Jack In The Box 2007 Annual Report Download - page 34

Download and view the complete annual report

Please find page 34 of the 2007 Jack In The Box annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 91

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91

fees and rents. 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 in the accompanying consolidated statements of
earnings.
The quick-service restaurant industry is complex and challenging. Challenges presently 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 costs of commodities, and
trends for healthier eating.
To address these challenges and others, management has developed a strategic plan focused on four key
initiatives. The first initiative is a growth strategy that includes opening new restaurants and increasing same-store
sales. The second initiative is a holistic reinvention of the JACK IN THE BOX brand through menu innovation,
upgrading guest service and re-imaging JACK IN THE BOX restaurant facilities to reflect the personality of Jack — the
chain’s fictional founder and popular spokesman. The third strategic initiative is to expand franchising — through
new restaurant development and the sales of company-operated restaurants to franchisees — to generate higher
returns and higher margins, while mitigating business-cost and investment risks. The fourth initiative is to improve
our business model as we transition to becoming a predominantly franchised restaurant chain.
The following summarizes the most significant events occurring in fiscal year 2007:
•Increase in Restaurant Sales. Progress made in reinventing the JACK IN THE BOX brand through menu
upgrades, programs aimed at improving the guest experience through service initiatives and enhancements
to the restaurant environment contributed to sales growth at JACK IN THE BOX restaurants increasing both the
average check and number of transactions. This positive sales momentum resulted in increases in “same-
store” sales (those restaurants open more than one year) of 6.1% at JACK IN THE BOX company-operated
restaurants.
•Re-Image Program. In 2007, we continued to re-image our JACK IN THE BOX restaurants. In fiscal 2007, we
re-imaged 187 restaurants and franchisees re-imaged another 13 locations with a comprehensive program
that includes a complete redesign of the dining room and common areas bringing the total number of re-
imaged restaurants to approximately 350 at September 30, 2007. According to a proprietary brand image and
loyalty study, the newly re-imaged restaurants are expanding their customer base, generating more guest
visits and gaining more loyal guests.
•Franchising Program. We continued to make progress on our strategic initiative to expand franchising
through new restaurant development and sales of company-operated restaurants to franchisees. In 2007, we
refranchised 76 JACK IN THE BOX restaurants and franchisees opened 16 new restaurants. At September 30,
2007, approximately 33% of our JACK IN THE BOX restaurants were franchised. Additionally, we signed
franchise development agreements to expand the JACK IN THE BOX brand into three new contiguous markets.
•Stock Repurchases. Pursuant to a modified “Dutch Auction” tender offer (“Tender Offer”) and stock
repurchase programs authorized by our Board of Directors, we repurchased shares of our common stock for
$463.4 million.
•Credit Facility. In the first quarter, we entered into a new credit agreement consisting of a revolving credit
facility of $150.0 million with a five-year maturity and a term loan facility of $475.0 million with a six-year
maturity. Using our available cash resources, in the second quarter we prepaid without penalty $60.0 million
of our term loan which is expected to result in annualized interest savings of approximately $2.0 million.
•Interest Rate Swaps. To reduce exposure to rising interest rates, we converted $200.0 million of our term
loan at floating rates to a fixed interest rate for the next three years by entering into two interest rate swap
contracts.
FINANCIAL REPORTING CHANGES
At the beginning of fiscal year 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) 123
(revised 2004), Share-Based Payment (123R),which requires that all employee share-based compensation be
measured using a fair value method and that the resulting compensation cost be recognized in the financial
21