-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A1wA80iD+OZGG3IokOdeUsk3Z2ShfsSTBlX3W5e0MKms4rojZJZ/eFJvZ7sNVkpK 3jrl24vQUONhbpOinuhGmg== 0000807882-01-500030.txt : 20020412 0000807882-01-500030.hdr.sgml : 20020412 ACCESSION NUMBER: 0000807882-01-500030 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JACK IN THE BOX INC /NEW/ CENTRAL INDEX KEY: 0000807882 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 952698708 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09390 FILM NUMBER: 1810717 BUSINESS ADDRESS: STREET 1: 9330 BALBOA AVE CITY: SAN DIEGO STATE: CA ZIP: 92123-1516 BUSINESS PHONE: 6195712121 MAIL ADDRESS: STREET 1: 9330 BALBOA AVENUE CITY: SAN DIEGO STATE: CA ZIP: 92123-1516 FORMER COMPANY: FORMER CONFORMED NAME: FOODMAKER INC /DE/ DATE OF NAME CHANGE: 19920703 10-K 1 project10k2001.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001 COMMISSION FILE NUMBER 1-9390 Jack in the Box Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2698708 - ----------------------------------------- ------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) 9330 Balboa Avenue, San Diego, CA 92123 - ----------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (858) 571-2121 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------------------------- ----------------------------------------- Common Stock, $.01 par value New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of November 30, 2001, computed by reference to the closing price reported in the New York Stock Exchange - Composite Transactions, was approximately $986 million. Number of shares of common stock, $.01 par value, outstanding as of the close of business November 30, 2001 - 39,280,393. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 2002 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. 1 ITEM 1. BUSINESS -------- The Company Overview. Jack in the Box Inc. (the "Company"), formerly Foodmaker, Inc., owns, operates and franchises JACK IN THE BOX(R) quick-service hamburger restaurants. In fiscal 2001, we generated revenues of $1.8 billion. As of September 30, 2001, the Jack in the BOX system included 1,762 restaurants, of which 1,431 were Company-operated and 331 were franchised. 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. JACK IN THE BOX restaurants offer a broad selection of distinctive, innovative products targeted at the adult fast-food consumer. The JACK IN THE BOX menu features a variety of hamburgers, specialty sandwiches, Mexican foods, finger foods and side items. The core of the JACK IN THE BOX menu is hamburgers, including the signature Jumbo Jack(R), Sourdough Jack(R) and Ultimate Cheeseburger. In addition, we offer products unique to the hamburger segment, such as the Teriyaki Chicken Bowl and Chicken Fajita Pita. JACK IN THE BOX restaurants also offer value-priced product alternatives, known as "Jack's Value Menu," to compete against price-oriented competitors. We believe that our distinctive menu has been instrumental in developing brand loyalty and is appealing to customers with a broader range of food preferences. JACK IN THE BOX restaurants strive to provide a restaurant experience that exceeds the guests' expectations. The JACK IN THE BOX restaurant chain was the first to develop and expand the concept of drive-thru only restaurants. In addition to drive-thru windows, most of our restaurants have seating capacities ranging from 20 to 100 persons and are open 18-24 hours a day. Drive-thru sales currently account for approximately 65% of sales at Company-operated restaurants. History. The first JACK IN THE BOX restaurant, which offered only drive-thru service, opened in 1951. The JACK IN THE BOX chain had expanded its operations to approximately 300 restaurants by 1968. After the Company was purchased in 1968 by Ralston Purina Company, a major expansion program was initiated in an effort to penetrate the eastern and midwestern markets, and by 1979 business had grown to over 1,000 units. In 1979, the Company decided to divest 232 restaurants in the east and midwest to concentrate its efforts and resources in the western and southwestern markets, which were believed to offer the greatest growth and profit potential at that time. In 1985, a group of private investors acquired the Company and, in 1987, a public offering of common stock was completed. In 1988, the outstanding publicly-held shares were acquired by private investors through a tender offer. In 1992, a recapitalization was completed that included a public offering of common stock and indebtedness. Since that time, we have continued to add new restaurants and have entered new markets. Operating Strategy. Our operating strategy includes: (i) offering quality products at competitive prices, (ii) providing fast and friendly customer service, (iii) maintaining a strong brand image, and (iv) targeting an attractive demographic segment. Beginning in 1994, we began a series of operating initiatives to improve food quality and guest service. These initiatives include improvements in food preparation and service methods, product reformulations and innovations, and training and retention of employees. In 1995, we launched our award-winning, advertising campaign featuring our fictional founder "Jack" which has been instrumental in delivering the message of product quality, innovation and value to our customers. We believe our menu and marketing campaign appeal to a broad segment of the population, particularly our primary target market of men aged 18-34, the demographic group with the highest incidence of fast-food consumption. We operate 81% of the JACK IN THE BOX restaurants, one of the highest percentages in the quick-service restaurant industry, which we believe enables us to implement our operating strategy and introduce product innovations consistently across the entire system more effectively and efficiently than other quick-service restaurant chains. Menu Strategy. The menu strategy for JACK IN THE BOX restaurants is to provide high quality products that represent good value and appeal to the preferences of our customers. The menu features traditional hamburgers and side items in addition to specialty sandwiches, Mexican foods, finger foods, breakfast foods, unique side items and desserts. 2 We recognize the advantages of improving existing products through ingredient specifications and changes in preparation and cooking procedures. When appropriate, improvements such as our Assemble-to-Order ("ATO") program are communicated to the public through point-of-purchase and television media, with messages such as "We won't make it - `til you order it." During fiscal 2001, with an emphasis on speed of service, we improved our average transaction time by about 40 seconds. We believe these initiatives, along with the addition of new menu boards and order confirmation screens have had a favorable impact on sales. JACK IN THE BOX restaurants operate in the hamburger segment which is the largest segment of the quick-service industry. Hamburgers, including the Jumbo Jack, Sourdough Jack and the Ultimate Cheeseburger, accounted for approximately one-quarter of our restaurant sales in fiscal 2001. However, we believe that, as a result of our diverse menu, our restaurants are less dependent on the commercial success of one or a few products than other quick-service chains, and the menu appeals to guests with a broad range of food preferences. Growth Strategy. Our business plan is to (i) increase same store sales and profitability through the continued implementation of our successful operating strategy and (ii) capitalize on our strong brand name and proven operating strategy by developing new restaurants. We believe that our strategy of focusing on food quality and guest service will allow us to differentiate ourselves from competitors. We intend to continue our efforts to increase same store sales and profitability through improvements in food quality and guest service, product innovations and creative marketing. For example, in 1999, we implemented the ATO program by remodeling our restaurant kitchens to improve food quality and to allow for more efficient operations. Also, we installed new drive-thru menu boards which feature an electronic order confirmation system that allows customers to read their orders on an electronic screen, which we believe reduces errors and increases customer satisfaction. In response to consumer demand, we installed self-serve drink stations in the vast majority of restaurants, improving guest satisfaction and reducing labor. We intend to capitalize on our strong brand name and proven operating strategy to achieve attractive returns on investment by developing new Company-operated restaurants and, to a lesser extent, franchised restaurants. We opened 126 new Company-operated restaurants in fiscal 2001 and intend to open and operate additional new restaurants over the next several years. We believe that our brand is still underpenetrated in many of our existing markets and intend to leverage media and food delivery costs by increasing our market penetration. In addition, we believe that we can further leverage the JACK IN THE BOX brand name by expanding to contiguous and selected new markets. We have also begun opening a limited number of restaurants on nontraditional sites, such as sites adjacent to convenience stores and gas stations, and intend to continue to add nontraditional sites to increase our penetration of existing markets. We intend to remain flexible in our strategies to grow the business in our pursuit of long-term increases in shareholder value. Site selections for all new JACK IN THE BOX restaurants are made after an extensive review of demographic data and other information relating to population density, restaurant visibility and access, available parking, surrounding businesses and opportunities for market penetration. JACK IN THE BOX restaurants developed by franchisees are built to our specifications on sites which have been approved by us. New JACK IN THE BOX restaurants are built using several configurations, with the largest configuration seating approximately 100 customers and the smallest, 40 customers. Management believes that the flexibility provided by the alternative configurations enables us to match the restaurant configuration with specific economic, demographic and geographic characteristics of the site. The typical development costs for new restaurants range from approximately $1.4 million to $1.8 million. We use lease financing and other means to lower our cash investment in a typical leased restaurant to approximately $300,000 to $400,000. 3 The following table summarizes the growth in Company-operated and franchised JACK IN THE BOX restaurants since the beginning of fiscal 1997: Fiscal Year ------------------------------------------ 1997 1998 1999 2000 2001 ------ ------ ------ ------ ------ Company-operated restaurants: Opened........................ 75 102 115 120 126 Sold to franchisees........... (8) (2) - (13) (13) Closed........................ (6) (8) (6) (4) (2) Acquired from franchisees..... 23 14 13 17 9 End of period total........... 963 1,069 1,191 1,311 1,431 Franchised restaurants: Opened........................ 5 2 2 1 4 Acquired from Company......... 8 2 - 13 13 Closed........................ (21) (5) (8) - - Sold to Company............... (23) (14) (13) (17) (9) End of period total........... 360 345 326 323 331 System end of period total........ 1,323 1,414 1,517 1,634 1,762 The following table summarizes, by state, the geographical locations of JACK IN THE BOX restaurants at September 30, 2001: Company- operated Franchised Total -------- ---------- ----- Arizona........................ 89 45 134 California..................... 544 244 788 Hawaii......................... 28 1 29 Idaho.......................... 22 - 22 Illinois....................... 13 - 13 Louisiana...................... 14 - 14 Missouri....................... 47 - 47 Nevada......................... 40 11 51 New Mexico..................... - 2 2 North Carolina................. 16 - 16 Oregon......................... 35 2 37 South Carolina................. 6 - 6 Tennessee...................... 19 - 19 Texas.......................... 451 26 477 Utah........................... 1 - 1 Washington..................... 106 - 106 ----- ----- ------ Total...................... 1,431 331 1,762 ===== ===== ====== Restaurant Operations. We devote significant resources toward ensuring that all JACK IN THE BOX restaurants offer high quality food and service. Emphasis is placed on ensuring that quality ingredients are delivered to the restaurants, restaurant food production systems are continuously developed and improved, and we train our employees to be dedicated to delivering consistently high quality food and service. Through our network of corporate quality assurance, facilities services and restaurant management personnel, including regional vice presidents, area managers and restaurant managers, we standardize specifications for food preparation and service, employee conduct and appearance, and the maintenance and repair of our premises. Operating specifications and procedures are documented in a series of manuals and video presentations. Most restaurants, including franchised units, receive approximately four quality, food safety and cleanliness inspections and 26 mystery guest reviews each year. 4 Each JACK IN THE BOX restaurant is operated by a Company-employed manager or a franchisee who normally attends an extensive range of management training classes. Our management training program involves a combination of classroom instruction and on-the-job training in specially designated training restaurants. Restaurant managers and supervisory personnel train other restaurant employees in accordance with detailed procedures and guidelines using training aids and video equipment available at each location. The restaurant managers are directly responsible for the operation of the restaurants, including product quality, food handling safety, cleanliness, service, inventory, cash control and the conduct and appearance of employees. Restaurant managers are supervised by area managers, each of whom is responsible for an average of 15 restaurants. The area managers are supervised by 12 regional vice presidents. Under our performance system, regional vice presidents, and area and restaurant managers are eligible for quarterly bonuses based on a percentage of location operating profit and profit improvement over the prior year and certain other criteria. Our "farm-to-fork" food safety and quality assurance program is designed to maintain high standards for the food products and food preparation procedures used by Company-operated and franchised restaurants. We maintain product specifications and approve product sources. We have a comprehensive, restaurant-based Hazard Analysis & Critical Control Points ("HACCP") system for managing food safety and quality. HACCP combines employee training, testing by suppliers, and detailed attention to product quality at every stage of the food preparation cycle. Our HACCP program has been recognized as a leader in the industry by the USDA, FDA and the Center for Science in the Public Interest. We provide purchasing, warehouse and distribution services for all Company-operated and approximately one-third of franchise-operated restaurants. The remaining franchisees participate in a purchasing cooperative they formed in 1996 and contract with another supplier for distribution services. Some products, primarily dairy and bakery items, are delivered directly by approved suppliers to both Company-operated and franchised restaurants. The primary commodities purchased by JACK IN THE BOX restaurants are beef, poultry, pork, cheese and produce. We monitor the primary commodities we purchase in order to minimize the impact of fluctuations in price and availability, and make advance purchases of commodities when considered to be advantageous. However, certain commodities remain subject to price fluctuations. All essential food and beverage products are available, or upon short notice can be made available, from alternative qualified suppliers. We have centralized financial and accounting controls for Company-operated JACK IN THE BOX restaurants which we believe are important in analyzing and improving profit margins. JACK IN THE BOX restaurants use a specially designed computerized reporting and cash register system which is being converted to a new touch screen point-of-sale system designed to increase speed of service, and decrease employee training and transaction times. The system provides point-of-sale transaction data and accumulates marketing information for analysis. Franchising Program. The growth of the JACK IN THE BOX concept occurs primarily through the building of new Company-operated restaurants. Although we do not actively recruit new franchisees, our franchising strategy allows selected franchisee restaurant development in existing franchised markets. We offer development agreements for construction of one or more new restaurants over a defined period of time and in a defined geographic area. Developers are required to pay a development fee, a portion of which may be credited against franchise fees due for restaurants to be opened in the future. Developers may forfeit such fees and lose their rights to future developments if they do not maintain the required schedule of openings. Our current franchise agreement provides for an initial franchise fee of $50,000 per restaurant, royalties of 5% of gross sales, marketing fees of 5% of gross sales and, in most instances, a 20-year term. Some existing agreements provide for royalties and marketing fees at rates as low as 4%. In connection with the conversion of a Company-operated restaurant, the restaurant equipment and the right to do business at that location, known as "Trading Area Rights," are sold to the franchisee, in most cases for cash. The aggregate price is equal to the negotiated fair market value of the restaurant as a going concern, which depends on various factors including the history of the restaurant, its location and cash flow potential. In addition, the land and building are leased or subleased to the franchisee at a negotiated rent, generally equal to the greater of a minimum base rent or a percentage of gross sales. The franchisee is required to pay property taxes, insurance and maintenance costs. Our franchise agreement also provides us a right of first refusal on each proposed sale of a franchised restaurant, which we exercise from time to time when the proposed sale price and terms are acceptable to us. 5 We view our non-franchised JACK IN THE BOX units as a potential resource which, on a selected basis, can be sold to a franchisee generating current cash flow and revenues while still maintaining future cash flows and earnings through franchise rents and royalties. Franchised units totaled 331 of the 1,762 JACK IN THE BOX restaurants at September 30, 2001. The ratio of franchised to Company-operated restaurants is low relative to our major competitors. Advertising and Promotion. JACK IN THE BOX restaurants participate in substantial marketing programs and activities. Advertising costs are paid from a fund comprised of (i) an amount contributed each year by us equal to approximately 5% of the gross sales of our Company-operated restaurants and (ii) the marketing fees paid by franchisees. Our use of advertising is limited to regional and local campaigns on television and radio and in print media. We spent approximately $104.5 million on advertising and promotions in fiscal 2001, including franchisee contributions of $19.1 million. Our current advertising campaign relies on a series of television and radio spot advertisements to promote individual products and to develop the JACK IN THE BOX brand. We also spent $1.1 million in fiscal 2001 for local marketing purposes. Franchisees are also encouraged to, and generally do, spend additional funds for local marketing programs. Employees. At September 30, 2001, we had approximately 43,600 employees, of whom approximately 41,100 were restaurant employees, 620 were corporate personnel, 400 were distribution employees and 1,480 were field management and administrative personnel. Employees are paid on an hourly basis, except restaurant managers, corporate and field management, and administrative personnel. A majority of our restaurant employees are employed on a part-time, hourly basis to provide services necessary during peak periods of restaurant operations. We have not experienced any significant work stoppages and believe our labor relations are good. We compete in the job market for qualified employees and believe our wage rates are comparable to those of our competitors. Trademarks and Service Marks The JACK IN THE BOX name is of material importance to us and is a registered trademark and service mark in the United States and in certain foreign countries. In addition, we have registered numerous service marks and trade names for use in our business, including the JACK IN THE BOX logo and various product names and designs. Competition and Markets The restaurant business is highly competitive and is affected by competitive changes in a geographic area, changes in the public's eating habits and preferences, local and national economic conditions affecting consumer spending habits, population trends and traffic patterns. Key elements of competition in the industry are the quality and value of the food products offered, quality and speed of service, advertising, name identification, restaurant location and attractiveness of facilities. Each JACK IN THE BOX restaurant competes directly and indirectly with a large number of national and regional restaurant chains, as well as with locally-owned quick-service restaurants and coffee shops. In selling franchises, we compete with many other restaurant franchisers, some of whom have substantially greater financial resources and higher total sales volume. Regulation Each JACK IN THE BOX restaurant is subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, safety, fire and other departments. Difficulties or failures in obtaining any required licensing or approval could result in delays or cancellations in the opening of new restaurants. We are also subject to federal and a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisers in the offer and sale of franchises and may also apply substantive standards to the relationship between franchiser and franchisee, including limitations on the ability of franchisers to terminate franchisees and alter franchise arrangements. We believe we are operating in substantial compliance with applicable laws and regulations governing our operations. 6 We are subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime and other working conditions. A significant number of our food service personnel are paid at rates related to the federal and state minimum wage, and, accordingly, increases in the minimum wage increase our labor costs. In addition, various proposals which would require employers to provide health insurance for all of their employees are being considered from time to time in Congress and various states. The imposition of any requirement that we provide health insurance to all employees would have a material adverse impact on the consolidated operations and financial condition of the Company and the restaurant industry, in general. We are subject to certain guidelines under the Americans with Disabilities Act of 1990 ("ADA") and various state codes and regulations which require restaurants to provide full and equal access to persons with physical disabilities. To comply with such laws and regulations, the cost of remodeling and developing restaurants has increased, principally due to the need to provide certain older restaurants with ramps, wider doors, larger restrooms and other conveniences. We are also subject to various federal, state and local laws regulating the discharge of materials into the environment. The cost of developing restaurants has increased to comply with these laws. Additional costs relate primarily to the necessity of obtaining more land, landscaping and below surface storm drainage and the cost of more expensive equipment necessary to decrease the amount of effluent emitted into the air and ground. Forward-Looking Statements and Risk Factors This Form 10-K contains "forward-looking statements" within the meaning of the securities laws. Although we believe that the expectations reflected in such forward-looking statements are reasonable, and have based these expectations on our beliefs as well as assumptions we have made, such expectations may prove to be materially incorrect due to known and unknown risks and uncertainties. These forward-looking statements are principally contained in the sections captioned "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Statements regarding our future financial performance, including growth in net sales, earnings, cash flows from operations and sources of liquidity; expectations regarding effective tax rates; the number and location of new restaurants to be opened in the future and continuing investment in new restaurants and refurbishment of existing facilities; the appeal of our menu and marketing campaigns; our operational efficiencies and labor relations are forward-looking statements. In those and other portions of this Form 10-K, the words "anticipates," "believes," "estimates," "seeks," "expects," "plans," "intends" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the following cautionary statements identify important factors that could cause actual results to differ materially from those expressed in any forward-looking statements. In addition to the factors discussed in this Form 10-K, other factors that could cause results to differ materially include, but are not limited to: the effectiveness and cost of our advertising and promotional efforts; the degree of success of our product offerings; our ability to expand successfully into new markets; weather conditions that adversely affect the level of customer traffic or timely delivery of our food supplies; difficulties in obtaining ingredients and variations in ingredient costs; our ability to control operating, general and administrative costs and to raise prices sufficiently to offset cost increases; our ability to recognize value from any current or future co-branding efforts; erosion of our sales caused by competitive products, pricing and promotions; the impact of any wide-spread negative publicity; the impact on consumer eating habits of new scientific information regarding diet, nutrition and health; competition for labor; power shortages and increases in utility costs due to deregulation; general economic conditions; changes in consumer tastes and in travel and dining-out habits; the impact on operations and the costs to comply with laws and regulations and other activities of governing entities; the costs and other effects of legal claims by franchisees, customers, vendors and others, including settlement of those claims; and the effectiveness of management strategies and decisions. 7 Risks Related to the Food Service Industry. Food service businesses are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. The performance of individual restaurants may be adversely affected by factors such as traffic patterns, demographics and the type, number and location of competing restaurants. Multi-unit food service businesses such as ours can also be materially and adversely affected by publicity resulting from poor food quality, illness, injury or other health concerns with respect to the nutritional value of certain food. To minimize the risk of food-borne illness, we have implemented a HACCP system for managing food safety and quality. Nevertheless, the risk of food-borne illness cannot be completely eliminated. Any outbreak of such illness attributed to JACK IN THE BOX restaurants or within the food service industry could have a material adverse effect on our financial condition and results of operations. Dependence on frequent deliveries of fresh produce and groceries subjects food service businesses, such as ours, to the risk that shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the availability, quality and cost of ingredients. In addition, unfavorable trends or developments concerning factors such as inflation, increased food, labor and employee benefit costs (including increases in hourly wage and unemployment tax rates), 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 and our financial condition and results of operations in particular. Changes in economic conditions affecting our customers could reduce traffic in some or all of our restaurants or impose practical limits on pricing, either of which could have a material adverse effect on our financial condition and results of operations. Our continued success will depend in part on our ability to anticipate, identify and respond to changing conditions. Risks Associated with Development. We intend to grow primarily by developing additional Company-owned restaurants. Development involves substantial risks, including the risk of (i) development costs exceeding budgeted or contracted amounts, (ii) delays in completion of construction, (iii) failing to obtain all necessary zoning and construction permits, (iv) the inability to identify or the unavailability of suitable sites, both traditional and nontraditional, on acceptable leasing or purchase terms, (v) developed properties not achieving desired revenue or cash flow levels once opened, (vi) competition for suitable development sites from competitors (some of which have greater financial resources than we do), (vii) incurring substantial unrecoverable costs in the event a development project is abandoned prior to completion, (viii) changes in governmental rules, regulations, and interpretations (including interpretations of the requirements of the ADA) and (ix) general economic and business conditions. Although we intend to manage our development to reduce such risks, we cannot assure you that present or future developments will perform in accordance with our expectations. We cannot assure you that we will complete the development and construction of the facilities, or that any such developments will be completed in a timely manner or within budget, or that such restaurants will generate our expected returns on investment. Our inability to expand in accordance with our plans or to manage our growth could have a material adverse effect on our results of operations and financial condition. Risks Associated with Growth. Our development plans will require the implementation of enhanced operational and financial systems and will require additional management, operational, and financial resources. For example, we will be required to recruit and train managers and other personnel for each new Company-owned restaurant, as well as additional development and accounting personnel. We cannot assure you that we will be able to manage our expanding operations effectively. The failure to implement such systems and add such resources on a cost-effective basis could have a material adverse effect on our results of operations and financial condition. Reliance on Certain Markets. Because our business is regional, with approximately three-fourths of JACK IN THE BOX restaurants located in the states of California and Texas, the economic conditions, state and local government regulations and weather conditions affecting those states may have a material impact upon our results. 8 Risks Related to Entering New Markets. During fiscal 2002 we expect to open additional restaurants in the new markets we entered since fiscal 2000. We cannot assure you that we will be able to successfully enter into these or additional new geographical markets, as we may encounter well-established competitors with substantially greater financial resources. We may be unable to find attractive locations, successfully market our products and attract new customers. Competitive circumstances and consumer characteristics in new markets may differ substantially from those in the markets in which we have substantial experience. We cannot assure you that we will be able to successfully integrate or profitably operate new Company-operated or franchised restaurants located in our new markets. Competition. The restaurant industry is highly competitive with respect to price, service, location and food quality, and there are many well-established competitors. Certain of our competitors have engaged in substantial price discounting in recent years and may continue to do so in the future. In addition, factors such as increased food, labor and benefits costs and the availability of experienced management and hourly employees may adversely affect the restaurant industry in general and our restaurants in particular. Each JACK IN THE BOX restaurant competes directly and indirectly with a large number of national and regional restaurant chains, as well as with locally-owned quick-service restaurants and coffee shops. Some of our competitors have substantially greater financial resources and higher total sales volume. Any changes in these factors could adversely affect our profitability. Exposure to Commodity Pricing. Although we may take hedging positions in certain commodities from time to time and opportunistically contract for some of these items in advance of a specific need, we cannot assure you that we will not be subject to the risk of substantial and sudden price increases, shortages or interruptions in supply of such items, which could have a material adverse effect on us. Risks Related to Increased Labor Costs. We have a substantial number of employees who are paid wage rates at or slightly above the minimum wage. As federal and state minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to the employees at wage rates which are above minimum wage. If competitive pressures or other factors prevent us from offsetting the increased costs by increases in prices, our profitability may decline. In addition, various proposals which would require employers to provide health insurance for all of their employees are being considered from time to time in Congress and various states. The imposition of any requirement that we provide health insurance to all employees would have a material adverse impact on the operations and financial condition of the Company and the restaurant industry. Risks Related to Advertising. We compete against both regional and national quick service restaurants, grocery and speciality stores as well as similar types of businesses which offer sandwiches and similar items. Some of our competors have greater financial resources which enable them to purchase significantly more television and radio advertising than we are able to purchase. Should our competitors increase spending on advertising and promotion, should the cost of television or radio advertising increase, or our advertising funds decrease for any reason, including implementation of reduced spending strategies, there could be a material adverse effect on our results of operation and financial condition. Taxes. From time to time, we may take positions in filing our tax returns that differ from the treatments for financial reporting purposes. The ultimate outcome of such positions could have an adverse impact on our effective tax rate. Leverage. We are highly leveraged. Our substantial indebtedness may limit our ability to respond to changing business and economic conditions. The contracts under which we acquired our debt impose significant operating and financial restrictions which limit our ability to borrow money, sell assets or make capital expenditures or investments without the approval of certain lenders. In addition to cash flows generated by operations, other financing alternatives may be required in order to repay our debt as it comes due. We cannot assure you that we will be able to refinance our debt or obtain additional financing, or that any such financing will be on terms favorable to us. 9 Risks Related to Franchise Operations. At September 30, 2001, we had 331 franchised JACK IN THE BOX restaurants. The opening and success of franchised restaurants depends on various factors, including the availability of suitable sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules and the financial and other capabilities of our franchisees and developers. We cannot assure you that developers planning the opening of franchised restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants required by their agreements. We cannot assure you that franchisees will successfully operate their restaurants in a manner consistent with our concept and standards. In addition, certain federal and state laws govern our relationships with our franchisees. See "Risks Related to Government Regulations" below. Dependence on Key Personnel. We believe that our success will depend in part on the continuing services of our key executives, including Robert J. Nugent, Chief Executive Officer, Kenneth R. Williams, President and Chief Operating Officer, and John F. Hoffner, Executive Vice President and Chief Financial Officer, none of whom are employed pursuant to an employment agreement. The loss of the services of any of such executives could have a material adverse effect on our business, and we cannot assure you that qualified replacements would be available. Our continued growth will also depend in part on our ability to attract and retain additional skilled management personnel. Risks Related to Government Regulations. The restaurant industry is subject to extensive federal, state and local governmental regulations, including those relating to the preparation and sale of food and those relating to building and zoning requirements. We and our franchisees are also subject to laws governing our relationships with employees, including minimum wage requirements, overtime, working and safety conditions and citizenship requirements. See "Risks Related to Increased Labor Costs" above. We are also subject to federal regulation and certain state laws which govern the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on noncompetition provisions and on provisions concerning the termination or nonrenewal of a franchise. Some states require that certain materials be registered before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could adversely affect us and our franchisees. Changes in government regulations could have a material adverse effect on our operations. Environmental Risks and Regulations. As is the case with any owner or operator of real property, we are subject to a variety of federal, state and local governmental regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. Failure to comply with environmental laws could result in the imposition of severe penalties or restrictions on operations by governmental agencies or courts of law which could adversely affect operations. We do not have environmental liability insurance; nor do we maintain a reserve to cover such events. We have engaged and may engage in real estate development projects and own or lease several parcels of real estate on which our restaurants are located. We are unaware of any significant environmental hazards on properties we own or have owned, or operate or have operated. In the event of the determination of contamination on such properties, the Company, as owner or operator, could be held liable for severe penalties and costs of remediation. We also operate motor vehicles and warehouses and handle various petroleum substances and hazardous substances, but are not aware of any current material liability related thereto. 10 ITEM 2. PROPERTIES ---------- At September 30, 2001, we owned 690 JACK IN THE BOX restaurant buildings, including 466 located on leased land. In addition, we leased 990 restaurants where both the land and building are leased, including 148 restaurants operated by franchisees. At September 30, 2001, franchisees directly owned or leased 82 restaurants. Number of restaurants ----------------------------- Company- Franchise- operated operated Total -------- ---------- ------- Company-owned restaurant buildings: On Company-owned land...................... 171 53 224 On leased land............................. 418 48 466 ----- --- ----- Subtotal................................... 589 101 690 Company-leased restaurant buildings on leased land............................. 842 148 990 Franchise directly-owned or directly- leased restaurant buildings................ - 82 82 ----- --- ----- Total restaurant buildings.................... 1,431 331 1,762 ===== === ===== Our leases generally provide for fixed rental payments (with cost-of-living index adjustments) plus real estate taxes, insurance and other expenses. In addition, many of the leases provide for contingent rental payments of between 2% and 10% of the restaurant's gross sales once certain thresholds are met. We have generally been able to renew our restaurant leases as they expire at then-current market rates. The remaining terms of ground leases range from approximately one year to 53 years, including optional renewal periods. The remaining lease terms of our other leases range from approximately one year to 43 years, including optional renewal periods. At September 30, 2001, the leases had initial terms expiring as follows: Number of restaurants ------------------------- Land and Ground building leases leases ---------- ------------ 2002 - 2006................................... 179 256 2007 - 2011................................... 98 251 2012 - 2016................................... 45 212 2017 and later................................ 144 271 We own our principal executive offices in San Diego, California, consisting of approximately 150,000 square feet and have opportunistically acquired land for the potential expansion of our San Diego office space. We own one warehouse and lease an additional six with remaining terms ranging from one to 18 years, including optional renewal periods. Certain of our real and personal property are pledged as collateral for various components of our long-term debt. 11 ITEM 3. LEGAL PROCEEDINGS ----------------- As previously reported, we have reached a settlement in an action filed in 1995 regarding alleged failure to comply with the Americans with Disabilities Act ("ADA"). The settlement requires compliance with ADA Access Guidelines at Company-operated restaurants by October 2005. We are in the process of making modifications to improve accessibility at our restaurants. We currently expect to spend approximately $10 million over the next four years in connection with these modifications in addition to amounts previously invested. On April 18, 2001, an action was filed by Robert Bellmore and Jeffrey Fairbairn, individually and on behalf of all others similarly situated, in the Superior Court of the State of California, San Diego County, seeking class action status and alleging violations of California wage and hour laws. The complaint alleges that salaried restaurant management personnel in California were improperly classified as exempt from California overtime laws, thereby depriving them of overtime pay. The complaint seeks damages in an unspecified amount, penalties, injunctive relief, prejudgment interest, costs and attorneys' fees. We believe our employee classifications are appropriate and plan to vigorously defend this action. A motion for class certification is scheduled to be heard on May 3, 2002 and a trial date has been set for January 17, 2003. We are also subject to normal and routine litigation in the ordinary course of business. The amount of liability from the claims and actions against us cannot be determined with certainty, but in our opinion the ultimate liability from all pending legal proceedings, asserted legal claims and known potential legal claims which are probable of assertion should not materially affect our results of operations and liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- No matters were submitted to a vote of security holders during the fourth fiscal quarter ended September 30, 2001. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS --------------------------------------------------------------------- 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: 12 weeks ended 16 weeks ended ------------------------------------------------ Jan. 23, 2000 Apr. 16, 2000 July 9, 2000 Oct. 1, 2000 -------------- ------------- ------------ ------------ High..... $27.00 $26.00 $26.88 $26.88 Low...... 18.50 18.81 22.94 20.00 12 weeks ended 16 weeks ended ------------------------------------------------- Jan. 21, 2001 Apr. 15, 2001 July 8, 2001 Sept. 30, 2001 -------------- ------------- ------------ -------------- High..... $30.56 $31.75 $26.47 $34.00 Low...... 20.06 24.46 23.91 25.55 We have not paid any cash or other dividends (other than the issuance of Rights, as described in Note 8 to the Consolidated Financial Statements) during the last two fiscal years and do not anticipate paying dividends in the foreseeable future. Our credit agreements prohibit, and our public debt instruments restrict, our right to declare or pay dividends or make other distributions with respect to shares of our capital stock. As of September 30, 2001, there were approximately 500 stockholders of record. 12 ITEM 6. SELECTED FINANCIAL DATA ----------------------- Our fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30. Fiscal year 1999 included 53 weeks and all other years include 52 weeks. The following selected financial data of Jack in the Box Inc. for each fiscal year is extracted or derived from financial statements which have been audited by KPMG LLP, our independent auditors.
Fiscal Year ----------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per share data) Statement of Operations Data: Revenues: Restaurant sales...................... $1,714,126 $1,529,328 $1,372,899 $1,112,005 $ 986,583 Distribution and other sales.......... 66,565 59,091 41,828 26,407 45,233 Franchise rents and royalties......... 43,825 41,432 39,863 35,904 35,426 Other revenues (1).................... 9,060 3,461 2,309 49,740 4,500 ---------- ---------- ----------- ----------- ---------- Total revenues....................... 1,833,576 1,633,312 1,456,899 1,224,056 1,071,742 Costs of revenues (2).................... 1,477,048 1,301,757 1,142,995 951,619 869,721 ---------- ---------- ----------- ----------- ---------- Gross profit............................. 356,528 331,555 313,904 272,437 202,021 Selling, general and administrative expenses............... 201,715 182,961 164,297 134,926 116,459 ---------- ---------- ----------- ----------- ---------- Earnings from operations................. 154,813 148,594 149,607 137,511 85,562 Interest expense......................... 24,453 25,830 28,249 33,058 40,359 ---------- ---------- ----------- ----------- ---------- Earnings before income taxes, extraordinary item and cumulative effect of accounting change........... 130,360 122,764 121,358 104,453 45,203 Income taxes (3)......................... 46,300 22,500 44,900 33,400 9,900 ---------- ---------- ----------- ----------- ---------- Earnings before extraordinary item and cumulative effect of accounting change................................ $ 84,060 $ 100,264 $ 76,458 $ 71,053 $ 35,303 ========== ========== =========== =========== ========== Earnings per share before extra- ordinary item and cumulative effect of accounting change: Basic................................ $ 2.17 $ 2.62 $ 2.00 $ 1.82 $ .91 Diluted.............................. 2.11 2.55 1.95 1.77 .89 Balance Sheet Data (at end of period): Total assets............................. $1,029,822 $ 906,828 $ 833,644 $ 743,588 $ 681,758 Long-term debt........................... 279,719 282,568 303,456 320,050 346,191 Stockholders' equity..................... 413,530 316,352 217,837 136,980 87,879 - --------- (1) Includes the recognition of a $45.8 million litigation settlement received from various meat suppliers in 1998. (2) Reflects an $18.0 million reduction of restaurant operating costs in 1999 as described in Item 7 - Costs and Expenses. (3) Includes the recognition of $22.9 million in tax benefits in 2000 primarily resulting from the settlement of a tax case as described in Item 7 - Costs and Expenses.
13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- Results of Operations All comparisons under this heading between 2001, 2000 and 1999 refer to the 52-week periods ended September 30, 2001 and October 1, 2000, and the 53-week period ended October 3, 1999, respectively, unless otherwise indicated. Revenues Company-operated restaurant sales were $1,714.1 million, $1,529.3 million and $1,372.9 million in 2001, 2000 and 1999, respectively. In 1999, restaurant sales included approximately $28 million from an additional 53rd week. Restaurant sales improved from the prior year by $184.8 million, or 12.1%, in 2001 and $156.4 million, or 11.4%, in 2000, reflecting increases in the number of Company-operated restaurants and in per store average ("PSA") sales. The number of Company-operated restaurants at the end of the fiscal year grew to 1,431 in 2001 from 1,311 in 2000 and 1,191 in 1999 with new restaurant openings of 126, 120 and 115, respectively. PSA weekly sales for comparable Company restaurants increased 4.1% in 2001, 3.3% in 2000 and 8.7% in 1999 compared to the respective prior year, due to increases in both the number of transactions and the average transaction amounts. We believe restaurant sales improvements have resulted from our two-tier marketing strategy featuring both premium sandwiches and value-priced alternatives, as well as to a popular brand-building advertising campaign that features our fictional founder, "Jack". Also contributing to sales growth were price increases and our strategic initiatives, including our ongoing focus on food quality and guest service. Distribution and other sales were $66.6 million, $59.1 million and $41.8 million in 2001, 2000 and 1999, respectively. The $7.5 million increase in 2001 compared to 2000 is primarily due to increases in the number of restaurants serviced by our distribution division and PSA sales growth at franchised restaurants. The $17.3 million increase in 2000 compared to 1999 is due principally to an increase in the number of fuel and convenience stores we operate. Franchise rents and royalties were $43.8 million, $41.4 million and $39.9 million in 2001, 2000 and 1999, respectively, or 10.8%, 10.6% and 10.4%, respectively of sales at franchise-operated restaurants. Franchise restaurant sales were $406.9 million in 2001, $391.1 million in 2000 and $384.7 million in 1999. The percentage of sales in 2001 and 2000 grew primarily due to increases in percentage rents at certain franchised restaurants. Other revenues, representing franchise gains and fees and interest income from investments and notes receivable, increased to $9.1 million in 2001 from $3.5 million in 2000 and $2.3 million in 1999, primarily due to increased franchising activities. Costs and Expenses Restaurant costs of sales and operating costs increased with sales growth and the addition of Company-operated restaurants. Restaurant costs of sales, which include food and packaging costs, increased to $528.1 million in 2001 from $473.4 million in 2000 and $432.2 million in 1999. As a percent of restaurant sales, costs of sales were 30.8% in 2001, 31.0% in 2000 and 31.5% in 1999. The restaurant costs of sales percentage improved in 2001 and 2000 compared to prior years primarily due to favorable overall ingredient costs and selling price increases. 14 Restaurant operating costs were $864.1 million, $750.7 million and $646.8 million in 2001, 2000 and 1999, respectively. In 1999, we reduced accrued liabilities and restaurant operating costs by $18.0 million, primarily due to a change in estimates resulting from improvements to our asset protection and risk management programs, which were more successful than anticipated. This change in estimates was supported by an independent actuarial study conducted to evaluate the self-insured portion of our workers' compensation, general liability and other insurance programs. Restaurant operating costs were 50.4% of restaurant sales in 2001, 49.1% in 2000 and 48.4% in 1999, excluding the change in estimates. The restaurant operating costs percentage increased in 2001 compared to 2000, reflecting an increase in occupancy costs, principally utilities and to a lesser extent higher labor-related expenses. The percentage in 2000 increased compared to 1999, primarily reflecting costs related to initiatives designed to improve the overall guest experience and slightly higher labor-related costs. Costs of distribution and other sales were $64.5 million in 2001, $57.5 million in 2000 and $41.2 million in 1999, reflecting an increase in the related sales. As a percent of distribution and other sales, these costs improved to 96.9% in 2001, from 97.4% in 2000 and 98.5% in 1999, primarily due to improved margins from our fuel and convenience store operations resulting from our revised fuel pricing strategy and a decrease in start up costs. Franchised restaurant costs, which consist principally of rents and depreciation on properties leased to franchisees and other miscellaneous costs, were $20.4 million, $20.1 million and $22.7 million in 2001, 2000 and 1999, respectively. The declines in 2001 and 2000 compared to 1999 principally reflect decreases in franchise-related legal expenses. Selling, general and administrative expenses were $201.7 million, $183.0 million and $164.3 million in 2001, 2000 and 1999, respectively. Advertising and promotion costs were $86.5 million in 2001, $77.8 million in 2000 and $70.3 million in 1999, just over 5% of restaurant sales in all years. General, administrative and other costs were approximately 6.3% of revenues in 2001, 6.4% in 2000 and 6.5% in 1999. The percentage improvement in 2001 compared to 2000 is primarily due to lower bonus and pension expenses. The higher percentage in 1999 reflects costs associated with the implementation of guest initiatives, accelerated restaurant growth and higher incentive compensation and pension expense. Interest expense declined to $24.5 million in 2001 from $25.8 million in 2000 and $28.2 million in 1999. The reduction in 2001 compared to 2000 is principally due to lower average interest rates. The reduction in 2000 compared to 1999 is principally due to a reduction in total debt outstanding. The tax provisions reflect effective annual tax rates of 35.5%, 18.3% and 37.0% of pre-tax earnings in 2001, 2000 and 1999, respectively. The favorable income tax rates in each year have resulted from our ability to realize previously unrecognized tax benefits such as business tax credit, tax loss and minimum tax credit carryforwards. Also contributing to the effective rate decline in 2000 was our settlement with the U.S. Internal Revenue Service of a tax case related to the disposition in November 1995 of our interest in Family Restaurants, Inc. We recognized tax benefits of $22.9 million, primarily as a result of this settlement. In 2001, we adopted Staff Accounting Bulletin ("SAB") 101 which requires that franchise percentage rents, which are coningent upon certain annual sales levels, be recognized in the period in which the contingency is met instead of being accrued for ratably. As a result of adopting SAB 101, we recorded a one-time after-tax cumulative effect of this accounting change of $1.9 million related to the deferral of franchise percentage rents not yet earned as of the beginning of fiscal year 2001. Net earnings were $82.2 million, or $2.06 per diluted share, in 2001, $100.3 million, or $2.55 per diluted share, in 2000 and $76.5 million, or $1.95 per diluted share, in 1999. Each year includes unusual items. In 2001, net earnings included the aforementioned $1.9 million charge for the cumulative effect of accounting change, or $.05 per diluted share. In 2000, we reached a final agreement with the U.S. Internal Revenue Service to settle a tax case as described above. This settlement increased 2000 net earnings by $22.9 million, or $.58 per diluted share. In 1999, restaurant operating costs were reduced by $18.0 million due to a change in estimates as described above. This change in estimates increased 1999 net earnings by $11.4 million, or $.29 per diluted share, net of income taxes. In addition, 1999 included a 53rd week that contributed an extra $1.4 million in net earnings, or $.04 per diluted share. Excluding these unusual items, net earnings increased 8.7% to $84.1 million, or $2.11 per diluted share, in 2001 from $77.4 million, or $1.97 per diluted share, in 2000, which had increased 21.5% from $63.7 million, or $1.62 per diluted share, in 1999. 15 Liquidity and Capital Resources Cash and cash equivalents decreased $.5 million to approximately $6.3 million at September 30, 2001 from approximately $6.8 million at the beginning of the fiscal year. We expect to maintain low levels of cash and cash equivalents, reinvesting available cash flows from operations to develop new or enhance existing restaurants and to reduce borrowings under the revolving credit agreement. Our working capital deficit decreased $6.9 million to $102.2 million at September 30, 2001 from $109.1 million at October 1, 2000, principally due to an increase in accounts receivable and assets held for sale and leaseback, offset in part by an increase in total current liabilities. The Company and the restaurant industry in general, maintain relatively low levels of accounts receivable and inventories, and 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. Our revolving bank credit agreement provides for a credit facility expiring in 2003 of up to $175 million, including letters of credit of up to $25 million. At September 30, 2001, we had borrowings of $65.0 million and approximately $95.9 million of availability under the agreement. Total debt outstanding decreased $2.6 million to $282.0 million at September 30, 2001 from $284.6 million at the beginning of fiscal year 2001. We are subject to a number of customary covenants under our various debt instruments, including limitations on additional borrowings, capital expenditures, lease commitments and dividend payments, and requirements to maintain certain financial ratios, cash flows and net worth. In September 1999, the collateral securing the bank credit facility was released. Real and personal property previously held as collateral for the bank credit facility cannot be used to secure other indebtedness of the Company. In addition, certain of our real and personal property secure other indebtedness. We require capital principally to grow the business through new restaurant construction, as well as to maintain, improve and refurbish existing restaurants, and for general operating purposes. Our primary sources of liquidity are expected to be cash flows from operations, the revolving bank credit facility, and the sale and leaseback of restaurant properties. Additional potential sources of liquidity include financing opportunities and the conversion of Company-operated restaurants to franchised restaurants. Based upon current levels of operations and anticipated growth, we expect that sufficient cash flows will be generated from operations so that, combined with available financing alternatives, we will be able to meet our debt service, capital expenditure and working capital requirements. Although we cannot determine with certainty the amount of liability from claims and actions described in Note 10 of the Consolidated Financial Statements, we believe the ultimate liability for such claims and actions should not materially affect our results of operations and liquidity. On December 3, 1999, our Board of Directors authorized the purchase of our outstanding common stock in the open market for an aggregate amount not to exceed $10 million. Through September 30, 2001, we had acquired 341,600 shares in connection with this authorization for an aggregate cost of $6.6 million. Seasonality Our restaurant sales and profitability are subject to seasonal fluctuations and are traditionally higher during the spring and summer months because of factors such as increased travel and improved weather conditions which affect the public's dining habits. 16 Future Accounting Changes In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 141, Business Combinations, and 142, Goodwill and Other Intangible Assets, which supersede Accounting Principles Board Opinion 17, Intangible Assets. SFAS 141 requires that all business combinations be accounted for under the purchase method. The statement further requires separate recognition of intangible assets that meet one of the two criteria, as defined in the statement. This statement applies to all business combinations initiated after June 30, 2001. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are to be tested at least annually for impairment. Separable intangible assets with defined lives will continue to be amortized over their useful lives. The provisions of SFAS 142 will apply to goodwill and intangible assets acquired before and after the statement's effective date. This new standard is required to be adopted by the first quarter of fiscal year 2003, although we may elect to adopt it in the first quarter of fiscal year 2002. We are currently evaluating the effect that such adoption will have on our results of operations and financial position. In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations. This new standard requires entities to recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. When the liability is initially incurred, the cost is capitalized as part of the carrying amount of the long-lived asset. Over time, the liability is accreted to its present value each period through charges to operating expense and the capitalized cost is depreciated over the life of the asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The provisions of SFAS 143 are effective for fiscal years beginning after June 15, 2002. We have not yet determined the impact, if any, of adoption of SFAS 143. In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This new standard supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The primary objectives of this statement were to develop one accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale and to address significant implementation issues related to SFAS 121. Statement 144 requires that all long-lived assets, including discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. The provisions of SFAS 144 are effective for fiscal years beginning after December 15, 2001. We have not yet determined the impact, if any, of adoption of SFAS 144. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Our primary exposure relating to financial instruments is to changes in interest rates. Our $175 million credit facility bears interest at an annual rate equal to the prime rate or the London Interbank Offered Rate ("LIBOR") plus an applicable margin based on a financial leverage ratio. As of September 30, 2001, our applicable margin was .625%. In fiscal year 2001, the average interest rate paid on the credit facility was approximately 6.3%, including the impact of an interest rate swap which expired in June 2001. At September 30, 2001, a hypothetical one percentage point increase in short-term interest rates would result in a reduction of $.7 million in annual pre-tax earnings. The estimated reduction is based on holding our bank debt at its September 30, 2001 level. We are also exposed to the impact of commodity price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. From time-to-time we enter into commodity futures and option contracts to manage these fluctuations. Open commodity futures and option contracts were not significant as of September 30, 2001. At September 30, 2001, we had no other material financial instruments subject to significant market exposure. 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The Consolidated Financial Statements and related financial information required to be filed are indexed on page F-1 and are incorporated herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- Not applicable. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The following table sets forth the name, age (as of January 1, 2002) and position of each person who is a director or executive officer of Jack in the Box Inc.: Name Age Positions ------------------------------ --- ------------------------------------ Robert J. Nugent(3)........... 60 Chairman of the Board and Chief Executive Officer Kenneth R. Williams........... 59 President, Chief Operating Officer and Director John F. Hoffner............... 54 Executive Vice President and Chief Financial Officer Lawrence E. Schauf............ 56 Executive Vice President and Secretary Linda A. Lang................. 43 Senior Vice President, Marketing Paul L. Schultz............... 47 Senior Vice President, Operations and Franchising David M. Theno, Ph.D.......... 51 Senior Vice President, Quality and Logistics Karen C. Bachmann............. 50 Vice President, Corporate Communications Pamela S. Boyd................ 46 Vice President, Financial Planning and Analysis Carlo E. Cetti................ 57 Vice President, Human Resources and Strategic Planning Stephanie E. Cline............ 56 Vice President, Chief Information Officer Gladys H. DeClouet............ 44 Vice President, Operations-Division II Karen G. Gentry............... 41 Vice President, Franchising David T. Kaufhold............. 44 Vice President, Operations-Division I William F. Motts.............. 58 Vice President, Restaurant Development Harold L. Sachs............... 56 Vice President, Treasurer Charles E. Watson............. 46 Vice President, Real Estate and Construction Darwin J. Weeks............... 55 Vice President, Controller and Chief Accounting Officer Michael E. Alpert(4)(5)....... 59 Director Jay W. Brown(3)(5)............ 56 Director Paul T. Carter(1)(2).......... 79 Director Edward W. Gibbons(3)(4)(5).... 65 Director Alice B. Hayes, Ph.D.(2)(5)... 64 Director Murray H. Hutchison(1)(2)..... 63 Director L. Robert Payne(1)(4)......... 68 Director ---------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) Member of the Executive Committee. (4) Member of the Finance Committee. (5) Member of the Nominating and Governance Committee. 18 Mr. Nugent has been Chairman of the Board since February 2001 and Chief Executive Officer since April 1996. He was President from April 1996 to February 2001 and Executive Vice President from February 1985 to April 1996. He has been a director since February 1988. Mr. Nugent has 22 years of experience with the Company in various executive and operations positions. Mr. Williams has been President and Chief Operating Officer since February 2001. He was Executive Vice President, Marketing and Operations from May 1996 to February 2001 and Senior Vice President from January 1993 to May 1996. He has been a director since February 2001. Mr. Williams has 36 years of experience with the Company in various operations positions. Mr. Hoffner has been Executive Vice President and Chief Financial Officer since August 2001. Prior to joining the Company he was Executive Vice President of Administration and Chief Financial Officer of Cost Plus, Inc. from June 1998 to August 2001 and Senior Vice President and Chief Financial Officer of Sweet Factory, Inc. from April 1993 to June 1998. Mr. Schauf has been Executive Vice President and Secretary since August 1996. Prior to joining the Company he was Senior Vice President, General Counsel and Secretary of Wendy's International, Inc. from February 1991 to August 1996. Ms. Lang has been Senior Vice President, Marketing since May 2001. She was Vice President and Regional Vice President, Southern California Region from April 2000 to May 2001, Vice President, Marketing from March 1999 to April 2000 and Vice President, Products, Promotions and Consumer Research from February 1996 until March 1999. Ms. Lang has 14 years of experience with the Company in various marketing, finance and operations positions. Mr. Schultz has been Senior Vice President, Operations and Franchising since August 1999, and was Vice President from May 1988 to August 1999. Mr. Schultz has 28 years of experience with the Company in various operations positions. Dr. Theno has been Senior Vice President, Quality and Logistics since May 2001. He was Vice President, Technical Services (formerly Quality Assurance, Research and Development and Product Safety) from April 1994 to May 2001. Dr. Theno has nine years of experience with the Company in various quality assurance and product safety positions. Ms. Bachmann has been Vice President, Corporate Communications since November 1999. She was Division Vice President, Corporate Communications from December 1994 until November 1999. Ms. Boyd has been Vice President, Financial Planning and Analysis since November 2001. She was Division Vice President, Planning and Analysis from October 1997 to November 2001 and Director, Planning and Analysis from November 1992 to October 1997. Ms. Boyd has 14 years of experience with the Company in various finance positions. Mr. Cetti has been Vice President, Human Resources and Strategic Planning since March 1994. Mr. Cetti has 21 years of experience with the Company in various human resources and training positions. Ms. Cline has been a Vice President of the Company since August 2000 and Chief Information Officer since May 2000. She was Division Vice President of Systems Development from August 1993 to May 2000. Ms. Cline has 24 years of experience with the Company in various management information systems positions. Ms. DeClouet has been Vice President, Operations-Division II since February 2001. She was Division Vice President, Operations from July 1999 to February 2001 and Regional Vice President, Los Angeles from February 1998 to July 1999. Prior to joining the Company, she was Division Manager, Marketing of BP Oil Company from February 1995 to January 1998. 19 Ms. Gentry has been Vice President, Franchising since August 2000. From November 1994 to August 2000 she was Division Vice President, Franchising. Ms. Gentry has 22 years of experience with the Company in various operations and franchise positions. Mr. Kaufhold has been Vice President, Operations-Division I since February 2001. He was Division Vice President, Operations from July 1999 to February 2001 and Regional Vice President, Dallas from December 1995 to July 1999. Mr. Motts has been Vice President, Restaurant Development since September 1988. Mr. Motts has 19 years of experience with the Company in various restaurant development positions. Mr. Sachs has been Vice President, Treasurer since November 1999. He was Treasurer from January 1986 to November 1999. Mr. Sachs has 23 years of experience with the Company in various finance positions. Mr. Watson has been Vice President, Real Estate and Construction since April 1997. From July 1995 to March 1997, he was Vice President, Real Estate and Construction of Boston Chicken, Inc. He was Division Vice President, Real Estate and Construction of the Company from November 1991 through June 1995. Mr. Watson has 16 years of experience with the Company in various real estate and construction positions. Mr. Weeks has been Vice President, Controller and Chief Accounting Officer since August 1995 and was previously Division Vice President and Assistant Controller from April 1982 through July 1995. Mr. Weeks has 25 years of experience with the Company in various finance positions. Mr. Alpert has been a director of the Company since August 1992. Mr. Alpert was a partner in the San Diego office of the law firm of Gibson, Dunn & Crutcher LLP for more than five years prior to his retirement in August 1992. He is currently Advisory Counsel to Gibson, Dunn & Crutcher LLP. Gibson, Dunn & Crutcher LLP provides legal services to us from time to time. Mr. Brown has been a director of the Company since February 1997. He is currently a principal with Westgate Group, LLC. From April 1995 to September 1998, Mr. Brown was President and CEO of Protein Technologies International, Inc., the world's leading supplier of soy-based proteins to the food and paper processing industries. He was Chairman and CEO of Continental Baking Company from October 1984 to July 1995 and President of Van Camp Seafood Company from August 1983 to October 1984. From July 1981 through July 1983, he served as Vice President of Marketing for us. Mr. Brown is a director of Agribrands International, Inc. and Cardinal Brands, Inc. Mr. Carter has been a director of the Company since June 1991. Mr. Carter has been an insurance consultant for the Government Division of Corroon & Black Corporation since February 1987. He retired in February 1987 as Chairman and Chief Executive Officer of Corroon & Black Corporation, Southwestern Region and as Director and Senior Vice President of Corroon & Black Corporation. Mr. Carter is a director of Borrego Springs National Bank. Mr. Gibbons has been a director of the Company since October 1985 and has been a general partner of Gibbons, Goodwin, van Amerongen, an investment banking firm, for more than five years. Mr. Gibbons is also a director of Robert Half International, Inc. and Summer Winds Garden Centers, Inc. Dr. Hayes has been a director of the Company since September 1999. She has been the President of the University of San Diego since 1995. From 1989 to 1995, Dr. Hayes served as Executive Vice President and Provost of Saint Louis University. Previously, she spent 27 years at Loyola University of Chicago, where she served in various executive positions. Dr. Hayes is also a director of the Pulitzer Publishing Company, the Old Globe Theatre, Independent Colleges of Southern California, The San Diego Foundation, Loyola University of Chicago and Catholic Charities, Diocese of San Diego. 20 Mr. Hutchison has been a director of the Company since May 1998. He served 18 years as Chief Executive Officer and Chairman of International Technology Corp., a large publicly traded environmental engineering firm, until his retirement in 1996. Mr. Hutchison is the Chairman of the Board of Sunrise Medical, Inc. and the Huntington Hotel Corp. and serves as a director of Cadiz Inc., Senior Resource Corp. and the Olson Company. Mr. Payne has been a director of the Company since August 1986. He has been President and Chief Executive Officer of Multi-Ventures, Inc. since February 1976. Multi-Ventures, Inc. is a real estate development and investment company that is also the managing partner of the San Diego Mission Valley Hilton and the Red Lion Hanalei Hotel. He was a principal in the Company prior to its acquisition by its former parent, Ralston Purina Company, in 1968. That portion of our definitive Proxy Statement appearing under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" to be filed with the Commission pursuant to Regulation 14A within 120 days after September 30, 2001 and to be used in connection with our 2002 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION ---------------------- That portion of our definitive Proxy Statement appearing under the caption "Executive Compensation" to be filed with the Commission pursuant to Regulation 14A within 120 days after September 30, 2001 and to be used in connection with our 2002 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- 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 30, 2001 and to be used in connection with our 2002 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- That portion of our definitive Proxy Statement appearing under the caption "Certain Transactions" to be filed with the Commission pursuant to Regulation 14A within 120 days after September 30, 2001 and to be used in connection with our 2002 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --------------------------------------------------------------- ITEM 14(a)(1) Financial Statements. See Index to Consolidated Financial -------------------- Statements on page F-1 of this report. ITEM 14(a)(2) Financial Statement Schedules. Not applicable. ----------------------------- 21 ITEM 14(a)(3) Exhibits. -------- Number Description - ------ ----------- 3.1 Restated Certificate of Incorporation, as amended(8) 3.2 Restated Bylaws(8) 4.1 Indenture for the 8 3/8% Senior Subordinated Notes due 2008(5) (Instruments with respect to the registrant's long-term debt not in excess of 10% of the total assets of the registrant and its subsidiaries on a consolidated basis have been omitted. The registrant agrees to furnish supplementally a copy of any such instrument to the Commission upon request.) 10.1.1 Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(5) 10.1.2 First Amendment dated as of August 24, 1998 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(6) 10.1.3 Second Amendment dated as of February 27, 1999 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(7) 10.1.4 Third Amendment dated as of September 17, 1999 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(8) 10.1.5 Fourth Amendment dated as of December 6, 1999 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Foodmaker, Inc. and the Banks named therein(9) 10.1.6 Fifth Amendment dated as of May 3, 2000 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Jack in the Box Inc. and the Banks named therein(10) 10.1.7 Sixth Amendment dated as of November 17, 2000 to the Revolving Credit Agreement dated as of April 1, 1998 by and between Jack in the Box Inc. and the Banks named therein(11) 10.2 Purchase Agreements dated as of January 22, 1987 between Foodmaker, Inc. and FFCA/IIP 1985 Property Company and FFCA/IIP 1986 Property Company(1) 10.3 Land Purchase Agreements dated as of February 18, 1987 by and between Foodmaker, Inc. and FFCA/IPI 1984 Property Company and FFCA/IPI 1985 Property Company and Letter Agreement relating thereto(1) 10.4 Amended and Restated 1992 Employee Stock Incentive Plan(3) 10.5 Capital Accumulation Plan for Executives 10.6 Supplemental Executive Retirement Plan 10.7 Performance Bonus Plan(12) 10.8 Deferred Compensation Plan for Non-Management Directors(2) 10.9 Amended and Restated Non-Employee Director Stock Option Plan(8) 10.10 Form of Compensation and Benefits Assurance Agreement for Executives(4) 23.1 Consent of KPMG LLP - ---------- (1) Previously filed and incorporated herein by reference from registrant's Registration Statement on Form S-1 (No. 33-10763) filed February 24, 1987. (2) Previously filed and incorporated herein by reference from registrant's Definitive Proxy Statement dated January 17, 1995 for the Annual Meeting of Stockholders on February 17, 1995. (3) Previously filed and incorporated herein by reference from registrant's Registration Statement on Form S-8 (No. 333-26781)filed May 9, 1997. (4) Previously filed and incorporated herein by reference from registrant's Annual Report on Form 10-K for the fiscal year ended September 28, 1997. (5) Previously filed and incorporated herein by reference from registrant's Quarterly Report on Form 10-Q for the quarter ended April 12, 1998. (6) Previously filed and incorporated herein by reference from registrant's Annual Report on Form 10-K for the fiscal year ended September 27, 1998. (7) Previously filed and incorporated herein by reference from registrant's Quarterly Report on Form 10-Q for the quarter ended April 11, 1999. 22 (8) Previously filed and incorporated herein by reference from registrant's Annual Report on Form 10-K for the fiscal year ended October 3, 1999. (9) Previously filed and incorporated herein by reference from registrant's Quarterly Report on Form 10-Q for the quarter ended January 23, 2000. (10) Previously filed and incorporated herein by reference from registrant's Quarterly Report on Form 10-Q for the quarter ended July 9, 2000. (11) Previously filed and incorporated herein by reference from registrant's Quarterly Report on Form 10-Q for the quarter ended January 21, 2001. (12) Previously filed and incorporated herein by reference from registrant's Definitive Proxy Statement dated January 19, 2001 for the Annual Meeting of Stockholders on February 23, 2001. ITEM 14(b) We did not file any reports on Form 8-K with the Securities and Exchange Commission during the fourth quarter ended September 30, 2001. ITEM 14(c) All required exhibits are filed herein or incorporated by reference as described in Item 14(a)(3). ITEM 14(d) All supplemental schedules are omitted as inapplicable or because the required information is included in the Consolidated Financial Statements or notes thereto. 23 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: JOHN F. HOFFNER --------------- John F. Hoffner Executive Vice President and Chief Financial Officer Date: December 10, 2001 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 ----------------------- ---------------------- ----------------- ROBERT J. NUGENT Chairman of the Board December 10, 2001 ----------------------- and Chief Executive Robert J. Nugent Officer (Principal Executive Officer) KENNETH R. WILLIAMS President, Chief December 10, 2001 ----------------------- Operating Officer and Kenneth R. Williams Director JOHN F. HOFFNER Executive Vice President December 10, 2001 ----------------------- and Chief Financial John F. Hoffner Officer (Principal Financial Officer) DARWIN J. WEEKS Vice President, December 10, 2001 ----------------------- Controller and Chief Darwin J. Weeks Accounting Officer (Principal Accounting Officer) MICHAEL E. ALPERT Director December 10, 2001 ----------------------- Michael E. Alpert JAY W. BROWN Director December 10, 2001 ----------------------- Jay W. Brown PAUL T. CARTER Director December 10, 2001 ----------------------- Paul T. Carter EDWARD W. GIBBONS Director December 10, 2001 ----------------------- Edward W. Gibbons ALICE B. HAYES Director December 10, 2001 ----------------------- Alice B. Hayes MURRAY H. HUTCHISON Director December 10, 2001 ----------------------- Murray H. Hutchison L. ROBERT PAYNE Director December 10, 2001 ----------------------- L. Robert Payne 24 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Independent Auditors' Report........................... F-2 Consolidated Balance Sheets............................ F-3 Consolidated Statements of Earnings.................... F-4 Consolidated Statements of Cash Flows.................. F-5 Consolidated Statements of Stockholders' Equity........ F-6 Notes to Consolidated Financial Statements............. F-7 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors Jack in the Box Inc.: We have audited the accompanying consolidated balance sheets of Jack in the Box Inc. and subsidiaries as of September 30, 2001 and October 1, 2000, and the related consolidated statements of earnings, cash flows and stockholders' equity for the fifty-two weeks ended September 30, 2001 and October 1, 2000, and the fifty-three weeks ended October 3, 1999. 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 auditing standards generally accepted in the United States of America. 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 September 30, 2001 and October 1, 2000, and the results of their operations and their cash flows for the fifty-two weeks ended September 30, 2001 and October 1, 2000, and the fifty-three weeks ended October 3, 1999, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP San Diego, California November 5, 2001 F-2 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) September 30, October 1, 2001 2000 ------------- ----------- ASSETS Current assets: Cash and cash equivalents...................... $ 6,328 $ 6,836 Accounts receivable, net....................... 21,816 13,667 Inventories.................................... 28,993 25,722 Prepaid expenses............................... 19,268 19,329 Assets held for sale and leaseback............. 48,329 33,855 ----------- --------- Total current assets......................... 124,734 99,409 ----------- --------- Property and equipment: Land........................................... 95,435 88,617 Buildings...................................... 499,681 429,845 Restaurant and other equipment................. 453,376 393,885 Construction in progress....................... 63,345 55,485 ----------- --------- 1,111,837 967,832 Less accumulated depreciation and amortization............................. 332,369 288,474 ----------- --------- 779,468 679,358 ----------- --------- Other assets, net................................. 125,620 128,061 ----------- --------- $ 1,029,822 $ 906,828 =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt........... $ 2,255 $ 2,034 Accounts payable............................... 55,036 53,082 Accrued liabilities............................ 169,628 153,356 ----------- --------- Total current liabilities.................... 226,919 208,472 ----------- --------- Long-term debt, net of current maturities......... 279,719 282,568 Other long-term liabilities....................... 91,439 86,968 Deferred income taxes............................. 18,215 12,468 Stockholders' equity: Preferred stock................................ - - Common stock $.01 par value, 75,000,000 authorized, 42,418,742 and 41,483,369 issued, respectively......................... 424 415 Capital in excess of par value................. 310,107 294,380 Retained earnings.............................. 144,018 61,817 Treasury stock, at cost, 3,170,574 and 3,134,774 shares, respectively............... (41,019) (40,260) ----------- --------- Total stockholders' equity................... 413,530 316,352 ----------- --------- $ 1,029,822 $ 906,828 =========== ========= See accompanying notes to consolidated financial statements. F-3 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
Fiscal year ------------------------------------ 2001 2000 1999 ---------- ---------- ---------- Revenues: Restaurant sales............................ $1,714,126 $1,529,328 $1,372,899 Distribution and other sales................ 66,565 59,091 41,828 Franchise rents and royalties............... 43,825 41,432 39,863 Other....................................... 9,060 3,461 2,309 ---------- ---------- ---------- 1,833,576 1,633,312 1,456,899 ---------- ---------- ---------- Costs of revenues: Restaurant costs of sales................... 528,070 473,373 432,231 Restaurant operating costs.................. 864,135 750,736 646,815 Costs of distribution and other sales....... 64,490 57,543 41,217 Franchised restaurant costs................. 20,353 20,105 22,732 ---------- ---------- ---------- 1,477,048 1,301,757 1,142,995 ---------- ---------- ---------- Gross profit................................... 356,528 331,555 313,904 Selling, general and administrative............ 201,715 182,961 164,297 ---------- ---------- ---------- Earnings from operations....................... 154,813 148,594 149,607 Interest expense............................... 24,453 25,830 28,249 ---------- ---------- ---------- Earnings before income taxes and cumulative effect of accounting change...... 130,360 122,764 121,358 Income taxes................................... 46,300 22,500 44,900 ---------- ---------- ---------- Earnings before cumulative effect of accounting change........................... 84,060 100,264 76,458 Cumulative effect of adopting SAB 101.......... (1,859) - - ---------- ---------- ---------- Net earnings................................... $ 82,201 $ 100,264 $ 76,458 ========== ========== ========== Net earnings per share - basic: Earnings before cumulative effect of accounting change......................... $ 2.17 $ 2.62 $ 2.00 Cumulative effect of adopting SAB 101....... (.05) - - --------- ---------- ---------- Net earnings per share...................... $ 2.12 $ 2.62 $ 2.00 ========= ========== ========== Net earnings per share - diluted: Earnings before cumulative effect of accounting change......................... $ 2.11 $ 2.55 $ 1.95 Cumulative effect of adopting SAB 101....... (.05) - - --------- ---------- ---------- Net earnings per share...................... $ 2.06 $ 2.55 $ 1.95 ========= ========== ========== Weighted-average shares outstanding: Basic....................................... 38,791 38,267 38,144 Diluted..................................... 39,780 39,334 39,281
See accompanying notes to consolidated financial statements. F-4 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Fiscal year ------------------------------------- 2001 2000 1999 ----------- ---------- ---------- Cash flows from operating activities: Net earnings........................................ $ 82,201 $ 100,264 $ 76,458 Non-cash items included in operations: Depreciation and amortization..................... 64,195 56,766 45,857 Deferred finance cost amortization................ 2,075 1,664 1,794 Deferred income taxes............................. 5,747 4,413 5,708 Cumulative effect of accounting change............ 1,859 - - Tax benefit associated with exercise of stock options..................................... 7,531 2,589 1,663 Decrease (increase) in receivables.................. (8,149) (1,676) 3,125 Increase in inventories............................. (3,271) (5,833) (1,950) Decrease (increase) in prepaid expenses............. 61 (3,672) (3,319) Increase (decrease) in accounts payable............. 1,954 8,902 (7,906) Increase (decrease) in other liabilities............ 19,144 (18,768) 35,537 --------- --------- --------- Cash flows provided by operating activities....... 173,347 144,649 156,967 --------- --------- --------- Cash flows from investing activities: Additions to property and equipment................. (166,522) (127,361) (134,333) Dispositions of property and equipment.............. 8,642 5,938 12,172 Increase in trading area rights..................... (1,486) (2,656) (3,864) Decrease (increase) in assets held for sale and leaseback..................................... (14,474) 4,917 (11,695) Other............................................... (4,427) (4,286) (4,024) --------- --------- --------- Cash flows used in investing activities........... (178,267) (123,448) (141,744) --------- --------- --------- Cash flows from financing activities: Borrowings under revolving bank loans............... 503,500 386,000 334,000 Principal repayments under revolving bank loans..... (504,500) (406,000) (345,500) Proceeds from issuance of long-term debt............ - 825 4,347 Principal payments on long-term debt, including current maturities...................... (2,034) (1,777) (9,833) Repurchase of common stock.......................... (759) (5,797) - Proceeds from issuance of common stock.............. 8,205 1,459 2,736 --------- --------- --------- Cash flows provided by (used in) financing activities............................. 4,412 (25,290) (14,250) --------- --------- --------- Net increase (decrease) in cash and cash equivalents... $ (508) $ (4,089) $ 973 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized.............. $ 22,635 $ 24,392 $ 26,873 Income tax payments............................... $ 30,174 $ 41,110 $ 26,451
See accompanying notes to consolidated financial statements. F-5 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands)
Common stock Retained ----------------------- Capital in earnings Number of excess of (accumulated Treasury shares Amount par value deficit) stock Total ------------------------------------ ------------ --------- ----------- ------------ ---------- ---------- Balance at September 27, 1998...... 40,756,899 $ 408 $ 285,940 $(114,905) $(34,463) $ 136,980 Exercise of stock options and warrants........................ 348,535 3 2,733 - - 2,736 Tax benefit associated with exercise of stock options....... - - 1,663 - - 1,663 Net earnings....................... - - - 76,458 - 76,458 ----------- ----- --------- --------- -------- --------- Balance at October 3, 1999......... 41,105,434 411 290,336 (38,447) (34,463) 217,837 Exercise of stock options ......... 377,935 4 1,455 - - 1,459 Tax benefit associated with exercise of stock options....... - - 2,589 - - 2,589 Purchases of treasury stock........ - - - - (5,797) (5,797) Net earnings....................... - - - 100,264 - 100,264 ----------- ----- --------- --------- -------- --------- Balance at October 1, 2000......... 41,483,369 415 294,380 61,817 (40,260) 316,352 Exercise of stock options.......... 935,373 9 8,196 - - 8,205 Tax benefit associated with exercise of stock options....... - - 7,531 - - 7,531 Purchase of treasury stock......... - - - - (759) (759) Net earnings....................... - - - 82,201 - 82,201 ----------- ----- --------- --------- -------- --------- Balance at September 30, 2001...... 42,418,742 $ 424 $ 310,107 $ 144,018 $(41,019) $ 413,530 ========== ===== ========= ========= ======== =========
See accompanying notes to consolidated financial statements. F-6 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except 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-serve restaurants, principally in the western and southern United States. Basis of presentation and fiscal year - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions are eliminated. Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2001 presentation. Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 2001 and 2000 include 52 weeks and fiscal year 1999 includes 53 weeks. Financial instruments - The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate the 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. The estimated fair values of our long-term debt at September 30, 2001 and October 1, 2000 approximate their carrying values. From time-to-time, we use interest rate derivative instruments to manage our exposure to variability in interest rates related to our bank credit facility and commodity derivatives to reduce the risk of price fluctuations related to raw material requirements for commodities such as beef and pork. We do not speculate using derivative instruments and purchase derivative instruments only for the purpose of risk management. Effective October 2, 2000, we adopted Statement of Financial Accounting Standards ("SFAS") 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS 137 and 138, which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 requires that entities recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Accounting for changes in the fair value of a derivative depends on the intended use and resulting designation of the derivative. For derivatives designated as hedges, changes in the fair value are either offset against the change in fair value of the assets or liabilities through earnings or recognized in accumulated other comprehensive income in the balance sheet until the hedged item is recognized in earnings. Upon the adoption of SFAS 133, we did not designate our derivative instruments as hedge transactions. The transition adjustment recorded upon the adoption of SFAS 133 was not material to our consolidated statement of earnings. The changes in the fair value of our commodity derivatives are included in restaurant costs of sales and changes in the fair value of our interest rate swap, which expired in June 2001, are included in interest expense in the accompanying consolidated statement of earnings for the fiscal year ended September 30, 2001. At September 30, 2001, we had no other material financial instruments subject to significant market exposure. 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. Inventories are valued at the lower of cost (first-in, first-out method) or market. Assets held for sale and leaseback primarily represent the costs for new sites that will be sold and leased back when construction is completed. Gains and losses realized on the sale leaseback transactions are deferred and credited to income over the lease terms. The leases are classified in accordance with SFAS 13, Accounting for Leases. F-7 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Preopening costs are those typically associated with the opening of a new restaurant and consist primarily of employee training costs. Preopening costs are expensed as incurred. 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 repairs, and minor renewals 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 depreciated using the straight-line method based on the estimated useful lives of the assets or over the lease term for certain capital leases (buildings 15 to 33 years and equipment 3 to 30 years). Other assets primarily include trading area rights, lease acquisition costs, deferred franchise contract costs, deferred finance costs and goodwill. Trading area rights represent the amount allocated under purchase accounting to reflect the value of operating existing restaurants within their specific trading area. These rights are amortized on a straight-line basis over the period of control of the property, not exceeding 40 years, and are retired when a restaurant is franchised or sold. Lease acquisition costs represent the acquired values of existing lease contracts having contractual rents lower than fair market rents and are amortized over the remaining lease term. Deferred franchise contract costs which represent the acquired value of franchise contracts in existence at the time the Company was acquired in 1988 are amortized over the term of the franchise agreement, usually 20 years. Deferred finance costs are amortized using the interest method over the terms of the respective loan agreements, from 4 to 10 years, and goodwill which represents the excess of purchase price over fair value of net assets acquired is amortized on a straight-line basis over 40 years. Impairment of long-lived assets - We evaluate impairment on long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. We also account for long-lived assets that are held for disposal at the lower of cost or fair value. Franchise operations - Franchise arrangements generally provide for initial license fees of $50 per restaurant and continuing payments to us based on a percentage of sales. Among other things, the 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. Franchise fees are recorded as revenue when we have substantially performed all of our contractual obligations. Expenses associated with the issuance of the franchise are expensed as incurred. Franchise royalties are recorded in income on an accrual basis. Gains on the sale of restaurant businesses to franchisees are recorded as other revenue when the sales are consummated and certain other criteria are met. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial Statements. SAB 101 requires a change in the recognition of franchise percentage rents, which are contingent upon certain annual sales levels, from an accrual basis to recognition in the period in which the contingency is met. We adopted SAB 101 in the fourth quarter of fiscal year 2001 and have reported the cumulative effect of this change in our 2001 consolidated statement of earnings. Other than the recording of this one-time cumulative effect, the adoption of SAB 101 did not have a material effect on our annual results of operations. F-8 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. Net earnings per share - Basic earnings per share is computed using the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed using the additional dilutive effect of stock options and warrants. Stock options - Stock options are accounted for under the intrinsic value based method, whereby compensation expense is recognized for the excess, if any, of the quoted market price of the Company stock at the date of grant over the option price. Our policy is to grant stock options at fair value at the date of grant. We have included pro forma information in Note 7, as required by SFAS 123, Accounting for Stock-Based Compensation. Advertising costs - The Company maintains a marketing fund consisting of funds contributed by us equal to approximately 5% of gross sales of all Company-operated JACK IN THE BOX restaurants and contractual marketing fees paid monthly by franchisees. Production costs of commercials, programming and other marketing activities are expensed to the marketing fund when the advertising is first used, and the costs of advertising are charged to operations as incurred. Our contributions to the marketing fund and other marketing expenses, which are included in selling, general and administrative expenses in the accompanying consolidated statements of earnings, were $86,539, $77,799 and $70,297 in 2001, 2000 and 1999, respectively. 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 the chief operating decision maker in deciding how to allocate resources. Similar operating segments can be aggregated into a single operating segment if the businesses are similar. Jack in the Box Inc. operates its business in a single segment. Estimations - In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, 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 from and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ from these estimates. In 1999, we reduced accrued liabilities and restaurant operating costs by $18.0 million, primarily due to a change in estimates resulting from improvements to our loss prevention and risk management programs, which were more successful than anticipated. This change in estimates was supported by an independent actuarial study conducted to evaluate the self-insured portion of our workers' compensation, general liability and other insurance programs. F-9 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 2. LONG-TERM DEBT
2001 2000 ---------- ---------- The detail of long-term debt at each year end follows: Bank loans, variable interest rate based on established market indicators which approximate the prime rate or less, 4.7% at September 30, 2001...................................................... $ 65,000 $ 66,000 Senior subordinated notes, 8 3/8% interest, net of discount of $137 and $158, respectively, reflecting an 8.4% effective interest rate due April 15, 2008, redeemable beginning April 15, 2003................. 124,863 124,842 Financing lease obligations, net of discounts of $646 and $1,031, respectively, reflecting a 10.3% effective interest rate, semi-annual payments of $3,413 and $747 to cover interest and sinking fund requirements, respectively, due in equal installments on January 1, 2003 and November 1, 2003.................... 69,354 68,969 Secured notes, 11 1/2% interest, due in monthly installments through May 1, 2005........................................ 5,077 6,139 Capitalized lease obligations, 11% average interest rate.................. 15,565 16,229 Other notes, principally unsecured, 10% average interest rate ............ 2,115 2,423 ---------- ---------- 281,974 284,602 Less current portion...................................................... 2,255 2,034 ---------- ---------- $ 279,719 $ 282,568 ========== ==========
On April 1, 1998, we entered into a revolving bank credit agreement, which expires March 31, 2003 and provides for a credit facility of up to $175 million, including letters of credit of up to $25 million. The credit agreement requires the payment of an annual commitment fee based on the unused credit line. At September 30, 2001, we had borrowings of $65 million and approximately $95.9 million of availability under the agreement. We are subject to a number of customary covenants under our various credit agreements, including limitations on additional borrowings, capital expenditures, lease commitments and dividend payments, and requirements to maintain certain financial ratios, cash flows and net worth. In September 1999, the collateral securing the bank loans was released. Real and personal property previously held as collateral for the bank loans cannot be used to secure other indebtedness of the Company. In addition, certain of our real and personal property secure other indebtedness. In January 1994, we entered into financing lease arrangements with two limited partnerships (the "Partnerships"), in which interests in 76 restaurants for a specified period of time were sold. The acquisition of the properties, including costs and expenses, was funded through the issuance of $70 million in senior secured notes by a special purpose corporation acting as agent for the Partnerships. On January 1, 2003 and November 1, 2003, we must make offers to reacquire 50% of the properties at a price which is sufficient, in conjunction with previous sinking fund deposits, to retire the notes. If the Partnerships reject the offers, we may purchase the properties at less than fair market value or cause the Partnerships to fund the remaining principal payments on the notes and, at our option, cause the Partnerships to acquire our residual interest in the properties. If the Partnerships are allowed to retain their interests, we have available options to extend the leases for total terms of up to 35 years, at which time the ownership of the property will revert to us. The transactions are reflected as financings with the properties remaining in our consolidated financial statements. F-10 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 2. LONG-TERM DEBT (continued) Aggregate maturities and sinking fund requirements on all long-term debt are $3,750, $89,025, $37,680, $2,336 and $1,377 for the years 2002 through 2006, respectively. The 2003 amount is net of accumulated sinking fund payments of $13,453. Interest capitalized during the construction period of restaurants was $2,441, $2,259 and $1,469 in 2001, 2000 and 1999, respectively. 3. LEASES As Lessee - We lease restaurant and other facilities under leases having terms expiring at various dates through 2054. The leases generally have renewal clauses of 5 to 20 years exercisable at our option and, in some instances, have provisions for contingent rentals based upon a percentage of defined revenues. Total rent expense for all operating leases was $142,351, $123,465 and $108,700, including contingent rentals of $7,200, $6,551 and $6,066, in 2001, 2000 and 1999, respectively. Future minimum lease payments under capital and operating leases are as follows: Fiscal Capital Operating year leases leases ----------------------------------------------- ------- ---------- 2002............................................ $ 2,376 $ 120,992 2003............................................ 2,376 118,852 2004............................................ 2,376 116,216 2005............................................ 2,359 106,058 2006............................................ 2,335 96,061 Thereafter...................................... 17,830 747,208 ------- ---------- Total minimum lease payments........................ 29,652 $1,305,387 ========== Less amount representing interest................... 14,087 ------- Present value of obligations under capital leases... 15,565 Less current portion................................ 738 ------- Long-term capital lease obligations................. $14,827 ======= Building assets recorded under capital leases were $13,843 and $14,651, net of accumulated amortization of $7,089 and $6,284, as of September 30, 2001 and October 1, 2000, respectively. As Lessor - We lease or sublease restaurants to certain franchisees and others under agreements which generally provide for the payment of percentage rentals in excess of stipulated minimum rentals, usually for a period of 20 years. Total rental revenue was $27,213, $25,900 and $25,134, including contingent rentals of $11,091, $10,642 and $9,655, in 2001, 2000 and 1999, respectively. F-11 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 3. LEASES (continued) The minimum rents receivable under these non-cancelable leases are as follows: Fiscal Sales-type Operating year leases leases ----------------------------------------- ---------- ---------- 2002..................................... $ 98 $ 17,960 2003..................................... 98 16,839 2004..................................... 98 15,921 2005..................................... 99 14,728 2006..................................... 88 13,004 Thereafter............................... 781 74,857 ------- ---------- Total minimum future rentals................. 1,262 $ 153,309 ========== Less amount representing interest............ 630 ------- Net investment (included in other assets).... $ 632 ======= Land and building assets held for lease were $45,133 and $42,531, net of accumulated amortization of $22,787 and $21,697, as of September 30, 2001 and October 1, 2000, respectively. 4. INCOME TAXES The fiscal year income taxes consist of the following: 2001 2000 1999 ------- ------- ------- Federal - current.......................... $34,658 $14,036 $31,227 - deferred......................... 5,419 3,535 6,709 State - current.......................... 4,695 4,051 7,965 - deferred......................... 328 878 (1,001) ------- ------- ------- Subtotal................................... 45,100 22,500 44,900 Income tax benefit related to cumulative effect of accounting change... 1,200 - - ------- ------- ------- Income taxes............................... $46,300 $22,500 $44,900 ======= ======= ======= A reconciliation of the federal statutory income tax rate to our effective tax rate is as follows: 2001 2000 1999 ---- ---- ---- Computed at federal statutory rate............. 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit. 2.5 2.6 3.7 Benefit of jobs tax credits.................... (1.2) (1.0) (1.1) Adjustment of tax loss, contribution and tax credit carryforwards..................... 1.7 - .4 Reduction to valuation allowance............... (2.6) (19.3) (1.5) Other, net..................................... .1 1.0 .5 ----- ----- ----- 35.5% 18.3% 37.0% ===== ===== ===== F-12 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 4. INCOME TAXES (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: 2001 2000 -------- -------- Deferred tax assets: Accrued pension and postretirement benefits.... $ 17,039 $ 18,247 Accrued insurance.............................. 10,086 10,513 Accrued vacation pay expense................... 9,558 8,542 Deferred income................................ 13,449 11,279 Other reserves and allowances.................. 4,212 5,471 Tax loss and tax credit carryforwards.......... - 3,386 Other, net..................................... 7,824 8,599 -------- -------- Total gross deferred tax assets................ 62,168 66,037 Less valuation allowance....................... - 3,386 -------- -------- Net deferred tax assets........................ 62,168 62,651 -------- -------- Deferred tax liabilities: Property and equipment, principally due to differences in depreciation.................. 71,773 65,941 Intangible assets.............................. 8,610 9,178 -------- -------- Total gross deferred tax liabilities........... 80,383 75,119 -------- -------- Net deferred tax liabilities................... $ 18,215 $ 12,468 ======== ======== During fiscal year 2000, we reached a final agreement with the U.S. Internal Revenue Service ("IRS") to settle a tax case related to the disposition in November 1995 of our interest in Family Restaurants, Inc. We recognized tax benefits of $22,900, primarily as a result of this settlement which reduced our fiscal year 2000 provision for income taxes. The valuation allowance decreased $3,386 in fiscal year 2001 due to the resolution of tax loss carryforwards and $23,579 in fiscal year 2000 due to the IRS settlement and the expected use of deferred tax assets. As of September 30, 2001, we have not recorded a valuation allowance because we believe it is more likely than not that the net deferred tax assets will be realized through future taxable income or alternative tax strategies. 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 such time as the IRS has completed its examination or until the statute of limitations has expired. F-13 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 5. RETIREMENT, SAVINGS AND BONUS PLANS We have non-contributory defined benefit pension plans covering substantially all salaried and hourly employees meeting certain eligibility requirements. These plans are subject to modification at any time. The plans provide retirement benefits based on years of service and compensation. It is our practice to fund retirement costs as necessary.
Qualified plans Non-qualified plan ------------------------ ---------------------- 2001 2000 2001 2000 --------- --------- -------- -------- Change in benefit obligation: Benefit obligation at beginning of year......... $ 66,839 $ 68,942 $ 17,877 $ 17,391 Service cost.................................... 3,917 4,706 255 245 Interest cost................................... 5,442 4,991 1,432 1,305 Actuarial (gain) loss........................... 5,729 (10,097) 2,151 (774) Benefits paid................................... (2,424) (1,703) (543) (438) Plan amendment.................................. - - 1,500 148 -------- -------- -------- -------- Benefit obligation at end of year............... $ 79,503 $ 66,839 $ 22,672 $ 17,877 ======== ======== ======== ======== Change in plan assets: Fair value of plan assets at beginning of year.. $ 68,550 $ 60,852 $ - $ - Actual return on plan assets.................... (1,223) 8,419 - - Employer contributions.......................... 5,500 982 543 438 Benefits paid................................... (2,424) (1,703) (543) (438) -------- -------- -------- -------- Fair value of plan assets at end of year........ $ 70,403 $ 68,550 $ - $ - ======== ======== ======== ======== Reconciliation of funded status: Funded status................................... $ (9,100) $ 1,712 $(22,672) $(17,877) Unrecognized net (gain) loss.................... 7,247 (5,596) 3,949 1,798 Unrecognized prior service cost................. (67) (103) 5,132 4,111 Unrecognized net transition asset............... - 9 3 31 -------- -------- -------- -------- Net liabilities recognized...................... $ (1,920) $ (3,978) $(13,588) $(11,937) ======== ======== ======== ======== Amounts recognized in the statement of financial position consist of: Accrued benefit liability....................... $ (1,920) $ (3,978) $(18,723) $(15,565) Intangible asset................................ - - 5,135 3,628 -------- -------- -------- -------- Net liabilities recognized...................... $ (1,920) $ (3,978) $(13,588) $(11,937) ======== ======== ======== ========
In determining the present values of benefit obligations, our actuaries assumed discount rates of 7.75% and 8.00% at the measurement dates of June 30, 2001 and 2000, respectively. The assumed rate of increase in compensation levels was 4% for the qualified plans and 5% for the non-qualified plan in 2001 and 2000. The long-term rate of return on assets was 8.5% in both years. Assets of the qualified plans consist primarily of listed stocks and bonds. F-14 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 5. RETIREMENT, SAVINGS AND BONUS PLANS (continued) The components of the fiscal year net defined benefit pension cost are as follows:
Qualified plans Non-qualified plan --------------------------------- ----------------------------- 2001 2000 1999 2001 2000 1999 --------- --------- --------- ------- ------- ------- Service cost..................... $ 3,917 $ 4,706 $ 4,744 $ 255 $ 245 $ 408 Interest cost.................... 5,442 4,991 4,541 1,432 1,305 1,153 Expected return on plan assets... (5,889) (5,082) (5,257) - - - Net amortization................. (28) 162 426 508 587 601 -------- -------- -------- ------- ------- ------- Net periodic pension cost........ $ 3,442 $ 4,777 $ 4,454 $ 2,195 $ 2,137 $ 2,162 ======== ======== ======== ======= ======= =======
We maintain a savings plan pursuant to Section 401(k) of the Internal Revenue Code, which allows administrative and clerical employees who have satisfied the service requirements and reached age 21, to defer from 2% to 12% of their pay on a pre-tax basis. We contribute an amount equal to 50% of the first 4% of compensation that is deferred by the participant. Our contributions under this plan were $1,651, $1,426 and $1,328 in 2001, 2000 and 1999, respectively. We also maintain an unfunded, non-qualified deferred compensation plan, which was created in 1990 for key executives and other members of management who were then excluded from participation in the qualified savings plan. This plan allows participants to defer up to 15% of their salary on a pre-tax basis. We contribute an amount equal to 100% of the first 3% contributed by the employee. Our contributions under the non-qualified deferred compensation plan were $680, $609 and $481 in 2001, 2000 and 1999, respectively. In each plan, a participant's right to Company contributions vests at a rate of 25% per year of service. We maintain a bonus plan that allows certain officers and management of the Company to earn annual bonuses based upon achievement of certain financial and performance goals approved by the Compensation Committee of our Board of Directors. Under this plan, $1,297, $4,654 and $6,390 was expensed in 2001, 2000 and 1999, respectively. We maintain a deferred compensation plan for non-management directors. Under the plan's equity option, those who are eligible to receive directors' fees or retainers may choose to defer receipt of their compensation. The amounts deferred are converted into stock equivalents at the then-current market price of our common stock. We provide a deferment credit equal to 25% of the compensation initially deferred. Under this plan, a total of $234, $0 and $562 was expensed in 2001, 2000 and 1999, respectively, for both the deferment credit and the stock appreciation on the deferred compensation. F-15 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 6. POSTRETIREMENT BENEFIT PLAN We sponsor a health care plan that provides postretirement medical benefits for employees who meet minimum age and service requirements. The plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. Our policy is to fund the cost of medical benefits in amounts determined at the discretion of management. 2001 2000 -------- -------- Change in benefit obligation: Benefit obligation at beginning of year.......... $ 16,769 $ 16,465 Service cost..................................... 247 586 Interest cost.................................... 537 1,233 Actuarial gain................................... (9,741) (1,420) Benefits paid.................................... (83) (95) -------- -------- Benefit obligation at end of year................ $ 7,729 $ 16,769 ======== ======== Change in plan assets: Fair value of plan assets at beginning of year... $ - $ - Employer contributions........................... 83 95 Benefits paid.................................... (83) (95) -------- -------- Fair value of plan assets at end of year......... $ - $ - ======== ======== Reconciliation of funded status: Funded status.................................... $ (7,729) $(16,769) Unrecognized net gain............................ (11,792) (3,351) -------- -------- Net liability recognized......................... $(19,521) $(20,120) ======== ======== All of the net liability recognized in the reconciliation of funded status is included as an accrued benefit liability in the statements of financial position. In determining the above information, our actuaries assumed a discount rate of 7.75% and 8.00% at the measurement dates of June 30, 2001 and 2000, respectively. The components of the fiscal year net periodic postretirement benefit cost are as follows: 2001 2000 1999 ------- ------- ------- Service cost........................... $ 247 $ 586 $ 638 Interest cost.......................... 537 1,233 1,137 Net amortization....................... (1,282) (34) - ------- ------- ------- Net periodic pension (income) cost..... $ (498) $ 1,785 $ 1,775 ======= ======= ======= For measurement purposes, a 9.0% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 2002. For plan participants under age 65, the rate was assumed to decrease .5% per year to 6.0% by the year 2008 and remain at that level thereafter. For plan participants age 65 years or older, a 9.0% annual health care cost trend rate was assumed for 2002. The rate was assumed to decrease .5% per year to 6.0% by the year 2008 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of September 30, 2001 by $1,638, or 21%, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 2001 by $208, or 27%. F-16 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 7. STOCK OPTIONS We offer stock option plans to attract, retain and motivate key officers, non-employee directors and employees to work toward the future financial success of the Company. In January 1992, we adopted the 1992 Employee Stock Incentive Plan (the "1992 Plan") and, as part of a merger, assumed outstanding options to employees under our predecessor's 1990 Stock Option Plan and assumed contractually the options to purchase 42,750 shares of common stock granted to two non-employee directors of the Company. Under the 1992 Plan, employees are eligible to receive stock options, restricted stock and other various stock-based awards. Subject to certain adjustments, up to a maximum of 3,775,000 shares of common stock may be sold or issued under the 1992 Plan. No awards shall be granted after January 16, 2002, although stock may be issued thereafter pursuant to awards granted prior to such date. In August 1993, we adopted the 1993 Stock Option Plan (the "1993 Plan"). Under the 1993 Plan, employees who do not receive stock options under the 1992 Plan are eligible to receive annually stock options with an aggregate exercise price equivalent to a percentage of their eligible earnings. Subject to certain adjustments, up to a maximum of 3,000,000 shares of common stock may be sold or issued under the 1993 Plan. No awards shall be granted after December 11, 2003, although common stock may be issued thereafter pursuant to awards granted prior to such date. In February 1995, we adopted the Non-Employee Director Stock Option Plan (the "Director Plan"). Under the Director Plan, any eligible director of Jack in the Box Inc. who is not an employee of the Company or its subsidiaries is granted annually an option to purchase shares of common stock at fair market value. The actual number of shares that may be purchased under the option is based on the relationship of a portion of each director's compensation to the fair market value of the common stock, but is limited to fewer than 10,000 shares annually. Subject to certain adjustments, up to a maximum of 650,000 shares of common stock may be sold or issued under the Director Plan. Unless sooner terminated, no awards shall be granted after February 17, 2005, although common stock may be issued thereafter pursuant to awards granted prior to such date. The terms and conditions of the stock-based awards under the plans are determined by the Compensation Committee of the Board of Directors on each award date and may include provisions for the exercise price, expirations, vesting, restriction on sales and forfeiture, as applicable. Options granted under the plans have terms not exceeding 11 years and provide for an option exercise price of not less than 100% of the quoted market value of the common stock at the date of grant. F-17 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 7. STOCK OPTIONS (continued) The following is a summary of stock option activity for the three fiscal years ended September 30, 2001: Option exercise price per share ------------------------------- Weighted- Shares Range average --------- -------------- --------- Balance at September 27, 1998... 3,611,121 $ .96 - 19.06 $ 10.10 Granted....................... 655,541 13.56 - 26.63 26.24 Exercised..................... (297,148) .96 - 19.06 9.00 Canceled...................... (105,801) 5.75 - 26.63 15.27 --------- Balance at October 3, 1999...... 3,863,713 .96 - 26.63 12.78 Granted....................... 699,574 23.25 - 23.88 23.25 Exercised..................... (377,935) .96 - 19.06 3.92 Canceled...................... (128,922) 5.75 - 26.63 20.39 --------- Balance at October 1, 2000...... 4,056,430 1.13 - 26.63 15.16 Granted....................... 996,699 26.00 - 32.77 26.27 Exercised..................... (935,373) 1.13 - 26.63 8.51 Canceled...................... (119,655) 5.75 - 26.63 23.20 --------- Balance at September 30, 2001... 3,998,101 4.19 - 32.77 19.24 ========= The following is a summary of stock options outstanding at September 30, 2001:
Options outstanding Options exercisable ----------------------------------------------- ----------------------- Weighted-average Weighted- Weighted- contractual average average Range of Number remaining exercise Number exercise exercise prices outstanding life in years price exercisable price --------------- ----------- ---------------- --------- ----------- --------- $ 4.19 - 12.13 1,082,043 3.86 $ 8.76 1,082,043 $ 8.76 12.25 - 23.25 1,405,656 7.60 19.74 711,376 18.29 23.88 - 32.77 1,510,402 9.17 26.29 364,732 25.99 --------- --------- 4.19 - 32.77 3,998,101 7.18 19.24 2,158,151 14.81 ========= =========
At September 30, 2001, October 1, 2000 and October 3, 1999, the number of options exercisable were 2,158,151, 2,514,773 and 2,503,009, respectively, and the weighted-average exercise prices of those options were $14.81, $10.90 and $8.62, respectively. For purposes of the following pro forma disclosures required by SFAS 123, the fair value of each option granted after fiscal year 1995 has been estimated on the date of grant using the Black-Scholes option-pricing model. Valuation models require the input of highly subjective assumptions, including the expected volatility of the stock price. Therefore, in management's opinion, the existing models do not provide a reliable single measure of the value of employee stock options. The following assumptions were used for grants: risk-free interest rates of 5.8%, 5.9% and 5.5% in 2001, 2000 and 1999, respectively; expected volatility of 40% in 2001 and 2000 and 35% in 1999; and an expected life of six years in each year. We have not paid any cash and do not anticipate paying dividends in the foreseeable future; therefore, the expected dividend yield is zero. F-18 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 7. STOCK OPTIONS (continued) The weighted-average fair value of options granted was $12.70 in 2001, $11.26 in 2000 and $11.58 in 1999. Had compensation expense been recognized for stock-based compensation plans in accordance with provisions of SFAS 123, the Company would have recorded net earnings of $77,739, or $2.00 per basic share and $1.95 per diluted share, in 2001; $97,620, or $2.55 per basic share and $2.48 per diluted share, in 2000 and $74,391, or $1.95 per basic share and $1.89 per diluted share, in 1999. For the pro forma disclosures, the estimated fair values of the options were amortized over their vesting periods of up to five years. The pro forma disclosures do not include a full five years of grants since SFAS 123 does not apply to grants before 1996. Therefore, these pro forma amounts are not indicative of anticipated future disclosures. 8. STOCKHOLDERS' EQUITY We have 15,000,000 shares of preferred stock authorized for issuance at a par value of $.01 per share. No preferred shares have been issued. On July 26, 1996, the Board of Directors declared a dividend of one preferred stock purchase right (a "Right") for each outstanding share of our common stock, which Rights expire on July 26, 2006. Each Right entitles a stockholder to purchase for an exercise price of $40, subject to adjustment, one one-hundredth of a share of the Company's Series A Junior Participating Cumulative Preferred Stock, or, under certain circumstances, 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 has acquired or commences to acquire a beneficial interest of at least 20% of the Company's outstanding common stock. The Rights have no voting privileges and may be redeemed by the Board of Directors at a price of $.001 per Right at any time prior to or shortly after the acquisition of a beneficial ownership of 20% of the outstanding common shares. There are 383,486 shares of Series A Junior Participating Cumulative Preferred Stock reserved for issuance upon exercise of the Rights. At September 30, 2001, we had 5,133,351 shares of common stock reserved for issuance upon the exercise of stock options. F-19 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 9. AVERAGE SHARES OUTSTANDING Net earnings per share for each fiscal year is based on the weighted-average number of common shares outstanding during the year, determined as follows:
2001 2000 1999 ---------- ---------- ---------- Shares outstanding, beginning of fiscal year...... 38,348,595 38,276,460 37,927,925 Effect of common stock issued..................... 470,040 200,074 215,635 Effect of common stock reacquired................. (27,212) (209,048) - ---------- ---------- ---------- Weighted-average shares outstanding - basic....... 38,791,423 38,267,486 38,143,560 Assumed additional shares issued upon exercise of stock options and warrants, net of shares reacquired at the average market price.......... 988,644 1,066,579 1,136,949 ---------- ---------- ---------- Weighted-average shares outstanding - diluted..... 39,780,067 39,334,065 39,280,509 ========== ========== ==========
The diluted weighted-average shares outstanding computation excludes 496,125, 1,047,684 and 345,040 antidilutive stock options in 2001, 2000 and 1999, respectively. 10. CONTINGENCIES AND LEGAL MATTERS As previously reported, we have reached a settlement in an action filed in 1995 regarding alleged failure to comply with the Americans with Disabilities Act ("ADA"). The settlement requires compliance with ADA Access Guidelines at Company-operated restaurants by October 2005. We are in the process of making modifications to improve accessibility at our restaurants. We currently expect to spend approximately $10 million over the next four years in connection with these modifications in addition to amounts previously invested. On April 18, 2001, an action was filed by Robert Bellmore and Jeffrey Fairbairn, individually and on behalf of all others similarly situated, in the Superior Court of the State of California, San Diego County, seeking class action status and alleging violations of California wage and hour laws. The complaint alleges that salaried restaurant management personnel in California were improperly classified as exempt from California overtime laws, thereby depriving them of overtime pay. The complaint seeks damages in an unspecified amount, penalties, injunctive relief, prejudgment interest, costs and attorneys' fees. We believe our employee classifications are appropriate and plan to vigorously defend this action. A motion for class certification is scheduled to be heard on May 3, 2002 and a trial date has been set for January 17, 2003. We are also subject to normal and routine litigation in the ordinary course of business. The amount of liability from the claims and actions against us cannot be determined with certainty, but in our opinion the ultimate liability from all pending legal proceedings, asserted legal claims and known potential legal claims which are probable of assertion should not materially affect our results of operations and liquidity. We have three wholly-owned subsidiaries, consisting of Foodmaker International Franchising Inc. (the "Subsidiary Guarantor") and two other non-guarantor subsidiaries (collectively, the "Non-Guarantor Subsidiaries"). The Non-Guarantor Subsidiaries conduct no material operations, have no significant assets on a consolidated basis and account for only an insignificant share of our consolidated revenues. The Subsidiary Guarantor's guaranty of our $125 million senior subordinated notes is full and unconditional. The Subsidiary Guarantor has no significant operations or any significant assets or liabilities other than the guaranty of indebtedness of the Company, and therefore, no separate financial statements of the Subsidiary Guarantor are presented because they are not material to investors. F-20 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 11. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION September 30, October 1, 2001 2000 ------------ ---------- Accounts receivable: Trade...................................... $ 7,163 $ 5,871 Construction advances...................... 8,426 5,857 Other...................................... 6,808 3,034 Allowances for doubtful accounts........... (581) (1,095) ---------- ---------- $ 21,816 $ 13,667 ========== ========== Other assets: Trading area rights, net of amortization of $37,330 and $33,183, respectively.... $ 68,825 $ 71,565 Other, net of amortization of $46,058 and $42,159, respectively.... 56,795 56,496 ---------- ---------- $ 125,620 $ 128,061 ========== ========== Accrued liabilities: Payroll and related taxes.................. $ 46,058 $ 47,842 Sales and property taxes................... 17,970 15,364 Insurance.................................. 27,771 27,696 Advertising................................ 13,228 11,419 Capital improvements....................... 15,898 13,142 Income tax liabilities..................... 13,181 5,887 Other...................................... 35,522 32,006 ---------- ---------- $ 169,628 $ 153,356 ========== ========== F-21 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (continued) 12. QUARTERLY RESULTS OF OPERATIONS (Unaudited) The following fiscal year 2001 quarterly results of operations reflect the adoption of SAB 101 as described in Note 1:
16 weeks 12 weeks ended ended ---------------------------------- Jan. 21, Apr. 15, July 8, Sept. 30, Fiscal Year 2001 2001 2001 2001 2001 ------------------------------------------ --------- --------- -------- --------- Revenues.................................. $543,223 $413,219 $434,633 $442,501 Gross profit.............................. 109,998 77,394 84,750 84,386 Net earnings before cumulative effect of accounting change............. 25,580 16,771 21,034 20,675 Net earnings.............................. 23,721 16,771 21,034 20,675 Net earnings per share before cumulative effect of accounting change: Basic................................. .67 .43 .54 .53 Diluted............................... .65 .42 .53 .52 Net earnings per share: Basic................................. .62 .43 .54 .53 Diluted............................... .60 .42 .53 .52
Although the impact of adopting SAB 101 on full fiscal year operating results was not significant, the results for each of the respective quarters presented above reflect the following SAB 101 adjustments. Revenues and gross profit increased (decreased) $2,481, $(2,353), $(1,440) and $1,259. Net earnings before cumulative effect of accounting change increased (decreased) $1,541, $(1,460), $(927) and $812. Net earnings increased (decreased) $622, $(2,353), $(1,440) and $1,259. Basic and diluted net earnings per share before cumulative effect of accounting change increased (decreased) $.04, $(.04), $(.02) and $.02. Basic and diluted net earnings per share increased (decreased) $(.01), $(.04), $(.02) and $.02. Since SAB 101 was adopted as of the beginning of fiscal year 2001, the following fiscal year 2000 quarterly results of operations have not been adjusted:
16 weeks 12 weeks ended ended --------------------------------- Jan. 23, Apr. 16, July 9, Oct. 1, Fiscal Year 2000 2000 2000 2000 2000 ------------------------------------------ --------- --------- -------- -------- Revenues.................................. $476,806 $370,495 $390,311 $395,700 Gross profit.............................. 94,133 74,280 82,170 80,972 Net earnings.............................. 20,392 16,085 20,808 42,979 Net earnings per share: Basic................................... .53 .42 .54 1.12 Diluted................................. .52 .41 .53 1.09
F-22 EX-10.6 2 serpplan.txt SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN JACK IN THE BOX INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Effective April 2, 1990 Amended and Restated May 8, 2001 TABLE OF CONTENTS PAGE ---------- ARTICLE I--PURPOSE; effective date........................................1 1.1 Purpose..........................................................1 1.2 Effective Date...................................................1 ARTICLE II--DEFINITIONS...................................................1 2.1 Actuarial Equivalent.............................................1 2.2 Beneficiary......................................................1 2.3 Board............................................................1 2.4 Change in Control................................................2 2.5 Committee........................................................3 2.6 Company..........................................................3 2.7 Compensation.....................................................3 2.8 Deferred Compensation Plan.......................................3 2.9 Disability.......................................................3 2.10 Early Retirement Date............................................3 2.11 Final Average Compensation.......................................3 2.12 Form of Payment Designation......................................4 2.13 401(k) Plan......................................................4 2.14 Normal Retirement Date...........................................4 2.15 Participant......................................................4 2.16 Participation Agreement..........................................4 2.17 Plan.............................................................4 2.18 Retirement.......................................................4 2.19 Retirement Plan..................................................4 2.20 Supplemental Retirement Benefit..................................4 2.21 Target Benefit Percentage........................................5 2.22 Years of Service.................................................5 ARTICLE III--PARTICIPATION................................................5 3.1 Eligibility and Participation....................................5 3.2 Change in Employment Status......................................5 ARTICLE IV--SURVIVOR BENEFITS.............................................6 4.1 Pretermination Survivor Benefit..................................6 4.2 Postretirement Survivor Benefit..................................6 4.3 Suicide; Misrepresentation.......................................6 (i) ARTICLE V--SUPPLEMENTAL BENEFITS..........................................7 5.1 Normal Retirement Benefit........................................7 5.2 Early Retirement Benefit.........................................7 5.3 Disability Benefit...............................................8 5.4 Termination Benefits.............................................8 5.5 Form of Payment..................................................8 5.6 Change in Control................................................8 5.7 Commencement of Benefit Payments.................................9 5.8 Withholding; Payroll Taxes.......................................9 5.9 Payment to Guardian..............................................9 ARTICLE VI--BENEFICIARY DESIGNATION.......................................9 6.1 Beneficiary Designation..........................................9 6.2 Changing Beneficiary............................................10 6.3 Change in Marital Status........................................10 6.4 No Beneficiary Designation......................................10 6.5 Effect of Payment...............................................10 ARTICLE VII--ADMINISTRATION..............................................11 7.1 Committee; Duties...............................................11 7.2 Agents..........................................................11 7.3 Binding Effect of Decisions.....................................11 7.4 Indemnity of Committee..........................................11 7.5 Election of Committee After Change in Control...................11 ARTICLE VIII--CLAIMS PROCEDURE...........................................11 8.1 Claim...........................................................11 8.2 Denial of Claim.................................................12 8.3 Review of Claim.................................................12 8.4 Final Decision..................................................12 ARTICLE IX--TERMINATION, SUSPENSION OR AMENDMENT.........................12 9.1 Termination, Suspension or Amendment of Plan....................12 (ii) ARTICLE X--MISCELLANEOUS.................................................13 10.1 Unfunded Plan...................................................13 10.2 Company Obligation..............................................13 10.3 Unsecured General Creditor......................................13 10.4 Trust Fund......................................................13 10.5 Nonassignability................................................13 10.6 Not a Contract of Employment....................................14 10.7 Protective Provisions...........................................14 10.8 Governing Law...................................................14 10.9 Validity........................................................14 10.10 Notice..........................................................14 10.11 Successors......................................................14 (iii) JACK IN THE BOX INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE I--PURPOSE; EFFECTIVE DATE 1.1 Purpose The purpose of this Supplemental Executive Retirement Plan is to provide supplemental retirement benefits for certain key employees of the Company. It is intended that the Plan will aid in retaining and attracting individuals of exceptional ability by providing them with these benefits. 1.2 Effective Date This Plan shall be effective as of April 2, 1990. ARTICLE II--DEFINITIONS For the purposes of this Plan, the following terms shall have the meanings indicated unless the context clearly indicates otherwise: 2.1 Actuarial Equivalent "Actuarial Equivalent" means equivalence in value between two (2) or more forms and/or times of payment based on a determination by an actuary chosen by the Company, using the same actuarial assumptions as used in the Retirement Plan at the time of such determination. Notwithstanding the foregoing, for purposes of determining lump sums, the interest rate shall be equal to the lesser of (a) the Pension Benefit Guaranty Corporation interest rate for immediate annuities, as published in Appendix B to Part 2619 of Title 29 of the Code of Federal Regulations, or any successor or replacement rate (the "PBGC rate") in effect on January 1 of each year; or (b) a twenty-four (24) month rolling average of the PBGC rate, using the current rate as of the beginning of the month in which the calculation is made and the twenty-three (23) previous months. 2.2 Beneficiary "Beneficiary" means the person, persons or entity as designated by the Participant, entitled under Article VI to receive any Plan benefits payable after the Participant's death. 2.3 Board "Board" means the Board of Directors of the Company. 1 2.4 Change in Control "Change in Control" of the Company means, and shall be deemed to have occurred upon, the first to occur of any of the following events: (a) Any "Person" (other than those Persons in control of the Company as of the Effective Date, or other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the "Beneficial Owner," directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (b) During any period of two (2) consecutive years after an employee becomes a Plan Participant, individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was so approved), cease for any reason to constitute a majority thereof; or (c) The stockholders of the Company approve: (i) A plan of complete liquidation of the Company; or (ii) An agreement for the sale or disposition of all or substantially all of the Company's assets; or (iii) A merger, consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. However, in no event shall a "Change in Control" be deemed to have occurred, with respect to the Participant, if the Participant is part of a purchasing group which consummates the Change in Control transaction. The Participant shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Participant is an equity participant in the purchasing company or group except for: (i) Passive ownership of less than two percent (2%) of the stock of the purchasing company; or (ii) Ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the nonemployee continuing Directors. For purposes of this Section, the terms "Person" and "Beneficial Owner" shall have the meanings given those terms in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, and Rule 13d-3 under that Act. 2 2.5 Committee "Committee" means committee appointed by the Board to administer the Plan pursuant to Article VII. The initial committee so designated by the Board shall be the Administrative Committee. 2.6 Company "Company" means Jack in the Box Inc., a Delaware Corporation, and directly or indirectly affiliated subsidiary corporations, any other affiliate designated by the Board, or any successor to the business thereof. 2.7 Compensation "Compensation" means the base salary payable to and bonus earned by a Participant by Company and considered to be "wages" for purposes of federal income tax withholding. Compensation shall be calculated before reduction for any amounts deferred by the Participant pursuant to the Company's tax qualified plans which may be maintained under Section 401(k) or Section 125 of the Internal Revenue Code (the "Code"), or under the Deferred Compensation Plan as defined in Section 2.8. Inclusion of any other forms of Compensation are subject to Committee approval. 2.8 Deferred Compensation Plan "Deferred Compensation Plan" means the Jack in the Box Inc. Capital Accumulation Plan for Executives, a nonqualified deferred compensation plan established by the Company for a select group of highly compensated and management employees of Company. 2.9 Disability "Disability" means a physical or mental condition that prevents the Participant from satisfactorily performing the Participant's usual duties for Company. The Committee shall determine the existence of Disability and may rely on advice from a medical examiner satisfactory to the Committee in making the determination. 2.10 Early Retirement Date "Early Retirement Date" means the date on which a Participant terminates employment with Company, if such termination date occurs on or after such Participant's attainment of age fifty-five (55) and completion of ten (10) Years of Service, but prior to the Participant's Normal Retirement Date. 2.11 Final Average Compensation "Final Average Compensation" means the Participant's average monthly Compensation during any five (5) calendar years in which the Participant's Compensation is the highest out of the last ten (10) years of employment with Company. If the Participant has fewer than five (5) years of employment with Company, Final Average Compensation shall be determined based on the average of actual term of employment. 3 2.12 Form of Payment Designation "Form of Payment Designation" means the form prescribed by the Committee and completed by the Participant, indicating the chosen form of payment for benefits payable under the Plan, as elected by the Participant. 2.13 401(k) Plan "401(k) Plan" means the Jack in the Box Inc. Easy$aver Plus Plan or any successor defined contribution plan maintained by Company that qualifies under Section 401(a) of the Code by satisfying the requirements of Section 401(k) of the Code. 2.14 Normal Retirement Date "Normal Retirement Date" means the date on which a Participant terminates employment with Company on or after attaining age sixty-two (62). 2.15 Participant "Participant" means any employee who is eligible, pursuant to Section 3.1, to participate in this Plan, and who has not yet received full benefits hereunder. 2.16 Participation Agreement "Participation Agreement" means the agreement filed by a Participant and approved by the Committee pursuant to Article III. 2.17 Plan "Plan" means this Jack in the Box Inc. Supplemental Executive Retirement Plan, as may be amended from time to time. 2.18 Retirement "Retirement" means a Participant's termination from employment with Company at the Participant's Early Retirement Date or Normal Retirement Date, as applicable. 2.19 Retirement Plan "Retirement Plan" means any qualified defined benefit plan maintained by Company that qualifies under Section 401(a) of the Internal Revenue Code. 2.20 Supplemental Retirement Benefit "Supplemental Retirement Benefit" means the benefit determined under Article V of this Plan. 4 2.21 Target Benefit Percentage "Target Benefit Percentage" means the percentage of a Participant's Final Average Compensation that will be used in determining the Participant's Supplemental Retirement Benefit under Article V of this Plan. The Target Benefit Percentage is determined by multiplying sixty percent (60%) times a fraction, the numerator of which is the Participant's Years of Service (not to exceed twenty (20)) and the denominator of which is twenty (20). The Target Benefit Percentage, as set forth in the preceding sentence, shall apply to those Participants who retire on or after March 31, 1996. 2.22 Years of Service "Years of Service" means the number of years of service determined in accordance with the provisions of the Retirement Plan, whether or not the Participant is a participant in such plan. ARTICLE III--PARTICIPATION 3.1 Eligibility and Participation (a) Eligibility. Eligibility to participate in the Plan shall be limited to those select key employees of Company who are designated by management, from time to time, and approved by the Committee. (b) Participation. An employee's participation in the Plan shall be effective upon notification to the employee by the Committee of eligibility to participate, completion of a Participation Agreement and a Form of Payment Designation, and acceptance of each by the Committee. Subject to Section 3.2, participation in the Plan shall continue until such time as the Participant terminates employment with Company and as long thereafter as the Participant is eligible to receive benefits under this Plan. 3.2 Change in Employment Status If the Committee determines that a Participant's employment performance is no longer at a level that deserves reward through participation in this Plan, but does not terminate the Participant's employment with Company, participation herein and eligibility to receive benefits hereunder shall be limited to the Participant's accrued interest in such benefits as of the date designated by the Board ("Participation Termination Date"). Such benefits shall be based solely on the Participant's Years of Service and Compensation as of the Participation Termination Date. Notwithstanding the above, Participants who have a change in employment status, as described in this Section 3.2, and who terminate employment with Company within twenty-four (24) months following a Change in Control, shall be entitled to benefits as described in Section 5.6 of this Plan. 5 ARTICLE IV--SURVIVOR BENEFITS 4.1 Pretermination Survivor Benefit If a Participant dies while employed by Company, Company shall pay a survivor benefit to the Participant's Beneficiary as follows: (a) Amount. The amount of the survivor benefit shall be one (1) times the Participant's Compensation, which for purposes of this subsection shall be defined as annualized current base salary plus the average of the bonuses paid for the three (3) most recent completed fiscal years. If, however, the date of death is an Early Retirement Date, the amount of the survivor benefit shall be the greater of one (1) times the Participant's Compensation or the Actuarial Equivalent lump sum present value of the Participant's Supplemental Retirement Benefit, determined under Section 5.2, calculated as of the date of death and based on the Participant's Final Average Compensation. Such benefit shall not be subject to any reduction of benefits provided under Section 5.7(b) below. (b) Time and Form of Payment. The survivor benefit shall be paid to the Beneficiary as soon as practicable after the death of the Participant in the form of a lump sum payment. The Beneficiary may request another form of payment. This request must be approved by the Committee in its sole discretion. 4.2 Postretirement Survivor Benefit (a) Death Prior to Commencement of Benefits. If a Participant dies following Retirement with Company and prior to the commencement of accrued benefits hereunder, Company shall pay a survivor benefit to the Participant's Beneficiary as follows: (i) Amount. The amount of the survivor benefit shall be equal to the Actuarial Equivalent lump sum present value of the Participant's interest in the Supplemental Retirement Benefit determined under Section 5.1 or 5.2, as applicable, calculated as of the time benefits would have commenced had the Participant survived. (ii) Time and Form of Payment. The survivor benefit shall be paid to the Beneficiary as soon as practicable after the death of the Participant in the form of a lump sum payment. The Beneficiary may request another form of payment. This request must be approved by the Committee in its sole discretion. (b) Death After Commencement of Benefits. If a Participant dies following the Participant's Retirement and after payments have commenced, a survivor benefit will be paid only if, and to the extent, provided for under Section 5.5. 4.3 Suicide; Misrepresentation No benefit shall be paid to a Beneficiary if the Participant's death occurs as a result of suicide during the twenty-four (24) calendar months beginning with the calendar month following commencement of participation in this Plan. The Committee may also deny payment if death occurs within such twenty-four (24) months if the Participant has made a material misrepresentation in any form or document provided by the Participant to or for the benefit of Company. 6 ARTICLE V--SUPPLEMENTAL BENEFITS 5.1 Normal Retirement Benefit If a Participant retires at the Normal Retirement Date, Company shall pay to the Participant a monthly Supplemental Retirement Benefit equal to the Participant's Target Benefit Percentage multiplied by Final Average Compensation, less: (a) The Participant's benefit, under the Retirement Plan, in the form of a monthly single-life annuity, payable at Retirement; (b) The Participant's benefit from the 401(k) Plan relating to Company contributions, payable at Retirement, calculated as if the maximum Company contribution had been made during each year the Participant was eligible to defer Compensation, and assuming that those Company contributions had earnings at an annual rate of ten percent (10%), in the form of a monthly single-life annuity, payable at Retirement; and (c) The Participant's benefit from the Deferred Compensation Plan, including Earnings as defined in the Deferred Compensation Plan, relating to Company contributions, calculated as if the maximum Company contribution had been made during each year the Participant was eligible to defer Compensation, in the form of a monthly single-life annuity, payable at Retirement. 5.2 Early Retirement Benefit If a Participant retires at an Early Retirement Date, Company shall pay to the Participant a monthly Supplemental Retirement Benefit equal to the Participant's Target Benefit Percentage multiplied by Final Average Compensation, less: (a) The Participant's benefit, under the Retirement Plan, payable at age sixty-two (62), in the form of a monthly single-life annuity; (b) The Participant's benefit from the 401(k) Plan relating to Company contributions, payable at age sixty-two (62), assuming no earnings on the 401(k) Plan account balance from the date of termination until Normal Retirement Date, and calculated as if the maximum Company contribution had been made during each year the Participant was eligible to defer Compensation, and assuming that those Company contributions had earnings to the date of termination at an annual rate of ten percent (10%), in the form of a monthly single-life annuity payable at age sixty-two (62); and (c) The Participant's benefit from the Deferred Compensation Plan, including Earnings as defined in the Deferred Compensation Plan, relating to Company contributions payable at age sixty-two (62), assuming no earnings on the Deferred Compensation Plan account balance from the date of termination until Normal Retirement Date, and calculated as if the maximum Company contribution had been made during each year the Participant was eligible to defer Compensation, and assuming that those Company contributions had earnings to date of termination at the actual Deferred Compensation Plan annual rate, in the form of a monthly single-life annuity payable at age sixty-two (62). 7 5.3 Disability Benefit If a Participant terminates employment with Company due to Disability, the benefit provided herein will continue to accrue, assuming level earnings to the date upon which the Participant qualifies for an Early Retirement Date, and with continuation of crediting of Years of Service. Once the Participant qualifies for an Early Retirement Date, Company shall pay to the Participant a monthly Supplemental Retirement Benefit as set forth in Section 5.2 above. 5.4 Termination Benefits If a Participant terminates employment with Company prior to Retirement, Disability or death, no benefit shall be due and payable under this Plan. If a Participant involuntarily terminates employment with Company as a result of Change in Control, benefits will be as described in Section 5.6. 5.5 Form of Payment Except as provided in Section 5.6, the Supplemental Retirement Benefit shall be paid in the form of benefit as provided below, specified by the Participant in the Form of Payment Designation. If, upon termination or Retirement, the Participant's most recent election as to the form of payment was made within one (1) year of such termination or Retirement, then the prior election shall be used to determine the form of payment. The forms of benefit payment are: (a) A single-life annuity commencing at Retirement, which is the normal form of payment; (b) A one hundred percent (100%) Joint and Survivor annuity commencing at Retirement; (c) A fifty percent (50%) Joint and Survivor annuity commencing at Retirement; (d) Life and Ten (10) Year Certain annuity, commencing at Retirement; (e) Life and Five (5) Year Certain annuity, commencing at Retirement; and (f) Any Actuarial Equivalent method that the Committee may, from time to time, approve. 5.6 Change in Control (a) Amount. If the Participant is involuntarily terminated or suffers a significant diminution of duties or responsibilities, or has a downward change of title within twenty-four (24) months following a Change in Control, the Participant shall be entitled to a monthly Supplemental Retirement Benefit as determined under Section 5.2 above, in the form of a lump sum Actuarial Equivalent. 8 (b) Form and Time of Payment. The benefit payable under this Section 5.6 shall be paid in three (3) equal annual installments (without interest on the declining principal) commencing as soon as possible after all information necessary to calculate the benefit amount has been received by Company following termination of employment, with each subsequent annual installment payable upon the anniversary date of the first payment. Such benefit shall not be subject to any reduction of benefits provided under Section 5.7(b) below. 5.7 Commencement of Benefit Payments (a) Normal Commencement. Payments shall ordinarily commence as soon as practicable after the Participant attains the later of age sixty-two (62) or Retirement, but not later than sixty (60) days after all information necessary to calculate the benefit amount has been received by Company. All payments shall be made as of first day of the month. (b) Early Commencement. If the Participant terminates employment prior to age sixty-two (62), the Participant shall have the right to request payment commencing prior to age sixty-two (62). The Committee, in its sole discretion, may grant, deny or modify such request. If payment commences prior to age sixty-two (62), then the Supplemental Retirement Benefit shall be reduced five-twelfths (5/12) of one percent (1%) for each month by which such termination precedes age sixty-two (62). 5.8 Withholding; Payroll Taxes Company shall withhold from payments hereunder any taxes required to be withheld from such payments under local, state or federal law. A Beneficiary, however, may elect not to have withholding of federal income tax pursuant to Section 3405(a)(2) of the Code, or any successor provision thereto. 5.9 Payment to Guardian If a Plan benefit is payable to a minor or a person declared incompetent or to a person incapable of handling the disposition of property, the Committee may direct payment to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Committee may require proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution. Such distribution shall completely discharge the Committee and Company from all liability with respect to such benefit. ARTICLE VI--BENEFICIARY DESIGNATION 6.1 Beneficiary Designation Each Participant shall have the right, at any time, to designate one (1) or more persons or entity as Beneficiary (both primary as well as secondary) to whom benefits under this Plan shall be paid in the event of a Participant's death prior to complete distribution to the Participant of the benefits due under the Plan. Each Beneficiary designation shall be in a written form prescribed by the Committee and shall be effective only when filed with the Committee during the Participant's lifetime. Designation by a married Participant to the Participant's spouse of less than a fifty percent (50%) interest in the benefit due shall not be effective unless the spouse executes a written consent that acknowledges the effect of the designation, or it is established that the consent cannot be obtained because the spouse cannot be located. 9 6.2 Changing Beneficiary Any Beneficiary designation may be changed by an unmarried Participant without the consent of the previously named Beneficiary by the filing of a new Beneficiary designation with the Committee. A married Participant's Beneficiary designation may be changed by a Participant with the consent of the Participant's spouse as provided for in Section 6.1 above, by the filing of a new Beneficiary designation with the Committee. The filing of a new designation shall cancel all designations previously filed. 6.3 Change in Marital Status If the Participant's marital status changes after the Participant has designated a Beneficiary, the following shall apply: (a) If the Participant is married at death but was unmarried when the designation was made, the designation shall be void unless the spouse has consented to it in the manner prescribed in Section 6.1 above. (b) If the Participant is unmarried at death but was married when the designation was made: (i) The designation shall be void if the spouse was named as Beneficiary. (ii) The designation shall remain valid if a nonspouse Beneficiary was named. (c) If the Participant was married when the designation was made and is married to a different spouse at death, the designation shall be void unless the new spouse has consented to it in the manner prescribed in Section 6.1 above. 6.4 No Beneficiary Designation If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void, or if the Beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participant's benefits, the Participant's Beneficiary shall be the person in the first of the following classes in which there is a survivor: (a) The Participant's surviving spouse; (b) The Participant's children in equal shares, except that if any of the children predeceases the Participant but leaves issue surviving, then such issue shall take by right of representation the share the deceased child would have taken if living; (c) The Participant's estate. 6.5 Effect of Payment Payment to the Beneficiary shall completely discharge the Company's obligations under this Plan. 10 ARTICLE VII--ADMINISTRATION 7.1 Committee; Duties The Plan shall be administered by the Committee, which shall consist of not less than three (3) persons appointed by the Board, except after a Change in Control as provided in Section 7.5. The Committee shall have the authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of the Plan and decide or resolve any and all questions, including interpretations of the Plan, as may arise in such administration. A majority vote of the Committee members shall control any decision. Members of the Committee may be Participants under this Plan. 7.2 Agents The Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company. 7.3 Binding Effect of Decisions The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in the Plan. 7.4 Indemnity of Committee The Company shall indemnify and hold harmless the members of the Committee against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan on account of such member's service on the Committee, except in the case of gross negligence or willful misconduct. 7.5 Election of Committee After Change in Control After a Change in Control, vacancies on the Committee shall be filled by majority vote of the remaining Committee members and Committee members may be removed only by such a vote. If no Committee members remain, a new Committee shall be elected by majority vote of the Participants in the Plan immediately preceding such Change in Control. No amendment shall be made to Article VII or other Plan provisions regarding Committee authority with respect to the Plan without prior approval by the Committee. ARTICLE VIII--CLAIMS PROCEDURE 8.1 Claim Any person or entity claiming a benefit, requesting an interpretation or ruling under the Plan, or requesting information under the Plan (hereinafter referred to as "Claimant") shall present the request in writing to the Committee, which shall respond in writing as soon as practicable. 11 8.2 Denial of Claim If the claim or request is denied, the written notice of denial shall state: (a) The reason for denial, with specific reference to the Plan provisions on which the denial is based; (b) A description of any additional material or information required and an explanation of why it is necessary; and (c) An explanation of the Plan's claims review procedure. 8.3 Review of Claim Any Claimant whose claim or request is denied or who has not received a response within sixty (60) days may request a review by notice given in writing to the Committee. Such request must be made within sixty (60) days after receipt by the Claimant of the written notice of denial, or in the event Claimant has not received a response sixty (60) days after receipt by the Committee of Claimant's claim or request. The claim or request shall be reviewed by the Committee which may, but shall not be required to, grant the Claimant a hearing. On review, the Claimant may have representation, examine pertinent documents, and submit issues and comments in writing. 8.4 Final Decision The decision on review shall normally be made within sixty (60) days after the Committee's receipt of Claimant's claim or request. If an extension of time is required for a hearing or other special circumstances, the Claimant shall be notified and the time limit shall be one hundred twenty (120) days. The decision shall be in writing and shall state the reason and the relevant Plan provisions. All decisions on review shall be final and bind all parties concerned. ARTICLE IX--TERMINATION, SUSPENSION OR AMENDMENT 9.1 Termination, Suspension or Amendment of Plan The Board may, in its sole discretion, terminate or suspend the Plan at any time, in whole or in part. The Board may amend the Plan at any time. Any amendment may provide different benefits or amounts of benefits from those herein set forth. However, no such termination, suspension or amendment shall adversely affect the benefits of Participants which have accrued prior to such action, the benefits of any Participant who has previously retired, or the benefits of any Beneficiary of a Participant who has previously died, except as otherwise determined by the Board under Section 10.1 with respect to any Participant. 12 ARTICLE X--MISCELLANEOUS 10.1 Unfunded Plan This Plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly-compensated employees" within the meaning of Sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, the Board may terminate the Plan and make no further benefit payments, or remove certain employees as Participants if it is determined by the United States Department of Labor, a court of competent jurisdiction, or an opinion of counsel that the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA (as currently in effect or hereafter amended) which is not so exempt. 10.2 Company Obligation The obligation to make benefit payments to any Participant under the Plan shall be an obligation solely of the Company with respect to the deferred Compensation receivable from, and contributions by Company, and shall not be an obligation of another employer. 10.3 Unsecured General Creditor Except as provided in Section 10.4, Participants and Beneficiaries shall be unsecured general creditors, with no secured or preferential right to any assets of Company or any other party for payment of benefits under this Plan. Any property held by Company for the purpose of generating the cash flow for benefit payments shall remain its general, unpledged and unrestricted assets. Company's obligation under the Plan shall be an unfunded and unsecured promise to pay money in the future. 10.4 Trust Fund Company shall be responsible for the payment of all benefits provided under the Plan. At its discretion, Company may establish one (1) or more trusts, with such trustees as the Board may approve, for the purpose of providing for the payment of such benefits. Although such a trust shall be irrevocable, its assets shall be held for payment of all Company's general creditors in the event of insolvency. To the extent any benefits provided under the Plan are paid from any such trust, Company shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of Company. 10.5 Nonassignability Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 13 10.6 Not a Contract of Employment This Plan shall not constitute a contract of employment between Company and the Participant. Nothing in this Plan shall give a Participant the right to be retained in the service of Company or to interfere with the right of Company to discipline or discharge a Participant at any time. 10.7 Protective Provisions A Participant shall cooperate with Company by furnishing any and all information requested by Company in order to facilitate the payment of benefits hereunder, and by taking such physical examinations as Company may deem necessary and by taking such other action as may be requested by Company. 10.8 Governing Law The provisions of this Plan shall be construed and interpreted according to the laws of the State of California, except as preempted by federal law. 10.9 Validity If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 10.10 Notice Any notice or filing required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Committee shall be directed to the Company's address. Mailed notice to a Participant or Beneficiary shall be directed to the individual's last known address in Company's records. 10.11 Successors The provisions of this Plan shall bind and inure to the benefit of Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of Company, and successors of any such corporation or other business entity. JACK IN THE BOX INC. By: LAWRENCE E. SCHAUF ------------------------------- Lawrence E. Schauf Executive Vice President and Secretary Dated: December 7, 2001 ------------------------------- EX-10.5 3 capplan.txt CAPITAL ACCUMULATION PLAN FOR EXECUTIVES JACK IN THE BOX INC. CAPITAL ACCUMULATION PLAN FOR EXECUTIVES Effective April 2, 1990 Amended and Restated June 1, 2001 TABLE OF CONTENTS PAGE ----------- Article I--PURPOSE; EFFECTIVE DATE.......................................1 1.1 Purpose.......................................................1 1.2 Effective Date................................................1 ARTICLE II--DEFINITIONS..................................................1 2.1 Account.......................................................1 2.2 Actuarial Equivalent..........................................1 2.3 Beneficiary...................................................1 2.4 Board.........................................................1 2.5 Change in Control.............................................2 2.6 Committee.....................................................3 2.7 Company.......................................................3 2.8 Compensation..................................................3 2.9 Deferral Commitment...........................................3 2.10 Deferral Period...............................................3 2.11 Determination Date............................................3 2.12 Disability....................................................3 2.13 Discretionary Contribution....................................3 2.14 Earnings......................................................4 2.15 Financial Hardship............................................4 2.16 Form of Payment Designation...................................4 2.17 401(k) Plan...................................................4 2.18 Matching Contribution.........................................4 2.19 Participant...................................................4 2.20 Plan..........................................................4 2.21 Years of Service..............................................5 ARTICLE III--PARTICIPATION AND DEFERRAL COMMITMENTS......................5 3.1 Eligibility and Participation.................................5 3.2 Form of Deferral..............................................5 3.3 Limitations on Deferral Commitments...........................5 3.4 Commitment Limited by Termination.............................6 3.5 Modification of Deferral Commitment...........................6 3.6 Change in Employment Status...................................6 (i) ARTICLE IV--DEFERRED COMPENSATION ACCOUNT................................6 4.1 Account.......................................................6 4.2 Timing of Credits; Withholding................................6 4.3 Matching Contributions........................................7 4.4 Discretionary Contributions...................................7 4.5 Determination of Accounts.....................................7 4.6 Vesting of Accounts...........................................7 4.7 Statement of Accounts.........................................8 ARTICLE V--PLAN BENEFITS.................................................8 5.1 Withdrawals...................................................8 5.2 Termination Benefits..........................................8 5.3 Death Benefit.................................................8 5.4 Form of Payment...............................................9 5.5 Withholding; Payroll Taxes....................................9 5.6 Valuation and Settlement......................................9 5.7 Payment to Guardian...........................................9 ARTICLE VI--BENEFICIARY DESIGNATION.....................................10 6.1 Beneficiary Designation......................................10 6.2 Changing Beneficiary.........................................10 6.3 Change in Marital Status.....................................10 6.4 No Beneficiary Designation...................................11 6.5 Effect of Payment............................................11 ARTICLE VII--ADMINISTRATION.............................................11 7.1 Committee; Duties............................................11 7.2 Agents.......................................................11 7.3 Binding Effect of Decisions..................................11 7.4 Indemnity of Committee.......................................11 7.5 Election of Committee After Change in Contro.................12 ARTICLE VIII--CLAIMS PROCEDURE..........................................12 8.1 Claim........................................................12 8.2 Denial of Claim..............................................12 8.3 Review of Claim..............................................12 8.4 Final Decision...............................................12 (ii) ARTICLE IX--AMENDMENT AND TERMINATION OF PLAN...........................13 9.1 Amendment....................................................13 9.2 Company's Right to Terminate.................................13 ARTICLE X--MISCELLANEOUS................................................14 10.1 Unfunded Plan................................................14 10.2 Company Obligation...........................................14 10.3 Unsecured General Creditor...................................14 10.4 Trust Fund...................................................14 10.5 Nonassignability.............................................14 10.6 Not a Contract of Employment.................................15 10.7 Protective Provisions........................................15 10.8 Governing Law................................................15 10.9 Validity.....................................................15 10.10 Notice.......................................................15 10.11 Successors...................................................15 (iii) JACK IN THE BOX INC. CAPITAL ACCUMULATION PLAN FOR EXECUTIVES ARTICLE I--PURPOSE; EFFECTIVE DATE 1.1 Purpose The purpose of this Capital Accumulation Plan for Executives is to provide current tax planning opportunities as well as supplemental funds for retirement or death for certain key employees of Company. It is intended that the Plan will aid in attracting and retaining key employees of exceptional ability by providing them with these benefits. 1.2 Effective Date The Plan shall be effective as of April 2, 1990. ARTICLE II--DEFINITIONS For the purposes of this Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise: 2.1 Account "Account" means the vehicle used by Company to measure and determine the amounts to be paid to a Participant under the Plan. 2.2 Actuarial Equivalent "Actuarial Equivalent" means equivalence in value between two (2) or more forms and/or times of payment based on a determination by an actuary chosen by the Committee, using sound actuarial assumptions at the time of such determination. 2.3 Beneficiary "Beneficiary" means the person, persons or entity as designated by the Participant, entitled under Article VI to receive any Plan benefits payable after the Participant's death. 2.4 Board "Board" means the Board of Directors of the Company. 1 2.5 Change in Control "Change in Control" of the Company means, and shall be deemed to have occurred upon, the first to occur of any of the following events: (a) Any "Person" (other than those Persons in control of the Company as of the Effective Date, or other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the "Beneficial Owner," directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (b) During any period of two (2) consecutive years after an employee becomes a Plan Participant, individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was so approved), cease for any reason to constitute a majority thereof; or (c) The stockholders of the Company approve: (i) A plan of complete liquidation of the Company; or (ii) An agreement for the sale or disposition of all or substantially all of the Company's assets; or (iii) A merger, consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. However, in no event shall a "Change in Control" be deemed to have occurred, with respect to the Participant, if the Participant is part of a purchasing group which consummates the Change in Control transaction. The Participant shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Participant is an equity participant in the purchasing company or group except for: (i) Passive ownership of less than two percent (2%) of the stock of the purchasing company; or (ii) Ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the nonemployee continuing Directors. For purposes of this Section, the terms "Person" and "Beneficial Owner" shall have the meanings given those terms in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, and Rule 13d-3 under that Act. 2 2.6 Committee "Committee" means the committee appointed by the Board to administer the Plan pursuant to Article VII. The initial committee so designated by the Board shall be the Administrative Committee. 2.7 Company "Company" means Jack in the Box Inc., a Delaware corporation, and directly or indirectly affiliated subsidiary corporations, any other affiliate designated by the Board, or any successor to the business thereof. 2.8 Compensation "Compensation" means the base salary payable to and bonus earned by a Participant by Company and considered to be "wages" for purposes of federal income tax withholding. Compensation shall be calculated before reduction for any amounts deferred by the Participant pursuant to the Company's tax qualified plans which may be maintained under Section 401(k) or Section 125 of the Internal Revenue Code (the "Code"), or under this Plan. Inclusion of any other forms of compensation is subject to Committee approval. 2.9 Deferral Commitment "Deferral Commitment" means a commitment made by a Participant to defer a percentage of Compensation pursuant to Article III. The Deferral Commitment shall apply to each payment of salary and bonus payable to a Participant. In no event shall the Deferral Commitment exceed fifteen percent (15%) of the Participant's base salary and one hundred percent (100%) of the Participant's bonus less applicable taxes. A Deferral Commitment shall remain in effect until amended or revoked as provided under Section 3.2. 2.10 Deferral Period "Deferral Period" means each calendar year. The initial Deferral Period, however, shall be April 2, 1990 through and including December 31, 1990. 2.11 Determination Date "Determination Date" means the last day of each calendar month. 2.12 Disability "Disability" means a physical or mental condition that prevents the Participant from satisfactorily performing the Participant's usual duties for Company. The Committee shall determine the existence of Disability and may rely on advice from a medical examiner satisfactory to the Committee in making the determination. 2.13 Discretionary Contribution "Discretionary Contribution" means the Company contribution credited to a Participant's Account under Section 4.4. 3 2.14 Earnings Effective January 1, 2001, "Earnings" means the rate of growth credited to an Account on each Determination Date in a calendar year, which shall be equal to the effective annual yield of the average of the Moody's Average Corporate Bond Yield Index for the previous calendar month, as published by Moody's Investors Service, Inc. (or any successor publisher thereto), or, if such index is no longer published, a substantially similar index selected by the Committee, plus two (2) percentage points. Prior to January 1, 2001, "Earnings" means the rate of growth credited to an Account on each Determination Date in a calendar year, which shall be equal to the effective annual yield of the average of the Moody's Average Corporate Bond Yield Index for the previous calendar month, as published by Moody's Investors Service, Inc. (or any successor publisher thereto), or, if such index is no longer published, a substantially similar index selected by the Committee. 2.15 Financial Hardship "Financial Hardship" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstance arising as a result of events beyond the control of the Participant. Financial Hardship shall be determined based upon such standards as are, from time to time, established by the Committee. 2.16 Form of Payment Designation "Form of Payment Designation" means the form prescribed by the Committee and completed by the Participant, indicating the chosen form of payment for benefits payable under this Plan, as elected by the Participant. 2.17 401(k) Plan "401(k) Plan" means the Jack in the Box Inc. Easy$aver Plus Plan, or any successor defined contribution plan maintained by the Company that qualifies under Section 401(a) of the Code by satisfying the requirements of Section 401(k) of the Code. 2.18 Matching Contribution "Matching Contribution" means the Company contribution credited to a Participant's Account under Section 4.3. 2.19 Participant "Participant" means any employee who is eligible, pursuant to Section 3.1, to participate in this Plan, and who has elected to defer Compensation under this Plan. 2.20 Plan "Plan" means this Jack in the Box Inc. Capital Accumulation Plan for Executives as amended from time to time. 4 2.21 Years of Service "Years of Service" shall have the meaning provided for such term for purposes of vesting under the 401(k) Plan, whether or not the Participant is a participant in such plan. ARTICLE III--PARTICIPATION AND DEFERRAL COMMITMENTS 3.1 Eligibility and Participation (a) Eligibility. Eligibility to participate in the Plan shall be limited to those select key employees of Company who are designated by management, from time to time, and approved by the Committee. (b) Participation. An employee's participation in the Plan shall be effective upon notification to the employee by the Committee of eligibility to participate, and completion and submission of a Deferral Commitment and a Form of Payment Designation to the Committee by the thirtieth day of the second month immediately preceding the beginning of the Deferral Period. Such Deferral Commitment and Form of Payment Designation shall remain in effect with respect to each succeeding Deferral Period, until such time as another Deferral Commitment is filed with the Committee as described in Section 3.2(b) below. (c) Part-Year Participation. When an individual first becomes eligible to participate during a Deferral Period, a Deferral Commitment may be submitted to the Committee within thirty (30) days after the Committee notifies the individual of eligibility to participate. Such Deferral Commitment will be effective only with regard to Compensation earned following submission of the Deferral Commitment to the Committee. 3.2 Form of Deferral A Participant may elect a Deferral Commitment as follows: (a) Form of Deferral Commitment. A Deferral Commitment shall be with respect to each payment of salary and bonus payable by Company to a Participant during the Deferral Period. (b) Period of Commitment. Once a Participant has made a Deferral Commitment, that Commitment shall remain in effect for that Deferral Period and shall remain in effect for all future Deferral Periods unless revoked or amended in writing by the Participant and delivered to the Committee no later than November 30 of the year preceding a subsequent Deferral Period. 3.3 Limitations on Deferral Commitments The following limitations shall apply to a Deferral Commitment: (a) Maximum. The maximum percentage of Compensation deferred shall be fifteen percent (15%) of each payment of base salary and one hundred percent (100%) of bonus payable less applicable taxes. 5 (b) Minimum. The minimum deferral amount shall be one percent (1%) of Compensation. (c) The amount to be deferred shall be stated as a full percentage of each payment of Compensation. (d) Changes in Minimum or Maximum. The Committee may change the minimum or maximum deferral amounts from time to time by giving written notice to all Participants. No such change may affect a Deferral Commitment entered into prior to the Committee's action. 3.4 Commitment Limited by Termination If a Participant terminates employment with Company prior to the end of the Deferral Period, the Deferral Period shall end as of the date of termination. 3.5 Modification of Deferral Commitment Except as provided in Section 5.1(b) below, a Deferral Commitment shall be irrevocable by the Participant during a Deferral Period. 3.6 Change in Employment Status If the Committee determines that Participant's employment performance is no longer at a level that deserves reward through participation in this Plan, but does not terminate the Participant's employment with Company, the Participant's existing Deferral Commitment shall terminate at the end of the Deferral Period, and no new Deferral Commitment may be made by such Participant after notice of such determination is given by the Board. ARTICLE IV--DEFERRED COMPENSATION ACCOUNT 4.1 Account The amounts deferred by a Participant under the Plan, any Company contributions and Earnings shall be credited to the Participant's Account. Separate subaccounts may be maintained to reflect different forms of distribution and levels of vesting. The Account shall be a bookkeeping device utilized for the sole purpose of determining the benefits payable under the Plan and shall not constitute a separate fund of assets. 4.2 Timing of Credits; Withholding A Participant's deferred Compensation shall be credited to the Account at the time it would have been payable to the Participant. Any withholding of taxes or other amounts with respect to deferred Compensation that is required by local, state or federal law shall be withheld from the Participant's corresponding nondeferred Compensation to the maximum extent possible, and any remaining amount shall reduce the amount credited to the Participant's Account. 6 4.3 Matching Contributions Company shall credit a Matching Contribution to the Participant's Account equal to one hundred percent (100%) of the Compensation deferred by the Participant under this Plan during a Deferral Period, but not to exceed the first three percent (3%) of the Participant's Compensation before such deferrals. The Matching Contribution shall be credited to the Account at the time the Compensation would have been payable to the Participant. 4.4 Discretionary Contributions Company may make Discretionary Contributions to a Participant's Account. Discretionary Contributions shall be credited at such times and in such amounts as recommended by the Committee and approved by the Compensation Committee of the Board, or the Board in its sole discretion shall determine. 4.5 Determination of Accounts Each Participant's Account as of each Determination Date shall consist of the balance of the Account as of the immediately preceding Determination Date, adjusted as follows: (a) New Deferrals. The Account shall be increased by any deferred Compensation credited since such Determination Date. (b) Company Contributions. The Account shall be increased by any Matching and/or Discretionary Contributions credited since such Determination Date. (c) Distributions. The Account shall be reduced by any benefits distributed to the Participant since such Determination Date. (d) Earnings. The Account shall be increased by the Earnings on the average daily balance in the Account since such Determination Date. 4.6 Vesting of Accounts Each Participant shall be vested in the amounts credited to such Participant's Account and Earnings thereon as follows: (a) Amounts Deferred. A Participant shall be one hundred percent (100%) vested at all times in the amount of Compensation elected to be deferred under this Plan and Earnings thereon. (b) Matching Contributions. A Participant's Matching Contributions and Earnings thereon shall become twenty-five percent (25%) vested for each completed Year of Service, subject to approval by the Committee; however, a Participant shall become one hundred percent (100%) vested if termination of employment occurs as a result of death or within twenty-four (24) months of a Change in Control. (c) Discretionary Contributions. A Participant's Discretionary Contributions and Earnings thereon shall become vested as determined by the Compensation Committee of the Board, or the Board. 7 4.7 Statement of Accounts The Committee shall give to each Participant a statement showing the balances in the Participant's Account on an annual basis and at such times as may be determined by the Committee. ARTICLE V--PLAN BENEFITS 5.1 Withdrawals A Participant's Account may be distributed to the Participant before termination of employment as follows: (a) Elective Withdrawals. A Participant may elect to withdraw all or any portion of the amount deferred by that Deferral Commitment as of a date specified in the Deferral Commitment. Such date shall not be sooner than seven (7) years after the date the Deferral Period commences. The amount withdrawn shall not exceed the amount of Compensation deferred, without regard to Earnings or Matching and/or Discretionary Contributions. (b) Financial Hardship or Disability Withdrawals. Upon a finding that a Participant has suffered a Financial Hardship or Disability, the Committee may, in its sole discretion, amend the existing Deferral Commitment or make distributions from the Participant's Account. The amount of such distribution shall be limited to the amount reasonably necessary to meet the Participant's needs resulting from the Financial Hardship or Disability, and will not exceed the Participant's vested Account balance. If payment is made due to Financial Hardship, the Participant's deferrals under this Plan shall cease for a twelve (12) month period. Any resumption of the Participant's deferrals under the Plan after such twelve (12) month period shall be made only at the election of the Participant in accordance with Article III herein. (c) Form of Payment. Such a distribution shall be paid in a lump sum and shall be charged to the Participant's Account as a distribution. The distribution shall be subject to taxation as provided in Section 5.5 below. 5.2 Termination Benefits If a Participant terminates employment with Company, for any reason other than death, Company shall pay the Participant benefits equal to the vested balance in the Participant's Account. 5.3 Death Benefit Upon the death of a Participant, Company shall pay to the Participant's Beneficiary benefits equal to the Participant's vested Account balance. 8 5.4 Form of Payment Retirement, termination and death benefits shall be paid in the form of benefit as provided below, specified by the Participant in the Form of Payment Designation unless the benefit is based on a Small Account as defined in Subsection (c) below. Payments will commence no later than sixty (60) days after all information necessary to calculate the benefit amount has been received by Company following the date of Retirement, termination, or death. The Form of Payment Designation shall be effective for the entire vested account balance unless amended in writing by the Participant and delivered to the Committee no later than November 30 of the year preceding a subsequent Deferral Period. If, upon termination or Retirement, the Participant's most recent election as to the form of payment was made within one (1) year of such termination or Retirement, then the prior election shall be used to determine the form of payment. The forms of benefit payment are: (a) A lump sum amount which is equal to the vested Account balance. (b) Equal annual installments of the vested Account balance amortized over a period of up to ten (10) years. Earnings on the unpaid balance shall be equal to the average rate of Earnings which would have been applicable on the Account over the thirty-six (36) months immediately preceding the commencement of benefit payments. (c) Small Account. If the Participant's vested Account balance is under fifty thousand dollars ($50,000) on the Valuation Date as defined in Section 5.6, the benefit shall be paid in a lump sum. 5.5 Withholding; Payroll Taxes Company shall withhold from payments hereunder any taxes required to be withheld from such payments under local, state or federal law. A Beneficiary, however, may elect not to have withholding of federal income tax pursuant to Section 3405(a)(2) of the Code, or any successor provision thereto. 5.6 Valuation and Settlement The last day of the month in which the Participant retires, terminates, or dies shall be the Valuation Date. The amount of a lump sum payment and the initial amount of installments shall be based on the value of the Participant's vested Account balance on the Valuation Date. The date on which a lump sum is paid or the date on which installments commence shall be the settlement date. The settlement date shall be no more than sixty-five (65) days after the Valuation Date. All payments shall be made as of the first day of the month. 5.7 Payment to Guardian If a Plan benefit is payable to a minor or a person declared incompetent or to a person incapable of handling the disposition of property, the Committee may direct payment to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Committee may require proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution. Such distribution shall completely discharge the Committee and Company from all liability with respect to such benefit. 9 ARTICLE VI--BENEFICIARY DESIGNATION 6.1 Beneficiary Designation Each Participant shall have the right, at any time, to designate one (1) or more persons or entity as Beneficiary (both primary as well as secondary) to whom benefits under this Plan shall be paid in the event of Participant's death prior to complete distribution of the Participant's vested Account balance. Each Beneficiary designation shall be in a written form prescribed by the Committee and shall be effective only when filed with the Committee during the Participant's lifetime. Designation by a married Participant to the Participant's spouse of less than a fifty percent (50%) interest in the benefit due shall not be effective unless the spouse executes a written consent that acknowledges the effect of the designation, or it is established that the consent cannot be obtained because the spouse cannot be located. 6.2 Changing Beneficiary Any Beneficiary designation may be changed by an unmarried Participant without the consent of the previously named Beneficiary by the filing of a new Beneficiary designation with the Committee. A married Participant's Beneficiary designation may be changed by a Participant with the consent of the Participant's spouse as provided for in Section 6.1 above, by the filing of a new Beneficiary designation with the Committee. The filing of a new designation shall cancel all designations previously filed. 6.3 Change in Marital Status If the Participant's marital status changes after the Participant has designated a Beneficiary, the following shall apply: (a) If the Participant is married at death but was unmarried when the designation was made, the designation shall be void unless the spouse has consented to it in the manner prescribed in Section 6.1 above. (b) If the Participant is unmarried at death but was married when the designation was made: (i) The designation shall be void if the spouse was named as Beneficiary. (ii) The designation shall remain valid if a nonspouse Beneficiary was named. (c) If the Participant was married when the designation was made and is married to a different spouse at death, the designation shall be void unless the new spouse has consented to it in the manner prescribed in Section 6.1 above. 10 6.4 No Beneficiary Designation If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void, or if the Beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participant's benefits, the Participant's Beneficiary shall be the person in the first of the following classes in which there is a survivor: (a) The Participant's surviving spouse; (b) The Participant's children in equal shares, except that if any of the children predeceases the Participant but leaves issue surviving, then such issue shall take by right of representation the share the deceased child would have taken if living; (c) The Participant's estate. 6.5 Effect of Payment Payment to the Beneficiary shall completely discharge the Company's obligations under this Plan. ARTICLE VII--ADMINISTRATION 7.1 Committee; Duties This Plan shall be administered by the Committee, which shall consist of not less than three (3) persons appointed by the Board, except after a Change in Control as provided in Section 7.5 below. The Committee shall have the authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration of the Plan and decide or resolve any and all questions, including interpretations of the Plan, as may arise in such administration. A majority vote of the Committee members shall control any decision. Members of the Committee may be Participants under this Plan. 7.2 Agents The Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company. 7.3 Binding Effect of Decisions The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in the Plan. 7.4 Indemnity of Committee The Company shall indemnify and hold harmless the members of the Committee against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan on account of such member's service on the Committee, except in the case of gross negligence or willful misconduct. 11 7.5 Election of Committee After Change in Control After a Change in Control, vacancies on the Committee shall be filled by majority vote of the remaining Committee members and Committee members may be removed only by such a vote. If no Committee members remain, a new Committee shall be elected by majority vote of the Participants in the Plan immediately preceding such Change in Control. No amendment shall be made to Article VII or other Plan provisions regarding Committee authority with respect to the Plan without prior approval by the Committee. ARTICLE VIII--CLAIMS PROCEDURE 8.1 Claim Any person or entity claiming a benefit, requesting an interpretation or ruling under the Plan (hereinafter referred to as "Claimant"), or requesting information under the Plan shall present the request in writing to the Committee, which shall respond in writing as soon as practicable. 8.2 Denial of Claim If the claim or request is denied, the written notice of denial shall state: (a) The reasons for denial, with specific reference to the Plan provisions on which the denial is based; (b) A description of any additional material or information required and an explanation of why it is necessary; and (c) An explanation of the Plan's claim review procedure. 8.3 Review of Claim Any Claimant whose claim or request is denied or who has not received a response within sixty (60) days may request a review by notice given in writing to the Committee. Such request must be made within sixty (60) days after receipt by the Claimant of the written notice of denial, or in the event Claimant has not received a response sixty (60) days after receipt by the Committee of Claimant's claim or request. The claim or request shall be reviewed by the Committee which may, but shall not be required to, grant the Claimant a hearing. On review, the Claimant may have representation, examine pertinent documents, and submit issues and comments in writing. 8.4 Final Decision The decision on review shall normally be made within sixty (60) days after the Committee's receipt of Claimant's claim or request. If an extension of time is required for a hearing or other special circumstances, the Claimant shall be notified and the time limit shall be one hundred twenty (120) days. The decision shall be in writing and shall state the reasons and the relevant Plan provisions. All decisions on review shall be final and bind all parties concerned. 12 ARTICLE IX--AMENDMENT AND TERMINATION OF PLAN 9.1 Amendment The Board may at any time amend the Plan by written instrument, notice of which is given to all Participants and to Beneficiaries receiving installment payments, subject to the following: (a) Preservation of Account Balance. No amendment shall reduce the amount accrued in any Account to the date such notice of the amendment is given. (b) Changes in Earnings Rate. No amendment shall reduce, either prospectively or retroactively, the rate of Earnings to be credited to the amount already accrued in Participant's Account and any amounts credited to the Account under Deferral Commitments already in effect on that date. 9.2 Company's Right to Terminate The Board may at any time partially or completely terminate the Plan if, in its judgment, the tax, accounting or other effects of the continuance of the Plan, or potential payments thereunder would not be in the best interests of Company. (a) Partial Termination. The Board may partially terminate the Plan by instructing the Committee not to accept any additional Deferral Commitments. If such a partial termination occurs, the Plan shall continue to operate and be effective with regard to Deferral Commitments entered into prior to the effective date of such partial termination. (b) Complete Termination. The Board may completely terminate the Plan by instructing the Committee not to accept any additional Deferral Commitments, and by terminating all ongoing Deferral Commitments. In the event of complete termination, the Plan shall cease to operate and Company shall pay out each Account. Payment shall be made as a lump sum or in equal monthly installments over the following period, based on the vested Account balance: Account Balance Payout Period ------------------------------------------------------------------ Less than $50,000 Lump Sum $50,000 but not more than $100,000 3 Years $100,000 or more 5 Years ================================================================== Earnings shall continue to be credited on the unpaid balance in each Account. Earnings on the unpaid balance shall be equal to the average rate of Earnings which would have been applicable on the Account over the thirty-six (36) months immediately preceding the commencement of benefit payments. 13 ARTICLE X--MISCELLANEOUS 10.1 Unfunded Plan This plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly-compensated employees" within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, the Board may terminate the Plan and make no further benefit payments or remove certain employees as Participants if it is determined by the United States Department of Labor, a court of competent jurisdiction, or an opinion of counsel that the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA (as currently in effect or hereafter amended) which is not so exempt. 10.2 Company Obligation The obligation to make benefit payments to any Participant under the Plan shall be an obligation solely of the Company with respect to the deferred Compensation receivable from, and contributions by, that Company and shall not be an obligation of another Company. 10.3 Unsecured General Creditor Except as provided in Section 10.4, Participants and Beneficiaries shall be unsecured general creditors, with no secured or preferential right to any assets of Company or any other party for payment of benefits under this Plan. Any property held by Company for the purpose of generating the cash flow for benefit payments shall remain its general, unpledged and unrestricted assets. Company's obligation under the Plan shall be an unfunded and unsecured promise to pay money in the future. 10.4 Trust Fund Company shall be responsible for the payment of all benefits provided under the Plan. At its discretion, Company may establish one (1) or more trusts, with such trustees as the Board may approve, for the purpose of providing for the payment of such benefits. Although such a trust shall be irrevocable, its assets shall be held for payment of all Company's general creditors in the event of insolvency. To the extent any benefits provided under the Plan are paid from any such trust, Company shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of Company. 10.5 Nonassignability Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 14 10.6 Not a Contract of Employment This Plan shall not constitute a contract of employment between Company and the Participant. Nothing in this Plan shall give a Participant the right to be retained in the service of Company or to interfere with the right of Company to discipline or discharge a Participant at any time. 10.7 Protective Provisions A Participant will cooperate with Company by furnishing any and all information requested by Company, in order to facilitate the payment of benefits hereunder, and by taking such physical examinations as Company may deem necessary and taking such other action as may be requested by Company. 10.8 Governing Law The provisions of this Plan shall be construed and interpreted according to the laws of the State of California, except as preempted by federal law. 10.9 Validity If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 10.10 Notice Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Committee shall be directed to the Company's address. Mailed notice to a Participant or Beneficiary shall be directed to the individual's last known address in Company's records. 10.11 Successors The provisions of this Plan shall bind and inure to the benefit of Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of Company, and successors of any such corporation or other business entity. JACK IN THE BOX INC. By: LAWRENCE E. SCHAUF ------------------------------------ Lawrence E. Schauf Executive Vice President and Secretary Dated: December 7, 2001 ------------------------------------ EX-23 5 kpmgconsent.txt CONSENT OF KPMG LLP Independent Auditors' Consent The Board of Directors Jack in the Box Inc.: We consent to incorporation by reference in the registration statement Nos. 33-67450, 33-54602, 33-51490, 333-85669 and 333-26781 on Form S-8 of Jack in the Box Inc. of our report dated November 5, 2001, relating to the consolidated balance sheets of Jack in the Box Inc. and subsidiaries as of September 30, 2001 and October 1, 2000, and the related consolidated statements of earnings, cash flows and stockholders' equity for the fifty-two weeks ended September 30, 2001 and October 1, 2000, and the fifty-three weeks ended October 3, 1999, which report appears in the September 30, 2001 annual report on Form 10-K of Jack in the Box Inc. and subsidiaries, and to the reference to our firm under the heading "Selected Financial Data" in Item 6 of the referenced Form 10-K. KPMG LLP San Diego, California December 10, 2001 -----END PRIVACY-ENHANCED MESSAGE-----