Jack In The Box 2005 Annual Report Download

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This is not a hamburger...
J A CK IN THE BOX INC. 2005 SUMMARY ANNUAL REPORT

Table of contents

  • Page 1
    This is not a hamburger ... JACK IN THE BOX INC. 2005 SUMMARY ANNUAL REPORT

  • Page 2
    ... a hamburger may symbolize our 50-plus years of running a successful chain of quick-serve restaurants, our company - even the Jack in the Box® brand - is today much more than that. Jack in the Box Inc. (NYSE: JBX) operates and franchises more than 2,000 Jack in the Box restaurants in 17 states and...

  • Page 3
    ...2004 2005 JACK IN THE BOX FRANCHISED RESTAURANTS, AS A PERCENTAGE OF THE SYSTEM TOTAL 18.8% 19.1% 20.2% 22.3% 25.1% 2001 1 2002 2003 2004 2005 Before cumulative effect of accounting change. The charts include total unit and same-store sales information for Qdoba Restaurant Corporation prior...

  • Page 4
    ... Information Officer Gladys H. DeClouet Vice President of Operations, Division II Terri F. Graham Vice President and Chief Marketing Officer John F. Hoffner Vice President, Financial Strategy This summary annual report should be reviewed in conjunction with the 2005 Form 10-K for Jack in the Box...

  • Page 5
    ...Dividend Policy Jack in the Box Inc. has not paid any cash or other dividends during its last three fiscal years and does not anticipate paying dividends in the foreseeable future. The company's credit agreements and its public debt instruments restrict its right to declare or pay dividends or make...

  • Page 6
    .... The goal of that long-term plan remains the same: to become a national restaurant company. We look to achieve that goal by profitably growing our business, reinventing the Jack in the Box brand, and driving product innovation and building customer loyalty. Bob was an outstanding leader and a great...

  • Page 7
    ...the emergence of fast-casual dining, how will Jack in the Box attempt to grow sales? Same-store sales at company-operated Jack in the Box restaurants have increased for nine consecutive quarters, and the 2.4 percent increase in 2005 was on top of a 4.6 percent increase last year. To build upon these...

  • Page 8
    ... potential? Qdoba has nearly tripled in size, to 250 locations, since it was acquired by Jack in the Box Inc. in 2003. We opened 77 new restaurants in 2005 - a unit growth rate of more than 40 percent over last year - and plan to add another 85-95 stores in 2006, with franchised locations accounting...

  • Page 9
    ... the Gulf Coast states in 2005. Doing the right thing in our restaurant communities is an important part of the way we do business - it's all part of what we call Jack's Way. How does Jack feel about a woman running the company? As long as I don't park in his reserved parking space at the office, he...

  • Page 10
    ... IN SAN DIEGO, WHERE THE COMPANY IS DEVELOPING NEW MENU ITEMS FEATURING HIGH-QUALITY INGREDIENTS. 2003 250 194 50 37 25 Year that Jack in the Box Inc. acquired Qdoba Restaurant Corporation Number of company and franchised restaurants Percentage increase in the system total of Qdoba locations since...

  • Page 11
    ...and $0 at October 2, 2005 and October 3, 2004, respectively) Accounts and notes receivable, net Inventories Prepaid expenses and other current assets Deferred income tax asset Assets held for sale and leaseback Total current assets Property and equipment, at cost: Land Buildings Restaurant and other...

  • Page 12
    ...: Basic Diluted Weighted-average shares outstanding: Basic Diluted $ $ 2.57 2.48 $ $ 2.06 2.02 $ $ 1.92 1.90 35,625 36,938 36,237 36,961 36,473 36,968 See accompanying notes to consolidated financial statements in the company's Form 10-K, incorporated as part of this summary annual report.

  • Page 13
    ...OX I N C . A N D S U B S I D I A R I E S FISCAL YEAR 2005 2004 2003 Cash flows from operating activities: Net earnings Non-cash items included in operations: Depreciation and amortization Deferred finance cost amortization Deferred income taxes, excluding the effect of the Qdoba acquisition in 2003...

  • Page 14
    ... as stated in its report, which is included in this summary annual report. Linda A. Lang Chairman and Chief Executive Officer Jerry P. Rebel Executive Vice President and Chief Financial Officer Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Jack in...

  • Page 15
    Jack in the Box Inc., 9330 Balboa Avenue, San Diego, CA 92123 www.jackinthebox.com

  • Page 16
    ... OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 2, 2005 COMMISSION FILE NUMBER 1-9390 JACK IN THE BOX INC. (Exact name of registrant as specified in its charter) Delaware (State of Incorporation) 9330 Balboa Avenue, San Diego, CA (Address of principal executive offices) 95...

  • Page 17
    ... Operations ...Quantitative and Qualitative Disclosures About Market Risk ...Financial Statements and Supplementary Data...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Directors and Executive Officers...

  • Page 18
    ... 515 were franchise-operated. JACK IN THE BOX restaurants are located primarily in the western and southern United States. Based on the number of units, JACK IN THE BOX is the second or third largest quick-service hamburger chain in most of its major markets. As of October 2, 2005, the Qdoba Mexican...

  • Page 19
    ... locations in fiscal 2005, and plan on re-imaging 100-150 restaurants in fiscal 2006 at an average restaurant cost of approximately $100,000. • • Strategic Plan - Product Innovation and Customer Loyalty Strategy. Added in the current year, this strategic initiative focuses on driving product...

  • Page 20
    ... target market of men 18-34 years old. Furthermore, JACK IN THE BOX restaurants offer value-priced products, known as "Jack' s Value Menu," to compete against priceoriented competitors and because value is important to certain fast-food customers. In addition to offering high quality products, JACK...

  • Page 21
    ... markets. In fiscal year 2005, we opened 77 new Qdoba company-operated and franchised restaurants, representing unit growth of more than 40% over the prior year. Qdoba' s growth is expected to come primarily from increasing the number of franchisedeveloped locations. In fiscal 2006, we plan to open...

  • Page 22
    ...sales volumes. We also have a highly reliable inventory management system, which provides consistent deliveries to our restaurants with excellent control over food safety, and, to support order accuracy and speed of service, our drive-thru restaurants use order confirmation screens. We are currently...

  • Page 23
    ...JACK IN THE BOX began offering all hourly employees access to health coverage, including vision and dental benefits. As an additional incentive to crew members with more than a year of service, the Company will pay a portion of their premiums. Late in fiscal 2005, we also introduced a program called...

  • Page 24
    ... trademark and service mark in the United States. In addition, we have registered numerous service marks and trade names for use in our businesses, including the JACK IN THE BOX logo, the Qdoba logo and various product names and designs. Seasonality Our restaurant sales and profitability are subject...

  • Page 25
    ... the food products offered, price, quality and speed of service, advertising, name identification, restaurant location and attractiveness of facilities. Each JACK IN THE BOX and Qdoba restaurant competes directly and indirectly with a large number of national and regional restaurant chains, as well...

  • Page 26
    ... premiums), increases in the number and locations of competing restaurants, regional weather conditions and the availability of experienced management and hourly employees, may also adversely affect the food service industry in general. Because our restaurants are predominantly company-operated, we...

  • Page 27
    ... industry is highly competitive with respect to price, service, location, personnel and the type and quality of food, and there are many well-established competitors. Each of our restaurants competes directly and indirectly with a large number of national and regional restaurant chains, as well as...

  • Page 28
    ... Labor Costs" above. The inability to obtain or maintain such licenses or publicity resulting from actual or alleged violations of such laws could have an adverse effect on our results of operations. We are also subject to federal regulation and certain state laws, which govern the offer and sale of...

  • Page 29
    ... 2005, our leases had initial terms expiring as follows: Number of restaurants Ground Land and leases building leases 2006 - 2010...2011 - 2015...2016 - 2020...2021 and later ... 29 189 56 286 56 365 243 576 Our principal executive offices are located in San Diego, California in an owned facility...

  • Page 30
    ...PURCHASES OF EQUITY SECURITIES Market Information. The following table sets forth the high and low closing sales prices for our common stock during the fiscal quarters indicated, as reported on the New York Stock Exchange - Composite Transactions: 16 weeks ended Jan. 23, 2005 High...Low ...$38.84 32...

  • Page 31
    ... registered public accountants. 2005 Fiscal Year 2004 2003(1) 2002 (Dollars in thousands, except per share data) 2001 Statement of Operations Data: Revenues: Restaurant sales...Distribution and other sales...Franchise rents and royalties ...Other ...Total revenues...Costs of revenues...Selling...

  • Page 32
    ... 2, 2005, Jack in the Box Inc. (the "Company") owned, operated, and franchised 2,049 JACK IN THE BOX quick-service restaurants and 250 Qdoba Mexican Grill ("Qdoba") fast-casual restaurants, primarily in the western and southern United States. The Company' s primary source of revenue is from the sale...

  • Page 33
    ...as well as an increase in the number of Qdoba company-operated restaurants. Same-store sales at JACK IN THE BOX company-operated restaurants increased 2.4% in 2005 compared with 4.6% in 2004, primarily due to the success of new product introductions and promotional support. Same-store sales at Qdoba...

  • Page 34
    ...due to an increase in the number of locations to 44 at the end of the fiscal year from 29 in 2004 and 18 in 2003, as well as higher retail prices per gallon of fuel. Distribution sales grew primarily due to an increase in the number of JACK IN THE BOX and Qdoba franchised restaurants serviced by our...

  • Page 35
    ... of common stock. We generally reinvest available cash flows from operations to develop new or enhance existing restaurants, to reduce borrowings under the revolving credit agreement, as well as to repurchase shares of our common stock. Financial Condition. The Company and the restaurant industry in...

  • Page 36
    ... cash. The primary assets acquired include $8.2 million in net property and equipment and other long-term assets, $18.0 million in intangible assets and $23.6 million in goodwill. Qdoba operates in the fast-casual segment of the restaurant industry and, as of October 2, 2005, operated or franchised...

  • Page 37
    ...to 150 of our restaurant facilities to create a unique new look for JACK IN THE BOX restaurants at an average cost per restaurant of approximately $100,000. Pension Funding. During 2005, we elected to contribute $22.2 million to our qualified defined benefit pension plans from available cash on hand...

  • Page 38
    ... and evaluations of restaurant operating performance from operations and marketing management. When indicators of impairment are present, we perform an impairment analysis on a restaurant-by-restaurant basis. If the sum of undiscounted future cash flows is less than the net carrying value of the...

  • Page 39
    ...our pension plan assets. An assumed discount rate is used in determining the present value of future cash outflows currently expected to be required to satisfy the pension benefit obligation when due. Additionally, an assumed long-term rate of return on plan assets is used in determining the average...

  • Page 40
    ... respects, effective internal control over financial reporting as of October 2, 2005, based on criteria established in COSO. 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...

  • Page 41
    ... be filed with the Commission pursuant to Regulation 14A within 120 days after October 2, 2005 and to be used in connection with our 2006 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...

  • Page 42
    ... President and Chief Executive Officer of Qdoba Restaurant Corporation(13) 10.16* Amended and Restated 2004 Stock Incentive Plan(20) 10.17 Form of Stock Option Awards(16) 10.18 Retirement Agreement between Jack in the Box Inc. and John F. Hoffner, Executive Vice President and Chief Financial Officer...

  • Page 43
    ... 10-K for the fiscal year ended October 3, 2004. (20) Previously filed and incorporated herein by reference from the registrant' s Current Report on Form 8-K dated February 24, 2005. (21) Previously filed and incorporated herein by reference from the registrant' s Quarterly Report on Form 10-Q for...

  • Page 44
    .... JACK IN THE BOX INC. By: /S/JERRY P. REBEL Jerry P. Rebel Executive Vice President and Chief Financial Officer (principal financial officer) (Duly Authorized Signatory) Date: December 13, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...

  • Page 45
    ... FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statements of Earnings...Consolidated Statements of Cash Flows ...Consolidated Statements of Stockholders' Equity ...Notes to Consolidated Financial Statements...

  • Page 46
    ... of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated December 7, 2005 expressed an unqualified opinion on management' s assessment of, and the effective operation of, internal control over financial reporting. KPMG LLP San Diego, California December 7, 2005 F-2

  • Page 47
    ...and $0 at October 2, 2005 and October 3, 2004, respectively) Accounts and notes receivable, net Inventories Prepaid expenses and other current assets Deferred income tax asset Assets held for sale and leaseback Total current assets Property and equipment, at cost: Land Buildings Restaurant and other...

  • Page 48
    JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) 2005 Revenues: Restaurant sales Distribution and other sales Franchise rents and royalties Other Costs of revenues: Restaurant costs of sales Restaurant operating costs Costs of ...

  • Page 49
    ... STATEMENTS OF CASH FLOWS (Dollars in thousands) 2005 Cash flows from operating activities: Net earnings Non-cash items included in operations: Depreciation and amortization Deferred finance cost amortization Provision for deferred income taxes, excluding the effect of the Qdoba acquisition in...

  • Page 50
    ...) Common stock Number of shares Balance at September 29, 2002 Shares issued under stock plans, net of tax benefit Amortization of unearned compensation Purchase of treasury stock Comprehensive income (loss): Net earnings Additional minimum pension liability, net of taxes Total comprehensive income...

  • Page 51
    ... per share data) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of operations - Jack in the Box Inc. (the "Company") operates and franchises JACK IN THE BOX quick-service restaurants and Qdoba Mexican Grill fast-casual restaurants. Basis of presentation and fiscal year - The...

  • Page 52
    ... the franchise agreements based on the projected royalty revenue stream. Deferred finance costs are amortized using the effective-interest method over the terms of the respective loan agreements, from 4 to 7 years. COLI policies are recorded at their cash surrender values in other assets, net, while...

  • Page 53
    ... company-operated JACK IN THE BOX and Qdoba restaurants, respectively, as well as contractual marketing fees paid monthly by franchisees. Production costs of commercials, programming and other marketing activities are charged to the marketing funds when the advertising is first used, and the costs...

  • Page 54
    ...25, Accounting for Stock Issued to Employees, using the intrinsic method, whereby compensation expense is recognized for the excess, if any, of the quoted market price of the Company' s stock at the date of grant over the exercise price. Our policy is to grant stock options at fair value at the date...

  • Page 55
    ... FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 2. QDOBA ACQUISITION On January 21, 2003, we acquired 100% of the outstanding stock of Qdoba, operator and franchisor of Qdoba Mexican Grill®, for approximately $45,000 in cash. Qdoba' s results of operations...

  • Page 56
    ... in thousands, except per share data) (continued) 4. LONG-TERM DEBT 2005 2004 The detail of long-term debt at each year-end follows: Term loan, replaced during fiscal year 2004, variable interest rate based on an applicable margin plus LIBOR, 5.26% at October 2, 2005, quarterly payments of $688...

  • Page 57
    ... 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. Total rent expense was as follows: 2005 2004 2003...

  • Page 58
    ... applied against the restaurant closing costs accrual. 7. INCOME TAXES The fiscal year income taxes consist of the following: 2005 2004 2003 Federal - current ...- deferred ...State - current ...- deferred ...Subtotal ...Income tax expense (benefit) related to additional minimum pension liability...

  • Page 59
    ... per share data) (continued) 7. INCOME TAXES (continued) A reconciliation of the federal statutory income tax rate to our effective tax rate is as follows: 2005 2004 2003 Computed at federal statutory rate ...State income taxes, net of federal tax benefit...Benefit of jobs tax credits ...Adjustment...

  • Page 60
    ... per share data) (continued) 8. RETIREMENT AND SAVINGS PLANS We have non-contributory defined benefit pension plans covering those employees meeting certain eligibility requirements. These plans are subject to modification at any time. The plans provide retirement benefits based on years of service...

  • Page 61
    ...-average assumptions: 2005 Qualified plans 2004 2003 2005 Non-qualified plan 2004 2003 Assumptions used to determine benefit obligations (1): Discount rate ...Rate of future compensation increases ...Assumptions used to determine net periodic pension cost (2): Discount rate ...Long-term rate...

  • Page 62
    ... vests at a rate of 25% per year of service. Company-owned life insurance - We have elected to purchase company-owned life insurance policies to support our nonqualified benefit plans. The cash surrender value of these policies was $43,741 and $33,310 as of October 2, 2005 and October 3, 2004...

  • Page 63
    JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 9. POST RETIREMENT BENEFIT PLAN We sponsor health care plans that provide post retirement medical benefits for employees who meet minimum age and service ...

  • Page 64
    ... service and interest components of net periodic post retirement benefit cost for 2005 would decrease by $166. Future cash flows - During fiscal year 2006, we expect to contribute approximately $370 to our post retirement benefit plans. The future benefits expected to be paid and the Medicare Part...

  • Page 65
    ...Plan which allowed any eligible non-employee director of Jack in the Box Inc. or its subsidiaries to annually receive stock options. The actual number of shares that may be purchased under the option was based on the relationship of a portion of each director' s compensation to the fair market value...

  • Page 66
    ... 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 fiscal year: 2005 2004 2003 Risk-free interest rate...Volatility...Dividends yield...Expected life... 4.1% 35.5% 0.0% 6 years...

  • Page 67
    ..., shares of common stock of Jack in the Box Inc. or a successor company with a market value equal to two times the exercise price. The Rights would only become exercisable for all other persons when any person acquires a beneficial interest of at least 20% of the Company' s outstanding common stock...

  • Page 68
    ...-average shares outstanding to diluted weighted-average shares outstanding: 2005 2004 2003 Weighted-average shares outstanding - basic ...Assumed additional shares issued upon exercise of stock options, net of shares reacquired at the average market price ...Assumed vesting of restricted stock, net...

  • Page 69
    ... except per share data) (continued) 14. SEGMENT REPORTING Prior to the acquisition of Qdoba Restaurant Corporation, we operated our business in a single segment. Subsequent to the acquisition, we have two operating segments, JACK IN THE BOX and Qdoba, based on the Company' s management structure and...

  • Page 70
    ..., except per share data) (continued) 15. SUPPLEMENTAL CASH FLOW INFORMATION 2005 2004 2003 Cash paid during the year for: Interest, net of amounts capitalized...Income tax payments ...Capital lease obligations incurred ...Restricted stock issued...Performance vested restricted stock units issued...

  • Page 71
    ... value of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. We expect the adoption of FIN 47 will not have a material impact on our consolidated financial statements. In October 2005, the FASB issued Staff Position 13-1, Accounting for Rental Costs...

  • Page 72
    ...and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Date: December 13, 2005 By: /S/LINDA A. LANG Linda A. Lang Chief Executive Officer and...

  • Page 73
    ... and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Date: December 13, 2005 By: /S/JERRY P. REBEL Jerry P. Rebel Chief Financial Officer

  • Page 74
    ...Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: December 13, 2005 /S/LINDA A. LANG Linda A Lang Chief Executive Officer A signed...

  • Page 75
    ... Exchange Act of 1934 (15 U.S.C. 78m); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: December 13, 2005 /S/JERRY P. REBEL Jerry P. Rebel Chief Financial Officer A signed...