Jack In The Box 2006 Annual Report Download - page 39

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Letter of Credit Agreement. To reduce the Company’ s letter of credit fees incurred under the credit facility, the
Company entered into a separate cash-collateralized letter of credit agreement in October 2004. At October 1, 2006,
the Company had letters of credit outstanding under this agreement of $40.2 million, which were collateralized by
approximately $47.7 million of cash and cash equivalents. Although the Company intends to continue this
agreement, it has the ability to terminate the cash-collateralized letter of credit agreement thereby eliminating
restrictions on the cash and cash equivalents balance.
Interest Rate Swaps. We are exposed to interest rate volatility with regard to existing variable rate debt. To
reduce it’ s exposure to rising interest rates, the Company entered into three interest-rate swap agreements. In March
2005, under two agreements, the Company effectively converted $130 million of its variable rate term loan
borrowings to a fixed-rate basis through March 2008. These agreements effectively convert a portion of the
Company’ s variable rate bank debt to fixed rate bank debt and have an average pay rate of 4.28%, yielding a fixed-
rate of 5.78% including the term loan’ s 1.50% applicable margin. In April 2006, the Company entered into an
interest rate swap agreement that will effectively convert $60 million of its variable rate term loan borrowings to a
fixed-rate basis beginning March 2008, concurrent with the end of the existing $60 million agreement, through April
2010. This agreement effectively converts a portion of the Company’ s variable rate bank debt to fixed rate debt and
has an average pay rate of 5.30%, yielding a fixed-rate of 6.80% including the term loan’ s applicable margin of
1.50%.
The agreements have been designated as cash flow hedges under the terms of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, with effectiveness assessed on changes in the present value of the
term loan interest payments. There was no hedge ineffectiveness in 2006 or 2005. Accordingly, changes in the fair
value of the interest rate swap contracts were recorded, net of taxes, as a component of accumulated other
comprehensive income in the Company’ s consolidated balance sheet as of October 1, 2006.
Covenants. We are subject to a number of customary covenants under our various credit agreements, including
limitations on additional borrowings, acquisitions, loans to franchisees, capital expenditures, lease commitments and
dividend payments, and requirements to maintain certain financial ratios, cash flows and net worth. As of October 1,
2006, we were in compliance with all debt covenants.
Total debt outstanding decreased to $291.8 million at October 1, 2006 from $298.0 million at October 2, 2005,
due to scheduled repayments made during the year, including payments made on capital lease obligations.
Sale of Company-Operated Restaurants. We have continued our strategy of selectively selling JACK IN THE BOX
company-operated restaurants to franchisees, selling 82, 58 and 49 restaurants in 2006, 2005 and 2004, respectively.
Proceeds from the sale of company-operated restaurants were $54.4 million, $33.5 million and $21.5 million,
respectively.
Common Stock Repurchase Programs. In September 2005, the Board of Directors authorized the repurchase of
$150 million of the Company’ s outstanding common stock in the open market. Pursuant to this authorization, we
repurchased 1,444,700 shares of Jack in the Box Inc. common stock in 2006 at a cost of $50.0 million.
Approximately $100 million of the share repurchase authorization remains available. The Board of Directors also
approved a share repurchase program in fiscal year 2004. Under this authorization, the Company repurchased
2,578,801 and 228,400 shares of its common stock in 2005 and 2004, respectively, at costs of $92.9 million and $7.1
million. The Company’ s stock repurchase programs are intended to increase shareholder value and offset the
dilutive effect of stock option exercises.
Dutch Auction Tender Offer. On November 21, 2006, the Company announced the commencement of modified
“Dutch Auction” tender offer (the “Tender Offer”) for up to 5.5 million shares of its common stock at a price per
share not less than $55.00 and not greater than $61.00, for a maximum aggregate purchase price of $335.5 million.
The shares sought represent approximately 15.5% of the Company’ s shares outstanding as of November 21, 2006.
The Tender Offer will expire, unless extended by the Company, at midnight Eastern Standard Time on December
19, 2006.