UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________FORM 10-Q
FORM ☑10-Q
_______________________________________________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934☑
For the quarterly period ended July 7, 20195, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ________to________.
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 Avenue9357 Spectrum Center Blvd.
San Diego,, California92123
(Address of principal executive offices)
9330 Balboa Avenue
San Diego, California 92123
(Former name or former address, if changed since last report)
Registrant’s telephone number, including area code (858) (858) 571-2121
_______________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | JACK | NASDAQ Global Select Market |
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | | | | | | | | |
Large accelerated filer | þ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Accelerated filer | ☐ | Emerging growth company | ☐ |
Non-accelerated filer | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No þ
As of the close of business August 2, 2019, 25,824,470July 30, 2020, 22,677,817 shares of the registrant’s common stock were outstanding.
JACK IN THE BOX INC. AND SUBSIDIARIES
INDEX
|
| | | | | | | |
| | Page |
| PART I – FINANCIAL INFORMATION | |
Item 1. | | |
| | |
| Condensed Consolidated Statements of Earnings | |
| | |
| | |
| | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | | |
Item 4. | | |
| PART II – OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | Defaults of Senior Securities | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
| | |
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| | | July 7, 2019 | | September 30, 2018 | | July 5, 2020 | | September 29, 2019 |
ASSETS | | | | ASSETS | |
Current assets: | | | | Current assets: | |
Cash | $ | 12,447 |
| | $ | 2,705 |
| Cash | $ | 159,540 | | | $ | 125,536 | |
Restricted cash | | Restricted cash | 37,373 | | | 26,025 | |
Accounts and other receivables, net | 57,647 |
| | 57,422 |
| Accounts and other receivables, net | 88,242 | | | 45,235 | |
Inventories | 1,937 |
| | 1,858 |
| Inventories | 1,835 | | | 1,776 | |
Prepaid expenses | 17,484 |
| | 14,443 |
| Prepaid expenses | 13,447 | | | 9,015 | |
Current assets held for sale | 13,236 |
| | 13,947 |
| Current assets held for sale | 6,191 | | | 16,823 | |
Other current assets | 3,246 |
| | 4,598 |
| Other current assets | 3,504 | | | 2,718 | |
Total current assets | 105,997 |
| | 94,973 |
| Total current assets | 310,132 | | | 227,128 | |
Property and equipment: | | | | Property and equipment: | | | |
Property and equipment, at cost | 1,178,894 |
| | 1,190,031 |
| Property and equipment, at cost | 1,140,285 | | | 1,176,241 | |
Less accumulated depreciation and amortization | (788,956 | ) | | (770,362 | ) | Less accumulated depreciation and amortization | (796,159) | | | (784,307) | |
Property and equipment, net | 389,938 |
| | 419,669 |
| Property and equipment, net | 344,126 | | | 391,934 | |
Other assets: | | | | Other assets: | | | |
Operating lease right-of-use assets | | Operating lease right-of-use assets | 902,858 | | | — | |
Intangible assets, net | 451 |
| | 600 |
| Intangible assets, net | 283 | | | 425 | |
Goodwill | 46,747 |
| | 46,749 |
| Goodwill | 47,161 | | | 46,747 | |
Deferred tax assets | 72,903 |
| | 62,140 |
| Deferred tax assets | 66,132 | | | 85,564 | |
Other assets, net | 215,234 |
| | 199,266 |
| Other assets, net | 216,008 | | | 206,685 | |
Total other assets | 335,335 |
| | 308,755 |
| Total other assets | 1,232,442 | | | 339,421 | |
| $ | 831,270 |
| | $ | 823,397 |
| | $ | 1,886,700 | | | $ | 958,483 | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
Current liabilities: | | | | Current liabilities: | |
Current maturities of long-term debt | $ | 42,895 |
| | $ | 31,828 |
| Current maturities of long-term debt | $ | 13,821 | | | $ | 774 | |
Current operating lease liabilities | | Current operating lease liabilities | 169,347 | | | — | |
Accounts payable | 51,131 |
| | 44,970 |
| Accounts payable | 26,339 | | | 37,066 | |
Accrued liabilities | 124,823 |
| | 106,922 |
| Accrued liabilities | 143,344 | | | 120,083 | |
Total current liabilities | 218,849 |
| | 183,720 |
| Total current liabilities | 352,851 | | | 157,923 | |
Long-term liabilities: | | | | Long-term liabilities: | | | |
Long-term debt, net of current maturities | 971,763 |
| | 1,037,927 |
| Long-term debt, net of current maturities | 1,366,171 | | | 1,274,374 | |
Long-term operating lease liabilities, net of current portion | | Long-term operating lease liabilities, net of current portion | 777,883 | | | — | |
Other long-term liabilities | 221,219 |
| | 193,449 |
| Other long-term liabilities | 216,752 | | | 263,770 | |
Total long-term liabilities | 1,192,982 |
| | 1,231,376 |
| Total long-term liabilities | 2,360,806 | | | 1,538,144 | |
Stockholders’ deficit: | | | | Stockholders’ deficit: | | | |
Preferred stock $0.01 par value, 15,000,000 shares authorized, none issued | — |
| | — |
| |
Common stock $0.01 par value, 175,000,000 shares authorized, 82,146,917 and 82,061,661 issued, respectively | 821 |
| | 821 |
| |
Preferred stock $0.01 par value, 15,000,000 shares authorized, NaN issued | | Preferred stock $0.01 par value, 15,000,000 shares authorized, NaN issued | — | | | — | |
Common stock $0.01 par value, 175,000,000 shares authorized, 82,320,270 and 82,159,002 issued, respectively | | Common stock $0.01 par value, 175,000,000 shares authorized, 82,320,270 and 82,159,002 issued, respectively | 823 | | | 822 | |
Capital in excess of par value | 478,256 |
| | 470,826 |
| Capital in excess of par value | 491,594 | | | 480,322 | |
Retained earnings | 1,565,287 |
| | 1,561,353 |
| Retained earnings | 1,607,485 | | | 1,577,034 | |
Accumulated other comprehensive loss | (94,486 | ) | | (94,260 | ) | Accumulated other comprehensive loss | (117,553) | | | (140,006) | |
Treasury stock, at cost, 56,325,632 shares | (2,530,439 | ) | | (2,530,439 | ) | |
Treasury stock, at cost, 59,646,773 and 57,760,573 shares, respectively | | Treasury stock, at cost, 59,646,773 and 57,760,573 shares, respectively | (2,809,306) | | | (2,655,756) | |
Total stockholders’ deficit | (580,561 | ) | | (591,699 | ) | Total stockholders’ deficit | (826,957) | | | (737,584) | |
| $ | 831,270 |
| | $ | 823,397 |
| | $ | 1,886,700 | | | $ | 958,483 | |
See accompanying notes to condensed consolidated financial statements.
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
| | | Quarter | | Year-to-date | | Quarter | | | Year-to-date | |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 | | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Revenues: | | | | | | | | Revenues: | | | | | | | |
Company restaurant sales | $ | 78,434 |
| | $ | 87,574 |
| | $ | 257,948 |
| | $ | 371,149 |
| Company restaurant sales | $ | 82,444 | | | $ | 78,434 | | | $ | 262,188 | | | $ | 257,948 | |
Franchise rental revenues | 63,359 |
| | 61,622 |
| | 208,895 |
| | 196,682 |
| Franchise rental revenues | 76,021 | | | 63,359 | | | 241,990 | | | 208,895 | |
Franchise royalties and other | 40,180 |
| | 38,787 |
| | 130,840 |
| | 124,387 |
| Franchise royalties and other | 43,239 | | | 40,180 | | | 133,469 | | | 130,840 | |
Franchise contributions for advertising and other services | 40,386 |
|
| — |
|
| 131,189 |
|
| — |
| Franchise contributions for advertising and other services | 40,571 | | | 40,386 | | | 128,458 | | | 131,189 | |
| 222,359 |
| | 187,983 |
| | 728,872 |
| | 692,218 |
| | 242,275 | | | 222,359 | | | 766,105 | | | 728,872 | |
Operating costs and expenses, net: | | | | | | | | Operating costs and expenses, net: | | | | | | | |
Company restaurant costs (excluding depreciation and amortization): | | | | | | | | Company restaurant costs (excluding depreciation and amortization): | |
Food and packaging | 23,058 |
| | 24,946 |
| | 74,350 |
| | 106,448 |
| Food and packaging | 24,077 | | | 23,058 | | | 77,662 | | | 74,350 | |
Payroll and employee benefits | 23,121 |
| | 24,875 |
| | 76,163 |
| | 106,911 |
| Payroll and employee benefits | 25,085 | | | 23,121 | | | 81,236 | | | 76,163 | |
Occupancy and other | 11,052 |
| | 13,715 |
| | 38,165 |
| | 59,608 |
| Occupancy and other | 12,334 | | | 11,052 | | | 40,862 | | | 38,165 | |
Total company restaurant costs | 57,231 |
| | 63,536 |
| | 188,678 |
| | 272,967 |
| Total company restaurant costs | 61,496 | | | 57,231 | | | 199,760 | | | 188,678 | |
Franchise occupancy expenses (excluding depreciation and amortization) | 38,371 |
| | 37,401 |
| | 127,702 |
| | 119,987 |
| Franchise occupancy expenses (excluding depreciation and amortization) | 48,612 | | | 38,371 | | | 161,470 | | | 127,702 | |
Franchise support and other costs | 2,695 |
| | 2,829 |
| | 8,337 |
| | 7,894 |
| Franchise support and other costs | 2,692 | | | 2,695 | | | 10,339 | | | 8,337 | |
Franchise advertising and other services expenses | 41,882 |
|
| — |
|
| 136,397 |
|
| — |
| Franchise advertising and other services expenses | 42,176 | | | 41,882 | | | 133,134 | | | 136,397 | |
Selling, general and administrative expenses | 24,389 |
| | 19,671 |
| | 66,057 |
| | 80,326 |
| Selling, general and administrative expenses | 13,680 | | | 24,389 | | | 66,131 | | | 66,057 | |
Depreciation and amortization | 12,786 |
| | 13,194 |
| | 42,645 |
| | 46,306 |
| Depreciation and amortization | 12,141 | | | 12,786 | | | 41,151 | | | 42,645 | |
Impairment and other charges, net | (3,256 | ) | | 3,265 |
| | 5,567 |
| | 10,449 |
| Impairment and other charges, net | 738 | | | (3,256) | | | (7,837) | | | 5,567 | |
Gains on the sale of company-operated restaurants | — |
| | (28,676 | ) | | (219 | ) | | (43,088 | ) | Gains on the sale of company-operated restaurants | (1,050) | | | — | | | (2,625) | | | (219) | |
| 174,098 |
| | 111,220 |
| | 575,164 |
| | 494,841 |
| | 180,485 | | | 174,098 | | | 601,523 | | | 575,164 | |
Earnings from operations | 48,261 |
| | 76,763 |
| | 153,708 |
| | 197,377 |
| Earnings from operations | 61,790 | | | 48,261 | | | 164,582 | | | 153,708 | |
Other pension and post-retirement expenses, net | 342 |
|
| 423 |
|
| 1,141 |
|
| 1,410 |
| Other pension and post-retirement expenses, net | 1,482 | | | 342 | | | 40,972 | | | 1,141 | |
Interest expense, net | 36,494 |
| | 10,873 |
| | 67,144 |
| | 34,066 |
| Interest expense, net | 15,700 | | | 36,494 | | | 51,051 | | | 67,144 | |
Earnings from continuing operations and before income taxes | 11,425 |
| | 65,467 |
| | 85,423 |
| | 161,901 |
| Earnings from continuing operations and before income taxes | 44,608 | | | 11,425 | | | 72,559 | | | 85,423 | |
Income tax (benefit) expense | (2,048 | ) | | 17,334 |
| | 15,699 |
| | 75,898 |
| |
Income tax expense (benefit) | | Income tax expense (benefit) | 12,432 | | | (2,048) | | | 21,023 | | | 15,699 | |
Earnings from continuing operations | 13,473 |
| | 48,133 |
| | 69,724 |
| | 86,003 |
| Earnings from continuing operations | 32,176 | | | 13,473 | | | 51,536 | | | 69,724 | |
(Losses) earnings from discontinued operations, net of income taxes | (284 | ) | | (2,826 | ) | | 2,652 |
| | 19,099 |
| |
Earnings (losses) from discontinued operations, net of income taxes | | Earnings (losses) from discontinued operations, net of income taxes | 379 | | | (284) | | | 379 | | | 2,652 | |
Net earnings | $ | 13,189 |
| | $ | 45,307 |
| | $ | 72,376 |
| | $ | 105,102 |
| Net earnings | $ | 32,555 | | | $ | 13,189 | | | $ | 51,915 | | | $ | 72,376 | |
| | | | | | | | | | | | | | | |
Net earnings per share - basic: | | | | | | | | Net earnings per share - basic: | |
Earnings from continuing operations | $ | 0.52 |
| | $ | 1.72 |
| | $ | 2.69 |
| | $ | 2.97 |
| Earnings from continuing operations | $ | 1.41 | | | $ | 0.52 | | | $ | 2.22 | | | $ | 2.69 | |
(Losses) earnings from discontinued operations | (0.01 | ) | | (0.10 | ) | | 0.10 |
| | 0.66 |
| |
Earnings (losses) from discontinued operations | | Earnings (losses) from discontinued operations | 0.02 | | | (0.01) | | | 0.02 | | | 0.10 | |
Net earnings per share (1) | $ | 0.51 |
| | $ | 1.62 |
| | $ | 2.79 |
| | $ | 3.63 |
| Net earnings per share (1) | $ | 1.42 | | | $ | 0.51 | | | $ | 2.24 | | | $ | 2.79 | |
Net earnings per share - diluted: | | | | | | | | Net earnings per share - diluted: | | | | | | | |
Earnings from continuing operations | $ | 0.51 |
| | $ | 1.70 |
| | $ | 2.67 |
| | $ | 2.94 |
| Earnings from continuing operations | $ | 1.40 | | | $ | 0.51 | | | $ | 2.21 | | | $ | 2.67 | |
(Losses) earnings from discontinued operations | (0.01 | ) | | (0.10 | ) | | 0.10 |
| | 0.65 |
| |
Earnings (losses) from discontinued operations | | Earnings (losses) from discontinued operations | 0.02 | | | (0.01) | | | 0.02 | | | 0.10 | |
Net earnings per share (1) | $ | 0.50 |
| | $ | 1.60 |
| | $ | 2.77 |
| | $ | 3.59 |
| Net earnings per share (1) | $ | 1.42 | | | $ | 0.50 | | | $ | 2.23 | | | $ | 2.77 | |
| | | | | | | | | | | | | | | |
Cash dividends declared per common share | $ | 0.40 |
| | $ | 0.40 |
| | $ | 1.20 |
| | $ | 1.20 |
| Cash dividends declared per common share | $ | — | | | $ | 0.40 | | | $ | 0.80 | | | $ | 1.20 | |
____________________________
| |
(1) | Earnings per share may not add due to rounding. |
(1)Earnings per share may not add due to rounding.
See accompanying notes to condensed consolidated financial statements.
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| | | Quarter | | Year-to-date | | Quarter | | | Year-to-date | |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 | | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Net earnings | $ | 13,189 |
| | $ | 45,307 |
| | $ | 72,376 |
| | $ | 105,102 |
| Net earnings | $ | 32,555 | | | $ | 13,189 | | | $ | 51,915 | | | $ | 72,376 | |
Cash flow hedges: | | | | | | | | Cash flow hedges: | |
Net change in fair value of derivatives | (11,499 | ) | | 1,494 |
| | (23,625 | ) | | 16,080 |
| Net change in fair value of derivatives | — | | | (11,499) | | | — | | | (23,625) | |
Net loss reclassified to earnings | 23,715 |
| | 539 |
| | 24,328 |
| | 3,089 |
| Net loss reclassified to earnings | — | | | 23,715 | | | — | | | 24,328 | |
| 12,216 |
| | 2,033 |
| | 703 |
| | 19,169 |
| | — | | | 12,216 | | | — | | | 703 | |
Tax effect | (6,132 | ) | | (517 | ) | | (3,165 | ) | | (4,868 | ) | Tax effect | — | | | (6,132) | | | — | | | (3,165) | |
| 6,084 |
| | 1,516 |
| | (2,462 | ) | | 14,301 |
| | — | | | 6,084 | | | — | | | (2,462) | |
Unrecognized periodic benefit costs: | | | | | | | | Unrecognized periodic benefit costs: | |
Actuarial income (losses) arising during the period | | Actuarial income (losses) arising during the period | 19,666 | | | — | | | (12,841) | | | — | |
Actuarial losses and prior service costs reclassified to earnings | 904 |
| | 1,152 |
| | 3,013 |
| | 3,838 |
| Actuarial losses and prior service costs reclassified to earnings | 1,494 | | | 904 | | | 43,166 | | | 3,013 | |
| | | 21,160 | | | 904 | | | 30,325 | | | 3,013 | |
Tax effect | (232 | ) | | (292 | ) | | (777 | ) | | (1,126 | ) | Tax effect | (5,493) | | | (232) | | | (7,872) | | | (777) | |
| 672 |
| | 860 |
| | 2,236 |
| | 2,712 |
| |
Other: | | | | | | | | |
Foreign currency translation adjustments | — |
| | — |
| | — |
| | 6 |
| |
Tax effect | — |
| | — |
| | — |
| | (2 | ) | |
| — |
| | — |
| | — |
| | 4 |
| |
Derecognition of foreign currency translation adjustments due to sale | — |
| | — |
| | — |
| | 76 |
| |
| — |
| | — |
| | — |
| | 80 |
| | 15,667 | | | 672 | | | 22,453 | | | 2,236 | |
| | | | | | | | |
Other comprehensive income (loss), net of taxes | 6,756 |
| | 2,376 |
| | (226 | ) | | 17,093 |
| Other comprehensive income (loss), net of taxes | 15,667 | | | 6,756 | | | 22,453 | | | (226) | |
| | | | | | | | |
Comprehensive income | $ | 19,945 |
| | $ | 47,683 |
| | $ | 72,150 |
| | $ | 122,195 |
| Comprehensive income | $ | 48,222 | | | $ | 19,945 | | | $ | 74,368 | | | $ | 72,150 | |
See accompanying notes to condensed consolidated financial statements.
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Year-to-date | | |
| July 5, 2020 | | July 7, 2019 |
Cash flows from operating activities: | | | |
Net earnings | $ | 51,915 | | | $ | 72,376 | |
Earnings from discontinued operations | 379 | | | 2,652 | |
Earnings from continuing operations | 51,536 | | | 69,724 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
Depreciation and amortization | 41,151 | | | 42,645 | |
Amortization of franchise tenant improvement allowances and other | 2,383 | | | 1,524 | |
Deferred finance cost amortization | 4,337 | | | 1,903 | |
Excess tax benefits from share-based compensation arrangements | (71) | | | (66) | |
Deferred income taxes | 12,567 | | | (1,745) | |
Share-based compensation expense | 7,612 | | | 6,589 | |
Pension and postretirement expense | 40,972 | | | 1,141 | |
Gains on cash surrender value of company-owned life insurance | (1,861) | | | (3,117) | |
Gains on the sale of company-operated restaurants | (2,625) | | | (219) | |
Gains on the disposition of property and equipment, net | (10,386) | | | (5,756) | |
Non-cash operating lease costs | (5,689) | | | — | |
Impairment charges and other | 195 | | | 1,624 | |
Changes in assets and liabilities, excluding acquisitions: | | | |
Accounts and other receivables | (39,198) | | | (3,555) | |
Inventories | 14 | | | (79) | |
Prepaid expenses and other current assets | (5,034) | | | 1,509 | |
Accounts payable | (4,620) | | | 24,321 | |
Accrued liabilities | 15,755 | | | 9,363 | |
Pension and postretirement contributions | (4,921) | | | (5,126) | |
Franchise tenant improvement allowance distributions | (7,105) | | | (7,875) | |
Other | (4,844) | | | (16,012) | |
Cash flows provided by operating activities | 90,168 | | | 116,793 | |
Cash flows from investing activities: | | | |
Purchases of property and equipment | (16,736) | | | (25,041) | |
Proceeds from the sale of property and equipment | 22,790 | | | 7,563 | |
Proceeds from the sale and leaseback of assets | 19,828 | | | 3,056 | |
Proceeds from the sale of company-operated restaurants | 2,625 | | | 133 | |
Collections on notes receivable | — | | | 15,239 | |
Other | 1,036 | | | — | |
Cash flows provided by investing activities | 29,543 | | | 950 | |
Cash flows from financing activities: | | | |
Borrowings on revolving credit facilities | 111,376 | | | 229,798 | |
Repayments of borrowings on revolving credit facilities | (3,500) | | | (252,800) | |
Principal repayments on debt | (7,094) | | | (32,611) | |
Debt issuance costs | (216) | | | (5,088) | |
Dividends paid on common stock | (18,466) | | | (30,929) | |
Proceeds from issuance of common stock | 3,559 | | | 696 | |
Repurchases of common stock | (155,576) | | | (14,362) | |
Payroll tax payments for equity award issuances | (4,442) | | | (2,705) | |
Cash flows used in financing activities | (74,359) | | | (108,001) | |
Net increase in cash and restricted cash | 45,352 | | | 9,742 | |
Cash and restricted cash at beginning of period | 151,561 | | | 2,705 | |
Cash and restricted cash at end of period | $ | 196,913 | | | $ | 12,447 | |
|
| | | | | | | |
| Year-to-date |
| July 7, 2019 | | July 8, 2018 |
Cash flows from operating activities: | | | |
Net earnings | $ | 72,376 |
| | $ | 105,102 |
|
Earnings from discontinued operations | 2,652 |
| | 19,099 |
|
Earnings from continuing operations | 69,724 |
| | 86,003 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
Depreciation and amortization | 42,645 |
| | 46,306 |
|
Amortization of franchise tenant improvement allowances and other | 1,524 |
| | 497 |
|
Deferred finance cost amortization | 1,903 |
| | 2,268 |
|
Excess tax benefits from share-based compensation arrangements | (66 | ) | | (2,084 | ) |
Deferred income taxes | (1,745 | ) | | 38,544 |
|
Share-based compensation expense | 6,589 |
| | 7,830 |
|
Pension and postretirement expense | 1,141 |
| | 1,789 |
|
Gains on cash surrender value of company-owned life insurance | (3,117 | ) | | (1,335 | ) |
Gains on the sale of company-operated restaurants | (219 | ) | | (43,088 | ) |
(Gains) losses on the disposition of property and equipment, net | (5,756 | ) | | 958 |
|
Impairment charges and other | 1,624 |
| | 2,205 |
|
Changes in assets and liabilities, excluding dispositions: | | | |
Accounts and other receivables | (3,555 | ) | | 945 |
|
Inventories | (79 | ) | | 1,330 |
|
Prepaid expenses and other current assets | 1,509 |
| | (27,448 | ) |
Accounts payable | 24,321 |
| | 3,135 |
|
Accrued liabilities | 9,363 |
| | (34,653 | ) |
Pension and postretirement contributions | (5,126 | ) | | (4,384 | ) |
Franchise tenant improvement allowance distributions | (7,875 | ) | | (9,099 | ) |
Other | (16,012 | ) | | (10,351 | ) |
Cash flows provided by operating activities | 116,793 |
| | 59,368 |
|
Cash flows from investing activities: | | | |
Purchases of property and equipment | (25,041 | ) | | (25,730 | ) |
Purchases of assets intended for sale and leaseback | — |
| | (5,491 | ) |
Proceeds from the sale and leaseback of assets | 3,056 |
| | 7,571 |
|
Proceeds from the sale of company-operated restaurants | 133 |
| | 23,666 |
|
Collections on notes receivable | 15,239 |
| | 34,057 |
|
Proceeds from the sale of property and equipment | 7,563 |
| | 3,799 |
|
Other | — |
| | 2,921 |
|
Cash flows provided by investing activities | 950 |
| | 40,793 |
|
Cash flows from financing activities: | | | |
Borrowings on revolving credit facilities | 229,798 |
| | 560,800 |
|
Repayments of borrowings on revolving credit facilities | (252,800 | ) | | (412,100 | ) |
Principal repayments on debt | (32,611 | ) | | (293,671 | ) |
Debt issuance costs | (5,088 | ) | | (1,367 | ) |
Dividends paid on common stock | (30,929 | ) | | (34,609 | ) |
Proceeds from issuance of common stock | 696 |
| | 2,365 |
|
Repurchases of common stock | (14,362 | ) | | (200,000 | ) |
Change in book overdraft | — |
| | (573 | ) |
Payroll tax payments for equity award issuances | (2,705 | ) | | (7,250 | ) |
Cash flows used in financing activities | (108,001 | ) | | (386,405 | ) |
Cash flows provided by (used in) continuing operations | 9,742 |
| | (286,244 | ) |
Net cash provided by operating activities of discontinued operations | — |
| | 5,159 |
|
Net cash provided by investing activities of discontinued operations | — |
| | 273,653 |
|
Net cash used in financing activities of discontinued operations | — |
| | (78 | ) |
Net cash provided by discontinued operations | — |
| | 278,734 |
|
Effect of exchange rate changes on cash | — |
| | 6 |
|
Cash at beginning of period | 2,705 |
| | 7,642 |
|
Cash at end of period | $ | 12,447 |
| | $ | 138 |
|
See accompanying notes to condensed consolidated financial statements.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.BASIS OF PRESENTATION
Nature of operations — Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box® quick-service restaurants. The following table summarizes the number of restaurants as of the end of each period:
|
| | | | | |
| July 7, 2019 | | July 8, 2018 |
Company-operated | 137 |
| | 146 |
|
Franchise | 2,105 |
| | 2,095 |
|
Total system | 2,242 |
| | 2,241 |
|
| | | | | | | | | | | |
| July 5, 2020 | | July 7, 2019 |
Company-operated | 144 | | | 137 | |
Franchise | 2,100 | | | 2,105 | |
Total system | 2,244 | | | 2,242 | |
References to the Company throughout these notes to condensed consolidated financial statements are made using the first person notations of “we,” “us” and “our.”
Basis of presentation — The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 201829, 2019 (“20182019 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 20182019 Form 10-K with the exception of twothe new lease accounting pronouncementsstandard adopted in fiscal 2019,2020, which areis described below.
On December 19, 2017, we entered into a definitive agreement to sell Qdoba Restaurant Corporation (“Qdoba”), a wholly owned subsidiary of the Company which operates and franchises more than 700 Qdoba Mexican Eats® fast-casual restaurants, to certain funds managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, the “Buyer”). The sale was completed on March 21, 2018. For all periods presented in our condensed consolidated statements of earnings, all sales, costs, expenses and income taxes attributable to Qdoba, except as related to the impact of the decrease in the federal statutory tax rate (see Note 9, Income Taxes), have been aggregated under the caption “(Losses) earnings from discontinued operations, net of income taxes.” Refer to Note 3, Discontinued Operations, for additional information.
Unless otherwise noted, amounts and disclosures throughout these notes to condensed consolidated financial statements relate to our continuing operations. In our opinion, all adjustments considered necessary for a fair presentation of financial condition and results of operations for these interim periods have been included. Operating results for one interim period are not necessarily indicative of the results for any other interim period or for the full year.
Segment reporting — As a resultThe Company is comprised of our sale of Qdoba, which has been classified as discontinued operations, we now have one reporting1 operating segment.
Reclassifications and adjustments — We recorded certain adjustments in fiscal 2019 upon the adoption of a new accounting pronouncement; see details regarding the effects of the adoption on our condensed consolidated financial statements below.
Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 20192020 and 20182019 include 52 weeks. Our first quarter includes 16-weeks and all other quarters include 12-weeks. All comparisons between 20192020 and 20182019 refer to the 12-weeks (“quarter”) and 40-weeks (“year-to-date”) ended July 7, 20195, 2020 and July 8, 2018,7, 2019, respectively, unless otherwise indicated.
Use of estimates — In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, 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 and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates.
Risks and uncertainties — The novel coronavirus (“COVID-19”) has disrupted and is expected to continue to disrupt our business. While sales have accelerated in the third quarter of 2020, we continue to see a significant reduction in guest traffic at our restaurants due to changes in consumer behavior as social distancing practices, dining room closures, and other restrictions have been mandated or encouraged by federal, state, and local governments. Throughout the pandemic, substantially all of our restaurants have remained open, with dining rooms closed and locations operating in an off-premise capacity, which has historically represented close to 90% of the Company’s business, including drive-thru, third-party delivery, and carry-out.
The Company is closely monitoring the impact of the pandemic on all aspects of its business and is unable to predict the continued financial impact of the COVID-19 pandemic on our business due to numerous uncertainties. We cannot predict how or when the social impacts resulting from the pandemic may change, or how any such change will impact our business. Ongoing material adverse effects on our company-owned restaurants or the financial health of our franchisees could negatively affect our operating results, including reductions in revenue and cash flow and could impact the recoverability of our accounts receivable, long-lived assets, and/or goodwill.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Advertising costs — We administer a marketing fund which includes contractual contributions. In 20192020 and 2018,2019, marketing fund contributions from franchise and company-operated restaurants were approximately 5.0% of gross revenues with the exception of our March and year-to-dateApril 2020 marketing fees. In response to the economic burden associated with the COVID-19 pandemic, the Company reduced March marketing fees to 4.0% and postponed the collection of these fees over the course of 24 months starting in October 2020. April marketing fees ranged from 2% to 4% based on annualized sales volumes, and these fees will be collected over three months beginning October 2020. As of July 5, 2020, postponed marketing fees which remain uncollected were $16.2 million, of which $10.3 million is included within “Accounts and other receivable, net” and $5.9 million is included within “Other assets, net” in our condensed consolidated balance sheet.
In 2019, incremental contributions made by the Company were $2.0 million and $3.3 million, respectively.
Production costs of commercials, programming and other marketing activities are charged to the marketing fund when the advertising is first used for its intended purpose, and the costs of advertising are charged to operations as incurred.million. There have been 0 incremental contributions made in 2020. Total contributions made by the Company, including incremental contributions, are included in “Selling, general, and administrative expenses” in the accompanying condensed consolidated statements of earnings. Advertising costsearnings and for the quarter and year-to-date totaled $3.9 million and $12.8 million, respectively, in 2019 were2020 and $4.0 million and $15.0 million, respectively, in 2019.
Restricted cash — In accordance with the terms of our securitized financing facility, certain cash balances are required to be held in trust. Such restricted cash primarily represents cash collections and in 2018cash reserves held by the trustee to be used for payments of principal, interest and commitments fees required for the Class A-1 and Class A-2 Notes. As of July 5, 2020 and September 29, 2019, restricted cash balances were $5.9$37.4 million and $22.0$26.0 million, respectively. During the third quarter, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we continued to voluntarily elect to fund cash held in trust for quarterly interest and principal payments due in November 2020.
Effect of new accounting pronouncements adopted in fiscal 20192020 — In May 2014,We adopted ASU 2016-02, Leases (Topic 842) (“ASC 842”) in the FASB issued ASU 2014-09, Revenue Recognition - Revenue from Contracts with Customers (Topic 606) (“ASC 606”), which providesfirst quarter of 2020. The new guidance requires the recognition of lease liabilities, representing future minimum lease payments on a comprehensive new revenue recognition model that requires an entity to recognize revenue in an amount that reflectsdiscounted basis, and corresponding right-of-use (“ROU”) assets on the consideration the entity expects to receivebalance sheet for the transfer of promised goods or services to its customers.most leases. The standard also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. WeCompany adopted the new standard on October 1, 2018guidance in the first quarter of 2020 using the modified retrospective method, wherebyalternative transition method; therefore, the cumulative effect of this transition to applicable contracts with customers that were not completed as of October 1, 2018 was recorded as an adjustment to beginning retained earnings as of this date. The comparative informationperiod has not been restated and continues to be reported under the accounting standards in effect for those periods.previous lease guidance.
The new revenue recognition standard didWe elected the transition package of three practical expedients, which, among other items, permitted us not impact our recognition of restaurant sales, rental revenues, or royalty fees from franchisees. The new pronouncement changed the way initial fees from franchisees for new restaurant openings or new franchise terms are recognized. Under the previous revenue recognition guidance, initial franchise fees were recognized as revenue at the time when a new restaurant opened or at the start of a new franchise term. In accordance withto reassess under the new guidance,standard our prior conclusions about lease identification, lease classification, and initial direct costs. We also elected the initial franchise services areshort-term lease recognition exemption for all leases that qualify, permitting us to not distinct fromapply the continuing rights and services offered during therecognition requirements of this standard to leases with a term of the franchise agreement12 months or less, and will therefore be treatedan accounting policy to not separate lease and non-lease components for underlying assets subject to real estate leases. As lessor, we elected for all classes of underlying leased assets to account for lease and non-lease components, primarily property taxes and maintenance, as a single performance obligation together withlease component. We did not elect the continuing rightsuse-of-hindsight practical expedient, and services.therefore continued to utilize lease terms determined under the existing lease guidance.
The adoption had a material impact on our consolidated balance sheet. As such, initial fees received will bea result of the adoption, we recognized overoperating lease assets and liabilities of $880.6 million and $931.0 million, respectively, at the franchise termdate of adoption. The ROU assets were adjusted for certain lease-related assets and any unamortized portion will be recordedliabilities at adoption, primarily comprised of straight-line rent accruals of $29.0 million, incentives and unfavorable lease liabilities of $2.1 million, sublease loss and exit-related lease liabilities of $19.4 million, which were previously reported in “Accrued liabilities” and “Other long-term liabilities”, as deferred revenuewell as favorable lease assets of $0.4 million, which were previously reported in “Intangible assets, net” in our condensed consolidated balance sheet. AnWe also recorded a cumulative adjustment to opening retained earnings of $2.9 million, net of tax, as a result of the impairment of certain newly recognized ROU assets and a corresponding contract liabilityderecognition of approximately $50.3 million (of which $5.0 million was currentdeferred gains and $45.3 million was long-term) was establishedlosses on sale-leaseback transactions upon transition to the date of adoption. A deferred tax asset of approximately $13.0 million related to this contract liability was also established on the date of adoption.new guidance.
The new standard also had an impact on transactions presented net and not included in our revenues and expenses such as franchisee contributions to and expenditures from our advertising fund, and sourcing and technology fee contributions from franchisees and the related expenses. We determined that we are the principal in these arrangements, and as such, contributions to and expenditures from the advertising fund, and sourcing and technology fees and expenditures are now reported on a gross basis within our consolidated statements of earnings. While this change materially impacted our gross amount of reported revenues and expenses, the impact will be largely offsetting with no material impact to our reported net earnings. However, any annual surplus or deficit in the marketing fund will impact income from operations and net income.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizeseffects of the impacts of adopting ASC 606 onchanges made to the Company’sCompany's condensed consolidated financial statementsbalance sheet as of andSeptember 29, 2019 for the 12-weeks and 40-weeks ended July 7, 2019adoption of the new lease guidance were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| | | Adjustments | | |
| As Reported | | Franchise Fees | | Marketing and Sourcing Fees | | Technology Support Fees | | Balances without Adoption |
Condensed Consolidated Statements of Earnings | | | | | | | | | |
12-Weeks Ended July 7, 2019 | | | | | | | | | |
Franchise royalties and other | $ | 40,180 |
| | $ | (918 | ) | | $ | — |
| | $ | — |
| | $ | 39,262 |
|
Franchise contributions for advertising and other services | $ | 40,386 |
| | $ | — |
| | $ | (38,133 | ) | | $ | (2,253 | ) | | $ | — |
|
Total revenues | $ | 222,359 |
| | $ | (918 | ) | | $ | (38,133 | ) | | $ | (2,253 | ) | | $ | 181,055 |
|
Franchise advertising and other services expenses | $ | 41,882 |
| | $ | — |
| | $ | (38,133 | ) | | $ | (3,749 | ) | | $ | — |
|
Selling, general and administrative expenses | $ | 24,389 |
| | $ | — |
| | $ | — |
| | $ | 1,496 |
| | $ | 25,885 |
|
Total operating costs and expenses, net | $ | 174,098 |
| | $ | — |
| | $ | (38,133 | ) | | $ | (2,253 | ) | | $ | 133,712 |
|
Earnings from operations | $ | 48,261 |
| | $ | (918 | ) | | $ | — |
| | $ | — |
| | $ | 47,343 |
|
Earnings from continuing operations and before income taxes | $ | 11,425 |
| | $ | (918 | ) | | $ | — |
| | $ | — |
| | $ | 10,507 |
|
Income tax (benefit) expense | $ | (2,048 | ) | | $ | (237 | ) | | $ | — |
| | $ | — |
| | $ | (2,285 | ) |
Earnings from continuing operations | $ | 13,473 |
| | $ | (681 | ) | | $ | — |
| | $ | — |
| | $ | 12,792 |
|
Net earnings | $ | 13,189 |
| | $ | (681 | ) | | $ | — |
| | $ | — |
| | $ | 12,508 |
|
| | | | | | | | | |
40-Weeks Ended July 7, 2019 | | | | | | | | | |
Franchise royalties and other | $ | 130,840 |
| | $ | (2,983 | ) | | $ | — |
| | $ | — |
| | $ | 127,857 |
|
Franchise contributions for advertising and other services | $ | 131,189 |
| | $ | — |
| | $ | (124,187 | ) | | $ | (7,002 | ) | | $ | — |
|
Total revenues | $ | 728,872 |
| | $ | (2,983 | ) | | $ | (124,187 | ) | | $ | (7,002 | ) | | $ | 594,700 |
|
Franchise advertising and other services expenses | $ | 136,397 |
| | $ | — |
| | $ | (124,187 | ) | | $ | (12,210 | ) | | $ | — |
|
Selling, general and administrative expenses | $ | 66,057 |
| | $ | — |
| | $ | — |
| | $ | 5,208 |
| | $ | 71,265 |
|
Total operating costs and expenses, net | $ | 575,164 |
| | $ | — |
| | $ | (124,187 | ) | | $ | (7,002 | ) | | $ | 443,975 |
|
Earnings from operations | $ | 153,708 |
| | $ | (2,983 | ) | | $ | — |
| | $ | — |
| | $ | 150,725 |
|
Earnings from continuing operations and before income taxes | $ | 85,423 |
| | $ | (2,983 | ) | | $ | — |
| | $ | — |
| | $ | 82,440 |
|
Income tax (benefit) expense | $ | 15,699 |
| | $ | (769 | ) | | $ | — |
| | $ | — |
| | $ | 14,930 |
|
Earnings from continuing operations | $ | 69,724 |
| | $ | (2,214 | ) | | $ | — |
| | $ | — |
| | $ | 67,510 |
|
Net earnings | $ | 72,376 |
| | $ | (2,214 | ) | | $ | — |
| | $ | — |
| | $ | 70,162 |
|
| | | | | | | | | |
Condensed Consolidated Balance Sheet | | | | | | | | | |
July 7, 2019 | | | | | | | | | |
Prepaid expenses | $ | 17,484 |
| | $ | 769 |
| | $ | — |
| | $ | — |
| | $ | 18,253 |
|
Total current assets | $ | 105,997 |
| | $ | 769 |
| | $ | — |
| | $ | — |
| | $ | 106,766 |
|
Deferred tax assets | $ | 72,903 |
| | $ | (12,958 | ) | | $ | — |
| | $ | — |
| | $ | 59,945 |
|
Other assets, net | $ | 215,234 |
| | $ | 269 |
| | $ | — |
| | $ | — |
| | $ | 215,503 |
|
Total other assets | $ | 335,335 |
| | $ | (12,689 | ) | | $ | — |
| | $ | — |
| | $ | 322,646 |
|
Total assets | $ | 831,270 |
| | $ | (11,920 | ) | | $ | — |
| | $ | — |
| | $ | 819,350 |
|
Accrued liabilities | $ | 124,823 |
| | $ | (4,968 | ) | | $ | — |
| | $ | — |
| | $ | 119,855 |
|
Total current liabilities | $ | 218,849 |
| | $ | (4,968 | ) | | $ | — |
| | $ | — |
| | $ | 213,881 |
|
Other long-term liabilities | $ | 221,219 |
| | $ | (42,067 | ) | | $ | — |
| | $ | — |
| | $ | 179,152 |
|
Total long-term liabilities | $ | 1,192,982 |
| | $ | (42,067 | ) | | $ | — |
| | $ | — |
| | $ | 1,150,915 |
|
Retained earnings | $ | 1,565,287 |
| | $ | 35,114 |
| | $ | — |
| | $ | — |
| | $ | 1,600,401 |
|
Total stockholders’ deficit | $ | (580,561 | ) | | $ | 35,114 |
| | $ | — |
| | $ | — |
| | $ | (545,447 | ) |
Total liabilities and stockholders’ deficit | $ | 831,270 |
| | $ | (11,921 | ) | | $ | — |
| | $ | — |
| | $ | 819,349 |
|
The adoption of ASC 606 had no impact on the Company’s cash provided by or used in operating, investing or financing activities as previously reported in its condensed consolidated statement of cash flows.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | | | | | |
| Balance at September 29, 2019 | | Adjustments due to ASC 842 adoption | | Balance at September 30, 2019 |
Assets | | | | | |
Other assets: | | | | | |
Operating lease ROU assets | $ | — | | | $ | 880,564 | | | $ | 880,564 | |
Intangible assets, net | $ | 425 | | | $ | (386) | | | $ | 39 | |
Deferred income taxes | $ | 85,564 | | | $ | 1,006 | | | $ | 86,570 | |
Liabilities and Stockholders’ Deficit | | | | | |
Current liabilities: | | | | | |
Current operating lease liabilities | $ | — | | | $ | 159,821 | | | $ | 159,821 | |
Accrued liabilities | $ | 120,083 | | | $ | (4,702) | | | $ | 115,381 | |
Long-term liabilities: | | | | | |
Long-term operating lease liabilities, net of current portion | $ | — | | | $ | 770,818 | | | $ | 770,818 | |
Other long-term liabilities | $ | 263,770 | | | $ | (41,883) | | | $ | 221,887 | |
Stockholders’ deficit: | | | | | |
Retained earnings | $ | 1,577,034 | | | $ | (2,870) | | | $ | 1,574,164 | |
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This standard requires the presentation of the service cost component of net benefit costs to be in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. All other components of net benefit costs should be presented separately from the service cost component and outside of a subtotal of earnings from operations, or separately disclosed. We adopted this standard in the first quarter of fiscal 2019 applying the retrospective method. As a result of the adoption, 2018 quarter and year-to-date amounts of $0.4 million and $1.4 million, respectively, previously reported within “Selling, general, and administrative expenses” have been reclassified to a separate line under earnings from operations to conform to current year presentation.
Effect of new accounting pronouncements to be adopted in future periods — In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842)(as subsequently amended by ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01) which requires a lessee to recognize assets and liabilities on the balance sheet for those leases classified as operating leases under previous guidance. Based on a preliminary assessment, we expect that most of our operating lease commitments will be subject to the new guidance and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on our consolidated balance sheets. The accounting guidance for lessors will remainremains largely unchanged from previous guidance, with the exception ofexcept for the presentation of certain lease costs that the Company passes through to lessees, including but not limited to, property taxes and maintenance. These costs are generally paid by the Company and reimbursed by the lessee. Historically, these costs have been recorded on a net basis in theour condensed consolidated statements of operations,earnings but will beare now presented gross upon adoption of the new guidance. WhileAs a result, we are unableexpect annual revenues and expenses reported in “Franchise rental revenues” and “Franchise occupancy expenses” to quantifyincrease by approximately $37.7 million in fiscal 2020. Refer to Note 4, Leases, for further information on our leases and the impact on the Company’s accounting policies.
Effect of new accounting pronouncements to be adopted in future periods — In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will replace the incurred loss methodology that is currently required with a methodology that instead reflects a current estimate of all expected credit losses on financial assets, including receivables. The guidance requires that an entity measure and recognize expected credit losses at thisthe time wethe asset is recorded, while considering a broader range of information to estimate credit losses, including macroeconomic conditions that correlate with historical loss experience, delinquency trends, and aging behavior of receivables, among others. The standard is effective for the Company beginning with our 2021 fiscal year. We do not expectanticipate the adoption of this guidance tostandard will have a material impact onto our consolidated statement of earningsfinancial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and statement of cash flows.Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for the Company beginning with our 2021 fiscal year. We will be required to adopt this standard indo not anticipate the first quarter of fiscal 2020 and plan to utilize the alternative transition method, whereby an entity records a cumulative adjustment to opening retained earnings in the year of adoption without restating prior periods. The new standard also provides a number of optional practical expedients in transition. We expect to elect the transition package of three practical expedients, which, among other items, permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also expect to elect the short-term lease recognition exemption for all leases that qualify, permitting us to not apply the recognition requirements of this standard to leases with a term of 12 months or less. We also expect to elect the practical expedient to not separate lease and non-lease components for all of our leases. We do not expect to elect the use-of-hindsight practical expedient, and therefore expect to continue to utilize lease terms determined under the existing lease guidance.
We are continuing our evaluation, which may identify additional impacts this standard and its amendments will have ona material impact to our consolidated financial statements and related disclosures.statements.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2.REVENUE
Nature of products and services — We derive revenue from retail sales at Jack in the Box company-operated restaurants and rental revenue, royalties, advertising, and franchise and other fees from franchise-operated restaurants.
Our franchise arrangements generally provide for an initial franchise fee of $50,000 per restaurant and generally require that franchisees pay royalty and marketing fees at 5% of gross sales. The agreement also requires franchisees to pay sourcing, technology and other miscellaneous fees.
Significant accounting policy — “Company restaurant sales” include revenue recognized upon delivery of food and beverages to the customer at company-operated restaurants, which is when our obligation to perform is satisfied. Company restaurant sales exclude taxes collected from the Company’s customers. Company restaurant sales also include income for gift cards. Gift cards, upon customer purchase, are recorded as deferred income and are recognized in revenue as they are redeemed. The timing and amount of revenue recognized related to company restaurant sales was not impacted by the adoption of ASC 606.
“Franchise royalties and other” includes royalties fees and franchise and other fees received from franchisees. Royalties are based upon a percentage of sales of the franchised restaurant and are recognized as earned. Franchise royalties are billed on a monthly basis. Franchise fees when a new restaurant opens or at the start of a new franchise term are recorded as deferred revenue when received and recognized as revenue over the term of the franchise agreement.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
“Franchise contributions for advertising and other services” includes franchisee contributions to our marketing fund billed on a monthly basis and sourcing and technology fees, as required under the franchise agreements. Contributions to our marketing fund are based on a percentage of sales and recognized as earned. Sourcing and technology services are recognized when the goods or services are transferred to the franchisee. The adoption of the new revenue standard did not impact the timing of revenue recognition for these fees received; however, these arrangements are now presented on a gross basis because we believe we are the principal in the arrangement.
“Franchise rental revenues” received from franchised restaurants based on fixed rental payments are recognized as revenue over the term of the lease. Certain franchise rents, which are contingent upon sales levels, are recognized in the period in which the contingency is met. Rental revenues are accounted for in accordance with applicable guidance for leases and are excluded from the scope of the new revenue standard.
Disaggregation of revenue — The following table disaggregates revenue by primary source for the 12-weeks and 40-weeks ended July 7, 2019 (in thousands):
|
| | | | | | | |
| Quarter | | Year-to-date |
Sources of revenue: | | | |
Company restaurant sales | $ | 78,434 |
| | $ | 257,948 |
|
Franchise rental revenues | 63,359 |
| | 208,895 |
|
Franchise royalties | 38,752 |
| | 125,407 |
|
Marketing fees | 37,269 |
| | 121,078 |
|
Technology and sourcing fees | 3,117 |
| | 10,111 |
|
Franchise fees and other services | 1,428 |
| | 5,433 |
|
Total revenue | $ | 222,359 |
| | $ | 728,872 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Sources of revenue: | | | | | | | |
Company restaurant sales | $ | 82,444 | | | $ | 78,434 | | | $ | 262,188 | | | $ | 257,948 | |
Franchise rental revenues | 76,021 | | | 63,359 | | | 241,990 | | | 208,895 | |
Franchise royalties | 41,537 | | | 38,752 | | | 127,829 | | | 125,407 | |
Marketing fees | 36,757 | | | 37,269 | | | 116,142 | | | 121,078 | |
Technology and sourcing fees | 3,814 | | | 3,117 | | | 12,316 | | | 10,111 | |
Franchise fees and other services | 1,702 | | | 1,428 | | | 5,640 | | | 5,433 | |
Total revenue | $ | 242,275 | | | $ | 222,359 | | | $ | 766,105 | | | $ | 728,872 | |
Contract liabilities — Our contract liabilities consist of deferred revenue resulting from initial fees received from franchisees for new restaurant openings or new franchise terms, which are generally recognized over the franchise term. We classify these contract liabilities as “Other long-term“Accrued liabilities” and “Accrued“Other long-term liabilities” in our condensed consolidated balance sheets.
A summary of significant changes in our contract liabilities between the date of adoption (October 1, 2018) and July 7, 2019 is presented below (in thousands):
|
| | | | |
| | Deferred Franchise Fees |
Deferred franchise fees at October 1, 2018 | | $ | 50,018 |
|
Revenue recognized during the period | | (3,953 | ) |
Additions during the period | | 970 |
|
Deferred franchise fees at July 7, 2019 | | $ | 47,035 |
|
| | | | | | | | | | | |
| Year-to-date | | |
| July 5, 2020 | | July 7, 2019 |
Deferred franchise fees at beginning of period | $ | 46,272 | | | $ | 50,018 | |
Revenue recognized | (4,249) | | | (3,953) | |
Additions | 1,923 | | | 970 | |
Deferred franchise fees at end of period | $ | 43,946 | | | $ | 47,035 | |
The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the endas of the periodJuly 5, 2020 (in thousands):
| | | | | | | | |
Remainder of 2020 | | $ | 1,136 | |
2021 | | 4,947 | |
2022 | | 4,742 | |
2023 | | 4,590 | |
2024 | | 4,398 | |
Thereafter | | 24,133 | |
| | $ | 43,946 | |
|
| | | | |
2019 (1) | | $ | 1,145 |
|
2020 | | 4,878 |
|
2021 | | 4,856 |
|
2022 | | 4,656 |
|
2023 | | 4,501 |
|
Thereafter | | 26,999 |
|
| | $ | 47,035 |
|
____________________________
(1) Represents the estimate for remainder of fiscal year 2019.
We have applied the optional exemption, as provided for under ASCAccounting Standards Codification Topic 606,Revenue from Contracts with Customers, which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3.SUMMARY OF REFRANCHISINGS AND FRANCHISEE DEVELOPMENT
Refranchisings and franchisee development/closures — Through the third quarter in 2020 and 2019, 0 company-operated restaurants were sold to franchisees. In 2020 and 2019, amounts presented in “Gains on the sale of company-operated restaurants” of $2.6 million and $0.2 million, respectively, pertain to meeting certain contingent consideration provisions included in the sale of restaurants in previous years. The following table summarizes the number of restaurants developed and closed by franchisees.
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
New restaurants opened by franchisees | 4 | | | 5 | | | 20 | | | 16 | |
Franchisee restaurants closed | (6) | | | (3) | | | (18) | | | (11) | |
Franchise acquisitions — During the second quarter of 2020, we acquired 8 franchise restaurants as a result of a legal action filed in October 2019 against a franchisee in which we obtained a judgment in January 2020 granting us the possession of the restaurants.
We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). The goodwill recorded primarily relates to the sales growth potential of the market acquired and is expected to be deductible for income tax purposes.
Total consideration on the acquisition was $0.9 million, comprised of receivables that were eliminated in acquisition accounting.
The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for the restaurants acquired (in thousands):
| | | | | |
3.Inventory | DISCONTINUED OPERATIONS$ | 73 | |
Property and equipment | 903 | |
Intangible assets | 263 | |
Other assets | 6 | |
Goodwill | 414 | |
Liabilities assumed | (800) | |
Total consideration | $ | 859 | |
Qdoba — In December 2017, we entered into a stock purchase agreement (the “Qdoba Purchase Agreement”) with the Buyer to sell all issued and outstanding shares of Qdoba. The Buyer completed the acquisition of Qdoba on March 21, 2018 (the “Qdoba Sale”).
4.LEASES
Nature of leases — We own restaurant sites and we also lease restaurant sites from third parties. Some of these owned or leased sites are leased and/or subleased to franchisees. Initial terms of our real estate leases are generally 20 years, exclusive of options to renew, which are generally exercisable at our sole discretion for 1 to 20 years. In some instances, our leases have provisions for contingent rentals based upon a percentage of defined revenues. Many of our restaurants also have rent escalation clauses and require the payment of property taxes, insurance, and maintenance costs. Variable lease costs include contingent rent, cost-of-living index adjustments, and payments for additional rent such as real estate taxes, insurance and common area maintenance, which are excluded from the measurement of the lease liability. We also entered into a Transition Services Agreementlease certain restaurant and office equipment with initial terms generally ranging from 3 to 8 years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees subsequent to refranchising transactions. The lease descriptions, terms, variable lease payments and renewal options are generally the Buyer pursuant to whichsame as the Buyer is receiving certain services (the “Services”) to enable it to operate the Qdoba business after the closing of the Qdoba Sale. The Services include information technology, finance and accounting, human resources, supply chain and other corporate support services. Under the Agreement, the Serviceslessee leases described above. Revenues from leasing arrangements with our franchisees are being provided at cost for a period of up to 12 months, with two 3-month extensions available for certain services. We are still providing accounting and information technology services under the Agreement and currently estimate these services will be performed up to, but no later than, September 21, 2019. In 2019 and 2018, we recorded $0.9 million and $3.6 millionpresented in “Franchise rental revenues” in the quarter, respectively, and $6.5 million and $4.7 million year-to-date, respectively, in income related to the Services as a reduction of selling, general and administrative expenses in the condensed consolidated statements of earnings.
Further, in 2018, we entered into an Employee Agreement with the Buyer pursuant to which we continued to employ all Qdoba employees who work for the Buyer (the “Qdoba Employees”) from the date of closing of the Qdoba Sale through December 31, 2018. During the term of the Employee Agreement, we paid all wages and benefits of the Qdoba Employees and received reimbursement of these costs from the Buyer. From October 1, 2018 to December 31, 2018, we paid $35.4 million of Qdoba wages and benefits pursuant to the Employee Agreement.
As the Qdoba Sale represents a strategic shift that had a major effect on our operations and financial results, in accordance with the provisions of FASB authoritative guidance on the presentation of financial statements, Qdoba results are classified as discontinued operations in ouraccompanying condensed consolidated statements of earnings, and our condensed consolidated statements of cash flows for all periods presented.the related expenses are presented in “Franchise occupancy expenses.”
Income taxes Significant assumptions and judgements— In fiscal 2019,We evaluate the contracts entered into by the Company entered intoto determine whether such contracts contain leases. A contract contains a bilateral California election with Quidditch Acquisition, Inc.lease if the contract conveys the right to retroactively treatcontrol the divestmentuse of Qdoba Restaurant Corporationidentified property, plant or equipment for a period of time in exchange for consideration. At commencement, contracts containing a lease are further evaluated for classification as an operating or finance lease where the Company is a lessee, or as an operating, sales-type or direct financing lease where the Company is a lessor, based on March 21, 2018 as a sale of assets instead of a stock sale for income tax purposes. This election reduced the Company’s fiscal year 2018 California tax liability on the divestment by $2.8 million.
The following table summarizes the Qdoba-related activity for each period in discontinued operations (in thousands, except per share data):their terms.
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
Company restaurant sales | $ | — |
| | $ | — |
| | $ | — |
| | $ | 192,620 |
|
Franchise revenues | — |
| | — |
| | — |
| | 9,337 |
|
Company restaurant costs (excluding depreciation and amortization) | — |
| | — |
| | — |
| | (166,122 | ) |
Franchise costs (excluding depreciation and amortization) | — |
| | — |
| | — |
| | (2,338 | ) |
Selling, general and administrative expenses | (120 | ) | | (202 | ) | | 123 |
| | (18,314 | ) |
Depreciation and amortization | — |
| | — |
| | — |
| | (5,012 | ) |
Impairment and other charges, net | (262 | ) | | (123 | ) | | (262 | ) | | (2,386 | ) |
Interest expense, net | — |
| | — |
| | — |
| | (4,787 | ) |
Operating (losses) earnings from discontinued operations before income taxes | (382 | ) | | (325 | ) | | (139 | ) | | 2,998 |
|
Gain (loss) on Qdoba Sale | — |
| | (3,648 | ) | | (85 | ) | | 32,081 |
|
(Losses) earnings from discontinued operations before income taxes | (382 | ) | | (3,973 | ) | | (224 | ) | | 35,079 |
|
Income tax benefit (expense) | 98 |
| | 1,097 |
| | 2,876 |
| | (15,927 | ) |
(Losses) earnings from discontinued operations, net of income taxes | $ | (284 | ) | | $ | (2,876 | ) | | $ | 2,652 |
| | $ | 19,152 |
|
| | | | | | | |
Net earnings per share from discontinued operations: | | | | | | | |
Basic | $ | (0.01 | ) | | $ | (0.10 | ) | | $ | 0.10 |
| | $ | 0.66 |
|
Diluted | $ | (0.01 | ) | | $ | (0.10 | ) | | $ | 0.10 |
| | $ | 0.65 |
|
10
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Selling, general and administrative expenses presented in the table above include corporate costs directly in support of Qdoba operations, as well as resolutions of certain matters that existed prior to the Qdoba sale. All other corporate costs were classified in results of continuing operations. Our credit facility required us to make a mandatory prepayment (“Qdoba Prepayment”) on our term loan upon the closing of the Qdoba Sale, which was $260.0 million. In accordance with authoritative guidance on financial statement presentation, interest expense associated with our credit facility was allocated to discontinued operations in the prior year based on our estimate of the mandatory prepayment that was made upon closing of the Qdoba Sale.
Lease guarantees — While all operating leases held in the name of Qdoba were part of the Qdoba Sale, some of the leases remain guaranteed by the Company pursuant to one or more written guarantees (the “Guarantees”). In the event Qdoba fails to meet its payment and performance obligations under such guaranteed leases, we may be required to make rent and other payments to the landlord under the requirements of the Guarantees. Should we, as guarantor of the lease obligations, be required to make any lease payments due for the remaining term of the subject lease(s) subsequent to March 21, 2018, the maximum amount we may be required to pay is approximately $33.8 million as of July 7, 2019. The lease terms extendterm and incremental borrowing rate for a maximumeach lease requires judgement by management and can impact the classification of approximately 16 more years as of July 7, 2019, and we would remain a guarantor of theour leases in the event the leases are extended for any established renewal periods. In the event that we are obligated to make payments under the Guarantees, we believe the exposure is limited due to contractual protections and recourse available in the lease agreements, as well as the Qdoba Purchase Agreement, including a requirementvalue of our lease assets and liabilities. When determining the lease term, we consider option periods available, and include option periods in the measurement of the landlordlease ROU asset and lease liability where the exercise is reasonably certain to mitigate damages by re-lettingoccur. As our leases do not provide an implicit discount rate, we have determined it is appropriate to use our estimated collateralized incremental borrowing rate, based on the propertiesyield curve for the respective lease terms, in default,calculating our lease liabilities.
Rent Concessions as Lessee
In response to the pandemic, certain landlords have agreed to temporary rent concessions. These concessions generally relate to the deferral of certain rent payments for April, May, June, and indemnity fromJuly until future periods and total approximately $15.5 million. We considered the Buyer. Qdoba continuesFASB’s recent guidance regarding rent concessions related to meet its obligations under these leases and there have not been any events that would indicate that Qdoba will not continue to meet the obligationseffects of the leases. As such,COVID-19 pandemic and have elected to apply the temporary practical expedient to account for rent concessions as though enforceable rights and obligations for those concessions existed in the lease agreements. Therefore, we did not remeasure our lease ROU assets and liabilities, and we have not recorded a liability forbifurcated our operating lease liabilities into the Guaranteesportion that remains subject to accretion of $934.5 million, and the portion that is related to the rent deferrals of $12.7 million.
Rent Concessions as the likelihoodLessor
We postponed collection of Qdoba defaulting on the assigned agreements was deemedapproximately 40% of April rents due from our franchisees totaling approximately $9.1 million, to be less than probable.collected over three months beginning July 2020. Furthermore, we passed on to our franchisees approximately $5.6 million of the rent concessions secured from our landlords for April, May, June, and July. As of the end of the third quarter, $6.2 million of the postponed April rent has been repaid and the franchisees have chosen to pay according to the original lease terms on approximately half of the rent concessions that we offered.
Company as Lessee
Leased assets and liabilities consisted of the following as of July 5, 2020 (in thousands):
| | | | | |
4. | INDEBTEDNESSJuly 5, 2020 |
Assets: | |
Operating lease ROU assets | $ | 902,858 | |
Finance lease ROU assets (1) | 2,511 | |
Total ROU assets | $ | 905,369 | |
Liabilities: | |
Current operating lease liabilities | $ | 169,347 | |
Current finance lease liabilities (2) | 821 | |
Long term operating lease liabilities | 777,883 | |
Long-term finance lease liabilities (2) | 2,306 | |
Total lease liabilities | $ | 950,357 | |
____________________________
Amended credit facility (1)— On May 1, 2019, we entered into the Fifth Amendment to the Credit Agreement (the “Fifth Amendment”). The Fifth Amendment extended the maturity date of bothIncluded in “Property and equipment, net” on our term loan and revolving credit facility from March 19, 2020 to March 19, 2021. Fees of $1.3 million paid to third parties in connection with the Fifth Amendment were capitalized as deferred loan costs during the quarter.condensed consolidated balance sheet.
As(2)Included in “Current maturities of July 7, 2019, we had outstanding borrowingslong-term debt” and “Long-term debt, net of $304.4 million under the term loan and $707.4 million under the revolving credit facility. In addition, letters of credit of $29.9 million were outstanding. As of July 7, 2019,current maturities” on our unused borrowing capacity was $162.7 million.condensed consolidated balance sheet.
Subsequent events — See Note 16, Subsequent Events, as to events occurring after July 7, 2019 that impact the Company’s long-term debt.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5. | SUMMARY OF REFRANCHISINGS AND FRANCHISEE DEVELOPMENT |
Refranchisings and franchisee development — The following table summarizespresents the numbercomponents of restaurants sold to franchisees, the number of restaurants developed by franchisees, and gains recognized in each periodour lease costs (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
Restaurants sold to franchisees | — |
| | 42 |
| | — |
| | 127 |
|
New restaurants opened by franchisees | 5 |
| | — |
| | 16 |
| | 8 |
|
| | | | | | | |
Proceeds from the sale of company-operated restaurants: | | | | | | | |
Cash (1) | $ | — |
| | $ | 6,822 |
| | $ | 133 |
| | $ | 23,666 |
|
Notes receivable | — |
| | 33,042 |
| | — |
| | 64,548 |
|
| — |
| | 39,864 |
| | 133 |
| | 88,214 |
|
| | | | | | | |
Net assets sold (primarily property and equipment) | — |
| | (6,745 | ) | | — |
| | (19,891 | ) |
Lease commitment charges | — |
| | — |
| | — |
| | (863 | ) |
Goodwill related to the sale of company-operated restaurants | — |
| | (566 | ) | | (2 | ) | | (4,526 | ) |
Other (2) | — |
| | (3,877 | ) | | 88 |
| | (19,846 | ) |
Gains on the sale of company-operated restaurants | $ | — |
| | $ | 28,676 |
| | $ | 219 |
| | $ | 43,088 |
|
| | | | | | | | | | | | |
| Quarter | | Year-to-date | |
| July 5, 2020 | | July 5, 2020 | |
Lease costs: | | | | |
Finance lease cost: | | | | |
Amortization of ROU assets (1) | $ | 177 | | | $ | 590 | | |
Interest on lease liabilities (2) | 27 | | | 88 | | |
Operating lease cost (3) | 44,006 | | | 146,409 | | |
Short-term lease cost (3) | 46 | | | 149 | | |
Variable lease cost (3)(4) | 9,494 | | | 31,317 | | |
| $ | 53,750 | | | $ | 178,553 | | |
____________________________
(1)Included in “Depreciation and amortization” in our condensed consolidated statement of earnings.
(2)Included in “Interest expense, net” in our condensed consolidated statement of earnings.
(3)Operating lease, short-term and variable lease costs associated with franchisees and company-operated restaurants are included in “Franchise occupancy expenses” and “Occupancy and other,” respectively, in our condensed consolidated statement of earnings. For our closed restaurants, these costs are included in “Impairment and other, net” and all other costs are included in “Selling, general and administrative expenses.”
(4)Includes $8.6 million in the quarter and $28.8 million year-to-date of property taxes and common area maintenance costs which are reimbursed by sub-lessees.
The following table presents supplemental information related to leases:
| | | | | |
(1) | The year-to-date amounts in 2019 and 2018 include additional proceeds of $0.1 million and $1.3 million, respectively, related to restaurants sold in prior years.July 5, 2020 |
Weighted-average remaining lease term (in years): | |
Finance leases | 3.5 |
Operating leases | 8.3 |
Weighted-average discount rate: | |
Finance leases | 3.6 | % |
Operating leases | 4.2 | % |
The following table presents as of July 5, 2020, the annual maturities of our lease liabilities (in thousands):
| | | | | | | | | | | | | | |
| | Finance Leases | | Operating Leases |
Fiscal year: | | | | |
Remainder of 2020 (1) | | $ | 405 | | | $ | 38,311 | |
2021 (1) | | 917 | | | 211,404 | |
2022 | | 906 | | | 163,586 | |
2023 | | 893 | | | 136,250 | |
2024 | | 217 | | | 104,566 | |
Thereafter | | 49 | | | 484,203 | |
Total future lease payments (2) | | $ | 3,387 | | | $ | 1,138,320 | |
Less: imputed interest | | (260) | | | (191,090) | |
Present value of lease liabilities | | $ | 3,127 | | | $ | 947,230 | |
____________________________
(1)The impact of rent concessions increased 2020 operating leases maturities by $5.5 million and increased 2021 by $7.3 million.
(2)Total future lease payments include non-cancellable commitments of $3.4 million for finance leases and $1,080 million for operating leases.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents as of September 29, 2019, future minimum lease payments for non-cancellable leases (in thousands):
| | | | | | | | | | | | | | |
| | Capital Leases | | Operating Leases |
Fiscal year: | | | | |
2020 | | $ | 879 | | | $ | 193,313 | |
2021 | | 879 | | | 186,226 | |
2022 | | 879 | | | 145,794 | |
2023 | | 864 | | | 117,753 | |
2024 | | 396 | | | 87,420 | |
Thereafter | | 40 | | | 363,505 | |
Total minimum lease payments | | $ | 3,937 | | | $ | 1,094,011 | |
Less: imputed interest | | (343) | | | |
Present value of lease liability | | $ | 3,594 | | | |
The following table includes supplemental cash flow and non-cash information related to our lessee leases (in thousands):
| | | | | | |
(2) | AmountsYear-to-date | |
| July 5, 2020 | |
Cash paid for amounts included in 2018 are primarily related to an $8.8 million reductionthe measurement of gains related to the modification of certain 2017 refranchising transactions. The quarter and year-to-date amounts in 2018 also include $2.9 million and $8.1 million, respectively, of costs related to franchise remodel incentives.lease liabilities: |
| |
6.Operating cash flows from operating leases | FAIR VALUE MEASUREMENTS$ | 151,981 | | |
Operating cash flows from financing leases | $ | 88 | | |
Financing cash flows from financing leases | $ | 593 | | |
Right-of-use assets obtained in exchange for lease obligations: | | |
Operating leases | $ | 143,604 | | |
Financing leases | $ | 132 | | |
Sale leaseback transactions — In the first quarter of 2020, we completed a sale leaseback transaction of a multi-tenant commercial property in Los Angeles, California and leased back the parcel on which a company-operated restaurant is located. The Company received net proceeds of $17.4 million and recognized a $0.2 million loss on the sale. The initial term on the lease is 20 years and the lease has been accounted for as an operating lease.
In the first quarter of 2020, we completed the sale of one of our corporate office buildings as we move forward with our previously announced consolidation of our headquarters. We entered into a lease with the buyer to leaseback the property for up to 18 months with an option to terminate earlier without penalty, upon providing a 90-day notice. The net proceeds received on the sale was $20.6 million and the lease has been accounted for as an operating lease. A gain on the sale of $10.8 million was recognized, and is presented within “Impairment and other charges, net” in our condensed consolidated statement of earnings.
Company as Lessor
The following table presents rental income (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | | | Year-to-date | | | | |
| July 5, 2020 | | | | | | July 5, 2020 | | | | |
| Owned Properties | | Leased Properties | | Total | | Owned Properties | | Leased Properties | | Total |
Operating lease income - franchise | $ | 4,562 | | | $ | 49,819 | | | $ | 54,381 | | | $ | 15,229 | | | $ | 166,511 | | | $ | 181,740 | |
Variable lease income - franchise | 2,570 | | | 19,070 | | | 21,640 | | | 7,096 | | | 53,154 | | | 60,250 | |
Franchise rental revenues | $ | 7,132 | | | $ | 68,889 | | | $ | 76,021 | | | $ | 22,325 | | | $ | 219,665 | | | $ | 241,990 | |
Operating lease income - closed restaurants and other (1) | $ | — | | | $ | 1,442 | | | $ | 1,442 | | | $ | — | | | $ | 4,969 | | | $ | 4,969 | |
____________________________
(1)Primarily relates to closed restaurant properties included in “Impairment and other, net” in our condensed consolidated statement of earnings.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents as of July 5, 2020, future minimum rental receipts for non-cancellable leases and subleases (in thousands):
| | | | | |
| July 5, 2020 |
Fiscal year: | |
Remainder of 2020 (1)(2) | $ | 44,093 | |
2021 (2) | 262,910 | |
2022 | 233,084 | |
2023 | 226,507 | |
2024 | 201,325 | |
Thereafter | 1,259,936 | |
Total minimum rental receipts | $ | 2,227,855 | |
____________________________
(1)Includes $2.9 million of postponed April rents to be repaid over three months beginning July 2020.
(2)The impact of rent concessions passed on to franchisees increased 2020 by $1.9 million and increased 2021 by $2.7 million.
The following table presents as of September 29, 2019, future minimum rental receipts for non-cancellable leases and subleases (in thousands):
| | | | | |
| September 29, 2019 |
Fiscal year: | |
2020 | $ | 239,219 | |
2021 | 255,315 | |
2022 | 231,394 | |
2023 | 224,605 | |
2024 | 199,442 | |
Thereafter | 1,215,811 | |
Total minimum rental receipts | $ | 2,365,786 | |
5.INDEBTEDNESS
Long-term debt as of July 5, 2020 and September 29, 2019 consisted of the following (in thousands):
| | | | | | | | | | | |
| July 5, 2020 | | September 29, 2019 |
Class A-2-I Notes | $ | 572,125 | | | $ | 575,000 | |
Class A-2-II Notes | 273,625 | | | 275,000 | |
Class A-2-III Notes | 447,750 | | | 450,000 | |
Class A-1 Variable Funding Notes | 107,876 | | | — | |
Finance lease obligations | 3,127 | | | 3,594 | |
Total debt | 1,404,503 | | | 1,303,594 | |
Less current maturities of long-term debt | (13,821) | | | (774) | |
Less unamortized debt issuance costs | (24,511) | | | (28,446) | |
Long-term debt | $ | 1,366,171 | | | $ | 1,274,374 | |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company’s outstanding debt consists of Series 2019-1 3.982% Fixed Rate Senior Secured Notes (the “Class A-2-I Notes”), Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”), and Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes”) and together with the Class A-2-I Notes and the Class A-2-II Notes, (the “Class A-2 Notes”), issued by Jack in the Box Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of the Company. In addition, the Master Issuer entered into a revolving financing facility of Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Variable Funding Notes”), which allows for the drawing of up to $150.0 million under the Variable Funding Notes and the issuance of letters of credit. As of July 5, 2020 and September 29, 2019, $41.1 million and $45.6 million, respectively, of letters of credit were pledged against the Variable Funding Notes.
During the second quarter of 2020, to secure our liquidity position and provide financial flexibility given the uncertain market conditions, we borrowed $107.9 million under the Variable Funding Notes. As of July 5, 2020, unused borrowing capacity under our Variable Funding Notes was $1.1 million.
6.FAIR VALUE MEASUREMENTS
Financial assets and liabilities — The following table presents our financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|
| | | | | | | | | | | | | | | |
| Total | | Quoted Prices in Active Markets for Identical Assets (3) (Level 1) | | Significant Other Observable Inputs (3) (Level 2) | | Significant Unobservable Inputs (3) (Level 3) |
Fair value measurements as of July 7, 2019: | | | | | | | |
Non-qualified deferred compensation plan (1) | $ | 31,012 |
| | $ | 31,012 |
| | $ | — |
| | $ | — |
|
Total liabilities at fair value | $ | 31,012 |
| | $ | 31,012 |
| | $ | — |
| | $ | — |
|
Fair value measurements as of September 30, 2018: | | | | | | | |
Non-qualified deferred compensation plan (1) | $ | 37,447 |
| | $ | 37,447 |
| | $ | — |
| | $ | — |
|
Interest rate swaps (Note 7) (2) | 703 |
| | — |
| | 703 |
| | — |
|
Total liabilities at fair value | $ | 38,150 |
| | $ | 37,447 |
| | $ | 703 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Quoted Prices in Active Markets for Identical Assets (2) (Level 1) | | Significant Other Observable Inputs (2) (Level 2) | | Significant Unobservable Inputs (2) (Level 3) |
Fair value measurements as of July 5, 2020: | | | | | | | |
Non-qualified deferred compensation plan (1) | $ | 26,638 | | | $ | 26,638 | | | $ | — | | | $ | — | |
Total liabilities at fair value | $ | 26,638 | | | $ | 26,638 | | | $ | — | | | $ | — | |
Fair value measurements as of September 29, 2019: | | | | | | | |
Non-qualified deferred compensation plan (1) | $ | 30,104 | | | $ | 30,104 | | | $ | — | | | $ | — | |
Total liabilities at fair value | $ | 30,104 | | | $ | 30,104 | | | $ | — | | | $ | — | |
____________________________
| |
(1) | (1)We maintain an unfunded defined contribution plan for key executives and other members of management. The fair value of this obligation is based on the closing market prices of the participants’ elected investments. The obligation is included in “Accrued liabilities” and “Other long-term liabilities” on our condensed consolidated balance sheets. |
| |
(2) | We entered into interest rate swaps to reduce our exposure to rising interest rates on our variable rate debt. The fair values of our interest rate swaps are based upon Level 2 inputs which include valuation models as reported by our counterparties. These valuation models use a discounted cash flow analysis on the cash flows of each derivative. The key inputs for the valuation models are quoted market prices, discount rates, and forward yield curves. The Company also considers its own nonperformance risk and the respective counter-party’s nonperformance risk in the fair value measurements. As further described in Note 7, Derivatives, the Company’s interest rate swaps were terminated on July 2, 2019 and settled in connection with our refinancing transaction on July 8, 2019.
|
| |
(3) | We did not have any transfers in or out of Level 1, 2 or 3. |
JACK IN THE BOX INC. AND SUBSIDIARIES(2)We did not have any transfers in or out of Level 1, 2 or 3.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)The following table presents the carrying value and estimated fair value of our Class A-2 Notes as of July 5, 2020 and September 29, 2019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| July 5, 2020 | | | | September 29, 2019 | | |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Class A-2 Notes | $ | 1,293,500 | | | $ | 1,337,755 | | | $ | 1,300,000 | | | $ | 1,344,300 | |
The fair valuesvalue of our debt instruments arethe Class A-2 Notes was estimated using Level 2 inputs based on the amountquoted market prices in markets that are not considered active markets. The Company had $107.9 million of future cash flows associated with each instrument discounted using our borrowing rate. At July 7, 2019, theoutstanding borrowings under its Variable Funding Notes. The fair value of this loan approximates carrying value due to the variable rate nature of all financial instruments was not materially different from fair value, as the borrowings are prepayable without penalty. The estimated fair values of our capital lease obligations approximated their carrying values as of July 7, 2019.these borrowings.
Non-financial assets and liabilities — Our non-financial instruments, which primarily consist of property and equipment, operating lease right-of-use assets, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on an annual basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial instruments are assessed for impairment. If applicable, the carrying values are written down to fair value.
In connection with our impairment reviews performed during 2019,2020, no material fair value adjustments were required. Refer to Note 8, Impairment and Other Charges, Net, for additional information regarding impairment charges.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7.DERIVATIVE INSTRUMENTS
Interest rate swaps — We have used interest rate swaps to mitigate interest rate volatility with regard to variable rate borrowings under our senior credit facility. In June 2015, we entered into forward-starting interest rate swap agreements that effectively converted $500.0 million of our variable rate borrowings to a fixed rate from October 2018 through October 2022. These agreements were designated as cash flow hedges under the terms of the FASB authoritative guidance for derivatives and hedging. To the extent thatSince they were effective in offsetting the variability of the hedged cash flows, changes in the fair values of the derivatives arewere not included in earnings but arewere included in other comprehensive income (“OCI”). These changes in fair value were subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments arewere made on our variable rate debt.
Effective July 2, 2019, the Company terminated all interest rate swap agreements in anticipation of the securitization transaction and related retirement of our senior credit facility (see Note 16, Subsequent Events).in the fourth quarter of 2019. The fair value of the interest rate swaps at the termination date was $23.6 million, which was paid on July 8, 2019. As a result of the decision to extinguish the senior credit facility, forecasted cash flows associated with the variable-rate debt interest payments were no longer considered to be probable. Consequently, unrealized losses in other comprehensive income at the termination date were immediately reclassified to “Interest expense, net” in the condensed consolidated statement of earnings.
Financial position — The following derivative instruments were outstanding as of the end of each period (in thousands):
|
| | | | | | | | | |
| Balance Sheet Location | | Fair Value |
| | July 7, 2019 | | September 30, 2018 |
Derivatives designated as hedging instruments: | | | | | |
Interest rate swaps | Accrued liabilities | | $ | — |
| | $ | (26 | ) |
Interest rate swaps | Other long-term liabilities | | — |
| | (1,266 | ) |
Interest rate swaps | Other assets, net | | — |
| | 589 |
|
Total derivatives | | | $ | — |
| | $ | (703 | ) |
During fiscal 2019, our interest rate swaps had no hedge ineffectiveness.Financial performance — The following table summarizes the OCI activity related to our interest rate swap derivative instruments and the amounts reclassified from accumulated OCI (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| Location in Income | | | | Quarter | | | Year-to-date |
| | | | | July 7, 2019 | | | July 7, 2019 |
Loss recognized in OCI | N/A | | | | $ | (11,499) | | | | $ | (23,625) | |
Loss reclassified from accumulated OCI into net earnings | Interest expense, net | | | | $ | 23,715 | | | | $ | 24,328 | |
|
| | | | | | | | | | | | | | | | | |
| Location in Income | | Quarter | | Year-to-date |
| | July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
(Loss) gain recognized in OCI | N/A | | $ | (11,499 | ) | | $ | 1,494 |
| | $ | (23,625 | ) | | $ | 16,080 |
|
Loss reclassified from accumulated OCI into net earnings | Interest expense, net | | $ | 23,715 |
| | $ | 539 |
| | $ | 24,328 |
| | $ | 3,089 |
|
JACK IN THE BOX INC.8.IMPAIRMENT AND SUBSIDIARIESOTHER CHARGES, NET
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
8. | IMPAIRMENT AND OTHER CHARGES, NET |
Impairment and other charges, net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
Restructuring costs | $ | (64 | ) |
| $ | 1,872 |
|
| $ | 6,722 |
|
| $ | 4,805 |
|
Costs of closed restaurants and other | 2,010 |
|
| 378 |
|
| 3,259 |
|
| 3,483 |
|
Accelerated depreciation | 416 |
|
| 538 |
|
| 1,342 |
|
| 912 |
|
(Gains) losses on disposition of property and equipment, net (1) | (5,618 | ) |
| 477 |
|
| (5,756 | ) |
| 958 |
|
Operating restaurant impairment charges (2) | — |
|
| — |
|
| — |
|
| 291 |
|
| $ | (3,256 | ) | | $ | 3,265 |
| | $ | 5,567 |
| | $ | 10,449 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Restructuring costs | $ | 2 | | | $ | (64) | | | $ | 1,165 | | | $ | 6,722 | |
Costs of closed restaurants and other | 890 | | | 2,010 | | | 1,322 | | | 3,259 | |
Gains on disposition of property and equipment, net (1) | (216) | | | (5,618) | | | (10,386) | | | (5,756) | |
Accelerated depreciation | 62 | | | 416 | | | 62 | | | 1,342 | |
| $ | 738 | | | $ | (3,256) | | | $ | (7,837) | | | $ | 5,567 | |
____________________________
| |
(1) | In 2019, includes a $0.8 million gain recognized in the second quarter related to an eminent domain transaction and a $5.7 million gain related to a sale of property recognized in the third quarter. |
| |
(2) | In 2018, impairment charges relate to our landlord’s sale of a restaurant property to a franchisee. |
(1)In 2020, year-to-date includes a $10.8 million gain related to the sale of one of our corporate office buildings. In 2019, includes a $5.7 million gain related to a sale of property recognized in the third quarter.
Restructuring costs — Restructuring charges include costs resulting from the exploration of strategic alternatives (the “Strategic Alternatives Evaluation”) in 2019, which was concluded in the third quarter of 2019, and a plan that management initiated to reduce our general and administrative costs. Restructuring charges in 2018 also include costs, related to the evaluation of potential alternatives with respect to the Qdoba brand (the “Qdoba Evaluation”), which resultedwas completed in the Qdoba Sale. Refer to Note 3, Discontinued Operations, for information regarding the Qdoba Sale.third quarter of 2020. We do not expect any future severance and related costs under these initiatives.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following is a summary of our restructuring costs (in thousands):
| | | Quarter | | Year-to-date | | Quarter | | | Year-to-date | |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 | | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Employee severance and related costs | $ | 287 |
| | $ | 1,476 |
| | $ | 5,436 |
| | $ | 2,828 |
| Employee severance and related costs | $ | 2 | | | $ | 287 | | | $ | 1,165 | | | $ | 5,436 | |
Strategic Alternatives Evaluation (1) | (351 | ) | | 376 |
| | 1,286 |
| | 1,188 |
| Strategic Alternatives Evaluation (1) | — | | | (351) | | | — | | | 1,286 | |
Qdoba Evaluation (2) | — |
| | 20 |
| | — |
| | 788 |
| |
Other | — |
| | — |
| | — |
| | 1 |
| |
| $ | (64 | ) | | $ | 1,872 |
| | $ | 6,722 |
| | $ | 4,805 |
| | $ | 2 | | | $ | (64) | | | $ | 1,165 | | | $ | 6,722 | |
____________________________
| |
(1) | Strategic Alternative Evaluation costs are primarily related(1) Strategic Alternative Evaluation costs primarily relate to third party advisory services. |
| |
(2) | Qdoba Evaluation costs are primarily related to retention compensation and third party advisory services. |
We currently expect to recognize severance and related costs of approximately $0.2 million for the remainder of fiscal 2019 related to positions that have been identified for elimination. At this time, we are unable to estimate any additional charges to be incurred related to additional positions that may be identified for elimination or our other restructuring activities.
Total accrued severance costs related to our restructuring activities are included in “Accrued liabilities” on our condensed consolidated balance sheets, and changed as follows during 20192020 (in thousands):
|
| | | | |
Balance as of September 30, 2018 | | $ | 5,309 |
|
Costs incurred | | 5,946 |
|
Accruals released | | (605 | ) |
Cash payments | | (8,167 | ) |
Balance as of July 7, 2019 | | $ | 2,483 |
|
Costs of closed restaurants and other — Costs of closed restaurants and other is generally comprised of future lease commitment charges and expected ancillary costs, net of anticipated sublease rentals, impairment and other costs associated with closed restaurants, and canceled project costs.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The liability for lease termination costs related to closed restaurants, included in “Accrued liabilities” and “Other long-term liabilities” on our condensed consolidated balance sheets, changed as follows during 2019 (in thousands):
|
| | | | |
Balance as of September 30, 2018 | | $ | 3,534 |
|
Additions | | — |
|
Adjustments (1) | | 572 |
|
Interest expense | | 1,094 |
|
Cash payments | | (3,156 | ) |
Balance as of July 7, 2019 (2) (3) | | $ | 2,044 |
|
___________________________ | | | | | | | | |
(1)Balance as of September 29, 2019 | Adjustments relate primarily to revisions of certain sublease and cost assumptions. Our estimates related to our future lease obligations, primarily the sublease income we anticipate, are subject to a high degree of judgment and may differ from actual sublease income due to changes in economic conditions, desirability of the sites and other factors. | $ | 2,100 | |
Costs incurred | | 1,165 | |
| | |
(2)Cash payments | The weighted average remaining lease term related to these commitments is approximately 4 years. |
| (3,265) | |
(3)Balance as of July 5, 2020 | This balance excludes $1.7 million of restaurant closing costs that are included in “Accrued liabilities” and “Other long-term liabilities” on our condensed consolidated balance sheets, which were initially recorded as losses on the sale of company-operated restaurants to franchisees. | $ | — | |
Accelerated depreciation — When a long-lived asset will be replaced or otherwise disposed of prior to the end of its estimated useful life, the useful life of the asset is adjusted based on the estimated disposal date and accelerated depreciation is recognized.
Our tax rates for the quarter and year-to-date ended July 7, 2019 were impacted by the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted into law on December 22, 2017. As a fiscal year taxpayer, the corporate federal tax rate reduction from 35% to 21% was phased in, resulting in a statutory federal tax rate of 24.5% for our fiscal year ending September 30, 2018, and 21.0% for our fiscal year ending September 29, 2019 and subsequent fiscal years.
In 2019 and 2018,9.INCOME TAXES
The income tax provisions reflect quarter tax rates of (17.9)%27.9% in the quarter and 26.5%29.0% year-to-date, compared with (17.9%) and 18.4%, respectively, and year-to-date tax rates of 18.4% and 46.9%, respectively.in fiscal year 2019. The major components of the year-over-year change in tax rates were the one-time, non-cash impact of the enactment of the Tax Actnon-recurring activity in fiscal year 2018, a decrease in the statutory tax rate, the impact of2019 including the termination of interest rate swap agreements, the release of valuation reserves on state tax credits and losses, and the release of a federal tax liability due to expiration of the statute of limitations.limitations, and an increase in nondeductible costs resulting from a California Private Attorney General Act lawsuit settled in the current year. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2020 rate could differ from our current estimates.
The followingCoronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the U.S. on March 27, 2020. The CARES Act includes several U.S. income tax provisions related to, among other things, modifications to the net interest deduction limitations, and technical amendments regarding the income tax depreciation of qualified improvement property placed in service after December 31, 2017. The CARES Act is not expected to have a summary ofmaterial impact on the components of each tax rate Company’s financial results.
(dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
Income tax expense at statutory rate | $ | 2,948 |
| | 25.8 | % | | $ | 18,715 |
| | 28.6 | % | | $ | 22,040 |
| | 25.8 | % | | $ | 46,752 |
| | 28.9 | % |
One-time, non-cash impact of the Tax Act | — |
| | — | % | | 878 |
| | 1.3 | % | | — |
| | — | % | | 32,082 |
| | 19.8 | % |
Termination of interest rate swaps | (2,984 | ) | | (26.1 | )% | | — |
| | — | % | | (2,984 | ) | | (3.5 | )% | | — |
| | — | % |
Release of valuation reserve on state tax losses and credits | (873 | ) | | (7.6 | )% | | (1,312 | ) | | (2.0 | )% | | (1,023 | ) | | (1.2 | )% | | (1,312 | ) | | (0.8 | )% |
Release of federal tax liability | (817 | ) | | (7.2 | )% | | — |
| | — | % | | (817 | ) | | (1.0 | )% | | — |
| | — | % |
Stock compensation excess tax expense | (18 | ) | | (0.2 | )% | | (1,268 | ) | | (1.9 | )% | | (66 | ) | | (0.1 | )% | | (2,084 | ) | | (1.3 | )% |
Adjustment to state tax provision | — |
| | — | % | | — |
| | — | % | | (1,027 | ) | | (1.2 | )% | | — |
| | — | % |
Other | (304 | ) | | (2.6 | )% | | 321 |
| | 0.5 | % | | (424 | ) | | (0.4 | )% | | 460 |
| | 0.3 | % |
(1) | $ | (2,048 | ) | | (17.9 | )% | | $ | 17,334 |
| | 26.5 | % | | $ | 15,699 |
| | 18.4 | % | | $ | 75,898 |
| | 46.9 | % |
10.RETIREMENT PLANS____________________________
| |
(1) | Percentages may not add due to rounding. |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Defined benefit pension plans — We sponsor two2 defined benefit pension plans, a frozen “Qualified Plan” covering substantially all full-time employees hired prior to January 1, 2011, and an unfunded supplemental executive retirement plan (“SERP”) which provides certain employees additional pension benefits and was closed to new participants effective January 1, 2007. Benefits under both plans are based on the employee’s years of service and compensation over defined periods of employment.
In the fourth quarter of 2019, the Company amended its Qualified Plan to add a limited lump sum payment window whereby certain terminated participants with a vested pension benefit could elect to receive either an immediate lump sum or a monthly annuity payment of their accrued benefit. The offering period began September 16, 2019 and ended October 31, 2019. The participants that elected a lump sum benefit under the program were paid in December 2019, which triggered settlement accounting. As a result of the offering, the Company’s Qualified Plan paid $122.3 million from its plan assets to those who accepted the offer, thereby reducing the plan’s pension benefit obligation (“PBO”). The transaction had no cash impact to the Company but did result in a non-cash settlement charge of $38.6 million in the first quarter of fiscal 2020. Routine lump sum payments made in the second and third quarters of fiscal 2020 resulted in non-cash settlement charges of $0.3 million and $0.1 million, respectively.
Postretirement healthcare plans — We also sponsor two2 healthcare plans, closed to new participants, that provide postretirement medical benefits to certain employees who have met minimum age and service requirements. The plans are contributory;contributory, with retiree contributions adjusted annually, and they contain other cost-sharing features such as deductibles and coinsurance.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Net periodic benefit cost — The components of net periodic benefit cost in each period were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
Defined benefit pension plans: | | | | | | | |
Interest cost | $ | 5,286 |
| | $ | 5,159 |
| | $ | 17,619 |
| | $ | 17,198 |
|
Service cost | — |
| | 114 |
| | — |
| | 379 |
|
Expected return on plan assets (1) | (6,077 | ) | | (6,108 | ) | | (20,257 | ) | | (20,360 | ) |
Actuarial loss (2) | 914 |
| | 1,124 |
| | 3,046 |
| | 3,745 |
|
Amortization of unrecognized prior service costs (2) | 27 |
| | 34 |
| | 89 |
| | 113 |
|
Net periodic benefit cost | $ | 150 |
| | $ | 323 |
| | $ | 497 |
| | $ | 1,075 |
|
Postretirement healthcare plans: | | | | | | | |
Interest cost | $ | 229 |
| | $ | 220 |
| | $ | 766 |
| | $ | 734 |
|
Actuarial gain (2) | (37 | ) | | (6 | ) | | (122 | ) | | (20 | ) |
Net periodic benefit cost | $ | 192 |
| | $ | 214 |
| | $ | 644 |
| | $ | 714 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Defined benefit pension plans: | | | | | | | |
Interest cost | $ | 3,581 | | | $ | 5,286 | | | $ | 12,326 | | | $ | 17,619 | |
Expected return on plan assets (1) | (3,779) | | | (6,077) | | | (15,141) | | | (20,257) | |
Pension settlements (2) | 103 | | | — | | | 39,030 | | | — | |
Actuarial losses (2) | 1,367 | | | 914 | | | 4,058 | | | 3,046 | |
Amortization of unrecognized prior service costs (2) | 20 | | | 27 | | | 65 | | | 89 | |
Net periodic benefit cost | $ | 1,292 | | | $ | 150 | | | $ | 40,338 | | | $ | 497 | |
Postretirement healthcare plans: | | | | | | | |
Interest cost | $ | 186 | | | $ | 229 | | | $ | 621 | | | $ | 766 | |
Actuarial losses (gains) (2) | 4 | | | (37) | | | 13 | | | (122) | |
Net periodic benefit cost | $ | 190 | | | $ | 192 | | | $ | 634 | | | $ | 644 | |
___________________________
| |
(1) | Determined as of the beginning of the year based on a return on asset assumption of 6.2%. |
| |
(2) | (1)Based on a return on asset, net of administrative expenses, assumption of 5.8% determined at the end of fiscal 2019, subsequently updated to 5.9% as of December 31, 2019, 5.2% as of March 31, 2020, and 5.4% as of June 30, 2020, upon remeasurement of the Qualified Plan’s assets and PBO as required by settlement accounting. (2)Amounts were reclassified from accumulated OCI into net earnings as a component of “Other pension and post-retirement expenses, net.” |
Changes in presentation—As discussed in Note 1, Basis in Presentation, we adopted ASU 2017-07 during the first quarter of 2019 using the retrospective method, which changed the financial statement presentation of service costs and the other components of net periodic benefit cost. The service cost component continues to be included in operating income; however, the other components are now presented in a separate line below earnings from operations captioned “Other pension and post-retirement expenses, net” in our condensed consolidated statements of earnings. Further, in connection with the adoption, plan administrative expenses historically presented as a component of service cost are now presented as a component of expected return on plan assets. The prior year components of net periodic benefit costs have been recast to conform to current year presentation.
Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of January 1, 2018,2019, the date of our last actuarial funding valuation, there was no0 minimum contribution funding requirement. Details regarding 20192020 contributions are as follows (in thousands):
|
| | | | | | | |
| SERP | | Postretirement Healthcare Plans |
Net year-to-date contributions | $ | 4,213 |
| | $ | 913 |
|
Remaining estimated net contributions during fiscal 2019 | $ | 800 |
| | $ | 500 |
|
| | | | | | | | | | | |
| SERP | | Postretirement Healthcare Plans |
Net year-to-date contributions | $ | 4,070 | | | $ | 851 | |
Remaining estimated net contributions during fiscal 2020 | $ | 1,301 | | | $ | 550 | |
We continue to evaluate contributions to our Qualified Plan based on changes in pension assets as a result of asset performance in the current market and the economic environment. We do not anticipate making any contributions to our Qualified Plan in fiscal 2019.2020.
JACK IN THE BOX INC. AND SUBSIDIARIES11.STOCKHOLDERS’ DEFICIT
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Summary of changes in stockholders’ deficit — A reconciliation of the beginning and ending amounts of stockholders’ deficit is presented below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Balance at beginning of period | $ | (876,926) | | | $ | (592,514) | | | $ | (737,584) | | | $ | (591,699) | |
Shares issued under stock plans, including tax benefit | — | | | 453 | | | 3,559 | | | 696 | |
Share-based compensation expense | 1,747 | | | 1,881 | | | 7,612 | | | 6,589 | |
Dividends declared | — | | | (10,326) | | | (18,492) | | | (30,967) | |
Purchases of treasury stock | — | | | — | | | (153,550) | | | — | |
Net earnings | 32,555 | | | 13,189 | | | 51,915 | | | 72,376 | |
Other comprehensive income (loss), net of taxes | 15,667 | | | 6,756 | | | 22,453 | | | (226) | |
Cumulative-effect from a change in accounting principle | — | | | — | | | (2,870) | | | (37,330) | |
Balance at end of period | $ | (826,957) | | | $ | (580,561) | | | $ | (826,957) | | | $ | (580,561) | |
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
Balance at beginning of period | $ | (592,514 | ) | | $ | (430,910 | ) | | $ | (591,699 | ) | | $ | (388,130 | ) |
Shares issued under stock plans, including tax benefit | 453 |
| | 2,325 |
| | 696 |
| | 2,364 |
|
Share-based compensation | 1,881 |
| | 1,684 |
| | 6,589 |
| | 7,950 |
|
Dividends declared | (10,326 | ) | | (11,252 | ) | | (30,967 | ) | | (34,698 | ) |
Purchases of treasury stock | — |
| | (100,000 | ) | | — |
| | (200,000 | ) |
Net earnings | 13,189 |
| | 45,307 |
| | 72,376 |
| | 105,102 |
|
Other comprehensive income, net of taxes | 6,756 |
| | 2,376 |
| | (226 | ) | | 17,093 |
|
Cumulative-effect from a change in accounting principle | — |
| | — |
| | (37,330 | ) | | (151 | ) |
Balance at end of period | $ | (580,561 | ) | | $ | (490,470 | ) | | $ | (580,561 | ) | | $ | (490,470 | ) |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Repurchases of common stock — In 2019, we have notThe Company repurchased any1.9 million shares of its common shares.stock in the first quarter of fiscal 2020 at an average price of $81.41 per share for an aggregate cost of $153.5 million. There were 0 repurchases of common stock in the second or third quarter of fiscal 2020. As of July 7, 2019, there was5, 2020, this leaves approximately $101.0$122.2 million remaining under share repurchase programs authorized by the Board-authorized stock buyback program whichBoard of Directors, consisting of $22.2 million that expires in November 2019.2020 and $100.0 million that expires in November 2021.
Repurchases of common stock included in our condensed consolidated statement of cash flows for fiscal 2019 includes $14.42020 include $2.0 million related to repurchase transactions traded in the prior fiscal year thatbut settled in 2019.2020.
Dividends — During year-to-date 2019,2020, the Board of Directors declared three2 cash dividends of $0.40 per common share which were paid on June 14, 2019, March 19, 201917, 2020 and December 18, 201820, 2019 to shareholders of record as of the close of business on May 29, 2019, March 4, 20193, 2020 and December 5, 2018,2019, respectively, and totaled $31.2$18.5 million. Future dividends are subject to approval by our Board of Directors.
| |
12. | AVERAGE SHARES OUTSTANDING |
Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive common shares include stock options, nonvested stock awards and units, and non-management director stock equivalents. Performance share awards are included in the average diluted shares outstanding each period if the performance criteria have been met at the end of the respective periods.
12.AVERAGE SHARES OUTSTANDING
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Weighted-average shares outstanding – basic | 22,847 | | | 25,958 | | | 23,192 | | | 25,933 | |
Effect of potentially dilutive securities: | | | | | | | |
Nonvested stock awards and units | 62 | | | 206 | | | 123 | | | 205 | |
Stock options | — | | | 10 | | | — | | | 10 | |
Performance share awards | 7 | | | 2 | | | 7 | | | 2 | |
Weighted-average shares outstanding – diluted | 22,916 | | | 26,176 | | | 23,322 | | | 26,150 | |
Excluded from diluted weighted-average shares outstanding: | | | | | | | |
Antidilutive | 344 | | | 186 | | | 334 | | | 186 | |
Performance conditions not satisfied at the end of the period | 77 | | | 89 | | | 77 | | | 89 | |
|
| | | | | | | | | | | |
| Quarter | | Year-to-date |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
Weighted-average shares outstanding – basic | 25,958 |
| | 28,042 |
| | 25,933 |
| | 28,989 |
|
Effect of potentially dilutive securities: | | | | | | | |
Nonvested stock awards and units | 206 |
| | 215 |
| | 205 |
| | 241 |
|
Stock options | 10 |
| | 32 |
| | 10 |
| | 47 |
|
Performance share awards | 2 |
| | 7 |
| | 2 |
| | 7 |
|
Weighted-average shares outstanding – diluted | 26,176 |
| | 28,296 |
| | 26,150 |
| | 29,284 |
|
Excluded from diluted weighted-average shares outstanding: | | | | | | | |
Antidilutive | 186 |
| | 192 |
| | 186 |
| | 139 |
|
Performance conditions not satisfied at the end of the period | 89 |
| | 67 |
| | 89 |
| | 67 |
|
JACK IN THE BOX INC.13.CONTINGENCIES AND SUBSIDIARIESLEGAL MATTERS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
13. | CONTINGENCIES AND LEGAL MATTERS |
Legal matters — We assess contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurredis adverse to the Company and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates. As of July 5, 2020 and September 29, 2019, the Company had recorded aggregate liabilities of $14.9 million and $10.0 million, respectively, within “Accrued liabilities” on our condensed consolidated balance sheets, for all matters including those described below, that were probable and reasonably estimable. While we believe that additional losses beyond these accruals are reasonably possible, we cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond these accruals.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Gessele v. Jack in the Box Inc. — In August 2010, five former employees instituted litigation in federal court in Oregon alleging claims under the federal Fair Labor Standards Act and Oregon wage and hour laws. The plaintiffs alleged that the Company failed to pay non-exempt employees for certain meal breaks and improperly made payroll deductions for shoe purchases and for workers’ compensation expenses, and later added additional claims relating to timing of final pay and related wage and hour claims involving employees of a franchisee. In 2016, the court dismissed the federal claims and those relating to franchise employees. In June 2017, the court granted class certification with respect to state law claims of improper deductions and late payment of final wages. In February 2019, plaintiff’splaintiffs’ counsel reduced their earlier demand from $62.0 million to $42.0 million. WeIn November 2019, the court issued a ruling on various dispositive motions, disallowing approximately $25.0 million in claimed damages. The parties participated in a voluntary mediation on March 16, 2020, but the matter did not settle. The plaintiffs recently filed a motion for reconsideration of the court’s prior denial of class certification regarding meal and rest break claims which was denied by the court. The plaintiffs have accrued an amount that is not materialnow filed a motion requesting permission to our financial statements relating to claims for which we believe a loss is both probableappeal this ruling. The Company has opposed the motion and estimable. Wewill continue to believe that no additional losses are probable beyond this accrual and we cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond this accrual. We plan to vigorously defend against this lawsuit. Nonetheless, an unfavorable resolution
Marquez v. Jack in the Box Inc. — In August 2017, a former employee filed a class action lawsuit in California state court and as a Private Attorney General Act (“PAGA”) representative suit alleging that the Company failed to provide all non-exempt California employees with compliant rest and meal breaks, overtime pay, accurate wage statements, and final pay upon termination of this matteremployment. On January 29, 2020, the parties participated in excess of our current accrued loss contingencies couldvoluntary mediation and reached a tentative agreement to settle the case. The parties have executed a material adverse effectsettlement agreement and submitted the settlement to the court for final approval. The settlement was approved on our business, results of operations, liquidity, or financial condition.July 1, 2020.
Ramirez v. Jack in the Box Inc. — On June 11, 2019, an unfavorable jury verdict was delivered in a wrongful termination lawsuit against the Company in Los Angeles Superior Court. Plaintiff in the case was a restaurant employee who was terminated in 2013. The jury’s verdict included $5.4 million in compensatory damages and $10.0 million in punitive damages. The Company disagrees with the verdict and the damages awarded by the jury and has filed post-trial motions with the trial judge for the purpose of setting aside or significantly reducing damages. These motions were granted, resulting in a reduction of damages from $15.4 million to $3.2 million. The Company intends to appealplaintiff accepted the verdictreduction. In October 2019, the plaintiff’s counsel filed a motion for attorney’s fees in the eventamount of $5.1 million. On January 9, 2020, the court issued its post-trial motions are unsuccessfulruling awarding $4.1 million in attorney fees and costs. As of July 5, 2020, we have recorded an accrual for legal settlement of $7.3 million within “Accrued liabilities” and a judgment is enteredlitigation insurance recovery receivable of $7.3 million, which represents the expected payment of the settlement by the trial court. Pending resolution of the appeals process, the payment of any damagesCompany’s insurance carriers, within “Accounts and other receivable, net” in this matter will be stayed. During the third quarter of 2019, a charge of $7.1 million was recorded in “Selling, general, and administrative expenses” related to this case, net of any amounts covered by insurance. We continue to believe that no additional losses are probable beyond this accrual, and we cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond this accrual. our condensed consolidated balance sheet.
Other legal matters —— In addition to the matter described above, we are subject to normal and routine litigation brought by former or current employees, customers, franchisees, vendors, landlords, shareholders or others. We intend to defend ourselves in any such matters. Some of these matters may be covered, at least in part, by insurance or other third party indemnity obligation.obligations. We record receivables from third party insurers when recovery has been determined to be probable. The amount of such receivables recorded at July 7, 2019 was $13.6 million.
We believe that the ultimate determination of liability in connection with legal claims pending against us, if any, in excess of amounts already provided for such matters in the consolidated financial statements, will not have a material adverse effect on our business, our annual results of operations, liquidity or financial position; however, it is possible that our business, results of operations, liquidity, or financial condition could be materially affected in a particular future reporting period by the unfavorable resolution of one or more matters or contingencies during such period.
14.DISCONTINUED OPERATIONS
Qdoba — In December 2017, we entered into a stock purchase agreement (the “Qdoba Purchase Agreement”) with the Buyer to sell all issued and outstanding shares of Qdoba. The Buyer completed the acquisition of Qdoba on March 21, 2018 (the “Qdoba Sale”).
We also entered into a Transition Services Agreement with the Buyer pursuant to which the Buyer received certain services (the “Services”) to enable it to operate the Qdoba business after the closing of the Qdoba Sale. The Services included information technology, finance and accounting, human resources, supply chain and other corporate support services. Under the Agreement, the Services were provided at cost for a period of up to 12 months, with 2 3-month extensions available for certain services. As of September 21, 2019, we are no longer providing transition services to Qdoba. In 2019, we recorded $0.9 million in the quarter and $6.5 million year-to-date, in income related to the Services as a reduction of “Selling, general and administrative expenses” in the condensed consolidated statements of earnings.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents results of operations in periods which have been included in discontinued operations (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Total revenues | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Total cost and expense (income) (1) | (527) | | | 382 | | | (527) | | | 224 | |
Earnings (losses) before income taxes | 527 | | | (382) | | | 527 | | | (224) | |
Income tax expense (benefit) (2) | 148 | | | (98) | | | 148 | | | (2,876) | |
Earnings (losses) from discontinued operations, net of income taxes | $ | 379 | | | $ | (284) | | | $ | 379 | | | $ | 2,652 | |
____________________________
(1)Activity primarily consists of resolutions on certain liabilities related to our discontinued operations, including self-insurance reserves and asset retirement obligations.
(2)In fiscal 2019, the Company entered into a bilateral California election with Quidditch Acquisition, Inc. to retroactively treat the divestment of Qdoba Restaurant Corporation on March 21, 2018 as a sale of assets instead of a stock sale for income tax purposes. This election reduced the Company’s fiscal year 2018 California tax liability on the divestment by $2.8 million.
Lease guarantees — — While all operating leases held in the name of Qdobawere part of the Qdoba Sale, some of the leases remain guaranteed by the Company pursuant to one or more written guarantees.guarantees (the “Guarantees”). In the event Qdoba fails to meet its payment and performance obligations under such guaranteed leases, we may be required to make rent and other payments to the landlord under the requirements of the Guarantees. Qdoba continues to meet its obligations under these leases and there have not been any events that would indicate that Qdoba will not continue to meet the obligationsShould we, as guarantor of the leases. As such, we have not recorded a liabilitylease obligations, be required to make any lease payments due for the remaining term of the subject leases, the maximum amount we may be required to pay is approximately $29.3 million as of July 5, 2020. The lease terms extend for a maximum of approximately 15 more years as of July 5, 2020, and we would remain a guarantor of the leases in the event the leases are extended for any established renewal periods. In the event that we are obligated to make payments under the Guarantees, we believe the exposure is limited due to contractual protections and recourse available in the lease agreements, as well as the likelihoodQdoba Purchase Agreement, including a requirement of Qdoba defaulting on the assigned agreements was deemedlandlord to be less thanmitigate damages by re-letting the properties in default, and indemnity from the Buyer. As of July 5, 2020, 0 amounts have been accrued relating to these guarantees as we do not believe any losses are probable. Refer to Note 3, Discontinued Operations, for additional information regarding the Guarantees.
| |
14. | SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)
|
|
| | | | | | | |
| Year-to-date |
| July 7, 2019 | | July 8, 2018 |
Non-cash investing and financing transactions: | | | |
Decrease in obligations for treasury stock repurchases | $ | 14,362 |
| | $ | — |
|
Decrease in obligations for purchases of property and equipment | $ | 5,421 |
| | $ | 2,456 |
|
Increase in dividends accrued or converted to common stock equivalents | $ | 184 |
| | $ | 218 |
|
Decrease in capital lease obligations from the termination of equipment and building leases | $ | 41 |
| | $ | 3,654 |
|
Increase in notes receivable from the sale of company-operated restaurants | $ | — |
| | $ | 31,160 |
|
Equipment capital lease obligations incurred | $ | — |
| | $ | 78 |
|
15.SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands) | | | | | | | | | | | |
| Year-to-date | | |
| July 5, 2020 | | July 7, 2019 |
Non-cash investing and financing transactions: | | | |
Decrease in obligations for treasury stock repurchases | $ | 2,025 | | | $ | 14,362 | |
Decrease in obligations for purchases of property and equipment | $ | 2,534 | | | $ | 5,421 | |
Increase in dividends accrued or converted to common stock equivalents | $ | 65 | | | $ | 184 | |
Consideration for franchise acquisitions | $ | 859 | | | $ | — | |
Decrease in finance lease obligations from the termination of equipment and building leases | $ | 24 | | | $ | 41 | |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
16.SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)
| | | | | | | | | | | |
| July 5, 2020 | | September 29, 2019 |
Accounts and other receivables, net: | | | |
Trade | $ | 82,132 | | | $ | 36,907 | |
Notes receivable | 505 | | | 278 | |
Income tax receivable | 1,172 | | | 160 | |
Other | 10,273 | | | 10,855 | |
Allowance for doubtful accounts | (5,840) | | | (2,965) | |
| $ | 88,242 | | | $ | 45,235 | |
Prepaid expenses: | | | |
Prepaid income taxes | $ | 6,881 | | | $ | 579 | |
Prepaid advertising | 32 | | | 1,838 | |
Other | 6,534 | | | 6,598 | |
| $ | 13,447 | | | $ | 9,015 | |
Other assets, net: | | | |
Company-owned life insurance policies | $ | 112,984 | | | $ | 112,753 | |
Deferred rent receivable | 48,832 | | | 49,333 | |
Franchise tenant improvement allowance | 29,967 | | | 26,925 | |
Other | 24,225 | | | 17,674 | |
| $ | 216,008 | | | $ | 206,685 | |
Accrued liabilities: | | | |
Insurance | $ | 25,605 | | | $ | 27,888 | |
Payroll and related taxes | 30,214 | | | 31,095 | |
Deferred franchise fees | 4,934 | | | 4,978 | |
Sales and property taxes | 15,428 | | | 4,268 | |
Gift card liability | 2,214 | | | 2,036 | |
Deferred rent income | 17,347 | | | 915 | |
Other | 47,602 | | | 48,903 | |
| $ | 143,344 | | | $ | 120,083 | |
Other long-term liabilities: | | | |
Defined benefit pension plans | $ | 126,217 | | | $ | 120,260 | |
Deferred franchise fees | 39,012 | | | 41,295 | |
Straight-line rent accrual | — | | | 29,537 | |
Other | 51,523 | | | 72,678 | |
| $ | 216,752 | | | $ | 263,770 | |
| |
15. | SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)
|
|
| | | | | | | |
| July 7, 2019 | | September 30, 2018 |
Accounts and other receivables, net: | | | |
Trade | $ | 44,403 |
| | $ | 35,877 |
|
Notes receivable | 1,854 |
| | 11,480 |
|
Due from marketing fund | 839 |
| | — |
|
Income tax receivable | 184 |
| | 5,637 |
|
Other | 12,059 |
| | 6,123 |
|
Allowance for doubtful accounts | (1,692 | ) | | (1,695 | ) |
| $ | 57,647 |
| | $ | 57,422 |
|
Prepaid expenses: | | | |
Prepaid rent | $ | 11,977 |
| | $ | — |
|
Prepaid income taxes | — |
| | 4,837 |
|
Prepaid advertising | 28 |
| | 4,318 |
|
Other | 5,479 |
| | 5,288 |
|
| $ | 17,484 |
| | $ | 14,443 |
|
Other assets, net: | | | |
Company-owned life insurance policies | $ | 113,025 |
| | $ | 109,908 |
|
Deferred rent receivable | 49,204 |
| | 48,372 |
|
Franchise tenant improvement allowance | 24,328 |
| | 22,506 |
|
Other | 28,677 |
| | 18,480 |
|
| $ | 215,234 |
| | $ | 199,266 |
|
Accrued liabilities: | | | |
Insurance | $ | 30,206 |
| | $ | 35,405 |
|
Payroll and related taxes | 24,807 |
| | 29,498 |
|
Deferred franchise fees | 4,968 |
| | 375 |
|
Deferred rent income | 16,960 |
|
| 1,387 |
|
Sales and property taxes | 4,097 |
| | 4,555 |
|
Gift card liability | 2,109 |
| | 2,081 |
|
Other | 41,676 |
| | 33,621 |
|
| $ | 124,823 |
| | $ | 106,922 |
|
Other long-term liabilities: | | | |
Defined benefit pension plans | $ | 66,185 |
| | $ | 69,012 |
|
Deferred franchise fees | 42,063 |
| | — |
|
Straight-line rent accrual | 29,700 |
| | 31,762 |
|
Other | 83,271 |
| | 92,675 |
|
| $ | 221,219 |
| | $ | 193,449 |
|
Securitized Refinancing Transaction17.SUBSEQUENT EVENTS—
On July 8, 2019, the Company completed the sale of $575.0 million of its Series 2019-1 3.982% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”), $275.0 million of its Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”), and $450.0 million of its Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes” and, together with the Class A-2-I Notes and Class A-2-II Notes, the “2019 Notes”). Interest payments on the 2019 Notes are payable on a quarterly basis. The anticipated repayment dates of the Class A-2-I Notes, the Class A-2-II Notes and the Class A-2-III Notes are August 2023, August 2026 and August 2029, respectively, unless earlier prepaid to the extent permitted under the indenture that will govern the 2019 Notes. The 2019 Notes were issued in a privately placed securitization transaction.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In addition, the Company also entered into a purchase agreement under which it will issue up to $150 million of its Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the "Class A-1 Notes"), which will allow us to borrow amounts from time to time on a revolving basis.
The net proceeds of the sale of the 2019 Notes were used to retire the Company’s existing senior credit facility and to repay transaction costs related to the transaction. The Company intends to use remaining proceeds for working capital purposes and general corporate purposes, which may include a return of capital to the Company’s equity holders.
Dividends—On August 2, 2019,31, 2020, the Board of Directors declared a cash dividend of $0.40 per common share, to be paid on September 10, 20193, 2020 to shareholders of record as of the close of business on August 19, 2019.18, 2020.
Share Repurchases —On August 2, 2019, the Board of Directors authorized an additional $200 million stock buy-back program that expires on November 30, 2020.
Purchase Agreement —On July 25, 2019, the Company completed the purchase of a commercial property in Los Angeles, California, on which an existing company restaurant and another retail tenant are located. The purchase price was $17.3 million and we currently intend to sell the entire property and lease back the parcel on which our company operated restaurant is located within the next 12 months.
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All comparisons between 20192020 and 20182019 refer to the 12-weeks (“quarter”) and 40-weeks (“year-to-date”) ended July 7, 20195, 2020 and July 8, 2018,7, 2019, respectively, unless otherwise indicated.
For an understanding of the significant factors that influenced our performance during 20192020 and 2018,2019, our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.29, 2019.
Our MD&A consists of the following sections:
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• | •Overview — a general description of our business and 2020 highlights. •Financial reporting — a discussion of changes in presentation, if any. •Results of operations — an analysis of our condensed consolidated statements of earnings for the periods presented in our condensed consolidated financial statements. •Liquidity and capital resources — an analysis of our cash flows including pension and postretirement health contributions, capital expenditures, franchise tenant improvement allowance distributions, share repurchase activity, dividends, known trends that may impact liquidity and the impact of inflation, if applicable. •Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates. •New accounting pronouncements — a discussion of new accounting pronouncements, dates of implementation and the impact on our consolidated financial position or results of operations, if any. • — a general description of our business and 2019 highlights. |
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• | Financial reporting — a discussion of changes in presentation, if any.
|
| |
• | Results of operations — an analysis of our condensed consolidated statements of earnings for the periods presented in our condensed consolidated financial statements.
|
| |
• | Liquidity and capital resources — an analysis of our cash flows including pension and postretirement health contributions, capital expenditures, sale of company-operated restaurants, franchise tenant improvement allowance distributions, our credit facility, share repurchase activity, dividends, known trends that may impact liquidity and the impact of inflation, if applicable.
|
| |
• | Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates.
|
| |
• | New accounting pronouncements — a discussion of new accounting pronouncements, dates of implementation and the impact on our consolidated financial position or results of operations, if any.
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| |
• | Cautionary statements regarding forward-looking statements — a discussion of the risks and uncertainties that may cause our actual results to differ materially from any forward-looking statements made by management. |
We have included in our MD&A certain performance metrics that management uses to assess company performance and which we believe will be useful in analyzing and understanding our results of operations. These metrics include:
| |
• | Changes in sales at restaurants open more than one year (“same-store sales”), system restaurant sales, franchised restaurant sales, and average unit volumes (“AUVs”). Same-store sales, restaurant sales, and AUVs are presented for franchised restaurants and on a system-wide basis, which includes company and franchise restaurants. Franchise sales represent sales at franchise restaurants and are revenues of our franchisees. We do not record franchise sales as revenues; however, our royalty revenues and percentage rent revenues are calculated based on a percentage of franchise sales. We believe franchise and system same-store sales, franchised and system restaurant sales,and AUV information are useful to investors as they have a direct effect on the Company’s profitability.
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• | Adjusted EBITDA, which represents net earnings on a generally accepted accounting principles (“GAAP”) basis excluding earnings or losses from discontinued operations, income taxes, interest expense, net, gains or losses on the sale of company-operated restaurants, impairment and other charges, net, depreciation and amortization, and the amortization of tenant improvement allowances and other.•Changes in sales at restaurants open more than one year (“same-store sales”), system restaurant sales, franchised restaurant sales, and average unit volumes (“AUVs”). Same-store sales, restaurant sales, and AUVs are presented for franchised restaurants and on a system-wide basis, which includes company and franchise restaurants. Franchise sales represent sales at franchise restaurants and are revenues of our franchisees. We do not record franchise sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchise sales. We believe franchise and system same-store sales, franchised and system restaurant sales,and AUV information are useful to investors as they have a direct effect on the Company’s profitability. •Adjusted EBITDA, which represents net earnings on a generally accepted accounting principles (“GAAP”) basis excluding earnings or losses from discontinued operations, income taxes, interest expense, net, gains or losses on the sale of company-operated restaurants, impairment and other charges, net, depreciation and amortization, amortization of tenant improvement allowances and other, and pension settlement charges. We are presenting Adjusted EBITDA because we believe that it provides a meaningful supplement to net earnings of the Company's core business operating results, as well as a comparison to those of other similar companies. Management believes that Adjusted EBITDA, when viewed with the Company's results of operations in accordance with GAAP and the accompanying reconciliations within MD&A, provides useful information about operating performance and period-over-period change, and provides additional information that is useful for evaluating the operating performance of the Company's core business without regard to potential distortions. Additionally, management believes that Adjusted EBITDA permits investors to gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced. |
Same-store sales, system restaurant sales, franchised restaurant sales, AUVs, and Adjusted EBITDA are not measurements determined in accordance with GAAP and should not be considered in isolation, or as an alternative to earnings from operations, or other similarly titled measures of other companies.
IMPACT OF COVID-19
Throughout the pandemic, substantially all of our restaurants remain open, with dining rooms closed and all locations operating in an off-premise capacity, which has historically represented close to 90% of the Company’s business, including drive-thru, third-party delivery, and carry-out. While we navigate through this time of uncertainty, Jack in the Box remains committed to operating our restaurants with integrity, providing great guest service, and most importantly, protecting the health and safety of our employees and guests.
In the last five weeks of the second quarter, upon the rise in “shelter-in-place” mandates and “social distancing” requirements across the country, system same-store sales decreased by 17.0%; however, during the third quarter our system same-store sales have accelerated, increasing by 6.6%. Given the level of volatility and uncertainty surrounding the future impact of COVID-19 on the broader United States economy and specific impacts to our business, in the second quarter we withdrew our previously issued fiscal 2020 and long-term guidance. We will provide an update when we can reasonably estimate the impacts of the COVID-19 pandemic on business results.
To mitigate the impact of COVID-19 on the Company, operations, franchisees and our employees, we have undertaken the following actions:
•Implemented a short-term cash preservation strategy (refer to the Liquidity and Capital Resources section for further information).
•Provided financial support to our franchisees in the form of a reduction and payment deferral of marketing fees, postponement of rent, and delayed remodel requirements and development agreements for at least six months.
•Instituted a new emergency paid sick leave program at company-operated restaurants and have procured protective masks, gloves, sneeze guards and thermometers at all company-owned and franchised locations.
OVERVIEW
As of July 7, 2019,5, 2020, we operated and franchised 2,2422,244 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam.
The following summarizes the most significant events occurring year-to-date in fiscal 2019,the third quarter of 2020, and certain trends compared to a year ago:
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• | Same-store and system sales — System same-store sales are up 0.8% year-to-date as compared with the prior year primarily due to menu price and favorable product mix, partially offset by a decline in transactions. System sales increased $14.5•System same-store sales — System same-store sales increased by 6.6% in the quarter and 1.5% year-to-date. Company same-store sales increased 4.1% in the quarter, driven by a 20.2% increase in average check growth, partially offset by a 16.1% decrease in transactions. •Company restaurant operations — Company restaurant costs as a percentage of company restaurant sales increased in the quarter to 74.6% from 73.0% a year ago primarily due to wage inflation and increases in other operating costs. •Franchise operations — Franchise same-store sales increased by 6.9% in the quarter, resulting in higher royalties and percentage rent for the Company during the quarter. •Selling, general and administrative (“SG&A”) expenses - SG&A decreased by $10.7 million in the quarter, primarily due to lower litigation-related matters and favorable mark-to-market adjustments on investments supporting the Company’s non-qualified retirement plans. •Adjusted EBITDA — Adjusted EBITDA increased to $72.9 million in the quarter from $57.8 million or 0.5%, compared with a year ago primarily due to the net increase in the number of open restaurants. |
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• | Company restaurant operations — Company restaurant costs as a percentage of company restaurant sales decreased in 2019 to 73.1% from 73.5% a year ago primarily due to the benefit of refranchising units that had lower AUVs than the average for all company restaurants, partially offset by higher costs for labor and other operating expenses.
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• | Franchise operations — Excluding the impacts of the adoption of ASC 606 further described below, franchise costs as a percentage of franchise revenues were flat compared to prior year.
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• | Restructuring costs — In 2019, we have continued with our plan to reduce our general and administrative costs by revamping our organization and cost structures. Additionally, in the first quarter of fiscal 2019, we began an evaluation of strategic alternatives for the Company (the “Strategic Alternatives Evaluation”). In connection with these activities, we have recorded $6.7 million of restructuring charges in 2019, which includes $5.4 million related to severance costs, and $1.3 million related to the Strategic Alternatives Evaluation. These costs are included in “Impairment and other costs, net” in the accompanying condensed consolidated statements of earnings.
|
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• | Return of cash to shareholders— We returned cash to shareholders in the form of cash dividends. We declared three cash dividends of $0.40 per share totaling $31.2 million.
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• | Adjusted EBITDA — Adjusted EBITDA decreased in 2019 to $202.1 million from $210.1 million in 2018.
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FINANCIAL REPORTING
In fiscal 2019,2020, we adopted ASU 2014-09,Accounting Standards Codification Topic 842, Revenue Recognition - Revenue from Contracts with Customers (Topic 606)Leases (“ASC 606”842”), effective at the beginning of our fiscal year on a modified retrospective basis using the modified retrospective method, wherebyeffective date transition method. Our consolidated financial statements reflect the cumulative effectapplication of initially adoptingASC 842 guidance beginning in 2020, while our consolidated financial statements for prior periods were prepared under the guidance was recognized as an adjustment to beginning retained earnings at October 1, 2018. The comparative information has not been restated and continues to be reported under theof a previously applicable accounting standards in effect for those periods. standard.
The most significant effects of this transition that affect comparability of our results of operations between 20192020 and 20182019 include the following:
Franchise fee revenue for franchise services will be recognized over•Our transition to ASC 842 resulted in the franchise term beginning in 2019 compared to upfront recognitiongross presentation of property tax and maintenance expenses and related lessee reimbursements as “Franchise occupancy expenses” and “Franchise rental revenues”, respectively. These expenses and reimbursements were presented on a net basis under the previous revenue guidance.
Franchise contribution for advertising and other services are reflected on a gross basisaccounting standard. Although there was no net impact to our consolidated statement of earnings from this change, the presentation resulted in 2019 compared to a net basistotal increases in 2018. Newly created captions “Franchise contribution for advertising and other services”rental revenues” and “Franchise advertisingoccupancy expenses” of $8.6 million in the quarter and other services expenses” include the gross-up$28.8 million year-to-date.
•ASC 842 also changed how lessees account for leases subleased at a loss. Under ASC 842, sublease income and lessee rent expense are recorded as franchise rent revenue and franchise occupancy costs as earned or incurred. As a result of respectivethis change, franchise revenues and expenses; however,franchise occupancy expenses increased by $1.1 million and $1.3 million, respectively, in the 2018 results have not been restated to conform to current year presentation.quarter and $3.2 million and $3.9 million year-to-date.
In fiscal 2018, we completed the sale of Qdoba on March 21, 2018. Qdoba results are included in discontinued operations for all periods presented.
RESULTS OF OPERATIONS
The following table presents certain income and expense items included in our condensed consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS DATA
| | | Quarter |
| Year-to-date | | Quarter | | | Year-to-date | |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 | | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | |
Revenues: | | | | | | | | Revenues: | | | | | | | | |
Company restaurant sales | 35.3 | % | | 46.6 | % | | 35.4 | % | | 53.6 | % | Company restaurant sales | 34.0 | % | | 35.3 | % | | 34.2 | % | | 35.4 | % | |
Franchise rental revenues | 28.5 | % | | 32.8 | % | | 28.7 | % | | 28.4 | % | Franchise rental revenues | 31.4 | % | | 28.5 | % | | 31.6 | % | | 28.7 | % | |
Franchise royalties and other | 18.1 | % | | 20.6 | % | | 18.0 | % | | 18.0 | % | Franchise royalties and other | 17.8 | % | | 18.1 | % | | 17.4 | % | | 18.0 | % | |
Franchise contributions for advertising and other services | 18.2 | % | | — | % | | 18.0 | % | | — | % | Franchise contributions for advertising and other services | 16.7 | % | | 18.2 | % | | 16.8 | % | | 18.0 | % | |
Total revenues | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | Total revenues | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | |
Operating costs and expenses, net: | | | | | | | | Operating costs and expenses, net: | | | | | | | | |
Company restaurant costs (excluding depreciation and amortization): | | | | | | | | Company restaurant costs (excluding depreciation and amortization): | | |
Food and packaging (1) | 29.4 | % | | 28.5 | % | | 28.8 | % | | 28.7 | % | Food and packaging (1) | 29.2 | % | | 29.4 | % | | 29.6 | % | | 28.8 | % | |
Payroll and employee benefits (1) | 29.5 | % | | 28.4 | % | | 29.5 | % | | 28.8 | % | Payroll and employee benefits (1) | 30.4 | % | | 29.5 | % | | 31.0 | % | | 29.5 | % | |
Occupancy and other (1) | 14.1 | % | | 15.7 | % | | 14.8 | % | | 16.1 | % | Occupancy and other (1) | 15.0 | % | | 14.1 | % | | 15.6 | % | | 14.8 | % | |
Total company restaurant costs (1) | 73.0 | % | | 72.5 | % | | 73.1 | % | | 73.5 | % | Total company restaurant costs (1) | 74.6 | % | | 73.0 | % | | 76.2 | % | | 73.1 | % | |
Franchise occupancy expenses (excluding depreciation and amortization) (2) | 60.6 | % | | 60.7 | % | | 61.1 | % | | 61.0 | % | |
Franchise occupancy expenses (2) | | Franchise occupancy expenses (2) | 63.9 | % | | 60.6 | % | | 66.7 | % | | 61.1 | % | |
Franchise support and other costs (3) | 6.7 | % | | 7.3 | % | | 6.4 | % | | 6.3 | % | Franchise support and other costs (3) | 6.2 | % | | 6.7 | % | | 7.7 | % | | 6.4 | % | |
Franchise advertising and other services expenses (4) | 103.7 | % | | — | % | | 104.0 | % | | — | % | Franchise advertising and other services expenses (4) | 104.0 | % | | 103.7 | % | | 103.6 | % | | 104.0 | % | |
Selling, general and administrative expenses | 11.0 | % | | 10.5 | % | | 9.1 | % | | 11.6 | % | Selling, general and administrative expenses | 5.6 | % | | 11.0 | % | | 8.6 | % | | 9.1 | % | |
Depreciation and amortization | 5.8 | % |
| 7.0 | % |
| 5.9 | % |
| 6.7 | % | Depreciation and amortization | 5.0 | % | | 5.8 | % | | 5.4 | % | | 5.9 | % | |
Impairment and other charges, net | (1.5 | %) | | 1.7 | % | | 0.8 | % | | 1.5 | % | Impairment and other charges, net | 0.3 | % | | (1.5) | % | | (1.0) | % | | 0.8 | % | |
Gains on the sale of company-operated restaurants | — | % | | (15.3 | )% | | — | % | | (6.2 | )% | Gains on the sale of company-operated restaurants | (0.4) | % | | — | % | | (0.3) | % | | — | % | |
| Earnings from operations | 21.7 | % | | 40.8 | % | | 21.1 | % | | 28.5 | % | Earnings from operations | 25.5 | % | | 21.7 | % | | 21.5 | % | | 21.1 | % | |
Income tax rate (5) | (17.9 | %) | | 26.5 | % | | 18.4 | % | | 46.9 | % | Income tax rate (5) | 27.9 | % | | (17.9) | % | | 29.0 | % | | 18.4 | % | |
____________________________
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(1) | As a percentage of company restaurant sales. |
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(2) | As a percentage of franchise rental revenues. |
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(3) | As a percentage of franchise royalties and other. |
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(4) | As a percentage of franchise contributions for advertising and other services. |
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(5) | As a percentage of earnings from continuing operations and before income taxes. |
(1)As a percentage of company restaurant sales.
(2)As a percentage of franchise rental revenues.
(3)As a percentage of franchise royalties and other.
(4)As a percentage of franchise contributions for advertising and other services.
(5)As a percentage of earnings from continuing operations and before income taxes.
The following table summarizes changes in same-store sales for company-owned, franchised, and system-wide restaurants:
| | | Quarter | | Year-to-date | | Quarter | | | Year-to-date | |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 | | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | |
Company | 2.8 | % | | 0.6 | % | | 1.2 | % | | 0.5 | % | Company | 4.1 | % | | 2.8 | % | | 1.2 | % | | 1.2 | % | |
Franchise | 2.7 | % | | 0.5 | % | | 0.8 | % | | — | % | Franchise | 6.9 | % | | 2.7 | % | | 1.5 | % | | 0.8 | % | |
System | 2.7 | % | | 0.5 | % | | 0.8 | % | | — | % | System | 6.6 | % | | 2.7 | % | | 1.5 | % | | 0.8 | % | |
The following table summarizes the year-to-date changes in the number and mix of company and franchise restaurants:
| | | 2019 | | 2018 | | 2020 | | | 2019 | |
| Company | | Franchise | | Total | | Company | | Franchise | | Total | | Company | | Franchise | | Total | | Company | | Franchise | | Total |
Beginning of year | 137 |
|
| 2,100 |
|
| 2,237 |
|
| 276 |
|
| 1,975 |
|
| 2,251 |
| Beginning of year | 137 | | | 2,106 | | | 2,243 | | | 137 | | | 2,100 | | | 2,237 | |
New | — |
|
| 16 |
|
| 16 |
|
| 1 |
|
| 8 |
|
| 9 |
| New | — | | | 20 | | | 20 | | | — | | | 16 | | | 16 | |
Refranchised | — |
|
| — |
|
| — |
|
| (127 | ) |
| 127 |
|
| — |
| |
| Acquired from franchisees | | Acquired from franchisees | 8 | | | (8) | | | — | | | — | | | — | | | — | |
Closed | — |
|
| (11 | ) |
| (11 | ) |
| (4 | ) |
| (15 | ) |
| (19 | ) | Closed | (1) | | | (18) | | | (19) | | | — | | | (11) | | | (11) | |
End of period | 137 |
|
| 2,105 |
|
| 2,242 |
|
| 146 |
|
| 2,095 |
|
| 2,241 |
| End of period | 144 | | | 2,100 | | | 2,244 | | | 137 | | | 2,105 | | | 2,242 | |
% of system | 6 | % | | 94 | % | | 100 | % | | 7 | % | | 93 | % | | 100 | % | % of system | 6 | % | | 94 | % | | 100 | % | | 6 | % | | 94 | % | | 100 | % |
The following table summarizes the restaurant sales for company-owned, franchised, and total system sales (in thousands):
| | | Quarter | | Year-to-date | | Quarter | | | Year-to-date | |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 | | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Company-owned restaurant sales | $ | 78,434 |
| | $ | 87,574 |
| | $ | 257,948 |
| | $ | 371,149 |
| Company-owned restaurant sales | $ | 82,444 | | | $ | 78,434 | | | $ | 262,188 | | | $ | 257,948 | |
Franchised restaurant sales (1) | 747,398 |
| | 716,453 |
| | 2,428,708 |
| | 2,301,031 |
| Franchised restaurant sales (1) | 804,791 | | | 747,398 | | | 2,480,062 | | | 2,428,708 | |
System sales (1) | $ | 825,832 |
| | $ | 804,027 |
| | $ | 2,686,656 |
| | $ | 2,672,180 |
| System sales (1) | $ | 887,235 | | | $ | 825,832 | | | $ | 2,742,250 | | | $ | 2,686,656 | |
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(1) | Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees. System sales include company and franchised restaurant sales. We do not record franchised sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchised sales. We believe franchised and system restaurant sales information is useful to investors as they have a direct effect on the Company's profitability. |
(1)Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees. System sales include company and franchised restaurant sales. We do not record franchised sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchised sales. We believe franchised and system restaurant sales information is useful to investors as they have a direct effect on the Company's profitability.
Below is a reconciliation of Non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Net earnings - GAAP | $ | 32,555 | | | $ | 13,189 | | | $ | 51,915 | | | $ | 72,376 | |
(Earnings) losses from discontinued operations, net of taxes | (379) | | | 284 | | | (379) | | | (2,652) | |
Income tax expense (benefit) | 12,432 | | | (2,048) | | | 21,023 | | | 15,699 | |
Interest expense, net | 15,700 | | | 36,494 | | | 51,051 | | | 67,144 | |
Pension settlement charges | 103 | | | — | | | 39,030 | | | — | |
Gains on the sale of company-operated restaurants | (1,050) | | | — | | | (2,625) | | | (219) | |
Impairment and other charges, net | 738 | | | (3,256) | | | (7,837) | | | 5,567 | |
Depreciation and amortization | 12,141 | | | 12,786 | | | 41,151 | | | 42,645 | |
Amortization of franchise tenant improvement allowances and other | 618 | | | 387 | | | 2,383 | | | 1,524 | |
Adjusted EBITDA - Non-GAAP | $ | 72,858 | | | $ | 57,836 | | | $ | 195,712 | | | $ | 202,084 | |
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
Net earnings - GAAP | $ | 13,189 |
|
| $ | 45,307 |
|
| $ | 72,376 |
|
| $ | 105,102 |
|
Losses (earnings) from discontinued operations, net of taxes | 284 |
|
| 2,826 |
|
| (2,652 | ) |
| (19,099 | ) |
Income tax (benefit) expense | (2,048 | ) |
| 17,334 |
|
| 15,699 |
|
| 75,898 |
|
Interest expense, net | 36,494 |
|
| 10,873 |
|
| 67,144 |
|
| 34,066 |
|
Gains on the sale of company-operated restaurants | — |
|
| (28,676 | ) |
| (219 | ) |
| (43,088 | ) |
Impairment and other charges, net | (3,256 | ) |
| 3,265 |
|
| 5,567 |
|
| 10,449 |
|
Depreciation and amortization | 12,786 |
|
| 13,194 |
|
| 42,645 |
|
| 46,306 |
|
Amortization of franchise tenant improvement allowances and other | 387 |
|
| 232 |
|
| 1,524 |
|
| 497 |
|
Adjusted EBITDA - Non-GAAP | $ | 57,836 |
| | $ | 64,355 |
| | $ | 202,084 |
| | $ | 210,131 |
|
Company Restaurant Operations
The following table presents company restaurant sales and costs, and restaurant costs as a percentage of the related sales. Percentages may not add due to rounding (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | | | | | Year-to-date | | | | | | |
| July 5, 2020 | | | | July 7, 2019 | | | | July 5, 2020 | | | | July 7, 2019 | | |
Company restaurant sales | $ | 82,444 | | | | | $ | 78,434 | | | | | $ | 262,188 | | | | | $ | 257,948 | | | |
Company restaurant costs: | | | | | | | | | | | | | | | |
Food and packaging | 24,077 | | | 29.2 | % | | 23,058 | | | 29.4 | % | | 77,662 | | | 29.6 | % | | 74,350 | | | 28.8 | % |
Payroll and employee benefits | 25,085 | | | 30.4 | % | | 23,121 | | | 29.5 | % | | 81,236 | | | 31.0 | % | | 76,163 | | | 29.5 | % |
Occupancy and other | 12,334 | | | 15.0 | % | | 11,052 | | | 14.1 | % | | 40,862 | | | 15.6 | % | | 38,165 | | | 14.8 | % |
Total company restaurant costs | $ | 61,496 | | | 74.6 | % | | $ | 57,231 | | | 73.0 | % | | $ | 199,760 | | | 76.2 | % | | $ | 188,678 | | | 73.1 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
Company restaurant sales | $ | 78,434 |
| | | | $ | 87,574 |
| | | | $ | 257,948 |
| | | | $ | 371,149 |
| | |
Company restaurant costs: | | | | | | | | | | | | | | | |
Food and packaging | 23,058 |
| | 29.4 | % | | 24,946 |
| | 28.5 | % | | 74,350 |
| | 28.8 | % | | 106,448 |
| | 28.7 | % |
Payroll and employee benefits | 23,121 |
| | 29.5 | % | | 24,875 |
| | 28.4 | % | | 76,163 |
| | 29.5 | % | | 106,911 |
| | 28.8 | % |
Occupancy and other | 11,052 |
| | 14.1 | % | | 13,715 |
| | 15.7 | % | | 38,165 |
| | 14.8 | % | | 59,608 |
| | 16.1 | % |
Total company restaurant costs | $ | 57,231 |
| | 73.0 | % | | $ | 63,536 |
| | 72.5 | % | | $ | 188,678 |
| | 73.1 | % | | $ | 272,967 |
| | 73.5 | % |
Company restaurant sales decreased $9.1increased $4.0 million, or 5.1% in the quarter and $113.2$4.2 million, year-to-date as compared withor 1.6% versus a year ago due primarily to increases in the prior year primarily driven by a decrease inaverage check, menu pricing, and the number of companycompany-operated restaurants resultingrelated to the acquisition of eight restaurants from a franchisee during the execution of our refranchising strategysecond quarter, and to a lesser extent,were partially offset by a decreasedecline in traffic, which was more than offset by menu price increases and favorable product mix. The following table presents the approximate impact of these (decreases) increases on company restaurant sales in 2019 (in millions):
|
| | | | | | | |
| Quarter | | Year-to-date |
Decrease in the average number of restaurants | $ | (11.0 | ) | | $ | (116.3 | ) |
AUV increase | 1.9 |
| | 3.1 |
|
Total change in company restaurant sales | $ | (9.1 | ) | | $ | (113.2 | ) |
traffic.Same-store sales at company-operated restaurants increased 2.8%4.1% in the quarter and 1.2% year-to-date as compared with the priorto a year primarily due to menu price increases and favorable product mix, partially offset by a decline in transactions year-to-date.ago. The following table summarizes the change in company-operated same-store salessame store-sales versus a year ago:
| | | Quarter | | Year-to-date | | Quarter | | | Year-to-date | |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 | | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | |
Average check (1) | 2.8 | % | | 2.6 | % | | 3.2 | % | | 2.6 | % | Average check (1) | 20.2 | % | | 2.8 | % | | 9.1 | % | | 3.2 | % | |
Transactions | — | % | | (2.0 | )% | | (2.0 | )% | | (2.1 | )% | Transactions | (16.1) | % | | — | % | | (7.9) | % | | (2.0) | % | |
Change in same-store sales | 2.8 | % | | 0.6 | % | | 1.2 | % | | 0.5 | % | Change in same-store sales | 4.1 | % | | 2.8 | % | | 1.2 | % | | 1.2 | % | |
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(1) | Amounts in 2019 include price increases of approximately 2.3% in the quarter and year-to-date. Amounts in 2018 include price increases of approximately 2.6% in the quarter and 2.2% year-to-date. |
(1)Amounts in 2020 include price increases of approximately 3.0% in the quarter and 2.7% year-to-date. Amounts in 2019 include price increases of approximately 2.3% in the quarter and year-to-date.
Food and packaging costs as a percentage of company restaurant sales decreased to 29.2% in the quarter and increased to 29.6% year-to-date in 2020 compared to 29.4% in the quarter and 28.8% year-to-date in 2019, from 28.5% in2019. In the quarter, menu price increases and 28.7% year-to-datefavorable changes in 2018. The increasesproduct mix were primarily duepartially offset by higher costs for ingredients. Year to date, the impact of higher commodity costs for ingredients and changes in product mix were partially offset by menu price increases. Commodity costs increased in the quarter and year-to-date by 2.9%3.6% and 1.4%4.4%, respectively, compareddue primarily to a year ago. For fiscal 2019, we currently expectincreases in beef in both periods and cheese year-to-date. Beef, our most significant commodity, costs to increase by approximately 2% compared with fiscal 2018.increased 27% in the quarter and 18% year-to-date.
Payroll and employee benefit costs as a percentage of company restaurant sales increased to 30.4% in the quarter and 31.0% year-to-date in 2020 compared with 29.5% in the quarter and year-to-date in 2019, compared with 28.4%due primarily to higher average wages resulting from wage inflation, higher incentive compensation in the quarter, and 28.8% year-to-dateas well as higher costs related to our new emergency paid sick leave program implemented in 2018 primarily dueresponse to wage inflation resulting from an increase in the minimum wage in certain markets and a highly competitive labor market, and a change in mix of restaurants due to refranchising.COVID-19.
Occupancy and other costs decreased $2.7 million in the quarter and $21.4 million year-to-date in 2019 compared to the prior year, primarily due to a decrease in the average number of restaurants, impacting occupancy and other costs by approximately$2.3 million in the quarter and $22.7 million year-to-date. In the quarter and year-to-date, as a percentage of company restaurant sales, occupancyincreased to 15.0% in the quarter and other costs decreased to15.6% year-to-date in 2020 compared with 14.1% in the quarter and 14.8%, respectively, from 15.7% and 16.1% a year ago due primarily to refranchising and lower maintenance costs, partially offset year-to-date in 2019 driven by higher costs for delivery fees, information technology,higher costs for supplies related to COVID-19, and uniforms year-to-date, at the acquisition in 2020 of eight restaurants we continue to operate.with lower than average sales volumes.
Franchise Operations
The following table presents franchise revenues and costs in each period and other information we believe is useful in analyzing the change in franchise operating results (dollars in thousands):
| | | Quarter | | Year-to-date | | Quarter | | | Year-to-date | |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 | | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Franchise rental revenues | $ | 63,359 |
| | $ | 61,622 |
| | $ | 208,895 |
| | $ | 196,682 |
| Franchise rental revenues | $ | 76,021 | | | $ | 63,359 | | | $ | 241,990 | | | $ | 208,895 | |
| | | | | | | | |
Royalties | 38,752 |
| | 36,863 |
| | 125,407 |
| | 118,341 |
| Royalties | 41,537 | | | 38,752 | | | 127,829 | | | 125,407 | |
Franchise fees and other | 1,428 |
| | 1,924 |
| | 5,433 |
| | 6,046 |
| Franchise fees and other | 1,702 | | | 1,428 | | | 5,640 | | | 5,433 | |
Franchise royalties and other | 40,180 |
| | 38,787 |
| | 130,840 |
| | 124,387 |
| Franchise royalties and other | 43,239 | | | 40,180 | | | 133,469 | | | 130,840 | |
Franchise contributions for advertising and other services | 40,386 |
| | — |
| | 131,189 |
| | — |
| Franchise contributions for advertising and other services | 40,571 | | | 40,386 | | | 128,458 | | | 131,189 | |
Total franchise revenues | $ | 143,925 |
| | $ | 100,409 |
| | $ | 470,924 |
| | $ | 321,069 |
| Total franchise revenues | $ | 159,831 | | | $ | 143,925 | | | $ | 503,917 | | | $ | 470,924 | |
| | | | | | | | | | | | | | | |
Franchise occupancy expenses (excluding depreciation and amortization) | $ | 38,371 |
| | $ | 37,401 |
| | $ | 127,702 |
| | $ | 119,987 |
| Franchise occupancy expenses (excluding depreciation and amortization) | $ | 48,612 | | | $ | 38,371 | | | $ | 161,470 | | | $ | 127,702 | |
Franchise support and other costs | 2,695 |
| | 2,829 |
| | 8,337 |
| | 7,894 |
| Franchise support and other costs | 2,692 | | | 2,695 | | | 10,339 | | | 8,337 | |
Franchise advertising and other services expenses | 41,882 |
| | — |
| | 136,397 |
| | — |
| Franchise advertising and other services expenses | 42,176 | | | 41,882 | | | 133,134 | | | 136,397 | |
Total franchise costs | $ | 82,948 |
| | $ | 40,230 |
| | $ | 272,436 |
| | $ | 127,881 |
| Total franchise costs | $ | 93,480 | | | $ | 82,948 | | | $ | 304,943 | | | $ | 272,436 | |
Franchise costs as a percentage of total franchise revenues | 57.6 | % | | 40.1 | % | | 57.9 | % | | 39.8 | % | Franchise costs as a percentage of total franchise revenues | 58.5 | % | | 57.6 | % | | 60.5 | % | | 57.9 | % |
| | | | | | | | |
Average number of franchise restaurants | 2,081 |
| | 2,069 |
| | 2,084 |
| | 2,012 |
| Average number of franchise restaurants | 2,079 | | | 2,081 | | | 2,084 | | | 2,084 | |
% increase | 0.6 | % | | | | 3.6 | % | | | |
Increase in franchise-operated same-store sales | 2.7 | % | | 0.5 | % | | 0.8 | % | | — | % | Increase in franchise-operated same-store sales | 6.9 | % | | 1.5 | % | |
Franchised restaurant sales | $ | 747,398 |
| | $ | 716,453 |
| | $ | 2,428,708 |
| | $ | 2,301,031 |
| Franchised restaurant sales | $ | 804,791 | | | $ | 747,398 | | | $ | 2,480,062 | | | $ | 2,428,708 | |
Franchised restaurant AUVs | $ | 359 |
| | $ | 346 |
| | $ | 1,166 |
| | $ | 1,144 |
| Franchised restaurant AUVs | $ | 387 | | | $ | 359 | | | $ | 1,190 | | | $ | 1,166 | |
Royalties as a percentage of total franchised restaurant sales | 5.2 | % | | 5.1 | % | | 5.2 | % | | 5.1 | % | Royalties as a percentage of total franchised restaurant sales | 5.2 | % | | 5.2 | % | | 5.2 | % | | 5.2 | % |
Franchise rental revenues increased $1.7$12.7 million, or 2.8%,20.0% in the quarter and $12.2$33.1 million, or 6.2%,15.8% year-to-date compared to the prior year, primarily from our adoption of ASC 842, which increased our rental revenues $9.7 million in the quarter and $32.0 million year-to-date, as well as higher percentage rent revenues due to an increase in franchise restaurant sales.
Franchise royalties and other increased $3.1 million, or 7.6% in the number of franchised restaurantsquarter and $2.6 million, or 2.0% year-to-date compared to a lesser extent,the prior year, due primarily to an increase in franchise same-store sales in the quarter. The increase in the number of restaurants leaseddriving royalties higher.
Franchise contributions for advertising and other services revenues increased $0.2 million, or subleased from the Company due to our refranchising strategy, contributed additional rental revenues in 2019 of $0.9 million0.5% in the quarter as a result of $0.7 million higher technology and $12.1sourcing fees, partially offset by $0.5 million year-to-date.
Franchise royalties and other increased $1.4 million, or 3.6%, in the quarter and $6.5 million, or 5.2%, year-to-date primarilylower marketing contributions. Marketing contributions were lower due to a reduction in April marketing fees and was largely offset by an increase in the number of franchise-operated restaurants. Upon adoption of ASC 606 in 2019,marketing contributions due to higher franchise fees are now recognized over the franchise termrestaurant sales compared to upfront recognition in the prior year.
In years prior to 2019,with a year ago. Year-to-date, franchise contributions for advertising and other services were shown net withrevenues decreased $2.7 million, or 2.1%, as a result of $4.9 million lower marketing contributions driven by a decrease in the related disbursements within “Selling, general,contribution percentages; partially offset by $2.2 million higher technology and administrative expenses”sourcing fees as a result of an increase in our condensed consolidated statement of earnings. Upon adoption of ASC 606technology fees in 2019, these revenues and expenses are presented on a gross basis within our consolidated statement of earnings. Refer to Note 2, Revenue, for additional information related to the adoption of this new accounting standard.July 2019.
Franchise occupancy expenses, principally rents, increased $1.0$10.2 million in the quarter and $7.7$33.8 million year-to-date compared to the prior year, due primarily due to a net increase in the average numberadoption of franchise-operated restaurants resulting from our refranchising strategy, contributing additional costs of approximately $1.0ASC 842, which increased franchise occupancy expenses by $9.9 million in the quarter and $7.0$32.7 million year-to-date.
Franchise support and other costs remained flat in the quarter and increased $2.0 million year-to-date compared to the prior year, primarily as a result of an increase in franchisee bad debt expense related to specific franchise situations that occurred in the first quarter of 2020. Franchise advertising and other service expenses increased $0.3 million, or 0.7% in the quarter as a result of higher technology and sourcing costs of $0.8 million; partially offset by lower marketing contributions of $0.5 million. Year-to-date, franchise advertising and other service expenses decreased $3.3 million, or 2.4% compared to the prior year, as a result of lower marketing contributions of $4.9 million, partially offset by an increase in technology and sourcing costs of $1.7 million.
Depreciation and Amortization
Depreciation and amortization decreased by $0.4$0.6 million in the quarter and $3.7$1.5 million year-to-date in 2019 as compared with the prior year, primarily due to a decrease in equipment depreciation driven by a decrease in the average numbercertain of company-operated restaurants resulting from our refranchising activities in 2018. A decline in depreciation resulting from our franchise building assets becoming fully depreciated also contributed toin the decrease.
current fiscal year.
Selling, General and Administrative (“SG&A”) Expenses
The following table presents the change in 20192020 SG&A expenses compared with the prior year (in thousands): |
| | | | | | | |
| Increase / (Decrease) |
| Quarter | | Year-to-date |
Insurance | $ | (5,062 | ) | | $ | (4,542 | ) |
Advertising | (1,956 | ) | | (6,975 | ) |
Technology fees | (1,113 | ) | | (3,676 | ) |
Cash surrender value of COLI policies, net | (979 | ) | | (3,035 | ) |
Region administration | (750 | ) | | (2,601 | ) |
Employee litigation matter | 7,110 |
| | 7,122 |
|
Incentive compensation (including share-based compensation and related payroll taxes) | 5,208 |
| | 786 |
|
Legal fees | 384 |
| | 1,531 |
|
Other (includes transition services income and savings related to our restructuring plan) | 1,876 |
| | (2,879 | ) |
| $ | 4,718 |
|
| $ | (14,269 | ) |
Insurance costs decreased in 2019 as compared to 2018 primarily due to favorable development factors related to prior year workers’ compensation and general liability claims. | | | | | | | | | | | |
| Increase / (Decrease) | | |
| Quarter | | Year-to-date |
Advertising | $ | (68) | | | $ | (2,290) | |
Incentive compensation (including share-based compensation and related payroll taxes) | (2,489) | | | (2,111) | |
Cash surrender value of COLI policies, net | (2,587) | | | 1,128 | |
Litigation matters | (6,982) | | | (1,182) | |
Insurance | 2,553 | | | 1,781 | |
Other (includes transition services income and savings related to our restructuring plan) | (1,136) | | | 2,748 | |
| $ | (10,709) | | | $ | 74 | |
Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales. Advertising costs decreased by $2.0$0.1 million and $7.0 million forin the quarter and $2.3 million year-to-date respectively, primarily due to a decrease in the number of company-operated restaurants compared to the prior year. Additionally,In the quarter, the decrease was driven by a decrease in the contribution percentage, largely offset by higher company-operated restaurant sales. Year-to-date, the decrease was primarily due to a $2.0 million discretionary marketing fund contributionscontribution made by the Company in 2019 that was non-recurring in 2020.
Incentive compensation decreased by $1.5$2.5 million forin the quarter and $1.3$2.1 million year-to-date in 2019.
Upon adoptionprimarily as a result of ASC 606 in 2019, technology fees and costs are recorded on a gross basis within our condensed consolidated statements of earnings within “Franchise contributions from advertising and other services” and “Franchise advertising and other services expenses.”lower achievement levels compared to the prior year for the Company’s annual incentive plan.
The cash surrender value of our Company-ownedcompany-owned life insurance (“COLI”) policies, net of changes in our non-qualified deferred compensation obligation supported by these policies, are subject to market fluctuations. The changes in market values had a positive impact of $1.3 million in the quarter and $2.7 million year-to-date in 2019, compared with a positive impact of $0.3$2.6 million in the quarter and a negative impact of $0.3$1.1 million year-to-date, incompared to the prior year.
Region administrationLitigation matters decreased by $7.0 million in the quarter and $1.2 million year-to-date, primarily due to lower costs decreased in 2019 as compared to 2018 due primarily to workforce reductions related to our refranchising efforts.
Employeeon certain employee litigation matter represents costs recorded in 2019 pertaining to an adverse jury verdict.matters. Refer to Note 13, Contingencies and Legal Matters, of the notes to the condensed consolidated financial statements for additional information regarding these charges.
Incentive compensationInsurance costs increased by $5.2$2.6 million forin the quarter and $0.8$1.8 million year-to-date, based on higher estimated achievement relativeprimarily due to annual targetsless favorable development factors related to workers’ compensation and general liability claims compared to the prior year.
Impairment and Other Charges, Net
Impairment and other charges, net is comprised of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Restructuring costs | $ | 2 | | | $ | (64) | | | $ | 1,165 | | | $ | 6,722 | |
Costs of closed restaurants and other | 890 | | | 2,010 | | | 1,322 | | | 3,259 | |
Gains on disposition of property and equipment, net | (216) | | | (5,618) | | | (10,386) | | | (5,756) | |
Accelerated depreciation | 62 | | | 416 | | | 62 | | | 1,342 | |
| $ | 738 | | | $ | (3,256) | | | $ | (7,837) | | | $ | 5,567 | |
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
Restructuring costs | $ | (64 | ) | | $ | 1,872 |
| | $ | 6,722 |
| | $ | 4,805 |
|
Costs of closed restaurants and other | 2,010 |
| | 378 |
| | 3,259 |
| | 3,483 |
|
Accelerated depreciation | 416 |
| | 538 |
| | 1,342 |
| | 912 |
|
(Gains) losses on disposition of property and equipment, net | (5,618 | ) | | 477 |
| | (5,756 | ) | | 958 |
|
Operating restaurant impairment charges | — |
| | — |
| | — |
| | 291 |
|
| $ | (3,256 | ) | | $ | 3,265 |
| | $ | 5,567 |
| | $ | 10,449 |
|
Restructuring costs decreasedImpairment and other charges, net increased by $1.9$4.0 million in the quarter and increasedcompared to a year ago, driven by $1.9 million year-to-date, primarily due to timinga gain on sale of initiatives and related employee severance costs. Costs of closed restaurants increased by $1.6 million and decreased $0.2 milliona restaurant property in the quarterprior year. Impairment and year-to-date, respectively, due to an increase in costs related to canceled projects, partially offsetother charges, net decreased year-to-date by $13.4 million, as a decrease in closed restaurants costs. Gains on dispositionresult of property and equipment, net, increased by $6.1 million and $6.7 million, respectively, primarily due to a $5.7$10.8 million gain related to athe sale of propertyone of our corporate office buildings in the thirdfirst quarter of 20192020 and a $0.8 million gain related to an eminent domain transaction in the second quarterlower restructuring costs of 2019. Refer to Note 8, $5.6 million.
Impairment and Other Charges, Net
of the notes to the condensed consolidated financial statements for additional information regarding these charges.
Gains on the Sale of Company-Operated Restaurants
In 2020 and 2019, no company-operated restaurants were sold to franchisees. Gains on the sale of company-operated restaurants net is detailed in the following table (dollarsboth periods pertain to meeting certain contingent consideration provisions included in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 |
Number of restaurants sold to franchisees | — |
| | 42 |
| | — |
| | 127 |
|
Gains on the sale of company-operated restaurants | $ | — |
| | $ | 28,676 |
| | $ | 219 |
| | $ | 43,088 |
|
Gains are impacted by the number of restaurants sold and changes in average gains or losses recognized, which primarily relate to the specific sales and cash flows of those restaurants. Gains in 2019 primarily relate to escrow funds released on restaurants sold in previous years.
Other Pension and Post-Retirement Expenses, Net
Other pension and post-retirement expenses, net increased by $1.1 million in the quarter and $39.8 million year-to-date versus the prior years.year, primarily due to non-cash pension settlement charges of $0.1 million in the quarter and $39.0 million year-to-date. Refer to Note 5, 10,Summary of Refranchisings and Franchisee Development Retirement Plans, of the notes to the condensed consolidated financial statements for additional information regarding these gains.charges.
Interest Expense, Net
Interest expense, net is comprised of the following (in thousands):
| | | Quarter | | Year-to-date | | Quarter | | | Year-to-date | |
| July 7, 2019 | | July 8, 2018 | | July 7, 2019 | | July 8, 2018 | | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Interest expense | $ | 36,561 |
| | $ | 11,209 |
| | $ | 67,587 |
| | $ | 34,491 |
| Interest expense | $ | 15,703 | | | $ | 36,561 | | | $ | 51,580 | | | $ | 67,587 | |
Interest income | (67 | ) | | (336 | ) | | (443 | ) | | (425 | ) | Interest income | (3) | | | (67) | | | (529) | | | (443) | |
Interest expense, net | $ | 36,494 |
| | $ | 10,873 |
| | $ | 67,144 |
| | $ | 34,066 |
| Interest expense, net | $ | 15,700 | | | $ | 36,494 | | | $ | 51,051 | | | $ | 67,144 | |
Interest expense, net increased $25.6decreased $20.8 million in the quarter and $33.1$16.1 million year-to-date in 2019 compared with a year ago, primarily due to a charge of $23.6 million fromfor the early termination of our interest rate swaps as well as higher average interest rates which contributed to higherin the prior year quarter. Excluding this impact, interest expense of approximately $1.4increased by $2.8 million and $8.5 million, respectively.
Income Tax (Benefit) Expense
The tax rate in 2019 was (17.9)% in the quarter and 18.4%$7.5 million year-to-date, primarily as a result of higher average debt balances.
Income Tax Expense (Benefit)
The income tax provisions reflect tax rates of 27.9% in the quarter and 29.0% year-to-date, compared with 26.5%to (17.9%) and 46.9%18.4%, respectively, in 2018.fiscal year 2019. The major components of the year-over-year change in tax rates were the non-cash impact of non-recurring activity in fiscal year 2019 including the enactmenttermination of the Tax Act in 2018, a decrease in the statutory tax rate, the impact of our interest rate swap termination,agreements, the release of valuation reserves on state tax credits and losses, and the release of a federal tax liability due to expiration of the statute of limitations. We expectlimitations, and an increase in nondeductible costs resulting from a California Private Attorney General Act lawsuit settled in the fiscal year tax rate to be approximately 20.0%.current year. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2020 rate could differ from our current estimates. Refer to Note 9, Income Taxes, of the notes to the condensed consolidated financial statements for additional information regarding income taxes.
Earnings (Losses) Earnings from Discontinued Operations, Net
As described in Note 3,14, Discontinued OperationsOperation,s, in the notes to condensed consolidated financial statements, the results of operations from our distributionformer Qdoba business and Qdoba havehas been reported as discontinued operations for all periods presented. Refer to Note 314 for additional information regarding discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available financing in place. On July 8, 2019, we completed a refinancing of our existing senior credit facility with a new securitized financing facility, comprised of $1.3 billion of senior fixed-rate term notes and $150 million of variable funding notes as further described below.
We generally reinvest available cash flows from operations to enhance existing restaurants, to reduce debt, to repurchase shares of our common stock, to pay cash dividends, and to develop new restaurants. Our cash requirements consist principally of:
working capital;
capital expenditures for restaurant renovations;
income tax payments;
debt service requirements;
franchise tenant improvement allowance distributions; and
obligations related to our benefit plans.
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with our new securitized financing facility including our variable funding notes, will be sufficient to meet our capital expenditure, working capital and debt service requirements for at least the next twelve months and the foreseeable future.
As is common in the restaurant industry, we generally maintain relatively low levels of accounts receivable and inventories, and our 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. As a result, we may at times maintain current liabilities in excess of current assets, which results in a working capital deficit. We generally reinvest available cash flows from operations to enhance existing restaurants, to reduce debt, to repurchase shares of our common stock, and to pay cash dividends. Our cash requirements consist principally of working capital, capital expenditures, income tax payments, debt service requirements, franchise tenant improvement allowance distributions, dividend payments, and obligations related to our benefit plans.
Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available financing in place. On July 8, 2019, we completed a refinancing of our existing senior credit facility with a new securitized financing facility, comprised of $1.3 billion of senior fixed-rate term notes and $150.0 million of variable funding notes. During the second quarter of fiscal 2020, to secure our liquidity position and provide financial flexibility given the uncertain market conditions, we drew down on our Variable Funding Notes, which provided us $107.9 million of unrestricted cash. As of the end of our third quarter, the Company had $196.9 million of cash and restricted cash on its balance sheet.
In the context of an unprecedented global pandemic, we believe it is prudent to maintain maximum financial flexibility by preserving our capital and maintaining the Company’s healthy liquidity position. As a result, beginning in the second quarter, we have temporarily suspended all repurchase activity and significantly reduced capital expenditures to essential spend only. We also temporarily suspended our dividend payments beginning in the last quarter, which was subsequently reinstated. The reinstatement of the dividend reflects the strong financial health of the Company and our continued commitment to shareholders.
We believe that our cash on hand, cash flow from operations, and the actions taken to mitigate the effects of the COVID-19 pandemic discussed above will provide us with adequate liquidity for the next twelve months and the foreseeable future.
Cash Flows
The table below summarizes our cash flows from continuing operations (in thousands):
| | | Year-to-date | | Year-to-date | |
| July 7, 2019 | | July 8, 2018 | | July 5, 2020 | | July 7, 2019 |
Total cash provided by (used in): | | | | Total cash provided by (used in): | | | |
Operating activities | $ | 116,793 |
| | $ | 59,368 |
| Operating activities | $ | 90,168 | | | $ | 116,793 | |
Investing activities | 950 |
| | 40,793 |
| Investing activities | 29,543 | | | 950 | |
Financing activities | (108,001 | ) | | (386,405 | ) | Financing activities | (74,359) | | | (108,001) | |
Net cash flows | $ | 9,742 |
| | $ | (286,244 | ) | Net cash flows | $ | 45,352 | | | $ | 9,742 | |
Operating ActivitiesActivities.. Operating cash flows in 2019 increased $57.4decreased $26.6 million compared with a year ago, due to favorable changes in working capital of $83.1 million, primarily due to the timinglower collections of payments$23.6 million from rent and spending for advertising expenses ($32.2 million)marketing payment deferrals we provided to our franchisees and lowerhigher income tax and interest payments ($40.5 million),of $6.7 million and $8.4 million, respectively. These decreases were partially offset by lower net income adjusted for non-cash itemsrent payments of $25.6 million.$12.7 million from payment deferrals we received from our landlords.
Pension and Postretirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, 2018,2019, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for our qualified pension plan. We continue to evaluate contributions to our Qualified Plan based on changes in pension assets as a result of asset performance in the current market and the economic environment. We do not anticipate making any contributions to our Qualified Plan in fiscal 2019.2020. In 2019,2020, we contributed $5.1$4.9 million to our non-qualified pension plan and postretirement plans.
Investing Activities. Cash provided by investing activities decreasedincreased by $39.8$28.6 million compared with a year ago, primarily due to lowerhigher proceeds received from the sale and leaseback of company-operated restaurantsassets of $42.4$16.8 million, including repayments of notes issued in connection with 2018 refranchising transactions, partially offset by higher proceeds from the sale of property and equipment of $3.8 million.$15.2 million, and $8.3 million of lower capital expenditure spending, partially offset by $15.2 million of lower repayments received on notes issued in connection with 2018 refranchising transactions.
Capital Expenditures — The composition of capital expenditures in each period follows (in thousands):
| | | | | | | | | | | |
| Year-to-date | | |
| July 5, 2020 | | July 7, 2019 |
Jack in the Box: | | | |
Restaurant facility expenditures | $ | 8,385 | | | $ | 10,734 | |
Purchases of assets intended for sale or sale and leaseback | 417 | | | 4,236 | |
New restaurants | — | | | 701 | |
Other, including information technology | 3,775 | | | 4,438 | |
| 12,577 | | | 20,109 | |
Corporate Services: | | | |
Information technology | 3,370 | | | 4,247 | |
Other, including facility improvements | 789 | | | 685 | |
| 4,159 | | | 4,932 | |
| | | |
Total capital expenditures | $ | 16,736 | | | $ | 25,041 | |
|
| | | | | | | |
| Year-to-date |
| July 7, 2019 | | July 8, 2018 |
Jack in the Box: | | | |
Restaurant facility expenditures | $ | 14,970 |
| | $ | 16,343 |
|
New restaurants | 701 |
| | 723 |
|
Other, including information technology | 8,565 |
| | 5,770 |
|
| 24,236 |
| | 22,836 |
|
Corporate Services: | | | |
Information technology | 120 |
| | 2,773 |
|
Other, including facility improvements | 685 |
| | 121 |
|
| 805 |
| | 2,894 |
|
| | | |
Total capital expenditures | $ | 25,041 |
| | $ | 25,730 |
|
We expect fiscal 2019Our capital expenditure program includes, among other things, restaurant remodeling, information technology enhancements, and investments in new locations and equipment. Capital expenditures decreased by $8.3 million compared to a year ago primarily as a result of the Company reducing capital expenditures to be approximately $30.0 millionessential spend only to $35.0 million, excluding purchases of assets held for sale or leaseback.provide additional liquidity and financial flexibility given the current uncertainty surrounding the pandemic.
Sale leaseback transactions — We use sale and leaseback financing to lower the initial cash investment in our restaurants to the cost of the equipment, whenever possible. On July 25, 2019, the CompanyIn 2020, we completed a $17.3 million purchasesale leaseback transaction of a multi-tenant commercial property on which a company operated restaurant is located. We currently intend to sell this propertyin Los Angeles, California and leaseleased back the parcel on which oura company-operated restaurant is located withinlocated. We received net proceeds of $17.4 million during the next 12 months. Refer to Note 16, Subsequent Events, for further detailsfirst quarter of 2020 on this acquisition.transaction.
In 2020, we also completed the sale of one of our corporate office buildings as we move forward with our previously announced consolidation of our corporate facilities. We entered into a lease with the buyer to leaseback the property for up to a period of 18 months with an option to terminate earlier without penalty, upon providing a 90-day notice. We received net proceeds of $20.6 million on the sale.
Financing Activities. Cash flows used in financing activities decreased $278.4by $33.6 million compared with a year ago, primarily due to a net increase in borrowings under our revolving credit facilities of $130.9 million, lower principal repayments of $25.5 million as a result of our debt recapitalization completed in the prior year, lower dividends paid on common stock of$12.5 million, and lower payments for debt issuance costs of $4.9 million; partially offset by higher stock repurchases of $185.6 million and lower net borrowings of $89.4 million on our senior credit facility.$141.2 million.
Securitized Refinancing TransactionRepurchases of Common Stock — The Company repurchased approximately 1.9 million shares of its common stock in the first quarter of fiscal 2020 at an average price of $81.41 per share for an aggregate cost of $153.5 million. Repurchases of common stock included in our condensed consolidated statement of cash flows for fiscal 2020 includes $2.0 million related to repurchase transactions traded in the prior year that settled in 2020.
This leaves approximately $122.2 million remaining under share repurchase programs authorized by the Company’s Board of Directors, consisting of $22.2 million that expires in November 2020 and approximately $100.0 million that expires in November 2021. As previously announced, we have temporarily paused our share repurchase program and did not buy back any shares in the second or third quarter of 2020.
Dividends — During 2020, the Board of Directors declared two quarterly cash dividends of $0.40 per common share totaling $18.5 million.
Following our second quarter, we announced that our dividend would be temporarily suspended as a result of uncertainty caused by the pandemic. On July 8, 2019,31, 2020, our Board of Directors declared a quarterly cash dividend of $0.40 per common share, to be paid on September 3, 2020 to shareholders of record as of the Company announced that oneclose of business on August 18, 2020. Future dividends are subject to approval by our indirect, limited-purpose subsidiaries (the “Master Issuer”) has completed the saleBoard of $575 million of its Series 2019-1 3.982% Fixed Rate Senior SecuredDirectors.
Class A-2 Notes Class A-2-I (the “Class A-2-I Notes”), $275 million of its Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”), — Interest and $450 million of its Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes” and, together with the Class A-2-I Notes and Class A-2-II Notes, the “2019 Notes”). Interestprincipal payments on the 2019Class A-2 Notes are payable on a quarterly basis. In general, no principal payments will be required if a specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as defined in the Indenture), is less than or equal to 5.0x. The Company’s actual leverage ratio exceeded 5.0x, and as a result, we are required to make quarterly principal payments of $3.25 million. The Company anticipates that we will be required to make quarterly principal payments on the Class A-2 Notes for the foreseeable future.
The legal final maturity date of the Class A-2 Notes is in August 2049, but it is expected that, unless earlier prepaid to the extent permitted under the Indenture, the anticipated repayment dates of the Class A-2-I Notes, the Class A-2-II Notes and the Class A-2-III Notes arewill be August 2023, August 2026 and August 2029, respectively unless earlier prepaid to the extent permitted under the indenture that governs the 2019 Notes. The 2019 Notes were issued by(the “Anticipated Repayment Dates”). If the Master Issuer in a privately placed securitization transaction.
The net proceeds ofhas not repaid or refinanced the sale of the 2019 Notes were used to retire the existing senior credit facility and to repay transaction costs related to the transaction. The Company intends to use remaining proceeds for working capital purposes and general corporate purposes, which may include a return of capital to the Company’s equity holders.
In connection with the issuance of the Series 2019-1 Class A-2 Notes prior to the respective anticipated repayment date, additional interest will accrue pursuant to the Indenture. As of July 5, 2020, $1,293.5 million of borrowings were outstanding on the Class A-2 Notes.
Restricted Cash — In accordance with the terms of the Indenture, certain cash accounts have been established with the Indenture trustee for the benefit of the note holders and are restricted in their use. As of July 5, 2020, the Master Issuer also entered into a revolving financing facilityhad restricted cash of Series 2019-1 Variable Funding Senior Secured Notes,$37.4 million, which primarily represented cash collections and cash reserves held by the trustee to be used for payments of principal, interest and commitment fees required for the Class A-1 (the “Series 2019-1 Class A-1 Notes” and togetherA-2 Notes. During the third quarter, with the Series 2019-1 Class A-2 Notes, the “Series 2019-1 Senior Notes”), which allowsuncertainty surrounding COVID-19 events, and as a cautionary measure, we continued to voluntarily elect to fund cash held in trust for the drawing of up to $150 million under the quarterly interest and principal payments due in November 2020.
Variable Funding Notes which includes a letter of credit facility.— The Series 2019-1 Class A-1Variable Funding Notes were issued under the Indenture and allow for drawings of up to $150.0 million on a revolving basis.
The Series 2019-1 Seniorbasis and the issuance of letters of credit. Depending on the type of borrowing under the Variable Funding Notes, were issuedinterest on the Variable Funding Notes will be based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the London interbank offered rate for U.S. Dollars or (iv) the lenders’ commercial paper funding rate plus any applicable margin, as set forth in the Variable Funding Note Purchase Agreement. There is a privately placed securitization transaction pursuant to which mostscaled commitment fee on the unused portion of the Company’s revenue-generating assets, consisting principallyVariable Funding Notes facility of franchise-related agreements, real estate assets,between 50 and intellectual property100 basis points. It is anticipated that the principal and license agreements forinterest on the use of intellectual property, were contributedVariable Funding Notes will be repaid in full on or otherwise transferredprior to August 2024, subject to two one-year extensions at the Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiariesoption of the Company. Following the anticipated repayment date (and any extensions thereof), additional interest will accrue equal to 5.00% per annum. As of July 5, 2020 and September 29, 2019, $41.1 million and $45.6 million, respectively, of letters of credit were outstanding against the Variable Funding Notes. As of September 29, 2019, we had no outstanding borrowings under our Variable Funding Notes. During the second quarter of 2020, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we borrowed $107.9 million under the Variable Funding Notes. The Company that act as guarantors (the “Guarantors”)may use the proceeds from the borrowings for working capital and general corporate purposes. As of the Series 2019-1 SeniorJuly 5, 2020, remaining borrowing availability under our Variable Funding Notes was $1.1 million. As of July 5, 2020, $107.9 million of borrowings were outstanding under our Variable Funding Notes at a weighted average interest rate of 2.3%.
Covenants and restrictions —The Class A-2 Notes and that have pledged substantially all of their assets (excluding certain real estate assets)the Variable Funding Notes (collectively referred to secureas the Series 2019-1 Senior Notes.
The Series 2019-1 Senior Notes“Notes”) are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Series 2019-1 Senior Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Series 2019-1 Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Series 2019-1 Senior Notes are in stated ways defective or ineffective and (iv) covenants relating to recordkeeping, access to information and similar matters. The Series 2019-1 Senior Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of global gross sales for specified restaurants being below certain levels on certain measurement dates, certain manager termination events, an event of default, and the failure to repay or refinance the Series 2019-1 Class A-2 Notes on the applicable scheduled maturity date. The Series 2019-1 Senior Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the Series 2019-1 Senior Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments.
Repurchases of Common Stock— We did not repurchase any common shares during 2019. As of July 7, 2019, there was approximately $101.0 million remaining under Board-authorized stock-buyback programs which expires5, 2020, we were in November 2019. Repurchasescompliance with all of common stock included in our condensed consolidated statement of cash flows for fiscal 2019 includes $14.4 million related to repurchase transactions traded in the prior fiscal year that settled in 2019.
Dividends — During 2019, the Board of Directors declared three cash dividends of $0.40 per common share totaling $31.2 million. Future dividends aredebt covenant requirements and were not subject to approval by our Board of Directors.any rapid amortization events.
Off-Balance Sheet Arrangements
We have entered into certain off-balance sheet contractual obligations and commitments in the ordinary course of business, which are recognized in our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles. There has been no material change in these arrangements as disclosed in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.29, 2019. We are not a party to any other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
Due to the refinancing of our long-term debt on July 8, 2019, our contractual obligations have changed materially from those previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. The following is a summary of future principal and interest payments under our new securitized debt as of July 8, 2019 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Fiscal Year |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | After 5 years |
Contractual Obligations: | | | | | | | | | | |
Principal payments | | $ | 1,300,000 |
| | $ | 9,750 |
| | $ | 26,000 |
| | $ | 573,688 |
| | $ | 690,562 |
|
Interest payments | | $ | 393,387 |
| | $ | 50,586 |
| | $ | 113,270 |
| | $ | 94,524 |
| | $ | 135,007 |
|
There have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed above.
DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those that we believe are most important for the portrayal of the Company’s financial condition and results, and that require management’s most subjective and complex judgments. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018.29, 2019.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, Basis of Presentation, of the notes to condensed consolidated financial statements.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the federal securities laws.laws, including further impacts that COVID-19 pandemic may have on our future operations. Any statements contained herein that are not historical facts may be deemed to be forward-looking statements. Forward-looking statements may be identified by words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “will,” “would”, “should” and similar expressions. These statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate. These estimates and assumptions involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause our actual results to differ materially from any forward-looking statements include, but are not limited to:
•The potential impacts to our business and operations resulting from the coronavirus COVID-19 pandemic.
•We face significant competition in the food service industry and our inability to compete may adversely affect our business.
•Changes in demographic trends and in customer tastes and preferences could cause sales and the royalties we receive from franchisees to decline.
•Changes in consumer confidence and declines in general economic conditions could negatively impact our financial results.
•Increases in food and commodity costs could decrease our profit margins or result in a modified menu, which could adversely affect our financial results.
Changes in the structure or management of our distribution organization, or failure of our restaurants•Failure to receive scheduled deliveries of high quality food ingredients and other supplies at favorable costs could negatively impact the financial success of our franchise and company restaurants, and could harm our operations promotions and reputation.
•We have a limited number of suppliers for our major products and rely on a distribution network with a limited number of distribution partners for the majority of our national distribution program in the United States. If our suppliers or distributors are unable to fulfill their obligations under their contracts, it could harm our operations.
•Food safety and food-borne illness concerns may have an adverse effect on our business by reducing demand and increasing costs.
•Negative publicity relating to our business or industry could adversely impact our reputation.
•Our business could be adversely affected by increased labor costscosts.
•Inability to attract, train and retain top-performing personnel could adversely impact our financial results or difficulties in finding and retaining top-performing personnel.business.
•We may not have the same resources as our competitors for marketing, advertising and promotion.
•We may be adversely impacted by severe weather conditions, natural disasters, terrorist acts or civil unrest that could result in property damage, injury to employees and staff, and lost restaurant sales.
Our business is subject to seasonal fluctuations.
•We may not achieve our development goals.
•Our highly franchised business model presents a number of risks, and the failure of our franchisees to operate successful and profitable restaurants could negatively impact our business.
•We are subject to financial and regulatory risks associated with our owned and leased properties and real estate development projects.
•Changes to estimates related to our property, fixtures, and equipment or operating results that are lower than our current estimates at certain restaurant locations may cause us to incur impairment charges on certain long-lived assets, which may adversely affect our results of operations.
•Our tax provision may fluctuate due to changes in expected earnings.
•Activities related to our sale of Qdoba, and our refranchising, restructuring, and cost savings initiatives entail various risks and may negatively impact our financial results.
•We are subject to the risk of cybersecurity breaches, intrusions, data loss, or other data security incidents.
•If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, the Company’s stockholders could lose confidence in our financial results, which would harm our business and the value of the Company’s common shares.
•We may not be able to adequately protect our intellectual property, which could harm the value of our brands and adversely affect our business.
•Jack in the Box may be subject to risk associated with disagreements with key stakeholders, such as franchisees.
•The securitized debt instruments issued by certain of our wholly-owned subsidiaries have restrictive terms, and any failure to comply with such terms could result in default, which could harm the value of our brand and adversely affect our business.
•We have a significant amount of debt outstanding that,outstanding. Such indebtedness, along with the other contractual commitments of our Company or its subsidiaries, could adversely affect our business, financial condition and results of operations, as well as the ability or that of certain of our subsidiaries to meet debt obligations, or could otherwise adversely affect our business.payment obligations.
•The securitization transaction documents impose certain restrictions on our activities or the activities of our subsidiaries, and the failure to comply with such restrictions could adversely affect our business.
•Changes in accounting standards may negatively impact our results of operations.
•We are subject to increasing legal complexity and may be subject to claims or lawsuits that are costly to defend and could result in our payment of substantial damages or settlement costs.
•Unionization activities or labor disputes may disrupt our operations and affect our profitability.
•Increasing regulatory and legal complexity may adversely affect restaurant operations and our financial results; including federal, state, and local policies regarding mitigation strategies for controlling the coronavirus COVID-19 pandemic.
•Our insurance may not provide adequate levels of coverage against claims.
•Our quarterly results and, as a result, the price of our common stock, may fluctuate significantly and could fall below the expectations of securities analysts and investors due to various factors.
•The price of our common stock may be adversely affected by investor response to our temporary suspension of our stock repurchase program.
•Activities of activist stockholders could cause us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business.
•Governmental regulation may adversely affect our existing and future operations and results, including by harming our ability to profitably operate our restaurants.
•The proliferation of federal, state, and local regulations increases our compliance risks, which in turn could adversely affect our business.
•Legislation and regulations regarding our products and ingredients, including the nutritional content of our products, could impact customer preferences and negatively impact our financial results.
•Failure to obtain and maintain required licenses and permits or to comply with food control regulations could lead to the loss of our food service licenses and, thereby, harm our business.
Jack in the Box may be subject to risk associated with disagreements with key stakeholders, such as franchisees.
These and other factors are identified and described in more detail in our filings with the Securities and Exchange Commission, including, but not limited to: the “Discussion of Critical Accounting Estimates,” and other sections in this Form 10-Q and the “Risk Factors” section of our most recent Annual Report on Form 10-K for the fiscal year ended September 30, 201829, 2019 (“Form 10-K”). These documents may be read free of charge on the SEC’s website at www.sec.gov. Potential investors are urged to consider these factors, more fully described in our Form 10-K, carefully in evaluating any forward-looking statements, and are cautioned not to place undue reliance on the forward-looking statements. All forward-looking statements are made only as of the date issued, and we do not undertake any obligation to update any forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In connection with the securitized refinancing completed on July 8, 2019, weWe are only exposed to interest rate risk on borrowings under our $150.0Class A-1 Variable Funding Notes, a revolving credit facility, borrowings from which are subject to variable interest rates. In the second quarter of 2020, we borrowed $107.9 million under the variable funding notes. Asnotes, which remains outstanding as of July 8, 2019, we had no5, 2020. Based on outstanding borrowings under our variable funding notes. Our fixed rate securitized debt exposes the Company to changesas of July 5, 2020, an increase or decrease of 100 basis points in market interest rates reflected in the fair value of the debt and to the risk that the Company may need to refinance maturing debt with new debt at a higher rate.would impact our interest expense by approximately $1.1 million on an annualized basis.
We are also exposed to the impact of commodity and utility price fluctuations. Many of the ingredients we use are commodities or ingredients that are affected by the price of other commodities, weather, seasonality, production, availability and various other factors outside our control. In order to minimize the impact of fluctuations in price and availability, we monitor the primary commodities we purchase and may enter into purchasing contracts and pricing arrangements when considered to be advantageous. However, certain commodities remain subject to price fluctuations. We are exposed to the impact of utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs for commodities and utilities through higher prices is limited by the competitive environment in which we operate. We also could experience shortages of key ingredients if our suppliers need to close or restrict operations due to the impact of the COVID-19 pandemic. We have not experienced any material disruptions in our supply chains as of the date of this report.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on an evaluationManagement, under the oversight of the Company’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s quarter ended July 7, 2019, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) have concluded that, evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13-1-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by the Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective.
not effective due to a material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended September 29, 2019.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended July 7, 20195, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Remediation of Material Weakness As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended September 29, 2019, we began implementing a remediation plan to address the material weakness mentioned above. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
PART II. OTHER INFORMATION
There is no information required to be reported for any items under Part II, except as follows:
ITEM 1. LEGAL PROCEEDINGS
See Note 13, Contingencies and Legal Matters, of the notes to the condensed consolidated financial statements for a discussion of our contingencies and legal matters.
ITEM 1A. RISK FACTORS
The risk factors set forth below contain material changes to the risk factors previously disclosed and included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.29, 2019. When evaluating our business and our prospects, you should consider the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018,29, 2019, which we filed with the SEC on November 21, 2018,2019, as updated in this Item 1A. You should also consider the risks and uncertainties discussed under the heading “Cautionary Statements Regarding Forward-Looking Statements” in Item 2 of this Quarterly Report on Form 10-Q. You should also refer to the other information set forth in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018,29, 2019, including our financial statements and the related notes. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the risks or uncertainties actually occurs, our business and financial results could be harmed. In that case, the market price of our common stock could decline.
Jack in the Box may be subjectThe COVID-19 pandemic has disrupted and is expected to risk associated with disagreements with key stakeholders, such as franchisees.continue to disrupt our business, which has affected and could continue to materially affect our operations, financial condition and results of operations for an extended period of time.
In additionThe COVID-19 pandemic outbreak, federal, state and local government responses to its shareholders, Jack in the Box has several key stakeholders, including its independent franchise operators. Third parties such as franchisees are not subjectCOVID-19 and our responses to the controloutbreak have all disrupted and will continue to disrupt our business. In the United States, individuals are being encouraged to practice social distancing, restricted from gathering in groups, and in some areas, placed on complete restriction from non-essential movements outside of the Company and may take actions or behave in ways that are adversetheir homes. In response to the Company. Because the ultimate interestsCOVID-19 outbreak and these changing conditions, we previously announced that all company-owned and franchise-operated restaurants are operating in an off-premise capacity, including drive-thru, third-party delivery and carry-out. We have implemented a number of franchiseessafety procedures, including implementing heightened sanitation requirements, practicing employee social distancing, and the Company are largely aligned around maximizingadhering to glove and mask protocol for all patrons and workers.
Our operating results substantially depend upon our franchisees’ sales volumes, restaurant profits, the Company does not believe that any areasprofitability, and financial stability. The financial impact of disagreement between the companyCOVID-19 has had, and franchisees are likelyis expected to create material riskcontinue to the Company or its shareholders. Nevertheless, it is possible that conflict and disagreements with these or other critical stakeholders could have, a material adverse effect on the Company’s business.
The securitized debt instruments issued by certain of our wholly-owned subsidiaries have restrictive terms, and any failure to comply with such terms could result in default, which could harm the value of our brand and adversely affect our business.
The Series 2019-1 Senior Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Series 2019-1 Senior Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Series 2019-1 Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Series 2019-1 Senior Notes are in stated ways defective or ineffective and (iv) covenants relating to recordkeeping, access to information and similar matters. The Series 2019-1 Senior Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of global gross sales for specified restaurants being below certain levels on certain measurement dates, certain manager termination events, an event of default, and the failure to repay or refinance the Series 2019-1 Class A-2 Notes on the applicable scheduled maturity date. The Series 2019-1 Senior Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the Series 2019-1 Senior Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments.
In the event that a rapid amortization event occurs under the Indenture (including, without limitation, upon an event of default under the Indenture or the failure to repay the securitized debt at the end of the applicable term) which would require repayment of the Series 2019-1 Senior Notes, the funds available to us would be reduced or eliminated, which would in turn reduce our ability to operate and/or grow our business. If our subsidiaries are not able to generate sufficient cash flow to service their debt obligations, they may need to refinance or restructure debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If our subsidiaries are unable to implement one or more of these alternatives, they may not be able to meet debt payment and other obligations which could have a material adverse effect on our franchisees’ liquidity. To ensure financial condition.health of our valued franchise operators, we have reduced marketing fees and postponed collection of these marketing fees, postponed the collection of certain franchisee rental payments and delayed all fiscal 2020 franchise development agreements by at least six months and suspended other required capital investments. To the extent our franchisees experience financial distress, our operating results may be adversely impacted, potentially materially affecting our liquidity, financial condition, or results of operations.
WeAs discussed in this report, we have a significant amount of debt outstanding. Such indebtedness, along withoutstanding and have recently drawn down on our Variable Funding Notes, which provided us $107.9 million of unrestricted cash, to provide additional security to our liquidity position and provide financial flexibility given uncertain market and economic conditions as a result of the other contractual commitments ofCOVID-19 pandemic. A material increase in our Company or its subsidiaries, could adversely affect our business, financial condition and results of operations, as well as the ability of certain of our subsidiaries to meet debt payment obligations.
Under the Indenture, the Master Issuer has $1.3 billion of outstanding debt as of August 7, 2019. Additionally, the Master Issuer has the ability to borrow amounts from time to time on a revolving basis, up to an aggregate principal amount of $150.0 million pursuant to the Series 2019-1 Class A-1 Notes. Under the prior credit facility that was terminated on July 8, 2019, we had outstanding borrowings of $304.4 million under the term loan, $707.4 million under the revolving credit facility, and unused borrowing capacity of $162.7.
This level of debt could have certain material adverse effects on us. If the Company, including but not limited to:
our available cash flowbusiness interruptions caused by COVID-19 last longer than we expect, we may need to seek other sources of liquidity. The COVID-19 outbreak is adversely affecting the availability of liquidity generally in the future to fund working capital, capital expenditures, acquisitions, and general corporate or other purposes could be impaired, and our ability to obtain additional financing for such purposes is limited;
a substantial portion of our cash flows could be required for debt service and, as a result, might not be available for our operations or other purposes;
any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or could force us to modify our operations or sell assets;
our ability to operate our business and our ability to repurchase stock or pay cash dividends to our stockholders may be restricted by the financial and other covenants set forth in the Indenture;
the variable interest rate on the $150 million of Series 2019-1 Class A-1 Notes subjects us to an increased sensitivity to interest rate increases on indebtedness;
our ability to withstand competitive pressures may be decreased; and
our level of indebtedness may make us more vulnerable to economic downturns and reduce our flexibility in responding to changing business, regulatory, and economic conditions.
The ability to meet payment and other obligations under the debt instruments of our subsidiaries depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control as described in our Annual Report on Form 10-K. Our business may not generate cash flow from operations,credit markets, and there can be no assurancesguarantee that future borrowingsadditional liquidity will be readily available or available on favorable terms, especially the longer the COVID-19 outbreak lasts.
Our business could be further disrupted if any of our company or franchised restaurant employees are diagnosed with COVID-19 since this could require us or our franchisees to usquarantine some or all of a restaurant’s employees and disinfect the restaurants facilities. If a significant percentage of our or our franchisees’ workforce is unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in an amount sufficient to enableconnection with COVID-19, our subsidiaries to meetresults may be adversely impacted, potentially materially affecting our debt payment obligations and to fund other liquidity, needs.financial condition, or results of operations.
Our suppliers could be adversely impacted by the COVID-19 outbreak. If our subsidiaries are not able to generate sufficient cash flow to service our debt obligations, our subsidiaries may need to refinance or restructure debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If our subsidiariessuppliers’ employees are unable to implement onework, whether because of illness, quarantine, limitations on travel or moreother government restrictions in connection with COVID-19, we could face cost increases and/or shortages of these alternatives, theyfood items or other supplies across our restaurants and our results could be adversely impacted by such supply interruptions.
The equity markets in the United States have been extremely volatile due to the COVID-19 outbreak and our stock price has fluctuated significantly.
Additional government regulations or legislation as a result of COVID-19 in addition to decisions we have made and may not be ablemake in the future relating to meet debt paymentthe compensation of and other obligations, whichbenefit offerings for our company-operated restaurant team members could also have a materialan adverse effect on our financial condition.
In addition, webusiness. We cannot predict the types of government regulations or legislation that may incur additional indebtedness inbe passed relating to employee compensation as a result of the future. If new debt orCOVID-19 outbreak. We have implemented an emergency paid sick leave program at our company-operated restaurants and taken other liabilities are addedcompensation and benefit actions to support our current consolidated debt levels,restaurant team members during the related risksCOVID-19 business interruption, but those actions may not be sufficient to compensate our team members for the entire duration of any business interruption resulting from COVID-19. Those team members might seek and find other employment during that it now facesinterruption, which could intensify.
The securitization transaction documents impose certain restrictions on our activities or the activities of our subsidiaries, and the failure to comply with such restrictions couldmaterially adversely affect our business.ability to properly staff and reopen our restaurants with experienced team members when the business interruptions caused by COVID-19 abate or end.
The Indenture andCOVID-19 outbreak also may have the management agreement entered into between certaineffect of our subsidiaries and the Indenture trustee (the “Management Agreement”) contain various covenants that limit our and our subsidiaries’ ability to engage in specified types of transactions. For example, the Indenture and the Management Agreement contain covenants that, amongheightening other things, restrict, subject to certain exceptions, the ability of certain subsidiaries to:
incur or guarantee additional indebtedness;
sell certain assets;
alter the business conducted by our subsidiaries;
create or incur liens on certain assets to secure indebtedness; or
consolidate, merge, sell or otherwise dispose of all or substantially all of the assets held within the securitization entities.
As a result of these restrictions, we may not have adequate resources or the flexibility to continue to manage the business and provide for growth of the Jackrisks disclosed in the Box system,Risk Factors section including product developmentin our Form 10-K filed on November 21, 2019, including, but not limited to, those related to consumer confidence, increase in food and marketing for the Jack in the Box brand, which could adversely affect our future growth prospects, financial condition, results of operationscommodity costs, supply chain interruptions, labor availability and liquidity.cost, cybersecurity incidents, increased indebtedness, regulatory and legal complexity, and governmental regulation.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock Repurchases — We havedid not repurchasedrepurchase any shares of our common stock in 2019.the third quarter of 2020. As of July 7, 2019,5, 2020, there was approximately $101.0$22.2 million remaining under the Board-authorized stock-buyback programsstock buyback program which expireexpires in November 2019.2020 and approximately $100.0 million which expires in November 2021.
ITEM 3. DEFAULTS UPONOF SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Effective, August 2, 2019, the Board of Directors approved the Amended and Restated Bylaws of the Company, which were updated to provide for gender-neutral references and to clarify the roles and responsibilities of the position of the President of the Company in the event that the company shall designate a President of the Company.Item 5.03. None.
The foregoing summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the complete copy of the Amended and Restated Bylaws, which has been filed as Exhibit 3.1, hereto and is hereby incorporated herein by reference. Interested parties should read the document in its entirety.
ITEM 6. EXHIBITS
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Number | Description | Form | Filed with SEC |
3.110.2.18* | | —10-Q | Filed herewith |
4.131.1 | | 8-K | 7/8/2019 |
4.2 | Series 2019-1 Supplement to Base Indenture, dated as of July 8, 2019, by and between Jack in the Box Funding, LLC, as Master Issuer of the Series 2019-1 fixed rate senior secured notes, Class A-2, and Series 2019-1 variable funding senior notes, Class A-1, and Citibank, N.A., as Trustee and Series 2019-1 Securities Intermediary.
| 8-K | 7/8/2019 |
10.1 | Class A-1 Note Purchase Agreement, dated as of July 8, 2019, by and among Jack in the Box Funding, LLC, as Master Issuer, each of Different Rules, LLC, Jack in the Box Properties, LLC and Jack in the Box SPV Guarantor, LLC, as Guarantors, Jack in the Box Inc. as Manager, the conduit investors party thereto, the financial institutions party thereto, certain funding agents, and Coöperatieve Rabobank, U.A., New York Branch, as L/C Provider, Swingline Lender and Administrative Agent. | 8-K | 7/8/2019 |
10.1.19 | | 8-K | 5/2/2019 |
10.2 | The Guarantee and Collateral Agreement, dated July 8, 2019, by and among Jack in the Box SPV Guarantor, LLC, Different Rules, LLC, and Jack in the Box Properties, LLC, each as a Guarantor and Citibank, N.A., as Trustee. | 8-K | 7/8/2019 |
10.3 | Management Agreement, dated as of July 8, 2019, by and among Jack in the Box Funding, LLC, as Master Issuer, certain subsidiaries of Jack in the Box Funding, LLC party thereto, Jack in the Box Inc., as Manager, and Citibank, N.A., as Trustee. | 8-K | 7/8/2019 |
31.1 | | — | Filed herewith |
31.2 | | — | Filed herewith |
32.1 | | — | Filed herewith |
32.2 | | — | Filed herewith |
101.INS | XBRL Instance Document | | |
101.SCH | XBRL Taxonomy Extension Schema Document | | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | | |
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* Management contract or compensatory plan | | | |
SIGNATURE
Pursuant to the requirements 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.
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| JACK IN THE BOX INC. | |
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| JACK IN THE BOX INC. |
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| By: | /S/ LANCE TUCKER |
| | Lance Tucker |
| | Executive Vice President and Chief Financial Officer (principal financial officer) (Duly Authorized Signatory)
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Date: August 8, 20195, 2020