EXHIBIT 99.1
Jack in the Box Inc. Announces Adjustments to Historical Financial Statements
SAN DIEGO--(BUSINESS WIRE)--Dec. 16, 2004--Jack in the Box Inc. (NYSE:JBX),
operator and franchisor of Jack in the Box(R) and Qdoba Mexican Grill(R)
restaurants, today announced that it would restate certain of its prior period
financial statements. The adjustments made in the restatement are all non-cash
and will have no material impact on the company's cash flows, cash position,
revenues, same-store sales, earnings from operations plus depreciation and
amortization (EBITDA), or compliance with the covenants under its senior credit
facility.
On Nov. 29, 2004, the company began a review of the accounting adjustments
cited in a Nov. 23, 2004, Form 8-K filing by CKE Restaurants, Inc. After
discussions with the company's independent auditors, KPMG LLP, and after an
extensive analysis of its accounting policies and accounting records, management
recommended to the audit committee of the company's board of directors, and the
audit committee determined on Dec. 15, 2004, that one item, related to the
treatment of lease accounting and leasehold depreciation, applied to the
company, and that it was appropriate to adjust certain prior financial
statements. These adjustments were not attributable to any material
non-compliance by the company, as a result of any misconduct, with any financial
reporting requirements under securities laws, and the company believes there
will not be any further adjustments as a result of its internal review of this
matter.
"Jack in the Box Inc. has always maintained the highest standards of
conduct in our accounting practices and strict compliance with all applicable
accounting standards, as confirmed by the unqualified opinions expressed by our
independent auditors during their annual audits of our financial statements,"
said Robert J. Nugent, chairman and chief executive officer. "We believed that
our longstanding accounting practices for leases and related
depreciation/amortization, which were applied over many years with no change in
method, were consistent with generally accepted accounting principles (GAAP),
and were comparable to the practices of other public companies.
"I am very proud of our accounting department and the high standards of
conduct that they have long been dedicated to uphold. Their prompt and proactive
response to this matter reinforces our commitment to provide a high level of
timely disclosure and provide a clear understanding of our financial condition."
The issue requiring restatement relates to the company's accounting
practice of using the initial lease term when determining whether each of its
leases was an operating lease or a capital lease and when calculating
straight-line rent expense. Concurrently, the company has depreciated its
buildings on leased land, leasehold improvements and certain intangible assets
over a period that included both the initial term of the lease and its option
periods - or the useful life of the asset if shorter than the lease term plus
options. The company believed that its longstanding accounting treatments were
permitted under GAAP.
However, after reading the 8-K filing of CKE Restaurants, Inc., the company
began a review of its accounting policies. Following discussions with the
company's independent auditors, as well as an extensive analysis of its
accounting records, the company has now assured itself that the authoritative
accounting literature is interpreted to require that the company use the same
lease term for depreciating buildings on leased land, leasehold improvements and
certain intangible assets as it uses in determining capital versus operating
lease classifications and in calculating straight-line rent expense. Such
interpretation contradicts many years of recognized accounting practices by the
company.
As a result of its analysis, the company has adopted the following policy:
The company will generally limit the depreciable lives for its buildings on
leased land, leasehold improvements and certain intangible assets, which are
subject to a lease, to the initial lease term. However, in circumstances where
the company would incur an economic penalty by not exercising one or more option
periods, the company may include one or more option periods when determining the
depreciation period. In either circumstance, the company's policy will require
consistency when calculating the depreciation period, in classifying the lease,
and in computing straight-line rent expense for each of its leases.
The primary effect of the change in policy is to require the company to
accelerate depreciation and amortization for the buildings, leasehold
improvements and certain intangible assets that are the subject of the company's
leases. The total adjustments result in a $38.8 million - or $23.7 million after
tax - cumulative increase in depreciation and amortization expense for all
fiscal years, including fiscal 2004. The annual reduction of the company's net
earnings and earnings per diluted share were $3.8 million, or 10 cents in 2004;
$3.5 million, or 9 cents in 2003; and $2.8 million, or 7 cents in 2002 (see
Table 1).
Solely as a result of these accounting adjustments, the company now expects
that its first-quarter and fiscal 2005 net earnings and earnings per diluted
share estimates will be reduced by approximately $1.1 million and 3 cents, and
approximately $3.7 million and 10 cents, respectively. Accordingly, the
company's current estimates of earnings per diluted share are now approximately
66 cents for the first quarter versus 40 cents last year and approximately $2.33
for fiscal 2005 versus $2.02 in 2004. As stated previously, these accounting
adjustments have no impact on the company's cash flows, cash position, revenues
or operating performance. The company expects that, in future years,
depreciation and amortization will reduce net earnings by approximately the same
amount as that estimated for fiscal 2005, assuming stable levels of capital
expenditures going forward.
Having completed their analysis, the company's management and KPMG met with
the company's audit committee on Dec. 15, 2004, to review the company's
accounting policies, the analysis of its records, and the authoritative
accounting literature. Based on that review, the audit committee determined that
the company's accounting with respect to lease terms should be revised to be in
accordance with the policy stated above and agreed, along with KPMG, with the
recommendations of management to restate the company's prior financial
statements.
The company has determined that the adjustments described above are
appropriately corrected through the restatement of previously issued financial
statements for its 2003 and 2002 fiscal years, and the first three quarters of
fiscal 2004. While the company is not aware of any other accounting issues
requiring adjustment, there can be no assurances that the company or KPMG will
not find additional accounting issues requiring adjustment in the future.
The company anticipates that it will file its Form 10-K for fiscal 2004 on
Dec. 17, 2004, its accelerated (75-day) filing deadline, with the appropriate
restatements. However, if the company should require a brief extension of time
to file this Form 10-K, it will file for such extension with the SEC.
The company's management will discuss the restatement on a conference call
and simultaneous webcast on Friday, December 17, 2004, at 6:00 a.m. PST. The
webcast can be accessed via the Jack in the Box Inc. homepage at
www.jackinthebox.com.
The financial impact of the adjustments described above for the periods
presented is estimated as follows:
Table 1
(In millions, except per share data)
Fiscal Year
2002 2002 2003
Beginning -------------- --------------
Retained Earnings EPS Earnings EPS
Earnings
--------- -------------- --------------
As Reported $144.0 $83.0 $2.07 $73.6 $1.99
Adjustments to Depreciation/
Amortization, net (13.5) (2.8)(0.07) (3.5)(0.09)
--------- -------------- --------------
As Restated $130.5 $80.2 $2.00 $70.1 $1.90
========= ============== ==============
2004
-----------------------------
Earnings EPS Retained
Earnings
-----------------------------
As Reported $78.5(a) $2.12(a) $379.2
Adjustments to Depreciation/
Amortization, net (3.8) (0.10) (23.7)
-----------------------------
As Restated $74.7 $2.02 $355.5
=============================
16 weeks ended 12 weeks ended
Jan. 18, 2004 April 11, 2004 July 4, 2004
-------------- -------------- --------------
Earnings EPS Earnings EPS Earnings EPS
-------------- -------------- --------------
As Reported $15.6 $0.43 $19.6 $0.53 $21.6 $0.58
Adjustments to
Depreciation/
Amortization, net (1.2)(0.03) (0.9)(0.03) (0.9)(0.03)
-------------- -------------- --------------
As Restated $14.4 $0.40 $18.7 $0.50 $20.7 $0.55
============== ============== ==============
(a) As reported in the company's fiscal 2004 earnings news release, dated
November 17, 2004
Non-GAAP Term Definition
EBITDA is a typical non-GAAP measure - i.e., a measure calculated and
presented on the basis of methodologies other than in accordance with accounting
principles generally accepted in the U.S., or "GAAP" for companies that issue
public debt and a measure used by the lenders under the company's bank credit
facility. Although the company does not provide EBITDA in its regular periodic
financial news releases or in this news release, management recognizes that
EBITDA is typically calculated by securities analysts and is a factor in their
analysis of the company. Additionally, the company believes EBITDA is useful to
its investors as an indicator of earnings available to service debt. EBITDA is
not a recognized term under GAAP and does not purport to be an alternative to
income from operations, an indicator of cash flow from operations or a measure
of liquidity. The company calculates EBITDA as earnings from operations plus
depreciation and amortization. This presentation of EBITDA may not be comparable
to similarly titled measures of other companies because not all companies
calculate EBITDA identically.
Safe Harbor
Any statements contained in this press release that are not historical are
forward-looking statements including statements about the company's financial
results and estimates, adjustments to financial statements and accounting
policies, that are subject to substantial risks and uncertainties. These
statements may be identified by the use of words such as "believes,"
"estimates," "expects," "will," "would," and other words of similar meaning.
The following are some of the factors that could cause the company's actual
results to differ materially from those expressed in the forward-looking
statements: costs may exceed projections, including costs related to new
construction, Jack in the Box(R) remodels and conversions of Jack in the Box
restaurants to JBX Grill(TM); developing and marketing JBX Grill as a new
concept; food ingredients, particularly produce and beef; utilities and labor,
including increases in the minimum wage, workers' compensation and other
insurance; delays in the remodeling or opening of restaurants; the availability
of financing on terms satisfactory to franchisees and potential franchisees;
timely payment of franchisee obligations due the company; the continuation of
positive relationships with the company's franchisees, and the franchisees'
continuing willingness to participate in company strategies; adverse regional
weather conditions and business, economic and other local or national conditions
or events that affect consumer confidence and spending patterns, such as
concerns about the safety of beef or other foods; concerns about obesity; the
effect of any widespread negative publicity regarding the company or the
restaurant industry in general; the effects of war and terrorist activities;
changes in government regulations; changes in accounting standards, policies and
practices; potential variances between estimated and actual liabilities; the
effects of legal claims; and the possibility of unforeseen events affecting the
industry in general. Further information about factors that could affect the
company's financial and other results is included in the company's annual report
on Form 10-K and its periodic reports on Forms 10-Q and 8-K filed with the
Securities and Exchange Commission. Statements about the company's past
performance are not necessarily indicative of its future results. The
information in this press release is as of December 16, 2004. The company
undertakes no obligation to update or revise any forward-looking statement,
whether as the result of new information, future events or otherwise.
About Jack in the Box Inc.
Jack in the Box Inc. (NYSE:JBX) operates and franchises Jack in the Box and
Qdoba Mexican Grill restaurants in 33 states combined. Jack in the Box is one of
the nation's largest hamburger chains, with more than 2,000 restaurants. Qdoba
Mexican Grill is an emerging leader in fast-casual dining, with approximately
180 restaurants. Based in San Diego, Jack in the Box Inc. has approximately
45,000 employees. For more information, visit www.jackinthebox.com.
CONTACT: Jack in the Box Inc.
Brian Luscomb, 858-571-2229