who requests them. Written requests for our Code of Business Conduct and Ethics, Corporate Governance Principles and Practices and committee charters should be addressed to Jack in the Box Inc., 9330 Balboa Avenue, San Diego, CA 92123, Attention: Corporate Secretary.
The Company’s primary website can be found at www.jackinthebox.com. We make available free of charge at this website (under the caption “Investors — SEC Filings”) all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, including our Annual Report onForm 10-K, our Quarterly Reports onForm 10-Q and our Current Reports onForm 8-K, and amendments to those reports. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.
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ITEM 11. | EXECUTIVE COMPENSATION |
That portion of our definitive Proxy Statement appearing under the caption “Executive Compensation”Compensation,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2009October 3, 2010 and to be used in connection with our 20102011 Annual Meeting of Stockholders is hereby incorporated by reference.
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ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
That portion of our definitive Proxy Statement appearing under the caption “Security Ownership of Certain Beneficial Owners and Management” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2009October 3, 2010 and to be used in connection with our 20102011 Annual Meeting of Stockholders is hereby
34
incorporated by reference. Information regarding equity compensation plans under which Companycompany common stock may be issued as of September 27, 2009October 3, 2010 is set forth in Item 5 of this Report.
| |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
That portion of our definitive Proxy Statement appearing under the caption “Certain Transactions,” if any, to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2009October 3, 2010 and to be used in connection with our 20102011 Annual Meeting of Stockholders is hereby incorporated by reference.
| |
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
That portion of our definitive Proxy Statement appearing under the caption “Independent Registered Public Accountant Fees and Services” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2009October 3, 2010 and to be used in connection with our 20102011 Annual Meeting of Stockholders is hereby incorporated by reference.
PART IV
| |
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
ITEM 15(a) (1)Financial Statements. See Index to Consolidated Financial Statements onpage F-1 of this Report.
| |
ITEM 15(a) | (1)Financial Statements. See Index to Consolidated Financial Statements onpage F-1 of this Report. |
ITEM 15(a) (2)Financial Statement Schedules. Not applicable.
ITEM 15(a) (3)Exhibits.
| | | | |
Number | | Description |
|
| 3 | .1 | | Restated Certificate of Incorporation, as amended, which is incorporated herein by reference from the registrant’s Annual Report onForm 8-K dated September 24, 2007. |
| 3 | .1.1 | | Certificate of Amendment of Restated Certificate of Incorporation, which is incorporated herein by reference from the registrant’s Current Report onForm 10-K dated September 21, 2007. |
| 3 | .2 | | Amended and Restated Bylaws, which are incorporated herein by reference from the registrant’s Current Report onForm 8-K dated July 30, 2009. |
| 10 | .1 | | Credit Agreement dated as of December 15, 2006 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated December 15, 2006. |
| 10 | .2 | | Collateral Agreement dated as of December 15, 2006 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated December 15, 2006. |
| 10 | .3 | | Guaranty Agreement dated as of December 15, 2006 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated December 15, 2006. |
| 10 | .4* | | Amended and Restated 1992 Employee Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Registration Statement onForm S-8(No. 333-26781) filed May 9, 1997. |
| 10 | .5* | | Jack in the Box Inc. 2002 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Definitive Proxy Statement dated January 18, 2002 for the Annual Meeting of Stockholders’ on February 22, 2002. |
| 10 | .5.1* | | Form of Restricted Stock Award for certain executives under the 2002 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended January 19, 2003. |
| 10 | .6* | | Amended and Restated Supplemental Executive Retirement Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended January 18, 2009. |
| |
ITEM 15(a) | (2)Financial Statement Schedules. Not applicable. |
35
ITEM 15(a) (3)Exhibits.
| | | | |
Number | | Description |
3.1 | | DescriptionRestated Certificate of Incorporation, as amended, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated September 21, 2007.
|
|
| 10 | .6.1*3.1.1 | | Certificate of Amendment of Restated Certificate of Incorporation, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated September 21, 2007. |
3.2 | | Amended and Restated Bylaws, which are incorporated herein by reference from the registrant’s Current Report onForm 8-K dated May 11, 2010. |
10.1 | | Credit Agreement dated as of June 29, 2010 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated July 1, 2010. |
10.2 | | Collateral Agreement dated as of June 29, 2010 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated July 1, 2010. |
10.3 | | Guaranty Agreement dated as of June 29, 2010 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated July 1, 2010. |
10.4* | | Amended and Restated 1992 Employee Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Registration Statement onForm S-8(No. 333-26781) filed May 9, 1997. |
10.5* | | Jack in the Box Inc. 2002 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Definitive Proxy Statement dated January 18, 2002 for the Annual Meeting of Stockholders on February 22, 2002. |
10.5.1* | | Form of Restricted Stock Award for certain executives under the 2002 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended January 19, 2003. |
10.6* | | Amended and Restated Supplemental Executive Retirement Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended January 18, 2009. |
10.6.1* | | First Amendment dated as of August 2, 2002 to the Supplemental Executive Retirement Plan, which is incorporated herein by reference from registrant’s Annual Report onForm 10-K for the fiscal year ended September 29, 2002. |
| 10 | .6.2*10.6.2* | | Second Amendment dated as of November 9, 2006 to the Supplemental Executive Retirement Plan, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended October 1, 2006. |
| 10 | .6.3*10.6.3* | | Third Amendment dated as of February 15, 2007 to the Supplemental Executive Retirement Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended April 15, 2007. |
| 10 | .6.4*10.6.4* | | Fourth and Fifth Amendments dated as of September 14, 2007 and November 8, 2007, respectively, to the Supplemental Executive Retirement Plan, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended September 30, 2007. |
| 10 | .7*10.7* | | Amended and Restated Performance Bonus Plan effective October 2, 2000, which is incorporated herein by reference from the registrant’s Definitive Proxy Statement dated January 13, 2006 for the Annual Meeting of Stockholders on February 17, 2006. |
| 10 | .8*10.8* | | Amended and Restated Deferred Compensation Plan for Non-Management Directors effective November 9, 2006, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended October 1, 2006. |
36
| 10 | .9* |
Number | | Description |
10.9* | | Amended and Restated Non-Employee Director Stock Option Plan, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the fiscal year ended October 3, 1999. |
| 10 | .10*10.10* | | Form of Compensation and Benefits Assurance Agreement for Executives, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 9, 2006.January 20, 2008. |
| 10 | .10.1*10.10.1* | | Revised Form of Compensation and Benefits Assurance Agreement for Executives, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated November 16, 2009. |
| 10 | .11*10.11* | | Form of Indemnification Agreement between Jack in the Box Inc. and certain officers and directors, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the fiscal year ended September 29, 2002. |
| 10 | .13*10.13* | | Amended and Restated Executive Deferred Compensation Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended January 18, 2009. |
| 10 | .13.1*10.13.1* | | First amendment dated September 14, 2007 to the Executive Deferred Compensation Plan, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended September 30, 2007. |
| 10 | .14(a)10.14(a)* | | Schedule of Restricted Stock Awards, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended October 1, 2006. |
| 10 | .15*10.15* | | Executive Retention Agreement between Jack in the Box Inc. and Gary J. Beisler, President and Chief Executive Officer of Qdoba Restaurant Corporation, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended April 13, 2003. |
| 10 | .16*10.16* | | Amended and Restated 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s CurrentQuarterly Report onForm 8-K10-Q dated February 24, 2005.April 11, 2010. |
| 10 | .16.1*10.16.1* | | Form of Restricted Stock Award for officers and certain members of management under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 5, 2009. |
| 10 | .16.1(a)10.16.1(a)* | | Form of Restricted Stock Award for executives of Qdoba Restaurant Corporation under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 5, 2009. |
| 10 | .16.2*10.16.2* | | Form of Stock Option Awards under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 5, 2009. |
10.16.2(a)* | | Form of Stock Option Award for officers of Qdoba Restaurant Corporation under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 5, 2009. |
10.16.3* | | Jack in the Box Inc. Non-Employee Director Stock Option Award Agreement under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated November 10, 2005. |
10.16.4* | | Form of Restricted Stock Unit Award Agreement for officers and certain members of management under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended April 12, 2009. |
10.16.4(a)* | | Form of Restricted Stock Unit Award Agreement for Non-Employee Director under the 2004 Stock Incentive Plan, which is incorporated by reference from the registrant’s Annual Report on Form 10-K for the year ended September 27, 2009. |
3637
| | | | |
Number | | Description |
|
| 10 | .16.2(a)* | | Form of Stock Option Award for officers of Qdoba Restaurant Corporation under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 5, 2009. |
| 10 | .16.3* | | Jack in the Box Inc. Non-Employee Director Stock Option Award Agreement under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated November 10, 2005. |
| 10 | .16.4* | | Form of Restricted Stock Unit Award Agreement for officers and certain members of management under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended April 12, 2009. |
| 10 | .16.4(a)* | | Form of Restricted Stock Unit Award Agreement for Non-Employee Director under the 2004 Stock Incentive Plan. |
| 10 | .16.5* | | Form of Award Agreement under the 2004 Stock Incentive Plan. |
| 10 | .22* | | Dr. David M. Theno’s Retirement and Release Agreement, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended September 28, 2008. |
| 10 | .23* | | Summary of Director Compensation effective fiscal 2007, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended October 1, 2006. |
| 23 | .1 | | Consent of Independent Registered Public Accounting Firm. |
| 31 | .1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31 | .2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32 | .1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32 | .2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
Number | | Description |
10.16.4(b)* | | Form of Time-Vested Restricted Stock Unit Award Agreement for officers under the 2004 Stock Incentive Plan. |
10.16.5* | | Form of Award Agreement under the 2004 Stock Incentive Plan, which is incorporated by reference from the registrant’s Annual Report on Form10-K for the year ended September 27, 2009. |
10.16.6* | | Form of Qdoba Unit Award Agreement |
10.22* | | Dr. David M. Theno’s Retirement and Release Agreement, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended September 28, 2008. |
10.23* | | Summary of Director Compensation effective fiscal 2007, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended October 1, 2006. |
23.1 | | Consent of Independent Registered Public Accounting Firm. |
31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INSλ | | XBRL Instance Document |
101.SCHλ | | XBRL Taxonomy Extension Schema Document |
101.CALλ | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.LABλ | | XBRL Taxonomy Extension Label Linkbase Document |
101.PREλ | | XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEFλ | | XBRL Taxonomy Extension Definition Linkbase Document |
| | |
* | | Management contract or compensatory plan. |
λ | | In accordance withRegulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report onForm 10-K shall be deemed to be “furnished” and not “filed.” |
ITEM 15(b) All required exhibits are filed herein or incorporated by reference as described in Item 15(a)(3).
| |
ITEM 15(b) | All required exhibits are filed herein or incorporated by reference as described in Item 15(a)(3). |
ITEM 15(c) All supplemental schedules are omitted as inapplicable or because the required information is included in the consolidated financial statements or notes thereto.
| |
ITEM 15(c) | All supplemental schedules are omitted as inapplicable or because the required information is included in the consolidated financial statements or notes thereto. |
3738
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
JACK IN THE BOX INC.
| | |
| By: | /s/ S/ JERRY P. REBEL |
Jerry P. Rebel
Executive Vice President and Chief Financial Officer
(principal financial officer)
(Duly Authorized Signatory)
Date: November 19, 200924, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
/s/ S/ LINDA A. LANG Linda A. Lang | | Chairman of the Board, and Chief Executive Officer and President (principal executive officer) | | November 19, 200924, 2010 |
| | | | |
/s/ S/ JERRY P. REBEL Jerry P. Rebel | | Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) | | November 19, 200924, 2010 |
| | | | |
/s/ S/ MICHAEL E. ALPERT Michael E. Alpert | | Director | | November 19, 200924, 2010 |
| | | | |
/s/ ANNE B. GUST S/ DAVID L. GOEBEL
Anne B. GustDavid L. Goebel | | Director | | November 19, 200924, 2010 |
| | | | |
/S/ MURRAY H. HUTCHISON Murray H. Hutchison | | Director | | November 24, 2010 |
| | | | |
/s/ S/ MICHAEL W. MURPHY Michael W. Murphy | | Director | | November 24, 2010 |
| | | | |
/S/ DAVID M. TEHLE David M. Tehle | | Director | | November 24, 2010 |
| | | | |
/S/ WINIFRED M. WEBB Winifred M. Webb | | Director | | November 19, 200924, 2010 |
| | | | |
/s/ MURRAY H. HUTCHISON S/ JOHN T. WYATT
Murray H. HutchisonJohn T. Wyatt | | Director | | November 19, 2009 |
| | | | |
/s/ MICHAEL W. MURPHY
Michael W. Murphy | | Director | | November 19, 2009 |
| | | | |
/s/ DAVID M. TEHLE
David M. Tehle | | Director | | November 19, 2009 |
| | | | |
/s/ DAVID L. GOEBEL
David L. Goebel | | Director | | November 19, 200924, 2010 |
3839
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | |
| | Page |
|
| | | F-2 | |
| | | F-3 | |
| | | F-4 | |
| | | F-5 | |
| | | F-6 | |
| | | F-7 | |
Schedules not filed: All schedules have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Jack in the Box Inc.:
We have audited the accompanying consolidated balance sheets of Jack in the Box Inc. and subsidiaries (the Company) as of October 3, 2010 and September 27, 2009, and September 28, 2008, and the related consolidated statements of earnings, cash flows, and stockholders’ equity for the fifty-three weeks ended October 3, 2010, and the fifty-two weeks ended September 27, 2009 and September 28, 2008 and September 30, 2007.2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jack in the Box Inc. and subsidiaries as of October 3, 2010 and September 27, 2009, and September 28, 2008, and the results of their operations and their cash flows for the fifty-three weeks ended October 3, 2010, and the fifty-two weeks ended September 27, 2009 and September 28, 2008, and September 30, 2007, in conformity with U.S. generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company changed its method of accounting for defined benefit plans in fiscal 2007 and its method of accounting for uncertainty in income taxes in fiscal 2008 due to the adoption of new accounting pronouncements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Jack in the Box Inc.’s internal control over financial reporting as of September 27, 2009,October 3, 2010, based on criteria established inInternal Control —– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November 19, 2009,23, 2010, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
San Diego, CA
November 19, 200923, 2010
F-2
JACK IN THE BOX INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
| | | | | | | | |
| | September 27,
| | | September 28,
| |
| | 2009 | | | 2008 | |
| | (Dollars in thousands,
| |
| | except per share data) | |
|
ASSETS |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 53,002 | | | $ | 47,884 | |
Accounts and other receivables, net | | | 49,036 | | | | 70,290 | |
Inventories | | | 37,675 | | | | 45,206 | |
Prepaid expenses | | | 8,958 | | | | 20,061 | |
Deferred income taxes | | | 44,614 | | | | 46,166 | |
Assets held for sale | | | 99,612 | | | | 112,994 | |
Other current assets | | | 7,152 | | | | 7,480 | |
| | | | | | | | |
Total current assets | | | 300,049 | | | | 350,081 | |
| | | | | | | | |
Property and equipment, at cost: | | | | | | | | |
Land | | | 101,576 | | | | 98,816 | |
Buildings | | | 936,351 | | | | 863,461 | |
Restaurant and other equipment | | | 506,185 | | | | 564,898 | |
Construction in progress | | | 58,135 | | | | 71,572 | |
| | | | | | | | |
| | | 1,602,247 | | | | 1,598,747 | |
Less accumulated depreciation and amortization | | | (665,957 | ) | | | (655,685 | ) |
| | | | | | | | |
Property and equipment, net | | | 936,290 | | | | 943,062 | |
| | | | | | | | |
Intangible assets, net | | | 18,434 | | | | 19,249 | |
Goodwill | | | 85,843 | | | | 85,789 | |
Other assets, net | | | 115,294 | | | | 100,237 | |
| | | | | | | | |
| | $ | 1,455,910 | | | $ | 1,498,418 | |
| | | | | | | | |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | | | | | | |
Current maturities of long-term debt | | $ | 67,977 | | | $ | 2,331 | |
Accounts payable | | | 63,620 | | | | 99,708 | |
Accrued liabilities | | | 206,100 | | | | 213,631 | |
| | | | | | | | |
Total current liabilities | | | 337,697 | | | | 315,670 | |
| | | | | | | | |
Long-term debt, net of current maturities | | | 357,270 | | | | 516,250 | |
Other long-term liabilities | | | 234,190 | | | | 161,277 | |
Deferred income taxes | | | 2,264 | | | | 48,110 | |
Stockholders’ equity: | | | | | | | | |
Preferred stock $.01 par value, 15,000,000 authorized, none issued | | | — | | | | — | |
Common stock $.01 par value, 175,000,000 shares authorized, 73,987,070 and 73,506,049 issued, respectively | | | 740 | | | | 735 | |
Capital in excess of par value | | | 169,440 | | | | 155,023 | |
Retained earnings | | | 912,210 | | | | 795,657 | |
Accumulated other comprehensive loss, net | | | (83,442 | ) | | | (19,845 | ) |
Treasury stock, at cost, 16,726,032 shares | | | (474,459 | ) | | | (474,459 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 524,489 | | | | 457,111 | |
| | | | | | | | |
| | $ | 1,455,910 | | | $ | 1,498,418 | |
| | | | | | | | |
| | | | | | | | |
| | October 3,
| | | September 27,
| |
| | 2010 | | | 2009 | |
|
ASSETS |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 10,607 | | | $ | 53,002 | |
Accounts and other receivables, net | | | 81,150 | | | | 49,036 | |
Inventories | | | 37,391 | | | | 37,675 | |
Prepaid expenses | | | 33,563 | | | | 8,958 | |
Deferred income taxes | | | 46,185 | | | | 44,614 | |
Assets held for sale | | | 59,897 | | | | 99,612 | |
Other current assets | | | 6,129 | | | | 7,152 | |
| | | | | | | | |
Total current assets | | | 274,922 | | | | 300,049 | |
| | | | | | | | |
Property and equipment, at cost: | | | | | | | | |
Land | | | 101,206 | | | | 101,576 | |
Buildings | | | 965,312 | | | | 936,351 | |
Restaurant and other equipment | | | 437,547 | | | | 506,185 | |
Construction in progress | | | 58,664 | | | | 58,135 | |
| | | | | | | | |
| | | 1,562,729 | | | | 1,602,247 | |
Less accumulated depreciation and amortization | | | (684,690 | ) | | | (665,957 | ) |
| | | | | | | | |
Property and equipment, net | | | 878,039 | | | | 936,290 | |
| | | | | | | | |
Intangible assets, net | | | 17,986 | | | | 18,434 | |
Goodwill | | | 85,041 | | | | 85,843 | |
Other assets, net | | | 151,104 | | | | 115,294 | |
| | | | �� | | | | |
| | $ | 1,407,092 | | | $ | 1,455,910 | |
| | | | | | | | |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | | | | | | |
Current maturities of long-term debt | | $ | 13,781 | | | $ | 67,977 | |
Accounts payable | | | 101,216 | | | | 63,620 | |
Accrued liabilities | | | 168,186 | | | | 206,100 | |
| | | | | | | | |
Total current liabilities | | | 283,183 | | | | 337,697 | |
| | | | | | | | |
Long-term debt, net of current maturities | | | 352,630 | | | | 357,270 | |
Other long-term liabilities | | | 250,440 | | | | 234,190 | |
Deferred income taxes | | | 376 | | | | 2,264 | |
Stockholders’ equity: | | | | | | | | |
Preferred stock $.01 par value, 15,000,000 shares authorized, none issued | | | - | | | | - | |
Common stock $.01 par value, 175,000,000 shares authorized, 74,461,632 and 73,987,070 issued, respectively | | | 745 | | | | 740 | |
Capital in excess of par value | | | 187,544 | | | | 169,440 | |
Retained earnings | | | 982,420 | | | | 912,210 | |
Accumulated other comprehensive loss, net | | | (78,787 | ) | | | (83,442 | ) |
Treasury stock, at cost, 21,640,400 and 16,726,032 shares, respectively | | | (571,459 | ) | | | (474,459 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 520,463 | | | | 524,489 | |
| | | | | | | | |
| | $ | 1,407,092 | | | $ | 1,455,910 | |
| | | | | | | | |
See accompanying notes to consolidated financial statements.
F-3
JACK IN THE BOX INC. AND SUBSIDIARIES
(In thousands, except per share data)
| | | | | | | | | | | | |
| | Fiscal Year | |
| | 2009 | | | 2008 | | | 2007 | |
| | (Dollars in thousands, except per share data) | |
|
Revenues: | | | | | | | | | | | | |
Restaurant sales | | $ | 1,975,842 | | | $ | 2,101,576 | | | $ | 2,150,985 | |
Distribution sales | | | 302,135 | | | | 275,225 | | | | 222,560 | |
Franchised restaurant revenues | | | 193,119 | | | | 162,760 | | | | 139,886 | |
| | | | | | | | | | | | |
| | | 2,471,096 | | | | 2,539,561 | | | | 2,513,431 | |
| | | | | | | | | | | | |
Operating costs and expenses: | | | | | | | | | | | | |
Food and packaging costs | | | 640,386 | | | | 701,051 | | | | 685,179 | |
Payroll and employee benefits | | | 587,551 | | | | 624,600 | | | | 644,283 | |
Occupancy and other | | | 428,509 | | | | 438,492 | | | | 436,588 | |
| | | | | | | | | | | | |
Company restaurant costs | | | 1,656,446 | | | | 1,764,143 | | | | 1,766,050 | |
Distribution costs of sales | | | 300,934 | | | | 273,369 | | | | 220,240 | |
Franchised restaurant costs | | | 78,414 | | | | 64,955 | | | | 56,491 | |
Selling, general and administrative expenses | | | 282,676 | | | | 287,555 | | | | 291,745 | |
Gains on the sale of company-operated restaurants | | | (78,642 | ) | | | (66,349 | ) | | | (38,091 | ) |
| | | | | | | | | | | | |
| | | 2,239,828 | | | | 2,323,673 | | | | 2,296,435 | |
| | | | | | | | | | | | |
Earnings from operations | | | 231,268 | | | | 215,888 | | | | 216,996 | |
Interest expense | | | 22,155 | | | | 28,070 | | | | 32,127 | |
Interest income | | | (1,388 | ) | | | (642 | ) | | | (8,792 | ) |
| | | | | | | | | | | | |
Interest expense, net | | | 20,767 | | | | 27,428 | | | | 23,335 | |
Earnings before income taxes | | | 210,501 | | | | 188,460 | | | | 193,661 | |
Income taxes | | | 79,455 | | | | 70,251 | | | | 68,982 | |
| | | | | | | | | | | | |
Earnings from continuing operations | | | 131,046 | | | | 118,209 | | | | 124,679 | |
Earnings (losses) from discontinued operations, net | | | (12,638 | ) | | | 1,070 | | | | 904 | |
| | | | | | | | | | | | |
Net earnings | | $ | 118,408 | | | $ | 119,279 | | | $ | 125,583 | |
| | | | | | | | | | | | |
Net earnings per share — basic: | | | | | | | | | | | | |
Earnings from continuing operations | | $ | 2.31 | | | $ | 2.03 | | | $ | 1.91 | |
Earnings (losses) from discontinued operations | | | (0.23 | ) | | | 0.02 | | | | 0.01 | |
| | | | | | | | | | | | |
Net earnings per share | | $ | 2.08 | | | $ | 2.05 | | | $ | 1.92 | |
| | | | | | | | | | | | |
Net earnings per share — diluted: | | | | | | | | | | | | |
Earnings from continuing operations | | $ | 2.27 | | | $ | 1.99 | | | $ | 1.85 | |
Earnings (losses) from discontinued operations | | | (0.22 | ) | | | 0.02 | | | | 0.02 | |
| | | | | | | | | | | | |
Net earnings per share | | $ | 2.05 | | | $ | 2.01 | | | $ | 1.87 | |
| | | | | | | | | | | | |
Weighted-average shares outstanding: | | | | | | | | | | | | |
Basic | | | 56,795 | | | | 58,249 | | | | 65,314 | |
Diluted | | | 57,733 | | | | 59,445 | | | | 67,263 | |
| | | | | | | | | | | | |
| | Fiscal Year | |
| | 2010 | | | 2009 | | | 2008 | |
|
Revenues: | | | | | | | | | | | | |
Company restaurant sales | | $ | 1,668,527 | | | $ | 1,975,842 | | | $ | 2,101,576 | |
Distribution sales | | | 397,977 | | | | 302,135 | | | | 275,225 | |
Franchise revenues | | | 231,027 | | | | 193,119 | | | | 162,760 | |
| | | | | | | | | | | | |
| | | 2,297,531 | | | | 2,471,096 | | | | 2,539,561 | |
| | | | | | | | | | | | |
Operating costs and expenses, net: | | | | | | | | | | | | |
Company restaurant costs: | | | | | | | | | | | | |
Food and packaging | | | 530,613 | | | | 639,916 | | | | 700,755 | |
Payroll and employee benefits | | | 505,138 | | | | 587,551 | | | | 624,600 | |
Occupancy and other | | | 398,066 | | | | 428,979 | | | | 438,788 | |
| | | | | | | | | | | | |
Total company restaurant costs | | | 1,433,817 | | | | 1,656,446 | | | | 1,764,143 | |
Distribution costs | | | 399,707 | | | | 300,934 | | | | 273,369 | |
Franchise costs | | | 104,845 | | | | 78,414 | | | | 64,955 | |
Selling, general and administrative expenses | | | 243,353 | | | | 260,662 | | | | 264,798 | |
Impairment and other charges, net | | | 48,887 | | | | 22,014 | | | | 22,757 | |
Gains on the sale of company-operated restaurants, net | | | (54,988 | ) | | | (78,642 | ) | | | (66,349 | ) |
| | | | | | | | | | | | |
| | | 2,175,621 | | | | 2,239,828 | | | | 2,323,673 | |
| | | | | | | | | | | | |
Earnings from operations | | | 121,910 | | | | 231,268 | | | | 215,888 | |
| | | | | | | | | | | | |
Interest expense, net | | | 15,894 | | | | 20,767 | | | | 27,428 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Earnings from continuing operations and before income taxes | | | 106,016 | | | | 210,501 | | | | 188,460 | |
| | | | | | | | | | | | |
Income taxes | | | 35,806 | | | | 79,455 | | | | 70,251 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Earnings from continuing operations | | | 70,210 | | | | 131,046 | | | | 118,209 | |
| | | | | | | | | | | | |
Earnings (losses) from discontinued operations, net | | | - | | | | (12,638 | ) | | | 1,070 | |
| | | | | | | | | | | | |
Net earnings | | $ | 70,210 | | | $ | 118,408 | | | $ | 119,279 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net earnings per share – basic: | | | | | | | | | | | | |
Earnings from continuing operations | | $ | 1.27 | | | $ | 2.31 | | | $ | 2.03 | |
Earnings (losses) from discontinued operations, net | | | - | | | | (0.23 | ) | | | 0.02 | |
| | | | | | | | | | | | |
Net earnings per share | | $ | 1.27 | | | $ | 2.08 | | | $ | 2.05 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net earnings per share – diluted: | | | | | | | | | | | | |
Earnings from continuing operations | | $ | 1.26 | | | $ | 2.27 | | | $ | 1.99 | |
Earnings (losses) from discontinued operations, net | | | - | | | | (0.22 | ) | | | 0.02 | |
| | | | | | | | | | | | |
Net earnings per share | | $ | 1.26 | | | $ | 2.05 | | | $ | 2.01 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Weighted-average shares outstanding: | | | | | | | | | | | | |
Basic | | | 55,070 | | | | 56,795 | | | | 58,249 | |
Diluted | | | 55,843 | | | | 57,733 | | | | 59,445 | |
See accompanying notes to consolidated financial statements.
F-4
JACK IN THE BOX INC. AND SUBSIDIARIES
(Dollars in thousands)
| | | | | | | | | | | | |
| | Fiscal Year | |
| | 2009 | | | 2008 | | | 2007 | |
| | (Dollars in thousands) | |
|
Cash flows from operating activities: | | | | | | | | | | | | |
Net earnings | | $ | 118,408 | | | $ | 119,279 | | | $ | 125,583 | |
Loss (earnings) from discontinued operations, net | | | 12,638 | | | | (1,070 | ) | | | (904 | ) |
| | | | | | | | | | | | |
Net earnings from continuing operations | | | 131,046 | | | | 118,209 | | | | 124,679 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 100,830 | | | | 96,943 | | | | 90,700 | |
Deferred finance cost amortization | | | 1,461 | | | | 1,462 | | | | 1,443 | |
Deferred income taxes | | | (15,331 | ) | | | 6,643 | | | | (14,688 | ) |
Share-based compensation expense | | | 9,341 | | | | 10,566 | | | | 12,640 | |
Pension and postretirement expense | | | 12,243 | | | | 14,433 | | | | 15,777 | |
Losses (gains) on cash surrender value of company-owned life insurance | | | 1,910 | | | | 8,172 | | | | (7,639 | ) |
Gains on the sale of company-operated restaurants, net | | | (78,642 | ) | | | (66,349 | ) | | | (38,091 | ) |
Gains on the acquisition of franchise-operated restaurants | | | (958 | ) | | | — | | | | — | |
Losses on the disposition of property and equipment, net | | | 12,666 | | | | 16,412 | | | | 15,898 | |
Loss on early retirement of debt | | | — | | | | — | | | | 1,939 | |
Impairment charges and other | | | 6,586 | | | | 3,507 | | | | 1,347 | |
Changes in assets and liabilities, excluding acquisitions and dispositions: | | | | | | | | | | | | |
Receivables | | | 3,519 | | | | (9,172 | ) | | | (10,277 | ) |
Inventories | | | 7,596 | | | | (4,452 | ) | | | (4,720 | ) |
Prepaid expenses and other current assets | | | 11,496 | | | | 7,026 | | | | (5,915 | ) |
Accounts payable | | | (14,975 | ) | | | 4,167 | | | | 13,075 | |
Pension and postretirement contributions | | | (26,233 | ) | | | (25,012 | ) | | | (14,795 | ) |
Other | | | (15,231 | ) | | | (15,520 | ) | | | (7,616 | ) |
| | | | | | | | | | | | |
Cash flows provided by operating activities from continuing operations | | | 147,324 | | | | 167,035 | | | | 173,757 | |
| | | | | | | | | | | | |
Cash flows provided by operating activities from discontinued operations | | | 1,426 | | | | 5,349 | | | | 4,764 | |
| | | | | | | | | | | | |
Cash flows provided by operating activities | | | 148,750 | | | | 172,384 | | | | 178,521 | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchases of property and equipment | | | (153,500 | ) | | | (178,605 | ) | | | (148,508 | ) |
Proceeds from the sale of company-operated restaurants | | | 94,927 | | | | 57,117 | | | | 51,256 | |
Purchase of assets held for sale and leaseback, net | | | (36,824 | ) | | | (14,003 | ) | | | (15,396 | ) |
Collections on notes receivable | | | 31,539 | | | | 7,942 | | | | 122 | |
Acquisition of franchise-operated restaurants | | | (6,760 | ) | | | — | | | | (6,960 | ) |
Other | | | (989 | ) | | | (4,857 | ) | | | (4,893 | ) |
| | | | | | | | | | | | |
Cash flows used in investing activities from continuing operations | | | (71,607 | ) | | | (132,406 | ) | | | (124,379 | ) |
| | | | | | | | | | | | |
Cash flows provided by (used in) investing activities from discontinued operations | | | 30,648 | | | | (1,964 | ) | | | (5,674 | ) |
| | | | | | | | | | | | |
Cash flows used in investing activities | | | (40,959 | ) | | | (134,370 | ) | | | (130,053 | ) |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Borrowings on revolving credit facility | | | 541,000 | | | | 650,000 | | | | — | |
Repayments of borrowings on revolving credit facility | | | (632,000 | ) | | | (559,000 | ) | | | — | |
Borrowings under term loan | | | — | | | | — | | | | 475,000 | |
Principal payments on debt | | | (2,334 | ) | | | (5,722 | ) | | | (333,931 | ) |
Payment of debt costs | | | — | | | | — | | | | (7,357 | ) |
Proceeds from issuance of common stock | | | 4,574 | | | | 8,642 | | | | 27,809 | |
Repurchase of common stock | | | — | | | | (100,000 | ) | | | (463,402 | ) |
Excess tax benefits from share-based compensation arrangements | | | 664 | | | | 3,346 | | | | 17,533 | |
Change in book overdraft | | | (14,577 | ) | | | (3,098 | ) | | | 17,676 | |
| | | | | | | | | | | | |
Cash flows used in financing activities | | | (102,673 | ) | | | (5,832 | ) | | | (266,672 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 5,118 | | | | 32,182 | | | | (218,204 | ) |
Cash and cash equivalents at beginning of period | | | 47,884 | | | | 15,702 | | | | 233,906 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 53,002 | | | $ | 47,884 | | | $ | 15,702 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Fiscal Year | |
| | 2010 | | | 2009 | | | 2008 | |
|
Cash flows from operating activities: | | | | | | | | | | | | |
Net earnings | | $ | 70,210 | | | $ | 118,408 | | | $ | 119,279 | |
Losses (earnings) from discontinued operations, net | | | - | | | | 12,638 | | | | (1,070 | ) |
| | | | | | | | | | | | |
Net earnings from continuing operations | | | 70,210 | | | | 131,046 | | | | 118,209 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 101,514 | | | | 100,830 | | | | 96,943 | |
Deferred finance cost amortization | | | 1,658 | | | | 1,461 | | | | 1,462 | |
Deferred income taxes | | | (27,554 | ) | | | (15,331 | ) | | | 6,643 | |
Share-based compensation expense | | | 10,605 | | | | 9,341 | | | | 10,566 | |
Pension and postretirement expense | | | 29,140 | | | | 12,243 | | | | 14,433 | |
Losses (gains) on cash surrender value of company-owned life insurance | | | (6,199 | ) | | | 1,910 | | | | 8,172 | |
Gains on the sale of company-operated restaurants, net | | | (54,988 | ) | | | (78,642 | ) | | | (66,349 | ) |
Gains on the acquisition of franchise-operated restaurants | | | - | | | | (958 | ) | | | - | |
Losses on the disposition of property and equipment, net | | | 10,757 | | | | 11,418 | | | | 17,373 | |
Impairment charges and other | | | 12,970 | | | | 6,586 | | | | 3,507 | |
Loss on early retirement of debt | | | 513 | | | | - | | | | - | |
Changes in assets and liabilities, excluding acquisitions and dispositions: | | | | | | | | | | | | |
Accounts and other receivables | | | (8,174 | ) | | | 3,519 | | | | (9,172 | ) |
Inventories | | | 284 | | | | 7,596 | | | | (4,452 | ) |
Prepaid expenses and other current assets | | | (22,967 | ) | | | 11,496 | | | | 7,026 | |
Accounts payable | | | (2,219 | ) | | | (14,975 | ) | | | 4,167 | |
Pension and postretirement contributions | | | (24,072 | ) | | | (26,233 | ) | | | (25,012 | ) |
Other | | | (27,440 | ) | | | (13,983 | ) | | | (16,481 | ) |
| | | | | | | | | | | | |
Cash flows provided by operating activities from continuing operations | | | 64,038 | | | | 147,324 | | | | 167,035 | |
Cash flows provided by (used in) operating activities from discontinued operations | | | (2,172 | ) | | | 1,426 | | | | 5,349 | |
| | | | | | | | | | | | |
Cash flows provided by operating activities | | | 61,866 | | | | 148,750 | | | | 172,384 | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchases of property and equipment | | | (95,610 | ) | | | (153,500 | ) | | | (178,605 | ) |
Proceeds from the sale of company-operated restaurants | | | 66,152 | | | | 94,927 | | | | 57,117 | |
Proceeds from (purchases of) assets held for sale and leaseback, net | | | 45,348 | | | | (36,824 | ) | | | (14,003 | ) |
Collections on notes receivable | | | 8,322 | | | | 31,539 | | | | 7,942 | |
Acquisition of franchise-operated restaurants | | | (8,115 | ) | | | (6,760 | ) | | | - | |
Other | | | 3,076 | | | | (989 | ) | | | (4,857 | ) |
| | | | | | | | | | | | |
Cash flows provided by (used in) investing activities from continuing operations | | | 19,173 | | | | (71,607 | ) | | | (132,406 | ) |
Cash flows provided by (used in) investing activities from discontinued operations | | | - | | | | 30,648 | | | | (1,964 | ) |
| | | | | | | | | | | | |
Cash flows provided by (used in) investing activities | | | 19,173 | | | | (40,959 | ) | | | (134,370 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Borrowings on revolving credit facility | | | 881,000 | | | | 541,000 | | | | 650,000 | |
Repayments of borrowings on revolving credit facility | | | (721,000 | ) | | | (632,000 | ) | | | (559,000 | ) |
Proceeds from issuance of debt | | | 200,000 | | | | - | | | | - | |
Principal repayments on debt | | | (418,836 | ) | | | (2,334 | ) | | | (5,722 | ) |
Debt issuance costs | | | (9,548 | ) | | | - | | | | - | |
Proceeds from issuance of common stock | | | 5,186 | | | | 4,574 | | | | 8,642 | |
Repurchase of common stock | | | (97,000 | ) | | | - | | | | (100,000 | ) |
Excess tax benefits from share-based compensation arrangements | | | 2,037 | | | | 664 | | | | 3,346 | |
Change in book overdraft | | | 34,727 | | | | (14,577 | ) | | | (3,098 | ) |
| | | | | | | | | | | | |
Cash flows used in financing activities | | | (123,434 | ) | | | (102,673 | ) | | | (5,832 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (42,395 | ) | | | 5,118 | | | | 32,182 | |
Cash and cash equivalents at beginning of period | | | 53,002 | | | | 47,884 | | | | 15,702 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 10,607 | | | $ | 53,002 | | | $ | 47,884 | |
| | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
F-5
JACK IN THE BOX INC. AND SUBSIDIARIES
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated
| | | | | | | | | | | | | | | Accumulated
| | | | | |
| | | | | | Capital in
| | | | Other
| | | | | | | | | | | Capital in
| | | | other
| | | | | |
| | Number of
| | | | Excess of
| | Retained
| | Comprehensive
| | Treasury
| | | | | Number
| | | | excess of
| | Retained
| | comprehensive
| | Treasury
| | | |
| | Shares | | Amount | | par Value | | Earnings | | Loss, Net | | Stock | | Total | | | of shares | | Amount | | par value | | earnings | | loss, net | | stock | | Total | |
| | (Dollars in thousands) | | | | |
| |
Balance at October 1, 2006 | | | 75,640,701 | | | $ | 756 | | | $ | 431,338 | | | $ | 550,795 | | | $ | (1,796 | ) | | $ | (274,459 | ) | | $ | 706,634 | | |
Shares issued under stock plans, including tax benefit | | | 2,374,470 | | | | 24 | | | | 45,685 | | | | — | | | | — | | | | — | | | | 45,709 | | |
Share-based compensation | | | — | | | | — | | | | 12,640 | | | | — | | | | — | | | | — | | | | 12,640 | | |
Reclass of non-management director stock equivalents as equity-based awards | | | — | | | | — | | | | 5,765 | | | | — | | | | — | | | | — | | | | 5,765 | | |
Purchase of treasury stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (100,000 | ) | | | (100,000 | ) | |
Repurchase and retirement of common stock | | | (5,500,000 | ) | | | (55 | ) | | | (363,347 | ) | | | — | | | | — | | | | — | | | | (363,402 | ) | |
Retirement plans’ adjustment in connection with funded status guidance, net | | | — | | | | — | | | | — | | | | — | | | | (24,249 | ) | | | — | | | | (24,249 | ) | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | — | | | | — | | | | — | | | | 125,583 | | | | — | | | | — | | | | 125,583 | | |
Unrealized/realized losses on interest rate swaps, net | | | — | | | | — | | | | — | | | | — | | | | (1,488 | ) | | | — | | | | (1,488 | ) | |
Additional minimum pension liability, net | | | — | | | | — | | | | — | | | | — | | | | 2,393 | | | | — | | | | 2,393 | | |
| | | | | | | | | | | | | | | | |
Total comprehensive income | | | — | | | | — | | | | — | | | | 125,583 | | | | 905 | | | | — | | | | 126,488 | | |
| | | | | | | | | | | | | | | |
Balance at September 30, 2007 | | | 72,515,171 | | | | 725 | | | | 132,081 | | | | 676,378 | | | | (25,140 | ) | | | (374,459 | ) | | | 409,585 | | | | 72,515,171 | | | $ | 725 | | | $ | 132,081 | | | $ | 676,378 | | | $ | (25,140 | ) | | $ | (374,459 | ) | | $ | 409,585 | |
Shares issued under stock plans, including tax benefit | | | 990,878 | | | | 10 | | | | 12,376 | | | | — | | | | — | | | | — | | | | 12,386 | | | | 990,878 | | | | 10 | | | | 12,376 | | | | - | | | | - | | | | - | | | | 12,386 | |
Share-based compensation | | | — | | | | — | | | | 10,566 | | | | — | | | | — | | | | — | | | | 10,566 | | | | - | | | | - | | | | 10,566 | | | | - | | | | - | | | | - | | | | 10,566 | |
Purchase of treasury stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (100,000 | ) | | | (100,000 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | (100,000 | ) | | | (100,000 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | — | | | | — | | | | — | | | | 119,279 | | | | — | | | | — | | | | 119,279 | | | | - | | | | - | | | | - | | | | 119,279 | | | | - | | | | - | | | | 119,279 | |
Unrealized losses on interest rate swaps, net | | | — | | | | — | | | | — | | | | — | | | | (1,984 | ) | | | — | | | | (1,984 | ) | | | - | | | | - | | | | - | | | | - | | | | (1,984 | ) | | | - | | | | (1,984 | ) |
Amortization of unrecognized actuarial gain and prior service cost, net | | | — | | | | — | | | | — | | | | — | | | | 7,279 | | | | — | | | | 7,279 | | | | - | | | | - | | | | - | | | | - | | | | 7,279 | | | | - | | | | 7,279 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | — | | | | — | | | | — | | | | 119,279 | | | | 5,295 | | | | — | | | | 124,574 | | | | - | | | | - | | | | - | | | | 119,279 | | | | 5,295 | | | | - | | | | 124,574 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 28, 2008 | | | 73,506,049 | | | | 735 | | | | 155,023 | | | | 795,657 | | | | (19,845 | ) | | | (474,459 | ) | | | 457,111 | | | | 73,506,049 | | | | 735 | | | | 155,023 | | | | 795,657 | | | | (19,845 | ) | | | (474,459 | ) | | | 457,111 | |
Shares issued under stock plans, including tax benefit | | | 481,021 | | | | 5 | | | | 5,076 | | | | — | | | | — | | | | — | | | | 5,081 | | | | 481,021 | | | | 5 | | | | 5,076 | | | | - | | | | - | | | | - | | | | 5,081 | |
Share-based compensation | | | — | | | | — | | | | 9,341 | | | | — | | | | — | | | | — | | | | 9,341 | | | | - | | | | - | | | | 9,341 | | | | - | | | | - | | | | - | | | | 9,341 | |
Change in pension and postretirement plans’ measurement date, net | | | — | | | | — | | | | — | | | | (1,855 | ) | | | 40 | | | | — | | | | (1,815 | ) | | | - | | | | - | | | | - | | | | (1,855 | ) | | | 40 | | | | - | | | | (1,815 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | — | | | | — | | | | — | | | | 118,408 | | | | — | | | | — | | | | 118,408 | | | | - | | | | - | | | | - | | | | 118,408 | | | | - | | | | - | | | | 118,408 | |
Unrealized gains on interest rate swaps, net | | | — | | | | — | | | | — | | | | — | | | | 21 | | | | — | | | | 21 | | | | - | | | | - | | | | - | | | | - | | | | 21 | | | | - | | | | 21 | |
Amortization of unrecognized actuarial loss and prior service cost, net | | | — | | | | — | | | | — | | | | — | | | | (63,658 | ) | | | — | | | | (63,658 | ) | | | - | | | | - | | | | - | | | | - | | | | (63,658 | ) | | | - | | | | (63,658 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | — | | | | — | | | | — | | | | 118,408 | | | | (63,637 | ) | | | — | | | | 54,771 | | | | - | | | | - | | | | - | | | | 118,408 | | | | (63,637 | ) | | | - | | | | 54,771 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 27, 2009 | | | 73,987,070 | | | $ | 740 | | | $ | 169,440 | | | $ | 912,210 | | | $ | (83,442 | ) | | $ | (474,459 | ) | | $ | 524,489 | | | | 73,987,070 | | | | 740 | | | | 169,440 | | | | 912,210 | | | | (83,442 | ) | | | (474,459 | ) | | | 524,489 | |
Shares issued under stock plans, including tax benefit | | | | 474,562 | | | | 5 | | | | 7,499 | | | | - | | | | - | | | | - | | | | 7,504 | |
Share-based compensation | | | | - | | | | - | | | | 10,605 | | | | - | | | | - | | | | - | | | | 10,605 | |
Purchase of treasury stock | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (97,000 | ) | | | (97,000 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | | - | | | | - | | | | - | | | | 70,210 | | | | - | | | | - | | | | 70,210 | |
Unrealized gains on interest rate swaps, net | | | | - | | | | - | | | | - | | | | - | | | | 2,401 | | | | - | | | | 2,401 | |
Amortization of unrecognized actuarial loss and prior service cost, net | | | | - | | | | - | | | | - | | | | - | | | | 2,254 | | | | - | | | | 2,254 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | - | | | | - | | | | - | | | | 70,210 | | | | 4,655 | | | | - | | | | 74,865 | |
| | | | | | | | | | | | | | | | |
Balance at October 3, 2010 | | | | 74,461,632 | | | $ | 745 | | | $ | 187,544 | | | $ | 982,420 | | | $ | (78,787 | ) | | $ | (571,459 | ) | | $ | 520,463 | |
| | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
F-6
JACK IN THE BOX INC. AND SUBSIDIARIES
| |
1. | ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of operations— Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchisesJack in the Box® quick-service restaurants and Qdoba Mexican Grill® (“Qdoba”) fast-casual restaurants in 45 states. The following summarizes the number of restaurants:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Jack in the Box: | | | | | | | | | | | | | | | | | | | | | | | | |
Company-operated | | | 1,190 | | | | 1,346 | | | | 1,436 | | | | 956 | | | | 1,190 | | | | 1,346 | |
Franchised | | | 1,022 | | | | 812 | | | | 696 | | | | 1,250 | | | | 1,022 | | | | 812 | |
| | | | | | | | | | | | | | |
Total system | | | 2,212 | | | | 2,158 | | | | 2,132 | | | | 2,206 | | | | 2,212 | | | | 2,158 | |
| | | | | | | | | | | | | | |
Qdoba: | | | | | | | | | | | | | | | | | | | | | | | | |
Company-operated | | | 157 | | | | 111 | | | | 90 | | | | 188 | | | | 157 | | | | 111 | |
Franchised | | | 353 | | | | 343 | | | | 305 | | | | 337 | | | | 353 | | | | 343 | |
| | | | | | | | | | | | | | |
Total system | | | 510 | | | | 454 | | | | 395 | | | | 525 | | | | 510 | | | | 454 | |
| | | | | | | | | | | | | | |
References to the Company throughout these notes to the consolidated financial statements are made using the first person notations of “we,” “us” and “our.”
Basis of presentation— The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission (“SEC”). During fiscal 2009, we sold all of our Quick Stuff® convenience stores and fuel stations. These stores and their related activities have been presented as discontinued operations for all periods presented. Refer to Note 2,Discontinued Operations, for additional information. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate to our continuing operations.
Principles of consolidation— The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the accounts of any variable interest entities where we are deemed the primary beneficiary. All significant intercompany transactions are eliminated.
Reclassifications and adjustments— Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the fiscal 2009 presentation, including the separation2010 presentation. In 2010, we separated impairment and other charges, net from selling, general and administrative expenses in our consolidated statements of restaurant operating costs into two components; payroll and employee benefits, and occupancy and other.earnings. We believe the additional detail provided is useful when analyzing the operatingour results of our restaurants.operations.
Fiscal year— Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years2010 includes 53 weeks while fiscal 2009 2008 and 20072008 include 52 weeks.
Use of estimates— In preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates.
Cash and cash equivalents— We invest cash in excess of operating requirements in short-term, highly liquid investments with original maturities of three months or less, which are considered cash equivalents.
Accounts and other receivables, netis primarily comprised of receivables from franchisees, tenants and credit card processors. Franchisee receivables primarily include rents, royalties, and marketing fees associated with the franchise agreements, and receivables arising from distribution services provided to most franchisees. Tenant receivables relate to subleased properties where we are on the master lease agreement. We charge interest on past due accounts receivable and accrue interest on notes receivable based on the contractual terms. The allowance for doubtful accounts is based on historical experience and a review of existing receivables.
F-7
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
doubtful accounts is based on historical experience and a review of existing receivables. Changes in accounts and other receivables are classified as an operating activity in the consolidated statements of cash flows.
Inventoriesare valued at the lower of cost or market on afirst-in, first-out basis. Changes in inventories are classified as an operating activity in the consolidated statements of cash flows.
Assets held for saletypically represent the costs for new sites and existing sites that we plan to sell and lease back within the next year. Gains or losses realized on sale-leaseback transactions are deferred and amortized to income over the lease terms. Assets held for sale also includes the net book value of equipment we plan to sell to franchisees and assets sold in connection with our disposition of our Quick Stuff convenience and fuel stores.franchisees. Assets are not depreciated when classified as held for sale. Assets held for sale consisted of the following at each year-end:
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Sites held for sale and leaseback | | $ | 99,612 | | | $ | 62,309 | | | $ | 55,224 | | | $ | 99,612 | |
Quick Stuff assets held for sale | | | — | | | | 49,656 | | |
Assets held for sale to franchisees | | | — | | | | 1,029 | | |
| | | | | | |
Assets held for sale | | $ | 99,612 | | | $ | 112,994 | | | | 4,673 | | | | - | |
| | | | | | | | | | |
| | | $ | 59,897 | | | $ | 99,612 | |
| | | | | | |
Property and equipment, at cost— Expenditures for new facilities and equipment, and those that substantially increase the useful lives of the property, are capitalized. Facilities leased under capital leases are stated at the present value of minimum lease payments at the beginning of the lease term, not to exceed fair value. Maintenance and repairs are expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and gains or losses on the dispositions are reflected in results of operations.
Buildings, equipment, and leasehold improvements are generally depreciated using the straight-line method based on the estimated useful lives of the assets, over the initial lease term for certain assets acquired in conjunction with the lease commencement for leased properties, or the remaining lease term for certain assets acquired after the commencement of the lease for leased properties. In certain situations, one or more option periods may be used in determining the depreciable life of assets related to leased properties if we deem that an economic penalty would be incurred otherwise. In either circumstance, our policy requires lease term consistency when calculating the depreciation period, in classifying the lease and in computing straight-line rent expense. Building and leasehold improvement assets are assigned lives that range from three to 35 years, and equipment assets are assigned lives that range from two to 35 years. Depreciation and amortization expense related to property and equipment was $101.0 million, $100.5 million and $96.7 million in 2010, 2009 and 2008, respectively.
Impairment of long-lived assets— We evaluate our long-lived assets, such as property and equipment, for impairment whenever indicators of impairment are present. This review generally includes a restaurant-level analysis, except when we are actively selling a group of restaurants in which case we perform our impairment evaluations at the group level. Impairment evaluations for individual restaurants take into consideration a restaurant’s operating cash flows, the period of time since a restaurant has been opened or remodeled, refranchising expectations, and the maturity of the related market. Impairment evaluations for a group of restaurants takes into consideration the group’s expected future cash flows and sales proceeds from bids received, if any, or fair market value based on, among other considerations, the specific sales and cash flows of those restaurants. If the assets of a restaurant or group of restaurants subject to our impairment evaluation are not recoverable based upon the forecasted, undiscounted cash flows, we recognize an impairment loss by the amount which the carrying value of the assets exceeds fair value. Long-lived assets that are held for disposal are reported at the lower of their carrying value or fair value, less estimated costs to sell.
Goodwill and intangible assets— Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired. Intangible assets, net is comprised primarily of lease acquisition costs, acquired franchise contract costs and our Qdoba trademark. Lease acquisition costs primarily represent the fair
F-8
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
values of acquired lease contracts having contractual rents lower than fair market rents and are amortized on a straight-line
F-8
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
basis over the remaining initial lease term, generally 18 years.term. Acquired franchise contract costs, which represent the acquired value of franchise contracts, are amortized over the term of the franchise agreements, generally 10 years, based on the projected royalty revenue stream. Our trademark asset, recorded in connection with our acquisition of Qdoba Restaurant Corporation in fiscal 2003, has an indefinite life and is not amortized.
Goodwill andnon-amortizable intangible assets not subject to amortization are evaluated for impairment annually, or more frequently if indicators of impairment are present. If the determined fair values of these assets are less than the related carrying amounts, an impairment loss is recognized. We performed our annual impairment tests of goodwill andnon-amortized intangible assets in the fourth quarter of fiscal 20092010 and determined there was no impairment.
Company-owned life insurance— We have purchased company-owned life insurance (“COLI”) policies to support our non-qualified benefit plans. The cash surrender values of these policies were $66.9$75.8 million and $65.3$66.9 million as of October 3, 2010 and September 27, 2009, and September 28, 2008, respectively, and are included in other assets, net in the accompanying consolidated balance sheets. Changes in cash surrender values are included in selling, general and administrative expenses in the accompanying consolidated statements of earnings. These policies reside in an umbrella trust for use only to pay plan benefits to participants or to pay creditors if the Company becomes insolvent. As of October 3, 2010 and September 27, 2009, and September 28, 2008, the trust also included cash of $0.5 million and $1.4 million, in both years.respectively.
Leases— We review all leases for capital or operating classification at their inception under the Financial Accounting Standards Board (“FASB”) authoritative guidance for leases. Our operations are primarily conducted under operating leases. Within the provisions of certain leases, there are rent holidays and escalations in payments over the base lease term, as well as renewal periods. The effects of the holidays and escalations have been reflected in rent expense on a straight-line basis over the expected lease term. Differences between amounts paid and amounts expensed are recorded as deferred rent. The lease term commences on the date when we have the right to control the use of the leased property. Certain leases also include contingent rent provisions based on sales levels, which are accrued at the point in time we determine that it is probable such sales levels will be achieved.
Retirement plans — In fiscal 2007, we adopted the authoritative guidance issued by the FASB which required an employer to recognize in its statement of financial position the funded status of a benefit plan and recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise but are not recognized as components of net periodic benefit costs pursuant to prior existing guidance. The adoption resulted in an after-tax adjustment to accumulated other comprehensive income (loss) of $20.2 million related to a reclassification of unrecognized actuarial gains and losses from assets and liabilities to a component of accumulated other comprehensive income (loss), as well as a requirement to recognize over and under funding of our pension and post-retirement health plans.
On September 29, 2008, we adopted the authoritative guidance issued by the FASB, which requires that companies measure their retirement plan assets and benefit obligations at the end of their fiscal year. Refer to Note 11,Retirement Plans, for additional information and disclosures related to our defined benefit and post retirement plans.
Fair value measurements — On September 29, 2008, we adopted the authoritative guidance issued by the FASB, which defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements, for our financial assets and liabilities. The adoption did not have a material impact on our consolidated financial statements. As permitted by the authoritative guidance, we elected to defer the fair value guidance for our non-financial assets and liabilities until the first quarter of fiscal 2010. Refer to Note 5,Fair Value Measurements, for disclosure related to our financial assets and liabilities measured at fair value.
Franchise arrangements— Franchise arrangements generally provide for franchise fees and continuing fees based upon a percentage of sales. Among other things, a franchisee may be provided the use of land and building, generally for a period of 20 years, and is required to pay negotiated rent, property taxes, insurance and maintenance. In order to renew a franchise agreement upon expiration, a franchisee must obtain the Company’s approval and pay then current fees. Expenses associated with the issuance of the franchise are expensed as incurred.
F-9
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue recognition— Revenue from company restaurant sales areis recognized when the food and beverage products are sold and are presented net of sales taxes.
We provide purchasing, warehouse and distribution services for most of our franchise-operated restaurants. Revenue from these services, included in distribution sales in the accompanying consolidated statements of earnings, is recognized at the time of physical delivery of the inventory.
Our franchise arrangements generally provide for franchise fees and continuing fees based upon a percentage of sales (“royalties”). In order to renew a franchise agreement upon expiration, a franchisee must obtain the Company’s approval and pay then current fees. Franchise fees are recorded as revenue when we have substantially performed all of our contractual obligations. Franchise royalties are recorded in revenues on an accrual basis. Among other things, a franchisee may be provided the use of land and building, generally for a period of 20 years, and is required to pay negotiated rent, property taxes, insurance and maintenance. Certain franchise rents, which are contingent upon sales levels, are recognized in the period in which the contingency is met. In addition, we recognize gains from the sale of company-operated restaurants to franchisees which are recorded when the sales are consummated and certain other gain recognition criteria are met and are presented as a reduction of operating costs and expenses in the accompanying consolidated statements of earnings.
The following is a summary of initial franchise fees received and gains recognized on the sale of restaurants to franchisees(dollars in thousands):
| | | | | | | | | | | | |
| | 2009 | | | 2008 | | | 2007 | |
|
Number of restaurants sold to franchisees | | | 194 | | | | 109 | | | | 76 | |
Number of new restaurants opened by franchisees | | | 59 | | | | 71 | | | | 93 | |
| | | | | | | | | | | | |
Initial franchise fees received | | $ | 10,538 | | | $ | 7,303 | | | $ | 6,355 | |
| | | | | | | | | | | | |
Cash proceeds from the sale of company-operated restaurants | | $ | 94,927 | | | $ | 57,117 | | | $ | 51,256 | |
Notes receivable(1) | | | 21,575 | | | | 27,928 | | | | — | |
Net assets sold (primarily property and equipment) | | | (35,378 | ) | | | (16,864 | ) | | | (11,995 | ) |
Goodwill related to the sale of company-operated restaurants | | | (2,482 | ) | | | (1,832 | ) | | | (1,170 | ) |
| | | | | | | | | | | | |
Gains on the sale of company-operated restaurants(2) | | $ | 78,642 | | | $ | 66,349 | | | $ | 38,091 | |
| | | | | | | | | | | | |
| | |
(1) | | Temporary financing was provided to franchisees to facilitate the closing of certain refranchising transactions. |
|
(2) | | In 2009, we recognized a loss of $2.4 million relating to the anticipated sale of a lower-performingJack in the Box company-operated market. |
Gift cards— We sell gift cards to our customers in our restaurants and through selected third parties. The gift cards sold to our customers have no stated expiration dates and are subject to actualand/or potential escheatment rights in several of the jurisdictions in which we operate. We recognize income from gift cards when redeemed by the customer.
F-9
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
While we will continue to honor all gift cards presented for payment, we may determine the likelihood of redemption to be remote for certain card balances due to, among other things, long periods of inactivity. In these circumstances, to the extent we determine there is no requirement for remitting balances to government agencies under unclaimed property laws, card balances may be recognized as a reduction to selling, general and administrative expenses in the accompanying consolidated statements of earnings.
Income recognized on unredeemed gift card balances was $0.7 million in fiscal 2010 and 2009 and $1.0 million in fiscal 2009 and 2008, respectively. No income from unredeemed gift cards (“breakage”) was recognized prior to fiscal 2008 due to, among other things, insufficient gift card history necessary to estimate our potential breakage.2008.
Pre-opening costsassociated with the opening of a new restaurant consist primarily of employee training costs and are expensed as incurred.incurred and are included in selling, general and administrative expenses in the accompanying consolidated statements of earnings.
Restaurant closure costs— All costs associated with exit or disposal activities are recognized when they are incurred. Restaurant closure costs, which are included in selling, generalimpairment and administrative expenses,other charges, net in the accompanying consolidated statements of earnings, consist of future lease commitments, net of anticipated sublease rentals, and expected ancillary costs.
F-10
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Self-insurance— We are self-insured for a portion of our workers’ compensation, general liability, automotive, and employee medical and dental claims. We utilize a paid-loss plan for our workers’ compensation, general liability and automotive programs, which have predetermined loss limits per occurrence and in the aggregate. We establish our insurance liability and reserves using independent actuarial estimates of expected losses for determining reported claims and as the basis for estimating claims incurred but not reported.
Advertising costs— We maintainadminister marketing funds which includeincluded contractual contributions of approximately 5% and 1% of sales at all franchise and company-operatedJack in the Box and Qdoba restaurants, respectively,respectively. We record contributions from franchisees as wella liability included in accrued expenses in the accompanying consolidated balance sheets until such funds are expended. As the contributions to the marketing funds are designated for advertising, we act as contractual marketing fees paid monthly by franchisees. an agent for the franchisees with regard to these contributions. Therefore, we do not reflect franchisee contributions to the funds in our consolidated statements of earnings or cash flows.
Production costs of commercials, programming and other marketing activities are charged to the marketing funds when the advertising is first used for its intended purpose, and the costs of advertising are charged to operations as incurred. OurTotal contributions to the marketing funds and other marketing expenses, which are included in selling, general, and administrative expenses in the accompanying consolidated statements of earnings, were $89.8 million, $100.1 million and $106.9 million in 2010, 2009 and $109.5 million in 2009, 2008, and 2007, respectively.
Share-based compensation— At the beginning of fiscal 2006, we adopted the fair value recognition provisionsWe account for our share-based compensation as required by the FASB authoritative guidance on stock compensation,which generally requires, among other things, that all employee share-based compensation be measured using a fair value method and that the resulting compensation cost be recognized in the financial statements.
Compensation expense for our share-based compensation awards is generally recognized on a straight-line basis during the service period of the respective grant. Certain awards accelerate vesting upon the recipient’s retirement from the Company. In these cases, for awards granted prior to October 3, 2005, we recognize compensation costs over the service period and accelerate any remaining unrecognized compensation when the employee retires. For awards granted after October 2, 2005, we recognize compensation costs over the shorter of the vesting period or the period from the date of grant to the date the employee becomes eligible to retire. For awards granted prior to October 3, 2005, had we recognized compensation cost over the shorter of the vesting period or the period from the date of grant to becoming retirement eligible, compensation costs recognized would not have been materially different.
F-10
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes— Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize interest and, when applicable, penalties related to unrecognized tax benefits as a component of our income tax provision.
In fiscal 2007, we adopted the authoritativeAuthoritative guidance issued by the FASB which clarified the accounting for income taxes by prescribingprescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The adoption did not have a material impact on our consolidated financial statements.Refer to Note 10,Income Taxes, for additional information.
Derivative instruments— From time to time, we use commodity derivatives to reduce the risk of price fluctuations related to raw material requirements for commodities such as beef and pork, and we use utility derivatives to reduce the risk of price fluctuations related to natural gas. We also use interest rate swap agreements to manage interest rate exposure. We do not speculate using derivative instruments. We purchase derivative instruments only for the purpose of risk management.
All derivatives are recognized on the consolidated balance sheets at fair value based upon quoted market prices. Changes in the fair values of derivatives are recorded in earnings or other comprehensive income, based on whether the instrument is designated as a hedge transaction. Gains or losses on derivative instruments reported in
F-11
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
other comprehensive income are classified to earnings in the period the hedged item affects earnings. If the underlying hedge transaction ceases to exist, any associated amounts reported in other comprehensive income are reclassified to earnings at that time. Any ineffectiveness is recognized in earnings in the current period. At September 27, 2009, we had two interest rate swaps in effect, no outstanding commodity derivatives and an immaterial amount of utility derivatives. Refer to Note 5,Fair Value Measurements, and Note 6,Derivative Instruments,for additional information regarding our derivative instruments.
Contingencies— We recognize liabilities for contingencies when we have an exposure that indicates it is probable that an asset has been impaired or that a liability has been incurred and the amount of impairment or loss can be reasonably estimated. Our ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates. When the reasonable estimate is a range, the recorded loss will be the best estimate within the range. We record legal settlement costs as those costs are incurred.
Variable interest entities— The FASB authoritative guidance on consolidation requires the primary beneficiary of a variable interest entity to consolidate that entity. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the variable interest entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, because of ownership, contractual or other financial interests in the entity. Refer to Note 15,Variable Interest Entities, for additional information regarding our
The primary entities in which we possess a variable interest are franchise entities, which operate our franchise restaurants. We do not possess any ownership interests in franchise entities. We have reviewed these franchise entities and determined that we are not the primary beneficiary of the entities and therefore, these entities have not been consolidated.
Segment reporting— An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by our chief operating decision makers in deciding how to allocate resources. Similar operating segments can be aggregated into a single operating segment if the businesses are similar. We operate our business in two operating segments, Jack inthe BoxJack in the Box and Qdoba. Refer to Note 17,16,Segment Reporting, for additional discussion regarding our segments.
F-11
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effect of new accounting pronouncements— In June 2009, FASB establishedDecember 2008, the FASB Accounting Standards Codificationtm (“Codification”) to become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities, except for SEC rules and interpretive releases, which is alsoissued authoritative guidance which expands the disclosure requirements about fair value measurements of plan assets for SEC registrants. The Codification does not change GAAP, except in limited circumstances, and the content of the Codification carries the same level of GAAP authority. The GAAP hierarchy has been modified to include only two levels of GAAP: authoritative and nonauthoritative.pension plans. We adopted the Codificationwith guidance in the fourth quarter of fiscal 2009 and as a result, references to legacy GAAP accounting pronouncements2010. The additional disclosures are included in our financial statement disclosures have been modified to reflect plain English descriptions.Note 11,Retirement Plans.
Subsequent events— SubsequentThe Company has evaluated subsequent events have been evaluated through November 19, 2009, the date our financial statementstime of filing thisForm 10-K with the SEC, and determined there were availableno other items to be issued.disclose.
| |
2. | DISCONTINUED OPERATIONS |
In October 2008,2009, we announcedcompleted the decision to sellsale of all 61 of our 61 Quick Stuff convenience stores, which included a major-branded fuel station developed adjacent to a full-sizeJack in the Box restaurant, to maximize the potential of ourJack in the Box and Qdoba brands. The assets and liabilities associated with Quick Stuff were classified as held for sale in the consolidated balance sheet for the fiscal year ended September 28, 2008, and the operating results have been classified as discontinued operations for all periods presented.
In the fourth quarter of fiscal 2009, we completed the sale of all 61 locations. restaurant. We received cash proceeds of $34.4 million and recorded a loss on disposition of $24.3 million, or $15.0 million net of taxes, included in earnings (losses) from discontinued operations, net in the accompanying consolidated statement of earnings for fiscal 2009. The loss on disposition includes an impairment charge of $22.4 million related to building assets retained by us and leased to the buyers as part of the sale agreements. The net assets sold totaled approximately $25.7 million and consisted primarily of property and equipment of $24.8 million.
Revenue and operating income from discontinued operations for fiscal 2009 (through the date of sale) and 2008 were as follows(in thousands):
| | | | | | | | |
| | 2009 | | | 2008 | |
|
Revenue | | $ | 272,202 | | | $ | 461,888 | |
Operating (losses) income | | | (20,439 | ) | | | 1,749 | |
| | | | | | | | |
| |
3. | INITIAL FRANCHISE FEES, REFRANCHISINGS AND ACQUISITIONS |
Initial franchise fees and refranchisings— The following is a summary of initial franchise fees received and gains recognized on the sale of restaurants to franchisees (dollars in thousands):
| | | | | | | | | | | | |
| | 2010 | | | 2009 | | | 2008 | |
|
Number of restaurants sold to franchisees | | | 219 | | | | 194 | | | | 109 | |
Number of new restaurants opened by franchisees | | | 37 | | | | 59 | | | | 71 | |
| | | | | | | | | | | | |
Initial franchise fees received | | $ | 10,218 | | | $ | 10,538 | | | $ | 7,303 | |
| | | | | | | | | | | | |
Cash proceeds from the sale of company-operated restaurants | | $ | 66,152 | | | $ | 94,927 | | | $ | 57,117 | |
Notes receivable | | | 25,809 | | | | 21,575 | | | | 27,928 | |
| | | | | | | | | | | | |
Total proceeds | | | 91,961 | | | | 116,502 | | | | 85,045 | |
Net assets sold (primarily property and equipment) | | | (35,113 | ) | | | (33,007 | ) | | | (16,864 | ) |
Goodwill related to the sale of company-operated restaurants | | | (1,860 | ) | | | (2,482 | ) | | | (1,832 | ) |
| | | | | | | | | | | | |
Gains on the sale of company-operated restaurants | | $ | 54,988 | | | $ | 81,013 | | | $ | 66,349 | |
| | | | | | | | | | | | |
In 2009, we recognized a loss of $2.4 million related to the anticipated sale of a lower performing Jack in the Box company-operated market. This loss was included in gains on the sale of company-operated restaurants, net in the accompanying consolidated statement of earnings.
Franchise acquisitions— We account for the acquisition of franchise restaurants using the purchase method of accounting for business combinations. In 2010, we acquired 16 Qdoba restaurants from a franchisee for net consideration of $8.1 million. The purchase price allocation was based on fair value estimates determined
F-12
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue and operating income from discontinued operations for fiscal 2009 (throughusing significant unobservable inputs (Level 3). The following table provides detail of the date of sale), 2008 and 2007 were as followsallocation ((in thousands)thousands):
| | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 |
|
Revenue | | $ | 272,202 | | | $ | 461,888 | | | $ | 362,547 | |
Operating (losses) income | | | (20,439 | ) | | | 1,749 | | | | 1,500 | |
| | | | |
Property and equipment | | $ | 6,756 | |
Reacquired franchise rights | | | 301 | |
Goodwill | | | 1,058 | |
| | | | |
Total consideration | | $ | 8,115 | |
| | | | |
| | | | |
We account for the acquisition of franchised restaurants using the purchase method of accounting pursuant to the FASB authoritative guidance on business combinations. During the quarter ended January 18,In 2009, we acquired 22 Qdoba restaurants from franchisees for net consideration of $6.8 million. The total purchase price was allocated to property and equipment, goodwill and other income.income (included in selling, general and administrative expenses in the accompanying consolidated statement of earnings).
| |
4. | GOODWILL AND INTANGIBLE ASSETS, NET |
The changes in the carrying amount of goodwill during 20092010 and 20082009 by operating segment were as follows(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Jack in the Box | | Qdoba | | Total | | | Jack in the Box | | Qdoba | | Total | |
| |
Balance at September 30, 2007 | | $ | 58,824 | | | $ | 28,797 | | | $ | 87,621 | | |
Sale of company-operated restaurants to franchisees | | | (1,832 | ) | | | — | | | | (1,832 | ) | |
| | | | | | | |
Balance at September 28, 2008 | | | 56,992 | | | | 28,797 | | | | 85,789 | | | $ | 56,992 | | | $ | 28,797 | | | $ | 85,789 | |
Acquisition of franchised restaurants | | | — | | | | 2,536 | | | | 2,536 | | | | - | | | | 2,536 | | | | 2,536 | |
Sale of company-operated restaurants to franchisees | | | (2,482 | ) | | | — | | | | (2,482 | ) | | | (2,482 | ) | | | - | | | | (2,482 | ) |
| | | | | | | | | | | | | | |
Balance at September 27, 2009 | | $ | 54,510 | | | $ | 31,333 | | | $ | 85,843 | | | | 54,510 | | | | 31,333 | | | | 85,843 | |
Acquisition of franchised restaurants | | | | - | | | | 1,058 | | | | 1,058 | |
Sale of company-operated restaurants to franchisees | | | | (1,860 | ) | | | - | | | | (1,860 | ) |
| | | | | | | | | | | | | | |
Balance at October 3, 2010 | | | $ | 52,650 | | | $ | 32,391 | | | $ | 85,041 | |
| | | | | | | | |
Intangible assets, net consist of the following as of October 3, 2010 and September 27, 2009 and September 28, 2008(in thousands):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Amortized intangible assets: | | | | | | | | | | | | | | | | |
Gross carrying amount | | $ | 17,679 | | | $ | 19,249 | | | $ | 17,035 | | | $ | 17,679 | |
Less accumulated amortization | | | (8,045 | ) | | | (8,800 | ) | | | (7,849 | ) | | | (8,045 | ) |
| | | | | | | | | | |
Net carrying amount | | | 9,634 | | | | 10,449 | | | | 9,186 | | | | 9,634 | |
| | | | | | | | | | |
Unamortized intangible assets: | | | | | | | | | |
Non-amortized intangible assets: | | | | | | | | | |
Trademark | | | 8,800 | | | | 8,800 | | | | 8,800 | | | | 8,800 | |
| | | | | | | | | | |
Net carrying amount | | $ | 18,434 | | | $ | 19,249 | | | $ | 17,986 | | | $ | 18,434 | |
| | | | | | | | | | |
Amortized intangible assets include lease acquisition costs and acquired franchise contracts. The weighted-average life of the amortized intangible assets is approximately 2620 years. Total amortization expense related to intangible assets was $0.8 million, $0.8 million, and $0.9$0.7 million in fiscal years2010 and $0.8 million in fiscal 2009 2008 and 2007, respectively.2008.
The following table summarizes, as of October 3, 2010, the estimated amortization expense for each of the next five fiscal years(in thousands):
| | | | |
Fiscal Year | | | |
|
2011 | | $ | 780 | |
2012 | | | 769 | |
2013 | | | 735 | |
2014 | | | 702 | |
2015 | | | 688 | |
| | | | |
Total | | $ | 3,674 | |
| | | | |
F-13
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes, as of September 27, 2009, the estimated amortization expense for each of the next five fiscal years(in thousands):
| | | | |
Fiscal Year | | | |
|
2010 | | $ | 734 | |
2011 | | | 733 | |
2012 | | | 721 | |
2013 | | | 687 | |
2014 | | | 658 | |
| | | | |
Total | | $ | 3,533 | |
| | | | |
| |
5. | FAIR VALUE MEASUREMENTS |
Financial assets and liabilities— The following table presents the financial assets and liabilities measured at fair value on a recurring basis as of September 27, 2009October 3, 2010 (in thousands):
| | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements | |
| | | | | Quoted Prices
| | | | | | | |
| | | | | in Active
| | | | | | Significant
| |
| | | | | Markets for
| | | Significant Other
| | | Unobservable
| |
| | September 27,
| | | Identical Assets
| | | Observable Inputs
| | | Inputs
| |
| | 2009 | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
|
Interest rate swaps(1) (Note 6) | | $ | 4,615 | | | $ | — | | | $ | 4,615 | | | $ | — | |
Non-qualified deferred compensation plan(2) | | | 34,194 | | | | 34,194 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total liabilities at fair value | | $ | 38,809 | | | $ | 34,194 | | | $ | 4,615 | | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements | |
| | | | | Quoted Prices
| | | | | | | |
| | | | | in Active
| | | Significant
| | | | |
| | | | | Markets for
| | | Other
| | | | |
| | | | | Identical
| | | Observable
| | | Significant
| |
| | | | | Assets
| | | Inputs
| | | Unobservable Inputs
| |
| | Total | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| |
|
Non-qualified deferred compensation plan (1) | | $ | 36,011 | | | $ | 36,011 | | | $ | - | | | $ | - | |
Interest rate swaps (Note 6) (2) | | | 733 | | | | - | | | | 733 | | | | - | |
| | | | | | | | | | | | | | | | |
Total liabilities at fair value | | $ | 36,744 | | | $ | 36,011 | | | $ | 733 | | | $ | - | |
| | | | | | | | | | | | | | | | |
| | |
(1) | | We entered into interest rate swaps to reduce our exposure to rising interest rates on our variable debt. The fair value of our interest rate swaps are based upon valuation models as reported by our counterparties. |
|
(2) | | We maintain an unfunded defined contribution plan for key executives and other members of management excluded from participation in our qualified savings plan. The fair value of this obligation is based on the closing market prices of the participants’ elected investments. |
|
(2) | | We entered into interest rate swaps to reduce our exposure to rising interest rates on our variable debt. The fair value of our interest rate swaps are based upon valuation models as reported by our counterparties. |
The fair values of cash and cash equivalents, accounts and other receivables, accounts payable and accrued liabilities approximate their 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. At September 27, 2009, the fair value of our term loan approximated $402.6 million compared with its carrying value of $415.0 million. The estimated fair values of our term loan and capital lease obligations approximated their carrying values as of September 27, 2009.October 3, 2010.
Non-financial assets and liabilities— The Company’s non-financial instruments, which primarily consist of goodwill, intangible assets and property and equipment, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable (at least annually for goodwill and semi-annually for property and equipment), non-financial instruments are assessed for impairment and, if applicable, written down to fair value.
In connection with our semi-annual property and equipment impairment reviews and the closure of 40 Jack in the Box company-operated restaurants prior to the end of the fiscal 2010, long-lived assets having a carrying value of $13.8 million were written down to fair value using significant unobservable inputs (Level 3). The resulting impairment charge of $13.0 million was included in impairment and other charges, net in the accompanying consolidated statement of earnings for the fiscal year ended October 3, 2010.
| |
6. | DERIVATIVE INSTRUMENTS |
Objectives and strategies— We are exposed to interest rate volatility with regard to our variable rate debt. To reduce our exposure to rising interest rates, in March 2007,August 2010, we entered into two interest rate swap agreements that will effectively convert $100.0 million of our variable rate term loan borrowings to a fixed-rate basis beginning September 2011 through September 2014. Previously, we held two interest rate swaps that effectively converted $200.0 million of our variable rate term loan borrowings to a fixed ratefixed-rate basis untilfrom March 2007 to April 1, 2010. These agreements have been designated as cash flow hedges under the terms of the FASB authoritative guidance for derivatives and hedging with effectiveness assessed based onand to the extent that they are effective in offsetting the variability of the hedged cash flows, changes in the presentderivatives’ fair value of the term loan interest payments. As such, the gains or losses on these derivatives are reportednot included in earnings but are included in other comprehensive income (“OCI”)(loss).
F-14
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We are also exposed to the impact of utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs through higher
F-14
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
prices is limited by the competitive environment in which we operate. Therefore, from time to time, we enter into futures and option contracts to manage these fluctuations. These contracts have not been designated as hedging instruments under the FASB authoritative guidance for derivatives and hedging.
Financial position— The following derivative instruments were outstanding as of the end of each period(in thousands):
| | | | | | | | | | | | | | | | | |
| | | October 3, 2010 | | September 27, 2009 | |
| | | | | | | | | | | | | | | |
| | September 27, 2009 | | September 28, 2008 | | | Balance
| | | | Balance
| | | |
| | Balance
| | | | Balance
| | | | | Sheet
| | Fair
| | Sheet
| | Fair
| |
| | Sheet
| | Fair
| | Sheet
| | Fair
| | | Location | | Value | | Location | | Value | |
| | Location | | Value | | Location | | Value | | | |
|
Derivatives designated hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swaps (Note 5) | | Accrued liabilities | | $ | 4,615 | | | Accrued liabilities | | $ | 4,657 | | | | Accrued liabilities | | | $ | 733 | | | | Accrued liabilities | | | $ | 4,615 | |
Derivatives not designated hedging instruments: | | | | | | | | | | | | | |
Natural gas contracts | | Accrued liabilities | | | — | | | Accrued liabilities | | | 840 | | |
| | | | | | | | | | |
Total derivatives | | | | $ | 4,615 | | | | | $ | 5,497 | | | | | | | $ | 733 | | | | | | | $ | 4,615 | |
| | | | | | | | | | |
Financial performance— The following is a summary of the gains or losses recognized on our derivative instruments(in thousands):
| | | | | | | | | | | | | |
| | | Amount of Gain/(Loss)
| |
| | | | | | | | | | | | | Recognized in OCI | |
| | Amount of Gain/(Loss) Recognized in OCI | | 2010 | | 2009 | | 2008 | |
| | 2009 | | 2008 | | 2007 | | |
|
Derivatives in cash flow hedging relationship: | | | | | | | | | | | | | | | | | | | | | |
Interest rate swaps (Note 13) | | $ | 42 | | | $ | (3,210 | ) | | $ | (2,055 | ) | | $ | 3,882 | | | $ | 42 | | | $ | (3,210 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Location of
| | Amount of Loss
| |
| | Location of
| | Amount of Gain/(Loss)
| | Gain/(Loss)
| | Recognized in Income | |
| | Gain/(Loss) | | Recognized in Income | | in Income | | 2010 | | 2009 | | 2008 | |
| | in Income | | 2009 | | 2008 | | 2007 | | |
|
Derivatives not designated hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Natural gas contracts | | | Restaurant operating costs | | | $ | (544 | ) | | $ | (840 | ) | | $ | — | | | | Occupancy and other | | | $ | - | | | $ | (544 | ) | | $ | (840 | ) |
Approximately $4.7 million, $6.2 million, and $2.0 million was reclassified from accumulated other comprehensive income (loss) to interest expense during fiscal years 2010, 2009, and 2008, respectively. These amounts represent payments made to the counterparty for the effective portions of the interest rate swaps that were recognized in accumulated other comprehensive income (loss) and reclassified into earnings as an increase to interest expense for the periods presented. During 2010, 2009 and 2008, our interest rate swaps had no hedge ineffectiveness and no gains or losses were reclassified into net earnings.
F-15
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The detail of long-term debt at each year-end is as follows(in thousands):
| | | | | | | | |
| | 2009 | | | 2008 | |
|
Revolver, variable interest rate based on an applicable margin plus LIBOR | | $ | — | | | $ | 91,000 | |
Term loan, variable interest rate based on an applicable margin plus LIBOR, 1.57% at September 27, 2009 | | | 415,000 | | | | 415,000 | |
Capital lease obligations, 9.97% weighted average interest rate | | | 10,247 | | | | 12,526 | |
Other notes, principally unsecured | | | — | | | | 55 | |
| | | | | | | | |
| | | 425,247 | | | | 518,581 | |
Less current portion | | | (67,977 | ) | | | (2,331 | ) |
| | | | | | | | |
| | $ | 357,270 | | | $ | 516,250 | |
| | | | | | | | |
| | | | | | | | |
| | 2010 | | | 2009 | |
|
Revolver, variable interest rate based on an applicable margin plus LIBOR, 2.79% at October 3, 2010 | | $ | 160,000 | | | $ | - | |
Term loan, variable interest rate based on an applicable margin plus LIBOR, 2.80% at October 3, 2010 | | | 197,500 | | | | 415,000 | |
Capital lease obligations, 10.14% weighted average interest rate | | | 8,911 | | | | 10,247 | |
| | | | | | | | |
| | | 366,411 | | | | 425,247 | |
Less current portion | | | (13,781 | ) | | | (67,977 | ) |
| | | | | | | | |
| | $ | 352,630 | | | $ | 357,270 | |
| | | | | | | | |
New Credit Facility— On June 29, 2010, the Company replaced its existing credit facility — Ourwith a new credit facility intended to provide a more flexible capital structure. The new credit facility is comprised of (i) a $150.0
F-15
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$400.0 million revolving credit facility maturing on December 15, 2011 and (ii) a $200.0 million term loan maturing on December 15, 2012,with a five-year maturity, initially both bearing interest atwith London Interbank Offered Rate (“LIBOR”) plus 1.125%2.50%.As part of the credit agreement, we may also request the issuance of up to $75.0 million in letters of credit, the outstanding amount of which reduces the net borrowing capacity under the agreement. The new credit facility requires the payment of an annual commitment fee based on the unused portion of the credit facility. The credit facility’s interest rates and the annual commitment rate are based on a financial leverage ratio, as defined in the credit agreement. OurAt October 3, 2010, we had borrowings under the revolving credit facility of $160.0 million, $197.5 million outstanding under the term loan and letters of credit outstanding of $34.9 million. Loan origination costs associated with the new credit facility were $9.5 million and are included as deferred costs in other assets, net in the accompanying consolidated balance sheet as of October 3, 2010. Deferred financing fees of $0.5 million related to the prior credit facility were written off and are included in interest expense, net in the accompanying consolidated statements of earnings.
Collateral— The Company’s obligations under the new credit facility are secured by first priority liens and security interests in the capital stock, partnership and membership interests owned by usthe Company and (or) ourits subsidiaries, and any proceeds thereof, subject to certain restrictions set forth in the credit agreement. Additionally, the credit agreement includesthere is a negative pledge on all tangible and intangible assets (including all real and personal property) with customary exceptions. At September 27, 2009, we had no borrowings underexceptions as reflected in the revolving credit facility, $415.0 million outstanding under the term loan and letters of credit outstanding of $35.5 million.agreement.
Covenants— We are subject to a number of customary covenants under our credit facility, including limitations on additional borrowings, acquisitions, loans to franchisees, capital expenditures, lease commitments, stock repurchases, and dividend payments and requirements to maintain certain financial ratios. Following the end of each fiscal year, we may be required to prepay the term debtWe were in compliance with a portion of our excess cash flows for such fiscal year, as defined in the credit agreement. Other events and transactions, such as certain asset sales, may also trigger an additional mandatory prepayment. In connection with the sale of Quick Stuff, we estimate we will be required to make a term loan prepayment of $21.0 million in February 2010, which will be applied to the remaining scheduled principal installments on a pro-rata basis.all covenants at October 3, 2010.
Future cash payments— Scheduled principal payments on our long-term debt for each of the next five fiscal years are as follows(in thousands):
| | | | | | | | |
Fiscal Year | | | | | | |
|
2010 | | $ | 67,977 | | |
2011 | | | 63,060 | | | $ | 13,781 | |
2012 | | | 220,291 | | | | 21,137 | |
2013 | | | 68,409 | | | | 23,478 | |
2014 | | | 931 | | | | 53,430 | |
2015 | | | | 250,901 | |
| | | | | | |
Total principal payments | | $ | 420,668 | | | $ | 362,727 | |
| | | | | | |
We may make voluntary prepayments of the loans under the revolving credit facility and term loan at any time without premium or penalty. Certain events such as asset sales, certain issuances of debt and insurance and condemnation recoveries may trigger a mandatory prepayment.
Capitalized interest— We capitalize interest in connection with the construction of our restaurants and other facilities. Interest capitalized in 2010, 2009 and 2008 and 2007 was $0.3 million, $0.7 million and $0.9 million, and $1.4 million, respectively.
F-16
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Leases Of Lessee Disclosure
As lessee— We lease restaurants and other facilities, which generally have renewal clauses of 5 to 20 years exercisable at our option. In some instances, our leases have provisions for contingent rentals based upon a percentage of defined revenues. Many of our leases also have rent escalation clauses and require the payment of property taxes, insurance and maintenance costs. We also lease certain restaurant, office and warehouse equipment, as well as various transportation equipment. Minimum rental obligations are accounted for on a straight-line basis over the term of the initial lease.
F-16
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of rent expense were as follows in each fiscal year(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Minimum rentals | | $ | 208,091 | | | $ | 199,903 | | | $ | 194,889 | | | $ | 222,600 | | | $ | 208,091 | | | $ | 199,903 | |
Contingent rentals | | | 2,954 | | | | 3,444 | | | | 3,942 | | | | 1,804 | | | | 2,954 | | | | 3,444 | |
| | | | | | | | | | | | | | |
Total rent expense | | | 211,045 | | | | 203,347 | | | | 198,831 | | | | 224,404 | | | | 211,045 | | | | 203,347 | |
Less sublease rentals | | | (61,529 | ) | | | (50,004 | ) | | | (42,308 | ) | | | (83,340 | ) | | | (61,529 | ) | | | (50,004 | ) |
| | | | | | | | | | | | | | |
Net rent expense | | $ | 149,516 | | | $ | 153,343 | | | $ | 156,523 | | | $ | 141,064 | | | $ | 149,516 | | | $ | 153,343 | |
| | | | | | | | | | | | | | |
Future minimum lease payments under capital and operating leases are as follows(in thousands):
| | | | | | | | | | | | | | | | |
| | Capital
| | Operating
| | | Capital
| | Operating
| |
Fiscal Year | | Leases | | Leases | | | Leases | | Leases | |
|
2010 | | $ | 2,293 | | | $ | 203,673 | | |
2011 | | | 2,137 | | | | 195,614 | | | $ | 2,101 | | | $ | 219,414 | |
2012 | | | 1,847 | | | | 186,272 | | | | 1,841 | | | | 209,939 | |
2013 | | | 1,583 | | | | 174,274 | | | | 1,583 | | | | 195,523 | |
2014 | | | 1,430 | | | | 165,429 | | | | 1,426 | | | | 185,697 | |
2015 | | | | 1,309 | | | | 171,073 | |
Thereafter | | | 5,896 | | | | 925,230 | | | | 4,564 | | | | 919,376 | |
| | | | | | | | | | |
Total minimum lease payments | | | 15,186 | | | $ | 1,850,492 | | | | 12,824 | | | $ | 1,901,022 | |
| | | | | | |
Less amount representing interest, 9.97% weighted average interest rate | | | (4,939 | ) | | | | | |
Less amount representing interest, 10.14% weighted average interest rate | | | | (3,913 | ) | | | | |
| | | | | | |
Present value of obligations under capital leases | | | 10,247 | | | | | | | | 8,911 | | | | | |
Less current portion | | | (1,314 | ) | | | | | | | (1,281 | ) | | | | |
| | | | | | |
Long-term capital lease obligations | | $ | 8,933 | | | | | | | $ | 7,630 | | | | | |
| | | | | | |
Total future minimum lease payments have not been reduced by minimum sublease rents of $1,459.9 million$1.2 billion expected to be recovered under our operating subleases.
Assets recorded under capital leases are included in property and equipment and consisted of the following at each year-end(in thousands):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Buildings | | $ | 22,733 | | | $ | 23,049 | | | $ | 22,733 | | | $ | 22,733 | |
Equipment | | | 499 | | | | 16,556 | | | | 16 | | | | 499 | |
| | | | | | | | | | |
| | | 23,232 | | | | 39,605 | | | | 22,749 | | | | 23,232 | |
Less accumulated amortization | | | (15,048 | ) | | | (30,204 | ) | | | (15,340 | ) | | | (15,048 | ) |
| | | | | | | | | | |
| | $ | 8,184 | | | $ | 9,401 | | | $ | 7,409 | | | $ | 8,184 | |
| | | | | | | | | | |
Amortization of assets under capital leases is included in depreciation and amortization expense.
Leases Of Lessor Disclosure
F-17
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As lessor— We lease or sublease restaurants to certain franchisees and others under agreements that generally provide for the payment of percentage rentals in excess of stipulated minimum rentals, usually for a period of 20 years. Most of our leases have rent escalation clauses and renewal clauses of 5 to 20 years. Total rental revenueincome was $133.8 million, $105.5 million $88.6 million and $74.4$88.6 million, including contingent rentals of $7.7 million, $13.0 million and $13.8 million, in 2010, 2009 and $13.9 million, in 2009, 2008, and 2007, respectively.
F-17
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The minimum rents receivable expected to be received under these non-cancelable operating leases, excluding contingent rentals, are as follows(in thousands):
| | | | | | | | |
Fiscal Year | | | | | | |
|
2010 | | $ | 109,792 | | |
2011 | | | 105,659 | | | $ | 122,577 | |
2012 | | | 102,649 | | | | 120,393 | |
2013 | | | 100,216 | | | | 117,872 | |
2014 | | | 99,396 | | | | 117,010 | |
2015 | | | | 116,238 | |
Thereafter | | | 1,111,866 | | | | 1,199,605 | |
| | | | | | |
Total minimum future rentals | | $ | 1,629,578 | | | $ | 1,793,695 | |
| | | | | | |
Assets held for lease consisted of the following at each year-end(in thousands):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Land | | $ | 36,507 | | | $ | 32,837 | | | $ | 49,913 | | | $ | 36,507 | |
Buildings | | | 256,858 | | | | 194,305 | | | | 410,823 | | | | 256,858 | |
Equipment | | | — | | | | 3,497 | | | | 373 | | | | - | |
| | | | | | | | | | |
| | | 293,365 | | | | 230,639 | | | | 461,109 | | | | 293,365 | |
Less accumulated depreciation | | | (140,870 | ) | | | (110,793 | ) | | | (207,616 | ) | | | (140,870 | ) |
| | | | | | | | | | |
| | $ | 152,495 | | | $ | 119,846 | | | $ | 253,493 | | | $ | 152,495 | |
| | | | | | | | | | |
| |
9. | IMPAIRMENT, DISPOSAL OF PROPERTY AND EQUIPMENT, AND RESTAURANT CLOSING IMPAIRMENT CHARGES AND OTHERCOSTS |
In 2009,Impairment— When events and circumstances indicate that our long-lived assets might be impaired and their carrying amount is greater than the undiscounted cash flows we recordedexpect to generate from such assets, we recognize an impairment loss as the amount by which the carrying value exceeds the fair value of the assets. We typically estimate fair value based on the estimated discounted cash flows of the related asset using marketplace participant assumptions. Impairment charges of $0.4 million relatedprimarily relate to the closurewrite-down of fourJack in the Box restaurants and $5.6 million and $0.6 million, respectively, to write-down the carrying value of certain underperforming Jack in the Box and Qdoba restaurants which we continue to operate.operate and restaurants we have closed.
Disposal of property and equipment— We also recognizedrecognize accelerated depreciation and other costs on the disposition of property and equipmentequipment. When we decide to dispose of $12.7 million primarily relating to our restaurant re-image programa long-lived asset, depreciable lives are adjusted based on the estimated disposal date and normal ongoing capital maintenance activity.
In 2008, we recorded impairment charges of $3.5 million primarily related to the write-down of the carrying value of sevenJack in the Box restaurants, which we continue to operate. We also recognized accelerated depreciation and otheris recorded. Other disposal costs onprimarily relate to gains or losses recognized upon the dispositionsale of property and equipment of $16.4 million primarily related to ourclosed restaurant re-image program, which includes a major renovation of our restaurant facilities, a kitchen enhancement projectproperties and normal ongoing capital maintenance activities.
In 2007, we recordedThe following impairment charges of $1.3 million related to the closure of fiveJack in the Box restaurants and the write-down of the carrying value of oneJack in the Box restaurant, which we continued to operate. We also recognized accelerated depreciation and otherdisposal costs on the disposition of property and equipment of $15.9 million primarily relating to our re-image program and capital maintenance activity.
These impairment charges, accelerated depreciation and other costs on the disposition of property and equipment are included in selling, generalimpairment and administrative expensesother charges, net in the accompanying consolidated statements of earnings.earnings (in thousands):
| | | | | | | | | | | | |
| | 2010 | | | 2009 | | | 2008 | |
|
Impairment charges | | $ | 12,970 | | | $ | 6,586 | | | $ | 3,507 | |
Losses on the disposition of property and equipment, net | | $ | 10,757 | | | $ | 11,418 | | | $ | 17,373 | |
F-18
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restaurant closing costsconsist of future lease commitments, net of anticipated sublease rentals and expected ancillary costs, and are included in impairment and other charges, net. Total accrued restaurant closing costs, included in accrued expensesliabilities and other long-term liabilities, changed as follows during 2009 and 2008((in thousands)thousands):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Balance at beginning of year | | $ | 4,712 | | | $ | 5,451 | | | $ | 4,234 | | | $ | 4,712 | |
Additions and adjustments | | | 834 | | | | 654 | | | | 22,362 | | | | 834 | |
Cash payments | | | (1,312 | ) | | | (1,393 | ) | | | (1,576 | ) | | | (1,312 | ) |
| | | | | | | | | | |
Balance at end of year | | $ | 4,234 | | | $ | 4,712 | | | $ | 25,020 | | | $ | 4,234 | |
| | | | | | | | | | |
Additions and adjustments primarily relate to revisions to certain sublease assumptions and the closureclosures of twocertain Jack in the Box restaurants. Additions in 2010 principally relate to the closure of 40 restaurants at the end of the fiscal year which resulted in both 2009 and 2008.future lease commitment charges of $20.3 million.
The fiscal year income taxes consist of the following(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Current: | | | | | | | | | | | | | | | | | | | | | | | | |
Federal | | $ | 91,088 | | | $ | 54,967 | | | $ | 72,781 | | | $ | 55,046 | | | $ | 91,088 | | | $ | 54,967 | |
State | | | 13,442 | | | | 9,061 | | | | 11,485 | | | | 8,314 | | | | 13,442 | | | | 9,061 | |
| | | | | | | | | | | | | | |
| | | 104,530 | | | | 64,028 | | | | 84,266 | | | | 63,360 | | | | 104,530 | | | | 64,028 | |
| | | | | | | | | | | | | | |
Deferred: | | | | | | | | | | | | | | | | | | | | | | | | |
Federal | | | (21,846 | ) | | | 5,202 | | | | (12,827 | ) | | | (24,070 | ) | | | (21,846 | ) | | | 5,202 | |
State | | | (3,229 | ) | | | 1,021 | | | | (2,457 | ) | | | (3,484 | ) | | | (3,229 | ) | | | 1,021 | |
| | | | | | | | | | | | | | |
| | | (25,075 | ) | | | 6,223 | | | | (15,284 | ) | | | (27,554 | ) | | | (25,075 | ) | | | 6,223 | |
| | | | | | | | | | | | | | |
Income tax expense from continuing operations | | $ | 79,455 | | | $ | 70,251 | | | $ | 68,982 | | | $ | 35,806 | | | $ | 79,455 | | | $ | 70,251 | |
| | | | | | | | | | | | | | |
| | |
Income tax expense (benefit) from discontinued operations | | $ | (7,465 | ) | | $ | 679 | | | $ | 1,045 | | | $ | - | | | $ | (7,465 | ) | | $ | 679 | |
| | | | | | | | | | | | | | |
A reconciliation of the federal statutory income tax rate to our effective tax rate is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Computed at federal statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0% | | | | 35.0% | | | | 35.0% | |
State income taxes, net of federal tax benefit | | | 3.2 | | | | 3.3 | | | | 3.5 | | | | 3.2 | | | | 3.2 | | | | 3.3 | |
Benefit of jobs tax credits | | | (0.7 | ) | | | (2.5 | ) | | | (1.1 | ) | | | (1.8 | ) | | | (0.7 | ) | | | (2.5 | ) |
Benefit of research and experimentation credits | | | — | | | | (0.1 | ) | | | (0.2 | ) | |
Benefit of cash surrender value | | | | (2.3 | ) | | | - | | | | (0.1 | ) |
Others, net | | | 0.2 | | | | 1.6 | | | | (1.6 | ) | | | (0.3 | ) | | | 0.2 | | | | 1.6 | |
| | | | | | | | | | | | | | |
| | | 37.7 | % | | | 37.3 | % | | | 35.6 | % | | | 33.8% | | | | 37.7% | | | | 37.3% | |
| | | | | | | | | | | | | | |
F-19
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (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(in thousands):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Deferred tax assets: | | | | | | | | | | | | | | | | |
Accrued pension and postretirement benefits | | $ | 58,256 | | | $ | 23,510 | | | $ | 57,817 | | | $ | 58,256 | |
Accrued insurance | | | 12,676 | | | | 13,952 | | | | 13,603 | | | | 12,676 | |
Leasing transactions | | | 13,304 | | | | 14,057 | | | | 11,290 | | | | 13,304 | |
Accrued vacation pay expense | | | 11,835 | | | | 11,926 | | | | 8,528 | | | | 11,835 | |
Deferred income | | | 2,660 | | | | 2,883 | | | | 2,436 | | | | 2,660 | |
Other reserves and allowances | | | 21,955 | | | | 9,633 | | | | 33,893 | | | | 21,955 | |
Tax loss and tax credit carryforwards | | | 3,924 | | | | 4,257 | | | | 4,087 | | | | 3,924 | |
Share-based compensation | | | 12,172 | | | | 11,398 | | | | 16,708 | | | | 12,172 | |
Other, net | | | 3,922 | | | | 4,244 | | | | 4,515 | | | | 3,922 | |
| | | | | | | | | | |
Total gross deferred tax assets | | | 140,704 | | | | 95,860 | | | | 152,877 | | | | 140,704 | |
Valuation allowance | | | (3,924 | ) | | | (4,257 | ) | | | (4,087 | ) | | | (3,924 | ) |
| | | | | | | | | | |
Total net deferred tax assets | | | 136,780 | | | | 91,603 | | | | 148,790 | | | | 136,780 | |
Deferred tax liabilities: | | | | | | | | | | | | | | | | |
Property and equipment, principally due to differences in depreciation | | | (51,734 | ) | | | (71,159 | ) | | | (38,250 | ) | | | (51,734 | ) |
Intangible assets | | | (22,737 | ) | | | (22,388 | ) | | | (23,394 | ) | | | (22,737 | ) |
| | | | | | | | | | |
Total gross deferred tax liabilities | | | (74,471 | ) | | | (93,547 | ) | | | (61,644 | ) | | | (74,471 | ) |
| | | | | | | | | | |
Net deferred tax assets (liabilities) | | $ | 62,309 | | | $ | (1,944 | ) | |
Net deferred tax assets | | | $ | 87,146 | | | $ | 62,309 | |
| | | | | | | | | | |
Deferred tax assets at September 27, 2009October 3, 2010 include state net operating loss carryforwards of approximately $61.1$63.5 million expiring at various times between 2011 and 2028. At October 3, 2010 and 2027. At September 27, 2009, and September 28, 2008, we recorded a valuation allowance related to state net operating losses of $4.1 million for October 3, 2010 and $3.9 million for September 27, 2009 and $4.32009. The current year change in the valuation allowance of $0.2 million for September 28, 2008. The reduction of $0.3 million is duerelates to utilization of net operating losses in the current year.losses. We believe that it is more likely than not that these loss carryforwards will not be realized and that the remaining deferred tax assets will be realized through future taxable income or alternative tax strategies.
As ofAt September 28, 2008,27, 2009, our gross unrecognized tax benefits for income taxes associated with uncertain income tax positions totaled $4.2 million. At September 27, 2009, we hadwere $0.6 million, of unrecognized tax benefits. Of this total, $0.5 million represented the amount of unrecognized tax benefits that,which if recognized, would favorably affect the effective income tax rate in future periods.rate. As of October 3, 2010, the gross unrecognized tax benefits remain unchanged. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows (in thousands):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Balance beginning of year | | $ | 4,172 | | | $ | 11,024 | | | $ | 608 | | | $ | 4,172 | |
Reductions to tax positions recorded during prior years | | | 195 | | | | (689 | ) | |
Increases to tax positions recorded during current years | | | | 200 | | | | 195 | |
Reductions to tax positions due to settlements with taxing authorities | | | (3,759 | ) | | | (3,625 | ) | | | (179 | ) | | | (3,759 | ) |
Reductions to tax positions due to statute expiration | | | — | | | | (2,538 | ) | |
| | | | | | | | | | |
Balance at end of year | | $ | 608 | | | $ | 4,172 | | | $ | 629 | | | $ | 608 | |
| | | | | | | | | | |
From time to time, we may take positions for filing our tax returns which may differ from the treatment of the same item for financial reporting purposes. The ultimate outcome of these items will not be known until the Internal Revenue ServiceIRS has completed its examination or until the statute of limitations has expired.
It is reasonably possible that changes of approximately $0.4 million to the gross unrecognized tax benefits will be required within the next twelve months. These changes relate to the possible settlement of state tax audits.
The major jurisdictions in which the Company files income tax returns include the United States and states in which we operate that impose an income tax. The federal statutes of limitations have not expired for tax years 2007 and forward. The statutes of limitations for California and Texas, which constitute the Company’s major
F-20
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
It is reasonably possible that changes to the gross unrecognized tax benefits may be required within the next twelve months of approximately $0.5 million. These changes relate to the possible settlement of state tax audits and possible favorable settlement of appeal with the Internal Revenue Service.
The major jurisdictions, in which the Company files income tax returns include the US and most US states that impose an income tax. The federal statute of limitations for all tax years beginning with 2006 remains open at this time. The statute of limitations for state taxing jurisdictions, which could have a material impact, namely California and Texas, has not expired for tax years 2000 and 2004, respectively.2006, respectively, and forward. Generally, the statutes of limitations for the other state jurisdictions have not expired for tax years 20052007 and forward.
We sponsor programs that provide retirement benefits to most of our employees. These programs include defined benefit contribution plans, defined benefit pension plans and postretirement healthcare plans.
Defined contribution plans— We maintain savings plans pursuant to Section 401(k) of the Internal Revenue Code, which allow administrative and clerical employees who have satisfied the service requirements and reached age 21 to defer a percentage of their pay on a pre-tax basis. We match 50% of the first 4% of compensation deferred by the participant. Our contributions under these plans were $1.5 million, $1.9 million and $2.0 million in 2010, 2009 and $1.9 million in 2009, 2008, and 2007, respectively. We also maintain an unfunded, non-qualified deferred compensation plan for key executives and other members of management who are excluded from participation in the qualified savings plan. This plan allows participants to defer up to 50% of their salary and 100% of their bonus, on a pre-tax basis. We match 100% of the first 3% contributed by the participant. Effective January 1, 2007, to compensate for changes made to our supplemental executive retirement plan (“SERP”) was closed to new participants. To compensate executives no longer eligible to participate in the SERP, we also contribute a supplemental amount equal to 4% of an eligible employee’s salary and bonus for a period of ten years in such eligible position. Our contributions under the non-qualified deferred compensation plan were $1.2 million, $1.1 million and $1.3 million in 2010, 2009 and $1.2 million in 2009, 2008, and 2007, respectively. In each plan, a participant’s right to Company contributions vests at a rate of 25% per year of service.
Defined benefit pension plans— We sponsor a defined benefit pension plan (“qualified pension plan”) covering substantially all full-time employees. In September 2010, the Board of Directors approved changes to our qualified plan whereby participants will no longer accrue benefits effective December 31, 2015 and the plan will be closed to new participants effective January 1, 2011. This change was accounted for as a plan “curtailment” in accordance with the authoritative guidance issued by the FASB. As a result of the curtailment, our qualified plan benefit obligation decreased by approximately $16.5 million representing the effect of estimated future pay increases which cease to be a part of the benefit obligation as of December 31, 2015. The curtailment impact to net earnings in fiscal 2010 was immaterial. We also sponsor an unfunded supplemental executive retirement plan (“non-qualified plan”) which provides certain employees additional pension benefits and washas been closed to any new participants effectivesince January 1, 2007. In connection with the curtailment of the qualified plan, our non-qualified plan benefit obligation increased $0.2 million in 2010. Benefits under allboth plans are based on the employees’ years of service and compensation over defined periods of employment.
Postretirement healthcare plans— We also sponsor healthcare plans that provide postretirement medical benefits to certain employees who meet minimum age and service requirements. The plans are contributory;contributory, with retiree contributions adjusted annually, and contain other cost-sharing features such as deductibles and coinsurance.
F-21
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Obligations and funded status— The following table provides a reconciliation of the changes in benefit obligations, plan assets and funded status of our retirement plans as of October 3, 2010 and September 27, 2009 and June 30, 2008.2009. In fiscal 2009, we adopted the measurement date provisions of the FASB guidance for retirement
F-21
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
benefits, which require the measurement date to be consistent with our fiscal year end. Previously, we used a June 30 measurement date. This change in measurement date resulted in a $1.9 million, net of tax, adjustment to the beginning balance of our retained earnings.(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Qualified Pension Plans | | Non-Qualified Pension Plan | | Postretirement Health Plans | | | Qualified Pension Plans | | Non-Qualified Pension Plan | | Postretirement Health Plans | |
| | 2009 | | 2008 | | 2009 | | 2008 | | 2009 | | 2008 | | | 2010 | | 2009 | | 2010 | | 2009 | | 2010 | | 2009 | |
|
Change in benefit obligation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Obligation at beginning of year | | $ | 212,027 | | | $ | 224,895 | | | $ | 40,634 | | | $ | 39,628 | | | $ | 16,979 | | | $ | 18,487 | | | $ | 290,469 | | | $ | 212,027 | | | $ | 49,445 | | | $ | 40,634 | | | $ | 23,828 | | | $ | 16,979 | |
Service cost | | | 9,045 | | | | 10,427 | | | | 641 | | | | 802 | | | | 99 | | | | 222 | | | | 11,726 | | | | 9,045 | | | | 829 | | | | 641 | | | | 106 | | | | 99 | |
Interest cost | | | 15,334 | | | | 14,539 | | | | 2,907 | | | | 2,552 | | | | 1,199 | | | | 1,176 | | | | 17,704 | | | | 15,334 | | | | 3,003 | | | | 2,907 | | | | 1,435 | | | | 1,199 | |
Participant contributions | | | — | | | | — | | | | — | | | | — | | | | 138 | | | | 125 | | | | - | | | | - | | | | - | | | | - | | | | 142 | | | | 138 | |
Actuarial loss (gain) | | | 55,779 | | | | (32,712 | ) | | | 7,717 | | | | (994 | ) | | | 6,185 | | | | (2,205 | ) | |
Actuarial loss | | | | 26,594 | | | | 55,779 | | | | 3,053 | | | | 7,717 | | | | 4,677 | | | | 6,185 | |
Benefits paid | | | (7,810 | ) | | | (5,122 | ) | | | (3,341 | ) | | | (2,287 | ) | | | (1,097 | ) | | | (826 | ) | | | (8,061) | | | | (7,810) | | | | (3,001) | | | | (3,341) | | | | (2,369) | | | | (1,097) | |
Effect of change in measurement date | | | 6,094 | | | | — | | | | 887 | | | | — | | | | 325 | | | | — | | |
Plan amendment and other | | | — | | | | — | | | | — | | | | 933 | | | | — | | | | — | | |
Elimination of early measurement date | | | | - | | | | 6,094 | | | | - | | | | 887 | | | | - | | | | 325 | |
Plan amendment | | | | - | | | | - | | | | 176 | | | | - | | | | - | | | | - | |
Net gain arising due to curtailment | | | | (16,491) | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Obligation at end of year | | $ | 290,469 | | | $ | 212,027 | | | $ | 49,445 | | | $ | 40,634 | | | $ | 23,828 | | | $ | 16,979 | | | $ | 321,941 | | | $ | 290,469 | | | $ | 53,505 | | | $ | 49,445 | | | $ | 27,819 | | | $ | 23,828 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value at beginning of year | | $ | 228,772 | | | $ | 216,679 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 231,584 | | | $ | 228,772 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Actual return on plan assets | | | (11,878 | ) | | | (7,785 | ) | | | — | | | | — | | | | — | | | | — | | | | 27,296 | | | | (11,878) | | | | - | | | | - | | | | - | | | | - | |
Participant contributions | | | — | | | | — | | | | — | | | | — | | | | 138 | | | | 125 | | | | - | | | | - | | | | - | | | | - | | | | 142 | | | | 138 | |
Employer contributions | | | 22,500 | | | | 25,000 | | | | 3,341 | | | | 2,287 | | | | 959 | | | | 701 | | | | 20,000 | | | | 22,500 | | | | 3,001 | | | | 3,341 | | | | 2,227 | | | | 959 | |
Benefits paid | | | (7,810 | ) | | | (5,122 | ) | | | (3,341 | ) | | | (2,287 | ) | | | (1,097 | ) | | | (826 | ) | | | (8,061) | | | | (7,810) | | | | (3,001) | | | | (3,341) | | | | (2,369) | | | | (1,097) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value at end of year | | $ | 231,584 | | | $ | 228,772 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 270,819 | | | $ | 231,584 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
Funded status at end of year | | $ | (58,885 | ) | | $ | 16,745 | | | $ | (49,445 | ) | | $ | (40,634 | ) | | $ | (23,828 | ) | | $ | (16,979 | ) | | $ | (51,122) | | | $ | (58,885) | | | $ | (53,505) | | | $ | (49,445) | | | $ | (27,819) | | | $ | (23,828) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts recognized: | | | | | | | | | | | | | | | | | | | | | | | | | |
Noncurrent assets | | $ | — | | | $ | 16,745 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | |
Amounts recognized on the balance sheet: | | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities | | | — | | | | — | | | | (2,827 | ) | | | (2,451 | ) | | | 1,053 | | | | (877 | ) | | $ | - | | | $ | - | | | $ | (3,184) | | | $ | (2,827) | | | $ | (1,193) | | | $ | (1,053) | |
Noncurrent liabilities | | | (58,885 | ) | | | — | | | | (46,618 | ) | | | (38,183 | ) | | | 22,775 | | | | (16,102 | ) | | | (51,122) | | | | (58,885) | | | | (50,321) | | | | (46,618) | | | | (26,626) | | | | (22,775) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net amount recognized | | $ | (58,885 | ) | | $ | 16,745 | | | $ | (49,445 | ) | | $ | (40,634 | ) | | $ | 23,828 | | | $ | (16,979 | ) | |
Total liability recognized | | | $ | (51,122) | | | $ | (58,885) | | | $ | (53,505) | | | $ | (49,445) | | | $ | (27,819) | | | $ | (23,828) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts in AOCI not yet reflected in net periodic benefit cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial loss (gain) | | $ | 110,895 | | | $ | 21,451 | | | $ | 14,452 | | | $ | 7,229 | | | $ | 1,768 | | | $ | (5,622 | ) | |
Prior service cost | | | 180 | | | | 335 | | | | 2,827 | | | | 3,650 | | | | 216 | | | | 446 | | |
Unamortized actuarial loss, net | | | $ | 101,447 | | | $ | 110,895 | | | $ | 16,316 | | | $ | 14,452 | | | $ | 6,381 | | | $ | 1,768 | |
Unamortized prior service cost | | | | - | | | | 180 | | | | 2,538 | | | | 2,827 | | | | 31 | | | | 216 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 111,075 | | | $ | 21,786 | | | $ | 17,279 | | | $ | 10,879 | | | $ | 1,984 | | | $ | (5,176 | ) | | $ | 101,447 | | | $ | 111,075 | | | $ | 18,854 | | | $ | 17,279 | | | $ | 6,412 | | | $ | 1,984 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other changes in plan assets and benefit obligations recognized in OCI: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (gain) loss | | $ | 89,513 | | | $ | (7,917 | ) | | $ | 7,717 | | | $ | (994 | ) | | $ | 6,185 | | | $ | (2,205 | ) | |
Amortization of gain (loss) | | | (55 | ) | | | (971 | ) | | | (396 | ) | | | (533 | ) | | | 964 | | | | 821 | | |
Prior service cost | | | — | | | | — | | | | — | | | | 933 | | | | — | | | | — | | |
Net actuarial loss | | | $ | 17,012 | | | $ | 89,513 | | | $ | 3,053 | | | $ | 7,717 | | | $ | 4,677 | | | $ | 6,185 | |
Amortization of actuarial gain (loss) | | | | (9,969) | | | | (55) | | | | (1,189) | | | | (396) | | | | (64) | | | | 964 | |
Amortization of prior service cost | | | (124 | ) | | | (124 | ) | | | (707 | ) | | | (733 | ) | | | (185 | ) | | | (185 | ) | | | (124) | | | | (124) | | | | (465) | | | | (707) | | | | (184) | | | | (185) | |
Prior service cost due to curtailment | | | | (56) | | | | - | | | | 176 | | | | - | | | | - | | | | - | |
Net gain arising due to curtailment | | | | (16,491) | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total recognized in OCI | | | 89,334 | | | | (9,012 | ) | | | 6,614 | | | | (1,327 | ) | | | 6,964 | | | | (1,569 | ) | | | (9,628) | | | | 89,334 | | | | 1,575 | | | | 6,614 | | | | 4,429 | | | | 6,964 | |
Net periodic benefit cost | | | 7,073 | | | | 9,051 | | | | 4,651 | | | | 4,620 | | | | 519 | | | | 762 | | |
Net periodic benefit cost and other losses | | | | 21,865 | | | | 7,073 | | | | 5,486 | | | | 4,651 | | | | 1,789 | | | | 519 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total recognized in comprehensive income | | $ | 96,407 | | | $ | 39 | | | $ | 11,265 | | | $ | 3,293 | | | $ | 7,483 | | | $ | (807 | ) | | $ | 12,237 | | | $ | 96,407 | | | $ | 7,061 | | | $ | 11,265 | | | $ | 6,218 | | | $ | 7,483 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts in AOCI expected to be amortized in fiscal 2010 net periodic benefit cost: | | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts in AOCI expected to be amortized in fiscal 2011 net periodic benefit cost: | | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial loss | | $ | 9,969 | | | | | | | $ | 1,188 | | | | | | | $ | 64 | | | | | | | $ | 8,518 | | | | | | | $ | 1,305 | | | | | | | $ | 202 | | | | | |
Prior service cost | | | 124 | | | | | | | | 464 | | | | | | | | 185 | | | | | | | | - | | | | | | | | 488 | | | | | | | | 31 | | | | | |
| | | | | | | | | | | | | | |
Total | | $ | 10,093 | | | | | | | $ | 1,652 | | | | | | | $ | 249 | | | | | | | $ | 8,518 | | | | | | | $ | 1,793 | | | | | | | $ | 233 | | | | | |
| | | | | | | | | | | | | | |
F-22
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Additional year-end pension plan information— The pension benefit obligation (“PBO”) is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation (“ABO”) also reflects the actuarial present value of benefits attributable to employee service rendered to date but does not include the effects of estimated future pay increases. Therefore, the ABO as compared to plan assets is an indication of the assets currently available to fund vested and nonvested benefits accrued through the end of the fiscal year. The funded status is measured as the difference between the fair value of a plan’s assets and its PBO.
As of October 3, 2010 and September 27, 2009, the qualified plan’s ABO exceeded the fair value of its plan assets. The non-qualified plan is an unfunded plan and, as such, had no plan assets as of October 3, 2010 and September 27, 2009 and June 30, 2008.2009. The following sets forth the PBO, ABO and fair value of plan assets of our pension plans as of the measurement date in each year(in thousands):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 |
|
Qualified plans: | | | | | | | | | |
Qualified plan: | | | | | | | |
Projected benefit obligation | | $ | 290,469 | | | $ | 212,027 | | | $ | 321,941 | | | $ | 290,469 | |
Accumulated benefit obligation | | | 254,470 | | | | 184,295 | | | | 302,982 | | | | 254,470 | |
Fair value of plan assets | | | 231,584 | | | | 228,772 | | | | 270,819 | | | | 231,584 | |
| | |
Non-qualified plan: | | | | | | | | | | | | | | |
Projected benefit obligation | | $ | 49,445 | | | $ | 40,634 | | | $ | 53,505 | | | $ | 49,445 | |
Accumulated benefit obligation | | | 46,875 | | | | 39,058 | | | | 53,282 | | | | 46,875 | |
Fair value of plan assets | | | — | | | | — | | | | - | | | | - | |
Net periodic benefit cost— The components of the fiscal year net periodic benefit cost were as follows(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Qualified defined pension plans: | | | | | | | | | | | | | |
Qualified defined pension plan: | | | | | | | | | | | | | |
Service cost | | $ | 9,045 | | | $ | 10,427 | | | $ | 9,846 | | | $ | 11,726 | | | $ | 9,045 | | | $ | 10,427 | |
Interest cost | | | 15,334 | | | | 14,539 | | | | 13,201 | | | | 17,704 | | | | 15,334 | | | | 14,539 | |
Expected return on plan assets | | | (17,485 | ) | | | (17,010 | ) | | | (14,541 | ) | | | (17,714) | | | | (17,485) | | | | (17,010) | |
Actuarial loss | | | 55 | | | | 971 | | | | 2,257 | | | | 9,969 | | | | 55 | | | | 971 | |
Amortization of unrecognized prior service cost | | | 124 | | | | 124 | | | | 124 | | | | 124 | | | | 124 | | | | 124 | |
Prior service cost due to curtailment | | | | 56 | | | | - | | | | - | |
| | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 7,073 | | | $ | 9,051 | | | $ | 10,887 | | | $ | 21,865 | | | $ | 7,073 | | | $ | 9,051 | |
| | | | | | | | | | | | | | |
Non-qualified pension plan: | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 641 | | | $ | 802 | | | $ | 734 | | | $ | 829 | | | $ | 641 | | | $ | 802 | |
Interest cost | | | 2,907 | | | | 2,552 | | | | 2,401 | | | | 3,003 | | | | 2,907 | | | | 2,552 | |
Actuarial loss | | | 396 | | | | 533 | | | | 404 | | | | 1,189 | | | | 396 | | | | 533 | |
Amortization of unrecognized prior service cost | | | 707 | | | | 733 | | | | 707 | | | | 465 | | | | 707 | | | | 733 | |
Amortization of unrecognized net transition obligation | | | — | | | | — | | | | 95 | | |
| | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 4,651 | | | $ | 4,620 | | | $ | 4,341 | | | $ | 5,486 | | | $ | 4,651 | | | $ | 4,620 | |
| | | | | | | | | | | | | | |
Postretirement health plans: | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 99 | | | $ | 222 | | | $ | 213 | | | $ | 106 | | | $ | 99 | | | $ | 222 | |
Interest cost | | | 1,199 | | | | 1,176 | | | | 1,081 | | | | 1,435 | | | | 1,199 | | | | 1,176 | |
Actuarial gain | | | (964 | ) | | | (821 | ) | | | (930 | ) | |
Actuarial loss (gain) | | | | 64 | | | | (964) | | | | (821) | |
Amortization of unrecognized prior service cost | | | 185 | | | | 185 | | | | 185 | | | | 184 | | | | 185 | | | | 185 | |
| | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 519 | | | $ | 762 | | | $ | 549 | | | $ | 1,789 | | | $ | 519 | | | $ | 762 | |
| | | | | | | | | | | | | | |
F-23
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assumptions— We determine our actuarial assumptions on an annual basis. In determining the present values of our benefit obligations and net periodic benefit costs as of and for the fiscal years ended October 3, 2010,
F-23
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 27, 2009 and September 28, 2008, and September 30, 2007, respectively, we used the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Assumptions used to determine benefit obligations(1): | | | | | | | | | | | | | |
Qualified pension plans: | | | | | | | | | | | | | |
Assumptions used to determine benefit obligations (1): | | | | | | | | | | | | | |
Qualified pension plan: | | | | | | | | | | | | | |
Discount rate | | | 6.16 | % | | | 7.30 | % | | | 6.50 | % | | | 5.82% | | | | 6.16% | | | | 7.30% | |
Rate of future compensation increases | | | 3.50 | | | | 3.50 | | | | 3.50 | | |
Rate of future pay increases | | | | 3.50 | | | | 3.50 | | | | 3.50 | |
Non-qualified pension plan: | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 6.16 | % | | | 7.30 | % | | | 6.50 | % | | | 5.82% | | | | 6.16% | | | | 7.30% | |
Rate of future compensation increases | | | 5.00 | | | | 5.00 | | | | 5.00 | | |
Rate of future pay increases | | | | 3.50 | | | | 5.00 | | | | 5.00 | |
Postretirement health plans: | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 6.16 | % | | | 7.30 | % | | | 6.50 | % | | | 5.82% | | | | 6.16% | | | | 7.30% | |
Assumptions used to determine net periodic benefit cost(2): | | | | | | | | | | | | | |
Assumptions used to determine net periodic benefit cost (2): | | | | | | | | | | | | | |
Qualified pension plans: | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 7.30 | % | | | 6.50 | % | | | 6.60 | % | | | 6.16% | | | | 7.30% | | | | 6.50% | |
Long-term rate of return on assets | | | 7.75 | | | | 7.75 | | | | 7.75 | | | | 7.75 | | | | 7.75 | | | | 7.75 | |
Rate of future compensation increases | | | 3.50 | | | | 3.50 | | | | 3.50 | | |
Rate of future pay increases | | | | 3.50 | | | | 3.50 | | | | 3.50 | |
Non-qualified pension plan: | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 7.30 | % | | | 6.50 | % | | | 6.60 | % | | | 6.16% | | | | 7.30% | | | | 6.50% | |
Rate of future compensation increases | | | 5.00 | | | | 5.00 | | | | 5.00 | | |
Rate of future pay increases | | | | 5.00 | | | | 5.00 | | | | 5.00 | |
Postretirement health plans: | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 7.30 | % | | | 6.50 | % | | | 6.60 | % | | | 6.16% | | | | 7.30% | | | | 6.50% | |
| | |
(1) | | Determined as of end of year. |
|
(2) | | Determined as of beginning of year. |
The assumed discount rate was determined by considering the average of pension yield curves constructed of a population of high-quality bonds with a Moody’s or Standard and Poor’s rating of “AA” or better meeting certain other criteria. The resulting discount rate reflectswhose cash flow from coupons and maturities match the matchingyear-by year projected benefit payments from the plans. Since benefit payments typically extend beyond the date of plan liabilitythe longest maturing bond, cash flows beyond 30 years were discounted back to the yield curves.30th year and then matched like any other payment.
The assumed expected long-term rate of return on assets is the weighted average rate of earnings expected on the funds invested or to be invested to provide for the pension obligations. The long-term rate of return on assets was determined taking into consideration our projected asset allocation and economic forecasts prepared with the assistance of our actuarial consultants.
The assumed discount rate and expected long-term rate of return on assets have a significant effect on amounts reported for our pension and postretirement plans. A quarter percentage point decrease in the discount rate and long-term rate of return used would decrease earnings before income taxes by $2.7 million and $0.7 million, respectively.
The assumed average rate of compensation increase is the average annual compensation increase expected over the remaining employment periods for the participating employees.
F-24
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For measurement purposes, the weighted-average assumed health care cost trend rates for our postretirement health plans were as follows for each fiscal year:
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 |
|
Health care cost trend rate for next year: | | | | | | | | | | | | | | |
Participants under age 65 | | | 8.00 | % | | | 7.50 | % | | | 7.75% | | | | 8.00% | |
Participants age 65 or older | | | 7.50 | % | | | 7.69 | % | | | 7.25% | | | | 7.50% | |
Rate to which the cost trend rate is assumed to decline | | | 5.00 | % | | | 4.94 | % | | | 4.50% | | | | 5.00% | |
Year the rate reaches the ultimate trend rate | | | 2021 | | | | 2013 | | | | 2028 | | | | 2021 | |
F-24
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The assumed health care cost trend rate represents our estimate of the annual rates of change in the costs of the health care benefits currently provided by our postretirement plans. The health care cost trend rate implicitly considers estimates of health care inflation, changes in health care utilization and delivery patterns, technological advances and changes in the health status of the plan participants. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasinga 1.0% change in the assumed health care cost trend rates by 1.0% rate would have the following effect(in each year would increase the postretirement benefit obligation as of September 27, 2009 by $3.2 million and the aggregate of the service and interest cost components of net periodic benefit cost for 2009 by $0.2 million. If the assumed health care cost trend rates decreased by 1.0% in each year, the postretirement benefit obligation would decrease by $2.7 million as of September 27, 2009, and the aggregate of the service and interest components of net periodic benefit cost for 2009 would decrease by $0.2 million.thousands):
| | | | | | | | |
| | 1% Point
| | 1% Point
|
| | Increase | | Decrease |
|
Total interest and service cost | | $ | 211 | | | $ | (178) | |
Postretirement benefit obligation | | $ | 3,727 | | | $ | (3,155) | |
Plan assets— Our investment strategyphilosophy is to seek a competitive rate(1) protect the corpus of return relativethe fund; (2) establish investment objectives that will allow the market value to an appropriate levelexceed the present value of risk.the vested and unvested liabilities over time; while (3) obtaining adequate investment returns to protect benefits promised to the participants and their beneficiaries. Our asset allocation strategy utilizes multiple investment managers in order to maximize the plan’s return while minimizing risk. We regularly monitor our asset allocation, and senior financial management and the Finance Committee of the Board of Directors review performance results at least semi-annually. In May 2007, we adjusted our targetOur plan asset allocation for our qualified pension plans toat the following: 40% U.S. equities, 30% debt securities, 15% international equities, 5% balanced fundend of 2010 and 10% real estate. We plan to reallocate our plan assets over a period of time,target allocations are as deemed appropriate by senior financial management, to achieve our target asset allocation. The qualified pension plan had the following asset allocations at September 27, 2009 and June 30, 2008:follows:
| | | | | | | | |
| | 2009 | | | 2008 | |
|
U.S. equities | | | 43 | % | | | 39 | % |
Debt securities | | | 30 | | | | 36 | |
International equities | | | 18 | | | | 14 | |
Balanced fund | | | 6 | | | | 6 | |
Real estate | | | 3 | | | | 5 | |
| | | | | | | | |
| | | 100 | % | | | 100 | % |
| | | | | | | | |
| | | | | | | | | | | | |
| | Percentage of
| | |
| | Plan Assets | | Asset Allocation |
| | 2010 | | Target | | Minimum | | Maximum |
|
Large cap equity | | | 26% | | | 25% | | | 15% | | | 35% |
Small cap equity | | | 15% | | | 15% | | | 5% | | | 25% |
International equity | | | 17% | | | 15% | | | 5% | | | 25% |
Core fixed funds | | | 27% | | | 25% | | | 15% | | | 35% |
Real return bonds | | | 6% | | | 5% | | | 0% | | | 10% |
Alternative investments | | | 6% | | | 5% | | | 0% | | | 10% |
Real estate | | | 3% | | | 10% | | | 0% | | | 10% |
| | | | | | | | | | | | |
| | | 100% | | | 100% | | | | | | |
| | | | | | | | | | | | |
F-25
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of the qualified plan’s assets at October 3, 2010 by asset category are as follows(in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Fair Value Measurements | |
| | | | | | | | Quoted Prices
| | | Significant
| | | | |
| | | | | | | | in Active
| | | Other
| | | Significant
| |
| | | | | | | | Markets for
| | | Observable
| | | Unobservable
| |
| | | | | | | | Identical
| | | Inputs
| | | Inputs
| |
| | Total | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| |
|
Asset Category: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | (1 | ) | | $ | 5,311 | | | $ | 5,311 | | | $ | - | | | $ | - | |
Equity: | | | | | | | | | | | | | | | | | | | | |
U.S. | | | (2 | ) | | | 74,240 | | | | 74,240 | | | | - | | | | - | |
Commingled | | | (3 | ) | | | 82,065 | | | | 82,065 | | | | - | | | | - | |
Fixed income: | | | | | | | | | | | | | | | | | | | | |
Asset-backed securities | | | (4 | ) | | | 4,679 | | | | - | | | | 4,679 | | | | - | |
Corporate bonds | | | (5 | ) | | | 44,557 | | | | 36,123 | | | | 8,365 | | | | 69 | |
Non-government-backed C.M.O.’s | | | (6 | ) | | | 5,778 | | | | - | | | | 5,778 | | | | - | |
Government and mortgage securities | | | (7 | ) | | | 31,136 | | | | 16,075 | | | | 15,061 | | | | - | |
Other | | | (8 | ) | | | 15,945 | | | | 15,945 | | | | - | | | | - | |
Interest rate swaps | | | (9 | ) | | | 54 | | | | - | | | | 54 | | | | - | |
Real estate | | | (10 | ) | | | 7,054 | | | | - | | | | - | | | | 7,054 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | 270,819 | | | $ | 229,759 | | | $ | 33,937 | | | $ | 7,123 | |
| | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Cash and cash equivalents are comprised of commercial paper, short-term bills and notes, and short-term investment funds, which are valued at unadjusted quoted market prices. |
|
(2) | | U.S. equity securities are comprised of investments in common stock of U.S. andnon-U.S. companies for total return purposes. These investments are valued by the trustee at closing prices from national exchanges on the valuation date. |
|
(3) | | Commingled equity securities are comprised of investments in mutual funds, the fair value of which is determined by reference to the fund’s underlying assets, which are primarily marketable equity securities that are traded on national exchanges and valued at unadjusted quoted market prices. |
|
(4) | | Asset-backed securities are comprised of collateralized obligations and mortgage-backed securities, which are valued by the trustee using observable, market-based inputs. |
|
(5) | | Corporate bonds are comprised of mutual funds traded on national securities exchanges, valued at unadjusted quoted market prices, as well as securities traded in markets that are not considered active, which are valued based on quoted market prices, broker/dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Securities that trade infrequently and therefore have little or no price transparency are valued using the investment manager’s best estimate. |
|
(6) | | Non-government backed securities are comprised of collateralized obligations and mortgage-back securities, which the trustee values using observable, market-based inputs. |
|
(7) | | Government and mortgage securities are comprised of government and municipal bonds, including treasury bills, notes and index linked bonds which are valued using an unadjusted quoted price in an active market or observable, market-based inputs. |
|
(8) | | Other fixed income securities are comprised of other commingled funds invested in registered securities which are valued at the unadjusted quoted price in an active market or exchange. |
|
(9) | | Interest rate swaps are derivative instruments used to reduce exposure to the impact of changing interest rates and are valued using observable, market-based inputs. |
|
(10) | | Real estate is investments in a real estate investment trust for purposes of total return. These investments are valued at unit values provided by the investment managers and their consultants. |
F-26
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in Level 3 investments for the qualified plan(in thousands):
| | | | | | | | | | | | | | | |
| | Fair Value Measurements Using
|
| | Significant Unobservable Inputs (Level 3) |
| | Corporate
| | Commercial
| | Non-Government
| | | | |
| | Bonds | | Mortgage-Backed | | Backed C.M.O.’s | | Real Estate | | Total |
|
|
Beginning balance at September 27, 2009 | | $ | 96 | | $ | 542 | | $ | 192 | | $ | 6,872 | | $ | 7,702 |
Actual return on plan assets: | | | | | | | | | | | | | | | |
Relating to assets still held at the reporting date | | | 13 | | | 104 | | | 24 | | | 331 | | | 472 |
Relating to assets sold during the period | | | - | | | 7 | | | - | | | (40) | | | (33) |
Purchases, sales, and settlements | | | - | | | (242) | | | (21) | | | (109) | | | (372) |
Transfers in and/or out of Level 3 | | | (40) | | | (411) | | | (195) | | | - | | | (646) |
| | | | | | | | | | | | | | | |
Ending balance at October 3, 2010 | | $ | 69 | | $ | - | | $ | - | | $ | 7,054 | | | 7,123 |
| | | | | | | | | | | | | | | |
Future cash flows— Our policy is to fund our plans at or above the minimum required by law. Contributions expected to be paid in the next fiscal year and the projected benefit payments for each of the next five fiscal years and the total aggregate amount for the subsequent five fiscal years are as follows(in thousands):
| | | | | | | | | | | | | | | | |
| | Defined Benefit
| | Postretirement
| | | Defined
| | | |
| | Pension Plans | | Health Plans(1) | | | Benefit
| | Postretirement
| |
| | Pension | | Health Plans | |
Estimated net contributions during fiscal 2010 | | $ | 24,827 | | | $ | 1,053 | | |
| |
Estimated net contributions during fiscal 2011 | | | $ | 13,184 | | | $ | 1,193 | |
Estimated future year benefit payments during fiscal years: | | | | | | | | | | | | | | | | |
2010 | | $ | 8,851 | | | $ | 1,053 | | |
2011 | | | 9,150 | | | | 1,117 | | | $ | 9,802 | | | $ | 1,193 | |
2012 | | | 9,561 | | | | 1,169 | | | | 10,187 | | | | 1,249 | |
2013 | | | 10,136 | | | | 1,221 | | | | 10,639 | | | | 1,305 | |
2014 | | | 10,786 | | | | 1,296 | | | | 11,207 | | | | 1,384 | |
2015-2019 | | | 86,371 | | | | 7,765 | | |
2015 | | | | 11,889 | | | | 1,443 | |
2016-2020 | | | | 79,280 | | | | 8,893 | |
| | |
(1) | | Net of Medicare Part D Subsidy. |
We will continue to evaluate contributions to our defined benefit plans based on changes in pension assets as a result of asset performance in the current market and economic environment. Expected benefit payments are based on the same assumptions used to measure our benefit obligation at September 27, 2009October 3, 2010 and include estimated future employee service.
| |
12. | SHARE-BASED EMPLOYEE COMPENSATION |
Stock incentive plans— We offer share-based compensation plans to attract, retain and motivate key officers, employees and non-employee directors and employees to work toward the financial success of the Company.
Our stock incentive plans are administered by the Compensation Committee of the Board of Directors and have been approved by the stockholders of the Company. The terms and conditions of our share-based awards are determined by the Compensation Committee on each award date and may include provisions for the exercise price, expirations, vesting, restriction on sales and forfeitures, as applicable. We issue new shares to satisfy stock issuances under our stock incentive plans.
Our Amended and Restated 2004 Stock Incentive Plan authorizes the issuance of up to 6,500,0007,900,000 common shares in connection with the granting of stock options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units or performance units to key employees and directors. No more than 1,300,000 shares may be granted under this Plan as restricted stock or performance-based awards. As of September 27, 2009, 1,341,660October 3, 2010, 1,965,176 shares of common stock were available for future issuance under this Plan.plan.
There are four other plans under which we can no longer issue awards, although awards outstanding under these plans may still vest and be exercised: the 1992 Employee Stock Incentive Plan, the 1993 Stock Option Plan, the 2002 Stock Incentive Plan and the Non-Employee Director Stock Option Plan.
F-27
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We also maintain a deferred compensation plan for non-management directors under which those who are eligible to receive fees or retainers may choose to defer receipt of their compensation. The deferred amounts are converted to stock equivalents. The plan requires settlement in shares of our common stock based on the number of stock equivalents at the time of a participant’s separation from the Board of Directors. This plan provides for the issuance of up to 350,000 shares of common stock in connection with the crediting of stock equivalents. As of September 27, 2009,October 3, 2010, 263,424 shares of common stock were available for future issuance under this plan.
In February 2006, the stockholders of the Company approved an employee stock purchase plan (“ESPP”) for all eligible employees to purchase shares of common stock at 95% of the fair market value on the date of purchase. Employees may authorize us to withhold up to 15% of their base compensation during any offering period, subject
F-26
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to certain limitations. A maximum of 200,000 shares of common stock may be issued under the plan. As of September 27, 2009, 157,637October 3, 2010, 143,072 shares of common stock were available for future issuance under this plan.
Compensation expense— We offer share-based compensation plans to attract, retain, and motivate key officers, non-employee directors, and employees to work toward the financial success of the Company. The components of share-based compensation expense recognized in each year are as follows(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Stock options | | $ | 8,952 | | | $ | 7,880 | | | $ | 8,602 | | | $ | 7,234 | | | $ | 8,952 | | | $ | 7,880 | |
Performance-vested stock awards | | | (1,429 | ) | | | 1,381 | | | | 2,416 | | | | 1,145 | | | | (1,429 | ) | | | 1,381 | |
Nonvested stock awards | | | 704 | | | | 1,034 | | | | 1,246 | | | | 923 | | | | 704 | | | | 1,034 | |
Nonvested stock units | | | 830 | | | | — | | | | — | | | | 1,024 | | | | 830 | | | | - | |
Deferred compensation for directors — equity classified | | | 284 | | | | 271 | | | | 376 | | |
Deferred compensation for directors — liability classified | | | — | | | | — | | | | 324 | | |
Deferred compensation for directors | | | | 279 | | | | 284 | | | | 271 | |
| | | | | | | | | | | | | | |
Total share-based compensation expense | | $ | 9,341 | | | $ | 10,566 | | | $ | 12,964 | | | $ | 10,605 | | | $ | 9,341 | | | $ | 10,566 | |
| | | | | | | | | | | | | | |
In November 2008, we modified the performance periods and goals of our outstanding performance-vested stock awards to address challenges associated with establishing long-term performance measures. The modifications and changes to expectations regarding achievement levels resulted in a $2.2 million reduction in our expense.
Stock options— Prior to fiscal 2007, options granted had contractual terms of 10 or 11 years and employee options generally vested over a four-year period. Beginning fiscal 2007, option grants have contractual terms of 7 years and employee options vest over a three-year period. Options may vest sooner for employees meeting certain age and years of service thresholds. Options granted to non-management directors vest at six months. All option grants provide for an option exercise price equal to the closing market value of the common stock on the date of grant.
The following is a summary of stock option activity for fiscal 2009:2010:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Weighted
| | | | | | | | | Weighted
| | | |
| | | | Weighted
| | Average
| | | | | | | Weighted
| | Average
| | Aggregate
| |
| | | | Average
| | Remaining
| | Aggregate
| | | | | Average
| | Remaining
| | Intrinsic
| |
| | | | Exercise
| | Contractual
| | Intrinsic
| | | | | Exercise
| | Contractual
| | Value (in
| |
| | Shares | | Price | | Term (Years) | | Value | | | Shares | | Price | | Term (Years) | | thousands) | |
| | | | | | | | (In thousands) | |
| |
Options outstanding at September 28, 2008 | | | 5,149,296 | | | $ | 20.62 | | | | | | | | | | |
Options outstanding at September 27, 2009 | | | | 4,788,326 | | | $ | 21.31 | | | | | | | | | |
Granted | | | 24,000 | | | | 23.27 | | | | | | | | | | | | 550,000 | | | | 19.26 | | | | | | | | | |
Exercised | | | (375,698 | ) | | | 12.17 | | | | | | | | | | | | (407,452 | ) | | | 12.73 | | | | | | | | | |
Forfeited | | | | (33,417 | ) | | | 22.16 | | | | | | | | | |
Expired | | | (9,272 | ) | | | 10.43 | | | | | | | | | | | | (12,511 | ) | | | 13.05 | | | | | | | | | |
| | | | | | |
Options outstanding at September 27, 2009 | | | 4,788,326 | | | $ | 21.31 | | | | 5.03 | | | $ | 12,977 | | |
Options outstanding at October 3, 2010 | | | | 4,884,946 | | | $ | 21.81 | | | | 4.47 | | | $ | 25,606 | |
| | | | | | |
Options exercisable at September 27, 2009 | | | 3,717,779 | | | $ | 19.89 | | | | 4.80 | | | $ | 12,977 | | |
Options exercisable at October 3, 2010 | | | | 4,068,523 | | | $ | 21.95 | | | | 4.22 | | | $ | 21,483 | |
| | | | | | |
Options exercisable and expected to vest at September 27, 2009 | | | 4,772,320 | | | $ | 21.30 | | | | 5.03 | | | $ | 12,977 | | |
Options exercisable and expected to vest at October 3, 2010 | | | | 4,853,860 | | | $ | 21.83 | | | | 4.45 | | | $ | 25,411 | |
| | | | | | |
Effective in the fourth quarter of fiscal 2005, we began utilizing a binomial-based model to determine the fair value of options granted. The fair value of all prior options granted has been estimated on the date of grant using the Black-Scholes option-pricing model. Valuation models require the input of highly subjective assumptions,
F-27F-28
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We use a binomial-based model to determine the fair value of options granted. Valuation models require the input of highly subjective assumptions, including the expected volatility of the stock price. The following weighted-average assumptions were used for stock option grants in each year:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Risk-free interest rate | | | 3.01 | % | | | 2.85 | % | | | 4.20 | % | | | 1.97% | | | | 3.01% | | | | 2.85% | |
Expected dividends yield | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00% | | | | 0.00% | | | | 0.00% | |
Expected stock price volatility | | | 45.62 | % | | | 45.74 | % | | | 37.85 | % | | | 38.65% | | | | 45.62% | | | | 45.74% | |
Expected life of options (in years) | | | 5.23 | | | | 4.38 | | | | 4.65 | | | | 4.46 | | | | 5.23 | | | | 4.38 | |
In 2010, 2009 2008, and 2007,2008, the risk-free interest rate was determined by a yield curve of risk-free rates based on published U.S. Treasury spot rates in effect at the time of grant and has a term equal to the expected life of the related options.
The dividend yield assumption is based on the Company’s history and expectations of dividend payouts.
The expected stock price volatility in all years represents an average of the implied volatility and the Company’s historical volatility.
The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends.
The weighted-average grant-date fair value of options granted was $6.54, $10.27 and $9.82 in 2010, 2009 and $11.20 in 2009, 2008, and 2007, respectively. The intrinsic value of stock options is defined as the difference between the current market value and the grant price. The total intrinsic value of stock options exercised was $4.0 million, $4.4 million and $12.5 million in 2010, 2009 and $47.6 million in 2009, 2008, and 2007, respectively.
As of September 27, 2009,October 3, 2010, there was approximately $7.9$4.1 million of total unrecognized compensation cost related to stock options granted under our stock incentive plans. That cost is expected to be recognized over a weighted-average period of 1.511.72 years.
Performance-vested stock awards —Performance awards represent a right to receive a certain number of shares of common stock upon achievement of performance goals at the end of a three-year period. The expected cost of the shares is based on the fair value of our stock on the date of grant and is reflected over the performance period with a reduction for estimated forfeitures. It is our intent to settle these awards with shares of common stock.
The following is a summary of performance-vested stock award activity for fiscal 2009:2010:
| | | | | | | | | | | | | | | | |
| | | | Weighted-
| | | | | Weighted-
| |
| | | | Average
| | | | | Average Grant
| |
| | | | Grant Date
| | | | | Date Fair
| |
| | Shares | | Fair Value | | | Shares | | Value | |
|
Performance-vested stock awards outstanding at September 28, 2008 | | | 329,659 | | | $ | 24.30 | | |
Performance-vested stock awards outstanding at September 27, 2009 | | | | 323,975 | | | $ | 15.53 | |
Granted | | | 117,840 | | | | 15.56 | | | | 225,440 | | | | 19.19 | |
Issued | | | (55,230 | ) | | | 17.51 | | | | (47,545 | ) | | | 15.56 | |
Cancelled | | | (49,602 | ) | | | 17.63 | | |
Canceled | | | | (161,560 | ) | | | 15.56 | |
Forfeited | | | (18,692 | ) | | | 15.56 | | | | (46,008 | ) | | | 16.40 | |
| | | | | | |
Performance-vested stock awards outstanding at September 27, 2009 | | | 323,975 | | | $ | 15.53 | | |
Performance-vested stock awards outstanding at October 3, 2010 | | | | 294,302 | | | $ | 18.18 | |
| | | | | | |
Vested and subject to release at September 27, 2009 | | | 59,026 | | | $ | 15.39 | | |
Vested and subject to release at October 3, 2010 | | | | 40,017 | | | $ | 15.32 | |
| | | | | | |
As of September 27, 2009,October 3, 2010, there was approximately $0.6$1.8 million of total unrecognized compensation cost related to performance-vested stock awards. That cost is expected to be recognized over a weighted-average period of 1.8 years. The weighted-average grant date fair value of awards granted was $19.19, $15.56 and $15.56 in 2010, 2009 and 2008, respectively. The total fair value of awards that vested as of September 27,during 2010, 2009 and 2008 was $0.7 million. We expect to issue
F-28F-29
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$0.6 million, $0.7 million and $0.9 million, respectively. In 2010, 2009 and 2008, the stock associated with these awards in November 2009. In 2008 and 2007, 68,939 and 146,116 awards vested with atotal grant date fair value of $0.9shares issued was $0.7 million, $1.0 million and $4.7$2.0 million, respectively.
Nonvested stock awards— We generally issued nonvested stock awards (“RSAs”) to certain executives under our share ownership guidelines. Effective February 2008, we are no longer issuingissue these awards which have been replaced by grants of nonvested stock units. Our nonvested stock awardsRSAs vest, subject to the discretion of our Board of Directors in certain circumstances, upon retirement or termination based upon years of service or ratably over a three-year period for non-ownership grants as provided in the award agreements. These awards are amortized to compensation expense over the estimated vesting period based upon the fair value of our common stock on the award date.
The following is a summary of nonvested stock awardRSA activity for fiscal 2009:2010:
| | | | | | | | |
| | | | | Weighted-
| |
| | | | | Average
| |
| | | | | Grant Date
| |
| | Shares | | | Fair Value | |
|
Nonvested stock awards outstanding at September 28, 2008 | | | 549,485 | | | $ | 14.16 | |
Released | | | (121,200 | ) | | | 10.99 | |
Forfeited | | | (2,000 | ) | | | 20.63 | |
| | | | | | | | |
Nonvested stock awards outstanding at September 27, 2009 | | | 426,285 | | | $ | 15.04 | |
| | | | | | | | |
Vested at September 27, 2009 | | | 94,051 | | | $ | 12.46 | |
| | | | | | | | |
| | | | | | | | |
| | | | | Weighted-
| |
| | | | | Average Grant
| |
| | | | | Date Fair
| |
| | Shares | | | Value | |
|
Nonvested stock awards outstanding at September 27, 2009 | | | 426,285 | | | $ | 15.04 | |
Released | | | (31,168 | ) | | | 17.75 | |
| | | | | | | | |
Nonvested stock awards outstanding at October 3, 2010 | | | 395,117 | | | $ | 14.82 | |
| | | | | | | | |
Vested at October 3, 2010 | | | 104,645 | | | $ | 12.19 | |
| | | | | | | | |
As of September 27, 2009,October 3, 2010, there was approximately $3.6$2.7 million of total unrecognized compensation cost related to nonvested stock awards,RSAs, which is expected to be recognized over a weighted-average period of 5.75.4 years. During 2008, we granted 64,545 shares of nonvested stockRSAs with a grant date fair value of $26.35. No shares of nonvested stockRSAs were granted in 2010 or 2009. The total fair value of RSAs that vested was $0.2 million during 2010 and 2009 or 2007.and $0.4 million during 2008. In 2010, 2009 2008 and 2007,2008, the total grant date fair value of shares released was $0.6 million, $1.3 million $0.04 million and $1.1$0.04 million, respectively.
Nonvested stock units— In February 2009, the Board of Directors approved the issuance of a new type of stock award, nonvested stock units. Nonvested stock units will(“RSUs”). RSUs replace nonvested stock awardsRSAs previously issued to certain executives under our share ownership guidelines and annual option grants previously granted to our non-management directors. Our nonvested stock unitsRSUs vest, subject to the discretion of our Board of Directors in certain circumstances, upon retirement or termination based upon years of service. No such units were vested as of September 27, 2009.October 3, 2010. These awards are amortized to compensation expense over the estimated vesting period based upon the fair value of our common stock on the award date.
The following is a summary of nonvested stock unitRSU activity for fiscal 2009:2010:
| | | | | | | | | | | | | | | | |
| | | | Weighted-
| | | | | Weighted-
| |
| | | | Average
| | | | | Average Grant
| |
| | | | Grant Date
| | | | | Date Fair
| |
| | Shares | | Fair Value | | | Shares | | Value | |
|
Nonvested stock units outstanding at September 28, 2008 | | | — | | | $ | — | | |
Nonvested stock units outstanding at September 27, 2009 | | | | 61,854 | | | $ | 21.46 | |
Granted | | | 61,854 | | | | 21.46 | | | | 96,949 | | | | 21.05 | |
Released | | | | (5,000 | ) | | | 20.07 | |
| | | | | | |
Nonvested stock units outstanding at September 27, 2009 | | | 61,854 | | | $ | 21.46 | | |
Nonvested stock units outstanding at October 3, 2010 | | | | 153,803 | | | $ | 21.25 | |
| | | | | | |
As of September 27, 2009,October 3, 2010, there was approximately $0.5$1.5 million of total unrecognized compensation cost related to nonvested stock units,RSUs, which is expected to be recognized over a weighted-average period of 2.47.0 years. During 2009, we granted 61,854 shares of RSUs with a grant date fair value of $21.46. The total fair value of RSUs that vested and were released during 2010 was $0.1 million. No such awards vested or were released in 2009.
Non-management directors’ deferred compensation—All awards outstanding under our directors’ deferred compensation plan are accounted for as equity-based awards and deferred amounts are converted into stock
F-30
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equivalents at the then-current market price of our common stock. During fiscal 2009 and 2008, 59,949 and 26,627 shares of common stock were issued in connection with director retirements having a grant date fair value of $1.6 million and $0.4 million, respectively. No deferrals were settled in 2007.
F-29
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)2010.
The following is a summary of the stock equivalent activity for fiscal 2009:2010:
| | | | | | | | | | | | | | | | |
| | | | Weighted-
| | | | | Weighted-
| |
| | | | Average
| | | | | Average Grant
| |
| | Stock
| | Grant Date
| | | Stock
| | Date Fair
| |
| | Equivalents | | Fair Value | | | Equivalents | | Value | |
|
Stock equivalents outstanding at September 28, 2008 | | | 205,332 | | | $ | 11.92 | | |
Stock equivalents outstanding at September 27, 2009 | | | | 162,404 | | | $ | 14.16 | |
Deferred directors’ compensation | | | 17,021 | | | | 19.99 | | | | 7,914 | | | | 20.85 | |
Stock distribution | | | (59,949 | ) | | | 8.15 | | |
| | | | | | |
Stock equivalents outstanding at September 27, 2009 | | | 162,404 | | | $ | 14.16 | | |
Stock equivalents outstanding at October 3, 2010 | | | | 170,318 | | | $ | 14.47 | |
| | | | | | |
Employee stock purchase plan— In fiscal 2010, 2009 and 2008, 14,565, 15,548 and 2007, 15,548, 15,567 and 11,248 shares, respectively, were purchased through the ESPP at an average price of $19.32, $19.99 $25.65 and $32.51,$25.65, respectively.
Preferred stock— We have 15,000,000 shares of preferred stock authorized for issuance at a par value of $.01$0.01 per share. No preferred shares have been issued.
Repurchases of common stock— In November 2007, the Board of Directors approved a program to repurchase up to $200.0 million in shares of our common stock over three years expiring November 9, 2010. WeDuring 2010, we repurchased 3.9approximately 4.9 million shares at an aggregate cost of $100.0 million during fiscal 2008.$97.0 million. As of September 27, 2009,October 3, 2010, the aggregate remaining amount authorized and available under our credit agreement for repurchase was $97.4$3.0 million.
In fiscal 2007, pursuantNovember 2010, the Board of Directors approved a new program to a tender offer in December 2006, we accepted for purchase approximately 2.3 million shares of common stock for a total cost of $143.3 million. All shares repurchased were subsequently retired. In fiscal 2007, we also repurchased 3.2 million shares of stock for $220.1 million and 1.6 million shares forrepurchase, within the next year, up to $100.0 million in connection with stock repurchase authorizations made byshares of our Board of Directors in 2006 and 2005, respectively.common stock.
Comprehensive income— Our total comprehensive income, net of taxes, was as follows(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Net earnings | | $ | 118,408 | | | $ | 119,279 | | | $ | 125,583 | | | $ | 70,210 | | | $ | 118,408 | | | $ | 119,279 | |
Net unrealized gains (losses) related to cash flow hedges | | | 42 | | | | (3,210 | ) | | | (2,055 | ) | |
Cash flow hedges: | | | | | | | | | | | | | |
Net change in fair value of derivatives | | | | (837 | ) | | | (6,147 | ) | | | (5,223 | ) |
Amount of net loss reclassified to earnings during the year | | | | 4,719 | | | | 6,189 | | | | 2,013 | |
| | | | | | | | |
Total cash flow hedges | | | | 3,882 | | | | 42 | | | | (3,210 | ) |
Tax effect | | | (21 | ) | | | 1,226 | | | | 801 | | | | (1,481 | ) | | | (21 | ) | | | 1,226 | |
| | | | | | | | | | | | | | |
| | | 21 | | | | (1,984 | ) | | | (1,254 | ) | | | 2,401 | | | | 21 | | | | (1,984 | ) |
Net realized gains reclassified into net earnings on liquidation of interest rate swaps | | | — | | | | — | | | | (371 | ) | |
Tax effect | | | — | | | | — | | | | 137 | | |
| | | | | | | | |
| | | — | | | | — | | | | (234 | ) | |
Unrecognized periodic benefit costs | | | | | | | | | | | | | |
Effect of unrecognized net actuarial gains (losses) and prior service cost | | | (102,912 | ) | | | 11,907 | | | | 3,917 | | | | 3,625 | | | | (102,912 | ) | | | 11,907 | |
Tax effect | | | 39,254 | | | | (4,628 | ) | | | (1,524 | ) | | | (1,371 | ) | | | 39,254 | | | | (4,628 | ) |
| | | | | | | | | | | | | | |
| | | (63,658 | ) | | | 7,279 | | | | 2,393 | | | | 2,254 | | | | (63,658 | ) | | | 7,279 | |
| | | | | | | | | | | | | | |
Total comprehensive income | | $ | 54,771 | | | $ | 124,574 | | | $ | 126,488 | | | $ | 74,865 | | | $ | 54,771 | | | $ | 124,574 | |
| | | | | | | | | | | | | | |
F-30F-31
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of accumulated other comprehensive loss, net of taxes, were as follows as of October 3, 2010 and September 27, 2009 and September 28, 2008(in thousands):
| | | | | | | | |
| | 2009 | | | 2008 | |
|
Unrecognized periodic benefit costs, net of tax benefits of $49,750 and $10,520, respectively | | $ | (80,588 | ) | | $ | (16,970 | ) |
Net unrealized losses related to cash flow hedges, net of tax benefits of $1,761 and $1,782, respectively | | | (2,854 | ) | | | (2,875 | ) |
| | | | | | | | |
Accumulated other comprehensive loss | | $ | (83,442 | ) | | $ | (19,845 | ) |
| | | | | | | | |
| | | | | | | | |
| | 2010 | | | 2009 | |
|
Unrecognized periodic benefit costs, net of tax benefits of $48,379 and $49,750, respectively | | $ | (78,334 | ) | | $ | (80,588 | ) |
Net unrealized losses related to cash flow hedges, net of tax benefits of $280 and $1,761, respectively | | | (453 | ) | | | (2,854 | ) |
| | | | | | | | |
Accumulated other comprehensive loss | | $ | (78,787 | ) | | $ | (83,442 | ) |
| | | | | | | | |
| |
14. | AVERAGE SHARES OUTSTANDING |
Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive common shares include stock options, nonvested stock awards and units, non-management director stock equivalents and shares issuable under our employee stock purchase plan. Performance-vested stock awards are included in the average diluted shares outstanding each period if the performance criteria have been met at the end of the respective periods.
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Weighted-average shares outstanding — basic | | | 56,795 | | | | 58,249 | | | | 65,314 | | |
Weighted-average shares outstanding – basic | | | | 55,070 | | | | 56,795 | | | | 58,249 | |
Effect of potentially dilutive securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options | | | 619 | | | | 879 | | | | 1,533 | | | | 512 | | | | 619 | | | | 879 | |
Nonvested stock awards | | | 169 | | | | 248 | | | | 270 | | |
Nonvested stock awards and units | | | | 182 | | | | 169 | | | | 248 | |
Performance-vested stock awards | | | 150 | | | | 69 | | | | 146 | | | | 79 | | | | 150 | | | | 69 | |
| | | | | | | | | | | | | | |
Weighted-average shares outstanding — diluted | | | 57,733 | | | | 59,445 | | | | 67,263 | | |
Weighted-average shares outstanding – diluted | | | | 55,843 | | | | 57,733 | | | | 59,445 | |
| | | | | | | | | | | | | | |
Excluded from diluted weighted-average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | |
Antidilutive | | | 2,763 | | | | 1,611 | | | | 557 | | | | 3,266 | | | | 2,763 | | | | 1,611 | |
Performance conditions not satisfied at the end of the period | | | 179 | | | | 261 | | | | 378 | | | | 160 | | | | 179 | | | | 261 | |
| |
15. | VARIABLE INTEREST ENTITIES |
The primary entities in which we possess a variable interest are franchise entities, which operate our franchised restaurants. We do not possess any ownership interests in franchise entities. We have reviewed these franchise entities and determined that we are not the primary beneficiary of the entities and therefore, these entities have not been consolidated.
We use advertising funds for both our restaurant concepts to administer our advertising programs. These funds are consolidated into our financial statements as they are deemed variable interest entities (“VIEs”) for which we are the primary beneficiary. Contributions to these funds are designated for advertising, and we administer the funds’ contributions. The Company’s maximum loss exposure for these funds is limited to its investment.
F-31
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table reflects the assets and liabilities of these VIEs that were included in our consolidated balance sheet at September 27, 2009 (in thousands):
| | | | | | | | |
| | Jack in the Box | | | Qdoba | |
|
Cash | | $ | — | | | $ | 182 | |
Accounts receivable | | | — | | | | 77 | |
Prepaid assets | | | 2,339 | | | | 96 | |
Other | | | — | | | | 6 | |
| | | | | | | | |
Total assets | | $ | 2,339 | | | $ | 361 | |
| | | | | | | | |
Accounts payable | | $ | — | | | $ | 414 | |
Accrued liabilities | | | 21,165 | | | | (53 | ) |
| | | | | | | | |
Total liabilities | | $ | 21,165 | | | $ | 361 | |
| | | | | | | | |
| |
16. | COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS |
Commitments— We are principally liable for lease obligations on various properties subleased to third parties. We are also obligated under a lease guarantee agreement associated with a Chi-Chi’s restaurant property. Due to the bankruptcy of the Chi-Chi’s restaurant chain in 2003, previously owned by us, we are obligated to perform in accordance with the terms of a guarantee agreement, as well as fourthree other lease agreements, which expire at various dates in 2010 andduring the second quarter of fiscal 2011. During fiscal 2003, we established an accrual for these lease obligations and do not anticipate incurring any additional charges in future years related to the Chi-Chi’s bankruptcy.
As of October 3, 2010, we had unconditional purchase obligations of $740.8 million, which primarily includes contracts for goods related to restaurant operations.
Legal matters— We are subject to normal and routine litigation. In the opinion of management, based in part on the advice of legal counsel, the ultimate liability from all pending legal proceedings, asserted legal claims and known potential legal claims should not materially affect our operating results, financial position or liquidity.
F-32
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reflecting our vision of being a national restaurant company and the information currently being used in managing the Company as a two-branded restaurant operations business, our segments comprise results related to system restaurant operations for ourJack in the boxBox and Qdoba brands. This segment reporting structure reflects the Company’s current management structure, internal reporting method and financial information used in deciding how to allocate Company resources. Based upon certain quantitative thresholds, both operating segments are considered reportable segments.
F-32
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We measure and evaluate our segments based on segment earnings from operations. Summarized financial information concerning our reportable segmentsegments is shown in the following table(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Revenues by Segment: | | | | | | | | | | | | | | | | | | | | | | | | |
Jack in the Box restaurant operations segment | | $ | 2,025,755 | | | $ | 2,146,595 | | | $ | 2,196,398 | | | $ | 1,731,130 | | | $ | 2,025,755 | | | $ | 2,146,596 | |
Qdoba restaurant operations segment | | | 143,206 | | | | 117,740 | | | | 94,473 | | | | 168,424 | | | | 143,206 | | | | 117,740 | |
Distribution operations | | | 302,135 | | | | 275,226 | | | | 222,560 | | | | 397,977 | | | | 302,135 | | | | 275,225 | |
| | | | | | | | | | | | | | |
Consolidated revenues | | $ | 2,471,096 | | | $ | 2,539,561 | | | $ | 2,513,431 | | | $ | 2,297,531 | | | $ | 2,471,096 | | | $ | 2,539,561 | |
| | | | | | | | | | | | | | |
Earnings from Operations by Segment: | | | | | | | | | | | | | | | | | | | | | | | | |
Jack in the Box restaurant operations segment | | $ | 218,740 | | | $ | 202,054 | | | $ | 203,172 | | | $ | 111,983 | | | $ | 218,740 | | | $ | 202,054 | |
Qdoba restaurant operations segment | | | 10,690 | | | | 11,481 | | | | 11,005 | | | | 11,580 | | | | 10,690 | | | | 11,481 | |
Distribution operations | | | 1,838 | | | | 2,353 | | | | 2,819 | | | | (1,653 | ) | | | 1,838 | | | | 2,353 | |
| | | | | | | | | | | | | | |
Consolidated earnings from operations | | $ | 231,268 | | | $ | 215,888 | | | $ | 216,996 | | | $ | 121,910 | | | $ | 231,268 | | | $ | 215,888 | |
| | | | | | | | | | | | | | |
Total Expenditures for Long-Lived Assets by Segment: | | | | | | | | | | | | | | | | | | | | | | | | |
Jack in the Box restaurant operations segment | | $ | 133,353 | | | $ | 161,803 | | | $ | 138,959 | | | $ | 80,855 | | | $ | 133,353 | | | $ | 161,803 | |
Qdoba restaurant operations segment | | | 19,189 | | | | 15,241 | | | | 8,884 | | | | 13,572 | | | | 19,189 | | | | 15,241 | |
Distribution operations | | | 958 | | | | 1,561 | | | | 665 | | | | 1,183 | | | | 958 | | | | 1,561 | |
| | | | | | | | | | | | | | |
Consolidated expenditures for long-lived assets (from continuing operations) | | $ | 153,500 | | | $ | 178,605 | | | $ | 148,508 | | | $ | 95,610 | | | $ | 153,500 | | | $ | 178,605 | |
| | | | | | | | | | | | | | |
Interest income and expense, income taxes and total assets are not reported for our segments, in accordance with our method of internal reporting.
| |
18.17. | SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION |
Additional information related to cash flows is as follows(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Cash paid during the year for: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest, net of amounts capitalized | | $ | 23,008 | | | $ | 25,732 | | | $ | 28,247 | | | $ | 17,719 | | | $ | 23,008 | | | $ | 25,732 | |
Income tax payments | | | 79,392 | | | | 68,454 | | | | 90,709 | | | $ | 80,719 | | | $ | 79,392 | | | $ | 68,454 | |
Capital lease obligations incurred | | | — | | | | — | | | | 464 | | |
F-33
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
19.18. | SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION (in(in thousands) |
| | | | | | | | | | | | | | | | |
| | Sept. 27,
| | Sept. 28,
| | | Oct. 3,
| | Sept. 27,
| |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Accounts and other receivables, net: | | | | | | | | | | | | | | | | |
Trade | | $ | 38,820 | | | $ | 43,146 | | | $ | 48,006 | | | $ | 38,820 | |
Notes receivable | | | 4,533 | | | | 21,833 | | | | 29,949 | | | | 4,533 | |
Other | | | 6,142 | | | | 5,678 | | | | 4,386 | | | | 6,142 | |
Allowances for doubtful accounts | | | (459 | ) | | | (367 | ) | | | (1,191 | ) | | | (459 | ) |
| | | | | | | | | | |
| | $ | 49,036 | | | $ | 70,290 | | | $ | 81,150 | | | $ | 49,036 | |
| | | | | | | | | | |
Other assets, net: | | | | | | | | | |
Company-owned life insurance policies | | | $ | 76,296 | | | $ | 68,234 | |
Deferred rent receivable | | | | 19,664 | | | | 14,407 | |
Other | | | | 55,144 | | | | 32,653 | |
| | | | | | |
| | | $ | 151,104 | | | $ | 115,294 | |
| | | | | | |
Accrued liabilities: | | | | | | | | | | | | | | | | |
Payroll and related taxes | | $ | 59,900 | | | $ | 63,964 | | | $ | 31,259 | | | $ | 59,900 | |
Sales and property taxes | | | 20,603 | | | | 21,410 | | | | 21,141 | | | | 20,603 | |
Insurance | | | 37,505 | | | | 41,243 | | | | 37,655 | | | | 37,505 | |
Advertising | | | 21,242 | | | | 19,072 | | | | 15,686 | | | | 21,242 | |
Gift card liability | | | | 3,171 | | | | 3,684 | |
Deferred franchise fees | | | | 2,541 | | | | 2,190 | |
Other | | | 66,850 | | | | 67,942 | | | | 56,733 | | | | 60,976 | |
| | | | | | | | | | |
| | $ | 206,100 | | | $ | 213,631 | | | $ | 168,186 | | | $ | 206,100 | |
| | | | | | | | | | |
Other long-term liabilities: | | | | | | | | | | | | | | | | |
Pension | | $ | 105,503 | | | $ | 38,183 | | | $ | 101,443 | | | $ | 105,503 | |
Accrued rent | | | 49,304 | | | | 47,425 | | |
Straight-line rent accrual | | | | 52,661 | | | | 52,506 | |
Deferred franchise fees | | | | 1,532 | | | | 1,741 | |
Other | | | 79,383 | | | | 75,669 | | | | 94,804 | | | | 74,440 | |
| | | | | | | | | | |
| | $ | 234,190 | | | $ | 161,277 | | | $ | 250,440 | | | $ | 234,190 | |
| | | | | | | | | | |
Notes receivable as of September 27, 2009 and September 28, 2008 consistOctober 3, 2010 consists primarily of temporary financing provided to franchisees to facilitate the closing of certain refranchising transactions.
| |
20.19. | UNAUDITED QUARTERLY RESULTS OF OPERATIONS (in(in thousands, except per share data) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 16 Weeks
| | | | | 16 Weeks
| | | | 13 Weeks
| |
| | Ended | | 12 Weeks Ended | | | Ended | | 12 Weeks Ended | | Ended | |
Fiscal Year 2009 | | Jan. 18, 2009 | | Apr. 12, 2009 | | July 5, 2009 | | Sept. 27, 2009 | | |
Fiscal Year 2010 | | | Jan. 17, 2010 | | Apr. 11, 2010 | | July 4, 2010 | | Oct. 3, 2010 | |
|
Revenues | | $ | 776,673 | | | $ | 578,411 | | | $ | 575,722 | | | $ | 540,290 | | | $ | 681,318 | | | $ | 529,706 | | | $ | 523,294 | | | $ | 563,213 | |
Earnings from operations | | | 54,376 | | | | 53,110 | | | | 57,119 | | | | 66,663 | | | | 43,730 | | | | 31,150 | | | | 41,848 | | | | 5,182 | |
Net earnings | | | 28,397 | | | | 29,861 | | | | 19,558 | | | | 40,592 | | | | 24,247 | | | | 17,680 | | | | 24,242 | | | | 4,041 | |
Net earning per share: | | | | | | | | | | | | | | | | | |
Net earnings per share: | | | | | | | | | | | | | | | | | |
Basic | | $ | 0.50 | | | $ | 0.53 | | | $ | 0.34 | | | $ | 0.71 | | | $ | 0.43 | | | $ | 0.32 | | | $ | 0.44 | | | $ | 0.08 | |
Diluted | | $ | 0.49 | | | $ | 0.52 | | | $ | 0.34 | | | $ | 0.70 | | | $ | 0.43 | | | $ | 0.32 | | | $ | 0.44 | | | $ | 0.07 | |
F-34
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 16 Weeks
| | | | | 16 Weeks
| | | |
| | Ended | | 12 Weeks Ended | | | Ended | | 12 Weeks Ended | |
Fiscal Year 2008 | | Jan. 20, 2008 | | Apr. 13, 2008 | | July 6, 2008 | | Sept. 28, 2008 | | |
Fiscal Year 2009 | | | Jan. 18, 2009 | | Apr. 12, 2009 | | July 5, 2009 | | Sept. 27, 2009 | |
|
Revenues | | $ | 776,997 | | | $ | 588,034 | | | $ | 591,863 | | | $ | 582,667 | | | $ | 776,673 | | | $ | 578,411 | | | $ | 575,722 | | | $ | 540,290 | |
Earnings from operations | | | 67,123 | | | | 48,229 | | | | 54,232 | | | | 46,304 | | | | 54,376 | | | | 53,110 | | | | 57,119 | | | | 66,663 | |
Net earnings | | | 36,255 | | | | 26,234 | | | | 29,916 | | | | 26,874 | | | | 28,397 | | | | 29,861 | | | | 19,558 | | | | 40,592 | |
Net earning per share: | | | | | | | | | | | | | | | | | |
Net earnings per share: | | | | | | | | | | | | | | | | | |
Basic | | $ | 0.61 | | | $ | 0.45 | | | $ | 0.52 | | | $ | 0.48 | | | $ | 0.50 | | | $ | 0.53 | | | $ | 0.34 | | | $ | 0.71 | |
Diluted | | $ | 0.59 | | | $ | 0.44 | | | $ | 0.51 | | | $ | 0.47 | | | $ | 0.49 | | | $ | 0.52 | | | $ | 0.34 | | | $ | 0.70 | |
The results of operations for the quarter ending October 3, 2010 includes a charge related to the closure of 40 Jack in the Box restaurants of $18.5 million, net of taxes, or $0.34 per basic and diluted share. Refer to Note 9,Impairment, Disposal of Property and Equipment, and Restaurants Closing Costs,for additional information.
The results of operations for the quarter ending July 5, 2009 includes a charge of $14.1 million, net of taxes, or $0.25 and $0.24 per basic and diluted share, respectively, related to the sale of our Quick Stuff convenience stores. Refer to Note 2,Discontinued Operations,for additional information.
| |
21.20. | FUTURE APPLICATION OF ACCOUNTING PRINCIPLES |
In September 2006, the FASB issued authoritative guidance on fair value measurements. This guidance clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. This guidance applies under other accounting pronouncements that currently require or permit fair value measurements and is effective for fiscal years beginning after November 15, 2007, and interim periods within those years. We adopted the provisions of the fair value measurement guidance for our financial assets and liabilities and have elected to defer adoption for our nonfinancial assets and liabilities until fiscal year 2010. We are currently in the process of assessing the impact this guidance may have on our consolidated financial statements related.
In June 2009, the FASB issued authoritative guidance for consolidation, which changes the approach for determining which enterprise has a controlling financial interest in variable interest entity and requires more frequent reassessments of whether an enterprise is a primary beneficiary. This guidance is effective for annual periods beginning after November 15, 2009. We are currently in the process of assessing the impact this guidance may have on our consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.
F-35