UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-Q10-Q/A
_______________________________________________________________________________________
Amendment No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 14, 201312, 2015
Commission File Number: 1-9390
____________________________________________________
JACK IN THE BOX INC.
(Exact name of registrant as specified in its charter)
_______________________________________________________________________________________
|
| | |
DELAWARE | | 95-2698708 |
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
| | |
9330 BALBOA AVENUE, SAN DIEGO, CA | | 92123 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code (858) 571-2121
_______________________________________________________________________________________
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
| | | |
Large accelerated filer | þ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
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 May 10, 2013, 44,480,4898, 2015, 37,380,529 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. | | |
Item 3. | | |
Item 4. | | |
| PART II – OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
| | |
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A to the Jack in the Box Inc. Quarterly Report on Form 10-Q, as originally filed with the Securities and Exchange Commission on May 14, 2015 (the “Original Filing”), is being filed solely to correct the allocation of total depreciation expense by segment noted in a table in Note 14 Segment Reporting of the Notes to Condensed Consolidated Financial Statements included within Item 1. The depreciation amounts for the Qdoba restaurant operations segment and Shared services and allocated costs caption for the quarter and year-to-date 2015 periods were inadvertently transposed in the Original Filing.
Except as described above, no other changes have been made to the Original Filing and this Form 10-Q/A does not does reflect subsequent events that may have occurred since the date of the Original Filing or amend, update or change the financial statements or any other items or disclosures in the Original Filing.
In accordance with Rule 12b-5 under the Securities Exchange Act of 1934, as amended, we have included new certifications from our Chief Executive Officer and Chief Financial Officer dated the date of this Form 10-Q/A.
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
| | | April 14, 2013 | | September 30, 2012 | April 12, 2015 | | September 28, 2014 |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 10,202 |
| | $ | 8,469 |
| $ | 10,386 |
| | $ | 10,578 |
|
Accounts and other receivables, net | 52,185 |
| | 78,798 |
| 69,455 |
| | 50,014 |
|
Inventories | 8,713 |
| | 7,752 |
| 7,335 |
| | 7,481 |
|
Prepaid expenses | 31,992 |
| | 32,821 |
| 29,448 |
| | 36,314 |
|
Deferred income taxes | 26,931 |
| | 26,932 |
| 36,810 |
| | 36,810 |
|
Assets held for sale and leaseback | 39,569 |
| | 45,443 |
| |
Assets of discontinued operations held for sale | — |
| | 30,591 |
| |
Assets held for sale | | 10,505 |
| | 4,766 |
|
Other current assets | 452 |
| | 375 |
| 2,097 |
| | 597 |
|
Total current assets | 170,044 |
| | 231,181 |
| 166,036 |
| | 146,560 |
|
Property and equipment, at cost | 1,543,068 |
| | 1,529,650 |
| 1,508,360 |
| | 1,519,947 |
|
Less accumulated depreciation and amortization | (736,854 | ) | | (708,858 | ) | (812,898 | ) | | (797,818 | ) |
Property and equipment, net | 806,214 |
| | 820,792 |
| 695,462 |
| | 722,129 |
|
Intangible assets, net | | 15,146 |
| | 15,604 |
|
Goodwill | 148,935 |
| | 140,622 |
| 149,042 |
| | 149,074 |
|
Other assets, net | 276,544 |
| | 271,130 |
| 236,717 |
| | 237,298 |
|
| $ | 1,401,737 |
| | $ | 1,463,725 |
| $ | 1,262,403 |
| | $ | 1,270,665 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Current maturities of long-term debt | $ | 20,960 |
| | $ | 15,952 |
| $ | 10,898 |
| | $ | 10,871 |
|
Accounts payable | 24,123 |
| | 94,713 |
| 28,505 |
| | 31,810 |
|
Accrued liabilities | 160,581 |
| | 164,637 |
| 159,633 |
| | 163,626 |
|
Total current liabilities | 205,664 |
| | 275,302 |
| 199,036 |
| | 206,307 |
|
Long-term debt, net of current maturities | 369,728 |
| | 405,276 |
| 592,989 |
| | 497,012 |
|
Other long-term liabilities | 369,667 |
| | 371,202 |
| 307,433 |
| | 309,435 |
|
Stockholders’ equity: | | | | | | |
Preferred stock $0.01 par value, 15,000,000 shares authorized, none issued | — |
| | — |
| — |
| | — |
|
Common stock $0.01 par value, 175,000,000 shares authorized, 77,559,191 and 75,827,894 issued, respectively | 776 |
| | 758 |
| |
Common stock $0.01 par value, 175,000,000 shares authorized, 81,036,074 and 80,127,387 issued, respectively | | 810 |
| | 801 |
|
Capital in excess of par value | 266,500 |
| | 221,100 |
| 395,087 |
| | 356,727 |
|
Retained earnings | 1,154,650 |
| | 1,120,671 |
| 1,288,272 |
| | 1,244,897 |
|
Accumulated other comprehensive loss | (129,344 | ) | | (136,013 | ) | (90,285 | ) | | (90,132 | ) |
Treasury stock, at cost, 33,362,162 and 31,955,606 shares, respectively | (835,904 | ) | | (794,571 | ) | |
Treasury stock, at cost, 43,655,712 and 41,571,752 shares, respectively | | (1,430,939 | ) | | (1,254,382 | ) |
Total stockholders’ equity | 456,678 |
| | 411,945 |
| 162,945 |
| | 257,911 |
|
| $ | 1,401,737 |
| | $ | 1,463,725 |
| $ | 1,262,403 |
| | $ | 1,270,665 |
|
See accompanying notes to condensed consolidated financial statements.
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(InDollars in thousands, except per share data)
(Unaudited)
| | | Quarter | | Year-to-Date | Quarter | | Year-to-date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 | April 12, 2015 | | April 13, 2014 | | April 12, 2015 | | April 13, 2014 |
Revenues: | | | | | | | | | | | | | | |
Company restaurant sales | $ | 277,197 |
| | $ | 290,803 |
| | $ | 637,291 |
| | $ | 654,905 |
| $ | 268,904 |
| | $ | 257,773 |
| | $ | 620,800 |
| | $ | 596,602 |
|
Franchise revenues | 78,426 |
| | 75,681 |
| | 183,855 |
| | 169,500 |
| 89,218 |
| | 83,097 |
| | 205,943 |
| | 194,350 |
|
| 355,623 |
| | 366,484 |
| | 821,146 |
| | 824,405 |
| 358,122 |
| | 340,870 |
| | 826,743 |
| | 790,952 |
|
Operating costs and expenses, net: | | | | | | | | | | | | | | |
Company restaurant costs: | | | | | | | | | | | | | | |
Food and packaging | 90,688 |
| | 94,910 |
| | 206,789 |
| | 217,017 |
| 84,032 |
| | 81,422 |
| | 197,141 |
| | 189,660 |
|
Payroll and employee benefits | 79,620 |
| | 84,566 |
| | 183,684 |
| | 191,377 |
| 73,073 |
| | 71,616 |
| | 168,752 |
| | 165,432 |
|
Occupancy and other | 63,152 |
| | 66,184 |
| | 146,506 |
| | 152,127 |
| 56,468 |
| | 56,998 |
| | 131,499 |
| | 131,707 |
|
Total company restaurant costs | 233,460 |
| | 245,660 |
| | 536,979 |
| | 560,521 |
| 213,573 |
| | 210,036 |
| | 497,392 |
| | 486,799 |
|
Franchise costs | 39,661 |
| | 37,996 |
| | 92,149 |
| | 87,855 |
| 43,059 |
| | 41,996 |
| | 100,200 |
| | 97,507 |
|
Selling, general and administrative expenses | 52,972 |
| | 54,497 |
| | 120,308 |
| | 120,214 |
| 52,472 |
| | 48,660 |
| | 115,567 |
| | 107,816 |
|
Impairment and other charges, net | 2,382 |
| | 5,074 |
| | 5,645 |
| | 9,425 |
| 2,130 |
| | 9,056 |
| | 4,310 |
| | 10,965 |
|
Losses (gains) on the sale of company-operated restaurants | 2,418 |
| | (14,078 | ) | | 1,670 |
| | (15,200 | ) | 5,020 |
| | (1,757 | ) | | 4,170 |
| | (2,218 | ) |
| 330,893 |
| | 329,149 |
| | 756,751 |
| | 762,815 |
| 316,254 |
| | 307,991 |
| | 721,639 |
| | 700,869 |
|
Earnings from operations | 24,730 |
| | 37,335 |
| | 64,395 |
| | 61,590 |
| 41,868 |
| | 32,879 |
| | 105,104 |
| | 90,083 |
|
Interest expense, net | 3,426 |
| | 4,534 |
| | 8,791 |
| | 10,591 |
| 4,220 |
| | 4,311 |
| | 9,433 |
| | 8,853 |
|
Earnings from continuing operations and before income taxes | 21,304 |
| | 32,801 |
| | 55,604 |
| | 50,999 |
| 37,648 |
| | 28,568 |
| | 95,671 |
| | 81,230 |
|
Income taxes | 7,894 |
| | 11,169 |
| | 18,250 |
| | 17,417 |
| 14,286 |
| | 10,304 |
| | 35,211 |
| | 29,956 |
|
Earnings from continuing operations | 13,410 |
| | 21,632 |
| | 37,354 |
| | 33,582 |
| 23,362 |
| | 18,264 |
| | 60,460 |
| | 51,274 |
|
Losses from discontinued operations, net of income tax benefit | (120 | ) | | — |
| | (3,375 | ) | | — |
| (357 | ) | | (2,463 | ) | | (1,620 | ) | | (3,187 | ) |
Net earnings | $ | 13,290 |
| | $ | 21,632 |
| | $ | 33,979 |
| | $ | 33,582 |
| $ | 23,005 |
| | $ | 15,801 |
| | $ | 58,840 |
| | $ | 48,087 |
|
| | | | | | | | | | | | | | |
Net earnings per share - basic: | | | | | | | | | | | | | | |
Earnings from continuing operations | $ | 0.31 |
| | $ | 0.49 |
| | $ | 0.86 |
| | $ | 0.77 |
| $ | 0.62 |
| | $ | 0.44 |
| | $ | 1.58 |
| | $ | 1.22 |
|
Losses from discontinued operations | — |
| | — |
| | (0.08 | ) | | — |
| (0.01 | ) | | (0.06 | ) | | (0.04 | ) | | (0.08 | ) |
Net earnings per share (1) | $ | 0.30 |
| | $ | 0.49 |
| | $ | 0.78 |
| | $ | 0.77 |
| $ | 0.61 |
| | $ | 0.38 |
| | $ | 1.53 |
| | $ | 1.14 |
|
Net earnings per share - diluted: | | | | | | | | | | | | | | |
Earnings from continuing operations | $ | 0.30 |
| | $ | 0.48 |
| | $ | 0.84 |
| | $ | 0.75 |
| $ | 0.61 |
| | $ | 0.43 |
| | $ | 1.55 |
| | $ | 1.18 |
|
Losses from discontinued operations | — |
| | — |
| | (0.08 | ) | | — |
| (0.01 | ) | | (0.06 | ) | | (0.04 | ) | | (0.07 | ) |
Net earnings per share (1) | $ | 0.29 |
| | $ | 0.48 |
| | $ | 0.76 |
| | $ | 0.75 |
| $ | 0.60 |
| | $ | 0.37 |
| | $ | 1.51 |
| | $ | 1.11 |
|
| | | | | | | | | | | | | | |
Weighted-average shares outstanding: | | | | | | | | | | | | | | |
Basic | 43,747 |
| | 43,937 |
| | 43,319 |
| | 43,896 |
| 37,970 |
| | 41,464 |
| | 38,353 |
| | 42,018 |
|
Diluted | 45,274 |
| | 44,911 |
| | 44,736 |
| | 44,775 |
| 38,566 |
| | 42,632 |
| | 39,039 |
| | 43,336 |
|
| | | | | | | | |
Cash dividends declared per common share | | $ | 0.20 |
| | $ | — |
| | $ | 0.40 |
| | $ | — |
|
____________________________
| |
(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
(Dollars in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
| | | | | | | |
Net earnings | $ | 13,290 |
| | $ | 21,632 |
| | $ | 33,979 |
| | $ | 33,582 |
|
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments, net of tax benefit of $1,$0,$1 and $0, respectively | 2 |
| | — |
| | 5 |
| | — |
|
Actuarial losses and prior service cost reclassified to earnings, net of tax benefit of $1,672, $1,146, $3,901 and $2,673, respectively | 2,689 |
| | 1,839 |
| | 6,274 |
| | 4,291 |
|
Cash flow hedges: | | | | | | | |
Change in fair value of derivatives, net of tax expense of $34, $82, $33 and $237, respectively | (60 | ) | | (132 | ) | | (57 | ) | | (382 | ) |
Net loss reclassified to earnings, net of tax benefit of $118, $115, $277 and $268, respectively | 193 |
| | 184 |
| | 447 |
| | 429 |
|
Other comprehensive income | 2,824 |
| | 1,891 |
| | 6,669 |
| | 4,338 |
|
| | | | | | | |
Comprehensive income | $ | 16,114 |
| | $ | 23,523 |
| | $ | 40,648 |
| | $ | 37,920 |
|
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| April 12, 2015 | | April 13, 2014 | | April 12, 2015 | | April 13, 2014 |
Net earnings | $ | 23,005 |
| | $ | 15,801 |
| | $ | 58,840 |
| | $ | 48,087 |
|
Cash flow hedges: | | | | | | | |
Net change in fair value of derivatives | 86 |
| | (31 | ) | | (6,672 | ) | | (85 | ) |
Net loss reclassified to earnings | 468 |
| | 322 |
| | 1,095 |
| | 748 |
|
| 554 |
| | 291 |
| | (5,577 | ) | | 663 |
|
Tax effect | (212 | ) | | (112 | ) | | 2,135 |
| | (254 | ) |
| 342 |
| | 179 |
| | (3,442 | ) | | 409 |
|
Unrecognized periodic benefit costs: | | | | | | | |
Actuarial losses and prior service costs reclassified to earnings | 2,276 |
| | 1,210 |
| | 5,311 |
| | 2,825 |
|
Tax effect | (871 | ) | | (464 | ) | | (2,033 | ) | | (1,084 | ) |
| 1,405 |
| | 746 |
| | 3,278 |
| | 1,741 |
|
Other: | | | | | | | |
Foreign currency translation adjustments | 10 |
| | — |
| | 16 |
| | 7 |
|
Tax effect | (2 | ) | | — |
| | (5 | ) | | (3 | ) |
| 8 |
| | — |
| | 11 |
| | 4 |
|
| | | | | | | |
Other comprehensive income (loss), net of tax | 1,755 |
| | 925 |
| | (153 | ) | | 2,154 |
|
| | | | | | | |
Comprehensive income | $ | 24,760 |
| | $ | 16,726 |
| | $ | 58,687 |
| | $ | 50,241 |
|
See accompanying notes to condensed consolidated financial statements.
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| | | Year-to-Date | Year-to-date |
| April 14, 2013 | | April 15, 2012 | April 12, 2015 | | April 13, 2014 |
Cash flows from operating activities: | | | | | | |
Net earnings | $ | 33,979 |
| | $ | 33,582 |
| $ | 58,840 |
| | $ | 48,087 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 52,590 |
| | 51,874 |
| 47,875 |
| | 49,725 |
|
Deferred finance cost amortization | 1,249 |
| | 1,431 |
| 1,155 |
| | 1,177 |
|
Excess tax benefits from share-based compensation arrangements | | (17,073 | ) | | (12,017 | ) |
Deferred income taxes | 2,536 |
| | (2,560 | ) | (2,785 | ) | | (384 | ) |
Share-based compensation expense | 7,599 |
| | 3,562 |
| 7,367 |
| | 6,348 |
|
Pension and postretirement expense | 16,772 |
| | 14,372 |
| 10,096 |
| | 7,410 |
|
Gains on cash surrender value of company-owned life insurance | (5,669 | ) | | (8,427 | ) | (3,635 | ) | | (3,428 | ) |
Losses (gains) on the sale of company-operated restaurants | 1,670 |
| | (15,200 | ) | 4,170 |
| | (2,218 | ) |
Losses on the disposition of property and equipment | 416 |
| | 2,858 |
| 466 |
| | 594 |
|
Impairment charges and other | 4,828 |
| | 2,109 |
| 2,180 |
| | 8,088 |
|
Loss on early retirement of debt | 939 |
| | — |
| — |
| | 789 |
|
Changes in assets and liabilities, excluding acquisitions and dispositions: | | | | | | |
Accounts and other receivables | 25,227 |
| | (8,680 | ) | (21,841 | ) | | (14,274 | ) |
Inventories | 25,883 |
| | 5,213 |
| 146 |
| | (640 | ) |
Prepaid expenses and other current assets | 751 |
| | (4,627 | ) | 27,181 |
| | (8,746 | ) |
Accounts payable | (32,036 | ) | | (6,178 | ) | (1,459 | ) | | 1,725 |
|
Accrued liabilities | (4,256 | ) | | 6,237 |
| (8,991 | ) | | (13,543 | ) |
Pension and postretirement contributions | (7,052 | ) | | (6,573 | ) | (8,113 | ) | | (7,831 | ) |
Other | (3,821 | ) | | 595 |
| (4,659 | ) | | (9,910 | ) |
Cash flows provided by operating activities | 121,605 |
| | 69,588 |
| 90,920 |
| | 50,952 |
|
Cash flows from investing activities: | | | | | | |
Purchases of property and equipment | (41,754 | ) | | (40,609 | ) | (32,959 | ) | | (31,196 | ) |
Purchases of assets intended for sale and leaseback | (25,165 | ) | | (22,000 | ) | (5,355 | ) | | (19 | ) |
Proceeds from sale and leaseback of assets | 22,892 |
| | 9,312 |
| |
Proceeds from the sale of assets | | — |
| | 2,105 |
|
Proceeds from the sale of company-operated restaurants | 2,866 |
| | 21,964 |
| 2,630 |
| | 7,842 |
|
Collections on notes receivable | 2,987 |
| | 9,669 |
| 5,314 |
| | 1,774 |
|
Disbursements for loans to franchisees | — |
| | (3,977 | ) | |
Acquisitions of franchise-operated restaurants | (11,014 | ) | | (39,195 | ) | — |
| | (1,750 | ) |
Other | 3,694 |
| | 244 |
| 1,786 |
| | 36 |
|
Cash flows used in investing activities | (45,494 | ) | | (64,592 | ) | (28,584 | ) | | (21,208 | ) |
Cash flows from financing activities: | | | | | | |
Borrowings on revolving credit facilities | 479,000 |
| | 333,020 |
| 264,000 |
| | 509,000 |
|
Repayments of borrowings on revolving credit facilities | (539,000 | ) | | (308,324 | ) | (160,000 | ) | | (379,000 | ) |
Proceeds from issuance of debt | 200,000 |
| | — |
| — |
| | 200,000 |
|
Principal repayments on debt | (170,540 | ) | | (10,662 | ) | (7,996 | ) | | (190,549 | ) |
Debt issuance costs | (4,392 | ) | | (741 | ) | — |
| | (3,527 | ) |
Dividends paid on common stock | | (15,395 | ) | | — |
|
Proceeds from issuance of common stock | 37,113 |
| | 2,015 |
| 13,894 |
| | 22,457 |
|
Repurchases of common stock | (40,465 | ) | | (6,901 | ) | (174,115 | ) | | (205,453 | ) |
Excess tax benefits from share-based compensation arrangements | 599 |
| | 287 |
| 17,073 |
| | 12,017 |
|
Change in book overdraft | (36,693 | ) | | (13,806 | ) | — |
| | 4,774 |
|
Cash flows used in financing activities | (74,378 | ) | | (5,112 | ) | (62,539 | ) | | (30,281 | ) |
Net increase (decrease) in cash and cash equivalents | 1,733 |
| | (116 | ) | |
Effect of exchange rate changes on cash and cash equivalents | | 11 |
| | 5 |
|
Net decrease in cash and cash equivalents | | (192 | ) | | (532 | ) |
Cash and cash equivalents at beginning of period | 8,469 |
| | 11,424 |
| 10,578 |
| | 9,644 |
|
Cash and cash equivalents at end of period | $ | 10,202 |
| | $ | 11,308 |
| $ | 10,386 |
| | $ | 9,112 |
|
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 and Qdoba Mexican Grill® (“Qdoba”) fast-casual restaurants. The following table summarizes the number of restaurants as of the end of each period:
| | | April 14, 2013 | | April 15, 2012 | April 12, 2015 | | April 13, 2014 |
Jack in the Box: | | | | | | |
Company-operated | 546 |
| | 601 |
| 412 |
| | 455 |
|
Franchise | 1,710 |
| | 1,641 |
| 1,836 |
| | 1,799 |
|
Total system | 2,256 |
| | 2,242 |
| 2,248 |
| | 2,254 |
|
Qdoba: | | | | | | |
Company-operated | 340 |
| | 289 |
| 310 |
| | 303 |
|
Franchise | 307 |
| | 316 |
| 334 |
| | 323 |
|
Total system | 647 |
| | 605 |
| 644 |
| | 626 |
|
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 and the rules and regulations of the Securities and Exchange Commission (“SEC”). During fiscal 2012, we entered into an agreement to outsource our Jack in the Box distribution business. As such,In the third quarter of fiscal 2013, we closed 62 Qdoba restaurants (the “2013 Qdoba Closures”) as part of a comprehensive Qdoba market performance review. The results of operations for our distribution business and for all periods presentedthe 2013 Qdoba Closures are reported as discontinued operations.operations for all periods presented. Refer to Note 2, 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.
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, 201228, 2014. The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our Form 10-K.10-K with the exception of new accounting pronouncements adopted in fiscal 2015 which are described below.
Principles of consolidation — The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the accounts of any variable interest entities (“VIEs”) where we are deemed the primary beneficiary. All significant intercompany accounts and transactions are eliminated. For information related to the VIE included in our condensed consolidated financial statements, refer to Note 13,12, Variable Interest Entities.
Reclassifications and adjustments — Certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform to the fiscal 2015 presentation.
Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 20132015 and 20122014 include 52 weeks. Our first quarter includes 16 weeks and all other quarters include 12 weeks. All comparisons between 20132015 and 20122014 refer to the 12-weeks (“quarter”) and 28-weeks (“year-to-date”) ended April 14, 201312, 2015 and April 15, 201213, 2014, respectively, unless otherwise indicated.
Use of estimates — In preparing the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles, 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.
Effect of new accounting pronouncements — In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which modifies the definition of discontinued operations to include only disposals of an entity that represent strategic shifts that have or will have a major effect on an entity's operations and financial results. This ASU also expands the disclosure requirements for disposals which meet the definition of a discontinued operation and requires entities to
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. The standard is effective prospectively for annual and interim periods beginning after December 15, 2014, with early adoption permitted. We early adopted this standard on September 29, 2014. This pronouncement did not have a material impact on our condensed consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides a comprehensive new revenue recognition model that requires a company to recognize revenue in an amount that reflects the consideration it expects to receive for the transfer of promised goods or services to its customers. The standard also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This ASU is effective for annual periods and interim periods beginning after December 15, 2016. The ASU is to be applied retrospectively or using a cumulative effect transition method and early adoption is not permitted. In April 2015, the FASB proposed a deferral of this ASU's effective date by one year, to December 15, 2017. The proposed deferral allows early adoption at the original effective date. We are currently evaluating the effect that this pronouncement will have on our consolidated financial statements and related disclosures.
In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments when the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which requires a reporting entity to treat a performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. This standard is to be applied prospectively for annual and interim periods beginning after December 15, 2015, with early adoption permitted. We early adopted this standard on September 29, 2014. This pronouncement did not have a material impact on our condensed consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. Under this ASU, an entity presents such costs on the balance sheet as a direct deduction from the related debt liability rather than as an asset. This new standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with early adoption permitted. We do not plan to adopt this standard early and do not expect that it will have a material impact on our consolidated financial statements or disclosures upon adoption.
In April 2015, the FASB issued ASU 2015-04, Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets, which provides a practical expedient that permits a company to measure defined benefit plan assets and obligations using the month-end date that is closest to the company's fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if the company has more than one plan. This ASU is effective prospectively for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. We do not expect this standard to have a material impact our consolidated financial statements upon adoption.
| |
2. | DISCONTINUED OPERATIONS |
Distribution business — During fiscal 2012, we entered into an agreement with a third party distribution service provider pursuant to a Board-approved plan approved by our board of directors to sell our Jack in the Box distribution business. During the first quarter of fiscal 2013, we completed the transition of our distribution centers. The distribution business assets sold in the transaction are classified as assets of discontinued operations in the condensed consolidated balance sheet as of September 30, 2012. The operations and cash flows of the business have been eliminated and in accordance with the provisions of the Accounting Standards Codification (“ASC”) 360,ASC 205, Property, Plant, and EquipmentPresentation of Financial Statements, the results are reported as discontinued operations for all periods presented.
We recognized operating losses before taxes of $0.1 million in both periods of 2015, and $0.1 million and $0.7 million in the quarter and year-to-date, respectively, in 2014. Year-to-date, operating losses before taxes include $0.1 million and $0.2 million in 2015 and 2014, respectively, related to our lease commitments, and $0.4 million in 2014 related to insurance settlements.
Our liability for lease commitments related to our distribution centers is included in accrued liabilities and other long-term liabilities, and was $0.3 million and $0.5 million as of April 12, 2015 and September 28, 2014, respectively. The lease commitment balance as of April 12, 2015 relates to one distribution center subleased at a loss.
2013 Qdoba Closures — During the third quarter of fiscal 2013, we closed 62 Qdoba restaurants. The decision to close these restaurants was based on a comprehensive analysis that took into consideration levels of return on investment and other key operating performance metrics. Since the closed locations were not predominantly located near those remaining in operation, we did not expect the majority of cash flows and sales lost from these closures to be recovered. In addition, we did not anticipate any ongoing involvement or significant direct cash flows from the closed stores. Therefore, in accordance with the provisions of ASC 205, Presentation of Financial Statements, the results of operations for these restaurants are reported as discontinued operations for all periods presented. In the quarter and year-to-date periods, we recognized operating losses before income taxes of $0.5 million and $2.5 million, respectively, in 2015, and $3.8 million and $4.4 million, respectively, in 2014.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AsIn 2015, the year-to-date operating losses include $2.2 million of April 14, 2013, there were no assets or liabilities classified as heldunfavorable lease commitment adjustments, $0.2 million of ongoing facility related costs and $0.1 million of broker commissions. In 2014, the year-to-date operating losses include $3.0 million of unfavorable lease commitment adjustments, $0.4 million for saleasset impairments, $0.6 million of ongoing facility related costs and $0.3 million of broker commissions. We do not expect the remaining costs to be incurred related to these closures to be material; however, the estimates we make related to our distribution business. The followingfuture lease obligations, primarily sublease income, 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.
Our liability for lease commitments related to the 2013 Qdoba Closures is a summary of our distribution business assets held for saleincluded in accrued liabilities and other long-term liabilities and changed as of September 30, 2012follows in 2015 (in thousands):
|
| | | |
Inventories | $ | 26,844 |
|
Property and equipment, net | 3,747 |
|
Total assets of discontinued operations | $ | 30,591 |
|
|
| | | | |
| | Year-to-date |
Balance as of September 28, 2014 | | $ | 5,737 |
|
Adjustments | | 2,185 |
|
Cash payments | | (4,060 | ) |
Balance as of April 12, 2015 | | $ | 3,862 |
|
The following is a summary of our distribution business operating results, which are includedAdjustments primarily relate to revisions to certain sublease and cost assumptions due to changes in discontinued operationsmarket conditions as well as charges to terminate four lease agreements. These amounts were partially offset by favorable adjustments for each period (in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Revenue | $ | — |
| | $ | 140,146 |
| | $ | 37,743 |
| | $ | 334,940 |
|
Operating loss before income tax benefit | $ | (175 | ) | | $ | — |
| | $ | (5,437 | ) | | $ | — |
|
The loss on the sale of the distribution business was not material to our results of operations. The operating loss in 2013 includes $1.9 million for accelerated depreciation of a long-lived asset disposed of upon completion of the transaction, $2.1 million for future lease commitments and $1.2 million primarily related to costs incurred to exit certain vendor contracts. Our liability for lease commitments related to our distribution centers is included in other long-term debt and has changed during 2013 as follows (in thousands):
|
| | | | | | | |
| Quarter | | Year-to-Date |
Balance at beginning of period | $ | 2,277 |
| | $ | 697 |
|
Additions and adjustments | 185 |
| | 2,054 |
|
Cash payments | (346 | ) | | (635 | ) |
Balance at end of quarter | $ | 2,116 |
| | $ | 2,116 |
|
locations that we have subleased.
New Credit Facility — On November 5, 2012, the Company refinanced its former credit facility and entered into an amended and restated credit agreement. The new credit facility is comprised of (i) a $400.0 million revolving credit facility and (ii) a $200.0 million term loan facility. The interest rate on the new credit facility is based on the Company’s leverage ratio and can range from London Interbank Offered Rate (“LIBOR”) plus 1.75% to 2.25% with no floor. The initial interest rate was LIBOR plus 2.00%. The revolving credit facility and the term loan facility both have maturity dates of November 5, 2017. As part of the credit agreement, we could also request the issuance of up to $75.0 million in letters of credit, the outstanding amount of which reduces our net borrowing capacity under the agreement.
Use of proceeds — The Company borrowed $200.0 million under the new term loan and approximately $220.0 million under the new revolving credit facility. The proceeds from the refinancing transaction were used to repay all borrowings under the former facility and to pay related transaction fees and expenses associated with the refinance of the facility, and will also be available for permitted share repurchases, permitted dividends, permitted acquisitions, ongoing working capital requirements and other general corporate purposes. At April 14, 2013, we had borrowings under the revolving credit facility of $190.0 million, $195.0 million outstanding under the term loan and letters of credit outstanding of $30.9 million.
Collateral — The Company’s obligations under the new credit facility are secured by first priority liens and security interests in the capital stock, partnership, and membership interests owned by the Company and/or its subsidiaries, and any proceeds thereof, subject to certain restrictions. Additionally, there is a negative pledge on all tangible and intangible assets (including all real and personal property), with customary exceptions.
Covenants — We are subject to a number of customary covenants under our new credit facility, including limitations on additional borrowings, acquisitions, loans to franchisees, capital expenditures, lease commitments, stock repurchases and dividend payments, and requirements to maintain certain financial ratios defined in the credit agreement.
Repayments — The term loan requires amortization in the form of quarterly installments of $5.0 million that began in March 2013. We are required to make certain mandatory prepayments under certain circumstances and we have the option to make certain prepayments without premium or penalty. The new credit facility includes events of default (and related remedies, including acceleration and increased interest rates following an event of default) that are customary for facilities and transactions of this type.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4.3. | SUMMARY OF REFRANCHISINGS, FRANCHISEFRANCHISEE DEVELOPMENT AND ACQUISITIONS |
Refranchisings and franchisefranchisee development — The following is a summary of the number of Jack in the Box restaurants sold to franchisees, the number of restaurants developed by franchisees and the related gains or losses and fees recognized (dollars in thousands):
| | | Quarter | | Year-to-Date | Quarter | | Year-to-date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 | April 12, 2015 | | April 13, 2014 | | April 12, 2015 | | April 13, 2014 |
Restaurants sold to franchisees | 4 |
| | 37 |
| | 4 |
| | 37 |
| |
Restaurants sold to Jack in the Box franchisees | | 20 |
| | 14 |
| | 21 |
| | 14 |
|
New restaurants opened by franchisees | 9 |
| | 9 |
| | 29 |
| | 29 |
| 10 |
| | 6 |
| | 22 |
| | 19 |
|
| | | | | | | | | | | | | | |
Initial franchise fees | $ | 389 |
| | $ | 1,770 |
| | $ | 1,035 |
| | $ | 2,490 |
| $ | 608 |
| | $ | 755 |
| | $ | 983 |
| | $ | 1,154 |
|
| | | | | | | | | | | | | | |
Proceeds from the sale of company-operated restaurants (1) | $ | 2,033 |
| | $ | 20,715 |
| | $ | 2,866 |
| | $ | 21,964 |
| $ | 1,456 |
| | $ | 7,374 |
| | $ | 2,630 |
| | $ | 7,842 |
|
Net assets sold (primarily property and equipment) | (1,635 | ) | | (5,754 | ) | | (1,720 | ) | | (5,833 | ) | (1,945 | ) | | (2,240 | ) | | (2,434 | ) | | (2,240 | ) |
Goodwill related to the sale of company-operated restaurants | (67 | ) | | (604 | ) | | (67 | ) | | (652 | ) | (16 | ) | | (120 | ) | | (32 | ) | | (129 | ) |
Other(2) | — |
| | (279 | ) | | — |
| | (279 | ) | (4,515 | ) | | (142 | ) | | (4,334 | ) | | (140 | ) |
Gains on the sale of company-operated restaurants (1) | 331 |
| | 14,078 |
| | 1,079 |
| | 15,200 |
| |
(Losses) gains on the sale of company-operated restaurants | | $ | (5,020 | ) | | $ | 4,872 |
| | $ | (4,170 | ) | | $ | 5,333 |
|
| | | | | | | | | | | | | | |
Loss on anticipated sale of Jack in the Box company-operated market | (2,749 | ) | | — |
| | (2,749 | ) | | — |
| |
Losses on expected sale of Jack in the box company-operated markets (3) | | — |
| | (3,115 | ) | | — |
| | (3,115 | ) |
| | | | | | | | | | | | | | |
Total gains (losses) on the sale of company-operated restaurants | $ | (2,418 | ) | | $ | 14,078 |
| | $ | (1,670 | ) | | $ | 15,200 |
| |
Total (losses) gains on the sale of company-operated restaurants | | $ | (5,020 | ) | | $ | 1,757 |
| | $ | (4,170 | ) | | $ | 2,218 |
|
____________________________
| |
(1) | Amounts in 20132015 and 20122014 include additional proceeds and gains recognized upon the extension of the underlying franchise and lease agreements related to restaurants sold in a prior year of $0.2$0.0 million and $0.9$0.7 million,, respectively, in the quarter, and $1.0$0.1 million and $2.1$1.2 million,, respectively, year-to-date. |
| |
(2) | Amounts in 2015 include lease commitment charges related to restaurants closed in connection with the sale of the related market, and charges for operating restaurant leases with lease commitments in excess of our sublease rental income. |
| |
(3) | Amounts in 2014 relate to losses on the expected sale of approximately 30 company-operated restaurants in two Jack in the Box markets sold in the fourth quarter of 2014 and the second quarter of 2015. |
Franchise acquisitions — During 2013 and 2012,In 2015, we acquired 12 and 36 Qdoba franchise restaurants, respectively, in select markets where we believe there is continued opportunity for restaurant development. Additionally, in 2013 we exercised our right of first refusal and acquired onesix Jack in the Box franchise restaurant.restaurants in one market, and during 2014 we repurchased four Jack in the Box franchise restaurants in another market. 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 relatesAcquisitions were not material to the sales growth potential of the locations acquired. The following table provides detail of the combined allocationsour condensed consolidated financial statements in each year-to-date period (either year.dollars in thousands):
|
| | | | | | | | | | | | | | | |
| April 14, 2013 | | April 15, 2012 |
| Qdoba | | Jack in the Box | | Total | | Qdoba |
Restaurants acquired from franchisees | 12 |
| | 1 |
| | 13 |
| | 36 |
|
| | | | | | | |
Property and equipment | $ | 2,632 |
| | $ | 145 |
| | $ | 2,777 |
| | $ | 9,559 |
|
Reacquired franchise rights | 106 |
| | 34 |
| | 140 |
| | 461 |
|
Liabilities assumed | (281 | ) | | (2 | ) | | (283 | ) | | (108 | ) |
Goodwill | 7,207 |
| | 1,173 |
| | 8,380 |
| | 29,283 |
|
Total consideration | $ | 9,664 |
| | $ | 1,350 |
| | $ | 11,014 |
| | $ | 39,195 |
|
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5.4. | FAIR VALUE MEASUREMENTS |
Financial assets and liabilities — The following table presents the financial assets and liabilities measured at fair value on a recurring basis at the end of each period (in thousands):
| | | Total | | Quoted Prices in Active Markets for Identical Assets (3) (Level 1) | | Significant Other Observable Inputs (3) (Level 2) | | Significant Unobservable Inputs (Level 3) | Total | | Quoted Prices in Active Markets for Identical Assets (3) (Level 1) | | Significant Other Observable Inputs (3) (Level 2) | | Significant Unobservable Inputs (Level 3) |
Fair value measurements as of April 14, 2013: | | | | | | | | |
Fair value measurements as of April 12, 2015: | | | | | | | | |
Non-qualified deferred compensation plan (1) | $ | (39,656 | ) | | $ | (39,656 | ) | | $ | — |
| | $ | — |
| $ | (37,701 | ) | | $ | (37,701 | ) | | $ | — |
| | $ | — |
|
Interest rate swaps (Note 6) (2) | (1,799 | ) | | — |
| | (1,799 | ) | | — |
| |
Interest rate swaps (Note 5) (2) | | (7,366 | ) | | — |
| | (7,366 | ) | | — |
|
Total liabilities at fair value | $ | (41,455 | ) | | $ | (39,656 | ) | | $ | (1,799 | ) | | $ | — |
| $ | (45,067 | ) | | $ | (37,701 | ) | | $ | (7,366 | ) | | $ | — |
|
Fair value measurements as of September 30, 2012: | | | | | | | | |
Fair value measurements as of September 28, 2014: | | | | | | | | |
Non-qualified deferred compensation plan (1) | $ | (38,537 | ) | | $ | (38,537 | ) | | $ | — |
| | $ | — |
| $ | (35,602 | ) | | $ | (35,602 | ) | | $ | — |
| | $ | — |
|
Interest rate swaps (Note 6) (2) | (2,433 | ) | | — |
| | (2,433 | ) | | — |
| |
Interest rate swaps (Note 5) (2) | | (1,789 | ) | | — |
| | (1,789 | ) | | — |
|
Total liabilities at fair value | $ | (40,970 | ) | | $ | (38,537 | ) | | $ | (2,433 | ) | | $ | — |
| $ | (37,391 | ) | | $ | (35,602 | ) | | $ | (1,789 | ) | | $ | — |
|
____________________________
| |
(1) | We maintain an unfunded defined contribution plan for key executives and other members of management excluded from participation in our qualified savings plan. The fair value of this obligation is based on the closing market prices of the participants’ elected investments. |
| |
(2) | We entered into interest rate swaps to reduce our exposure to rising interest rates on our variable debt. The fair values of our interest rate swaps are based upon Level 2 inputs which include valuation models as reported by our counterparties. The key inputs for the valuation models are quoted market prices, interest rates and forward yield curves. |
| |
(3) | We did not have any transfers in or out of Level 1 or Level 2. |
The fair values of the Company’sour debt instruments are based on the amount of future cash flows associated with each instrument discounted using the Company’sour borrowing rate. At April 14, 201312, 2015, the carrying valuesvalue of the credit facility obligations wereall 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 April 14, 201312, 2015.
Non-financial assets and liabilities — The Company’sOur non-financial instruments, which primarily consist of property and equipment, 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 a periodic basis (at least annually for goodwill and intangible assets, and semi-annually for property and equipment) 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.
The following table presents non-financial assets and liabilities measured atIn connection with our impairment reviews performed during 2015, no material fair value on a non-reoccurring basis during fiscal 2013 (in thousands):
|
| | | | | | | | |
| | Fair Value Measurement | | Impairment Charges |
Long-lived assets held and used | | $ | 300 |
| | $ | 2,878 |
|
Long-lived assets held for sale | | $ | 100 |
| | 2,657 |
|
Long-lived assets held and used consist primarily of Jack in the Box restaurants determined to be underperforming or which we intend to close. To determine fair value, we used the income approach, which assumes that the future cash flows reflect current market expectations. The future cash flows are generally based on the assumption that the highest and best use of the asset is to sell the store to a franchisee (market participant). These fair value measurements require significant judgment using Level 3 inputs, such as discounted cash flows, which are not observable from the market, directly or indirectly.adjustments were required. Refer to Note 7,6, Impairment Disposition of Property and Equipment, Restaurant Closing Costs and Restructuring,Other Charges, Net for additional information regarding impairment charges.
Long-lived assets held for sale were written down to fair value less costs to sell and primarily relate to the anticipated sale of a Jack in the Box company-operated market.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
6.5. | DERIVATIVE INSTRUMENTS |
Objectives and strategies — We are exposed to interest rate volatility relatedwith regard to our variable rate debt. To reduce our exposure to rising interest rates, in August 2010, we entered into two interest rate swap agreements that effectively convert the firstconverted $100.0 million of our variable rate term loan borrowings to a fixed-rate basis from September 2011 through September 2014. In April 2014, we entered into nine forward-starting interest rate swap agreements that effectively convert $300.0 million of our variable rate borrowings to a fixed rate basis from October 2014 through October 2018. These agreements have been designated as cash flow hedges.hedges under the terms of the FASB authoritative guidance for derivatives and hedging. To the extent that they are effective in offsetting the variability of the hedged cash flows, changes in the fair values of the derivatives are not included in earnings, but are included in other comprehensive income (“OCI”). These changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are made on our term debt.
Financial position — The following derivative instruments were outstanding as of the end of each period (in thousands):
| | | April 14, 2013 | | September 30, 2012 | April 12, 2015 | | September 28, 2014 |
| Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Derivatives designated as hedging instruments: | | | | | | | | |
Interest rate swaps (Note 5) | Accrued liabilities | | $ | (1,799 | ) | | Accrued liabilities | | $ | (2,433 | ) | |
Interest rate swaps (Note 4) | | Accrued liabilities | | $ | (7,366 | ) | | Accrued liabilities | | $ | (1,789 | ) |
Total derivatives | | $ | (1,799 | ) | | $ | (2,433 | ) | | $ | (7,366 | ) | | $ | (1,789 | ) |
Financial performance — The following is a summary of the accumulated other comprehensive income (“OCI”) gain or lossOCI activity related to our interest rate swap derivative instruments (in thousands):
|
| | | | | | | | | | | | | | | | | |
| Location of Loss in Income | | Quarter | | Year-to-Date |
| | April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Loss recognized in OCI | N/A | | $ | (94 | ) | | $ | (214 | ) | | $ | (90 | ) | | $ | (619 | ) |
Loss reclassified from accumulated OCI into income | Interest expense, net | | $ | (311 | ) | | $ | (299 | ) | | $ | (724 | ) | | $ | (697 | ) |
|
| | | | | | | | | | | | | | | | | |
| Location of Loss in Income | | Quarter | | Year-to-date |
| | April 12, 2015 | | April 13, 2014 | | April 12, 2015 | | April 13, 2014 |
Gain (loss) recognized in OCI | N/A | | $ | 86 |
| | $ | (31 | ) | | $ | (6,672 | ) | | $ | (85 | ) |
Loss reclassified from accumulated OCI into net earnings | Interest expense, net | | $ | (468 | ) | | $ | (322 | ) | | $ | (1,095 | ) | | $ | (748 | ) |
Amounts reclassified from accumulated OCI into interest expense represent payments made to the counterpartycounterparties for the effective portions of the interest rate swaps. During the periods presented, our interest rate swaps had no hedge ineffectiveness.
| |
7.6. | IMPAIRMENT DISPOSITION OF PROPERTY AND EQUIPMENT, RESTAURANT CLOSING COSTS AND RESTRUCTURINGOTHER 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 | Quarter | | Year-to-date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 | April 12, 2015 | | April 13, 2014 | | April 12, 2015 | | April 13, 2014 |
Impairment charges | $ | 362 |
| | $ | 910 |
| | $ | 2,884 |
| | $ | 2,109 |
| |
Losses on the disposition of property and equipment, net | 1,248 |
| | 1,775 |
| | 416 |
| | 2,858 |
| |
Accelerated depreciation | | $ | 1,387 |
| | $ | 487 |
| | $ | 2,139 |
| | $ | 1,151 |
|
Restaurant impairment charges | | 27 |
| | 85 |
| | 41 |
| | 180 |
|
(Gains) losses on the disposition of property and equipment, net | | (269 | ) | | 262 |
| | 352 |
| | 550 |
|
Costs of closed restaurants (primarily lease obligations) and other | 429 |
| | 864 |
| | 1,190 |
| | 2,933 |
| 973 |
| | 731 |
| | 1,759 |
| | 1,295 |
|
Restructuring costs | 343 |
| | 1,525 |
| | 1,155 |
| | 1,525 |
| 12 |
| | 7,491 |
| | 19 |
| | 7,789 |
|
| $ | 2,382 |
| | $ | 5,074 |
| | $ | 5,645 |
| | $ | 9,425 |
| $ | 2,130 |
| | $ | 9,056 |
| | $ | 4,310 |
| | $ | 10,965 |
|
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. Accelerated depreciation primarily relates to expenses at our Jack in the Box company restaurants for the replacement of technology and beverage equipment in 2015 and restaurant facility enhancement programs in 2014.
Impairment charges — When events and circumstances indicate that our long-lived assets might be impaired and their carrying amount is greater than the undiscounted cash flows we expect to generate from such assets, we recognize an impairment loss as the amount by which the carrying value exceeds the fair value of the assets. Impairment charges in2013 and in 2012 primarily represent charges to write down the carrying value of underperforming Jack in the Box restaurants and Jack in the Box restaurants we intend to or have closed.
Disposition of property and equipment — We also recognize accelerated depreciation and other costs on the disposition of property and equipment. When we decide to dispose of a long-lived asset, depreciable lives are adjusted based on the estimated disposal date and accelerated depreciation is recorded. Other disposal costs primarily relate to gains or losses recognized upon the sale of closed restaurant properties, and charges from our ongoing re-image and logo program and normal capital maintenance activities. Losses on the disposition of property and equipment, net for the 28-weeks ended April 14, 2013 includes income of $2.4 million from the resolution of two eminent domain matters involving Jack in the Box restaurants.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
all periods include charges for restaurants we intend to or have closed.
Restaurant closingDisposition of property and equipment — Disposal costs primarily relate to gains or losses recognized upon the sale of closed restaurant properties. In 2015, losses on the disposition of property and equipment includes a gain of $0.9 million from the resolution of one eminent domain matter involving a Jack in the Box restaurant.
Costs of closed restaurants consist— Costs of closed restaurants primarily consists of future lease commitments, net of anticipated sublease rentals and expected ancillary costs, and are included in impairment and other charges, net in the accompanying condensed consolidated statements of earnings. Total accruedcosts. Accrued restaurant closing costs, included in accrued liabilities and other long-term liabilities, changed as follows in 2015 (in thousands):
|
| | | | |
| | Year-to-date |
Balance as of September 28, 2014 | | $ | 13,173 |
|
Adjustments (1) | | 1,427 |
|
Cash payments | | (3,319 | ) |
Balance as of April 12, 2015 | | $ | 11,281 |
|
___________________________(1) Adjustments relate primarily to revisions to certain sublease and cost assumptions due to changes in market conditions.
Restructuring costs — Since the beginning of 2012, we have been engaged in efforts to improve our cost structure and identify opportunities to reduce general and administrative expenses as well as improve profitability across both brands. The following is a summary of the costs incurred in connection with these activities (in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Balance at beginning of period | $ | 19,561 |
| | $ | 21,228 |
| | $ | 20,677 |
| | $ | 21,657 |
|
Additions and adjustments | 312 |
| | 666 |
| | 738 |
| | 1,912 |
|
Cash payments | (1,436 | ) | | (1,727 | ) | | (2,978 | ) | | (3,402 | ) |
Balance at end of quarter | $ | 18,437 |
| | $ | 20,167 |
| | $ | 18,437 |
| | $ | 20,167 |
|
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| April 12, 2015 | | April 13, 2014 | | April 12, 2015 | | April 13, 2014 |
Severance costs | $ | 12 |
| | $ | 1,098 |
| | $ | 19 |
| | $ | 1,396 |
|
Other | — |
| | 6,393 |
| | — |
| | 6,393 |
|
| $ | 12 |
| | $ | 7,491 |
| | $ | 19 |
| | $ | 7,789 |
|
Additions and adjustmentsIn 2014, other costs represent a $6.4 million impairment charge recognized in all periods presented primarily relatethe second quarter of fiscal 2014 related to revisionsa restaurant software asset we no longer planned to place in service as we integrate certain sublease and cost assumptions.
Restructuring costs — Beginning in 2012, we have been engaged in a comprehensive reviewsystems across both of our organization structure, including evaluating opportunities for outsourcing, restructuring of certain functions and workforce reductions. The following is a summary of these costs (in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Severance costs | $ | 302 |
| | $ | 1,525 |
| | $ | 670 |
| | $ | 1,525 |
|
Other | 41 |
| | — |
| | 485 |
| | — |
|
| $ | 343 |
| | $ | 1,525 |
| | $ | 1,155 |
| | $ | 1,525 |
|
Total accrued severance costs related to our restructuring activities are included in accrued liabilities and changed as follows in 2013 (in thousands):
|
| | | | | | | |
| Quarter | | Year-to-Date |
Balance at beginning of period | $ | 671 |
| | $ | 1,758 |
|
Additions | 302 |
| | 670 |
|
Cash payments | (934 | ) | | (2,389 | ) |
Balance at end of quarter | $ | 39 |
| | $ | 39 |
|
As part of the ongoing review of our organization structure, we expect tobrands. We may incur additional charges related to our restructuring activities; however, we are unable to make a reasonable estimate of the additional costs at this time. Our continuing efforts to lower our cost structure include identifying opportunities to reduce general and administrative costs as well as improve restaurant profitability across both brands.
The income tax provisions reflect year-to-date effective tax rates of 32.8%37.9% in 2013the quarter and 34.2%36.8% year-to-date in 2012.2015, compared with 36.1% and 36.9%, respectively, a year ago. The quarter tax rates reflect the timing of the benefit recognized from the reenactment of the Work Opportunity Tax Credit and the benefit of the market performance of insurance products used to fund certain non-qualified retirement plans which are excluded from taxable income. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 20132015 rate could differ from our current estimates.
At April 14, 2013, our gross unrecognized tax benefits associated with uncertain income tax positions were $0.6 million, which if recognized would favorably impact the effective income tax rate. The gross unrecognized tax benefits decreased $0.3 million from the end of fiscal year 2012 based on the settlement of a state income tax audit. It is reasonably possible that changes to the gross unrecognized tax benefits will be required within the next twelve months due to the possible settlement of state tax audits.
The major jurisdictions in which the Company files income tax returns include the United States and states in which we operate that impose an income tax. The federal statutes of limitations have not expired for fiscal years 2009 and forward. The statutes of limitations for California and Texas, which constitute the Company’s major state tax jurisdictions, have not expired for fiscal years 2001 and 2007, respectively, and forward. Generally, the statutes of limitations for the other state jurisdictions have not expired for fiscal years 2009 and forward.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Defined benefit pension plans — We sponsor a qualifiedtwo defined benefit pension plans: a qualified plan covering substantially all full-time Jack in the Box employees hired prior to January 1, 2011. Participants will no longer accrue benefits under this plan effective December 31, 2015. We also sponsor, and an unfunded supplemental executive retirement plan which provides certain employees additional pension benefits and was closed to new participants effective January 1, 2007. In fiscal 2011, the Board of Directors approved changes to our qualified plan whereby participants will no longer accrue benefits effective December 31, 2015. Benefits under both plans are based on the employees’ years of service and compensation over defined periods of employment.
Postretirement healthcare plans — We also sponsor two healthcare plans, closed to new participants, that provide postretirement medical benefits to certain employees who meethave met minimum age and service requirements. The plans are contributory, with retiree contributions adjusted annually, and 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 | Quarter | | Year-to-date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 | April 12, 2015 | | April 13, 2014 | | April 12, 2015 | | April 13, 2014 |
Defined benefit pension plans: | | | | | | | | | | | | | | |
Service cost | $ | 2,481 |
| | $ | 2,175 |
| | $ | 5,789 |
| | $ | 5,075 |
| $ | 1,908 |
| | $ | 1,875 |
| | $ | 4,452 |
| | $ | 4,374 |
|
Interest cost | 5,222 |
| | 5,225 |
| | 12,185 |
| | 12,191 |
| 5,237 |
| | 5,364 |
| | 12,220 |
| | 12,516 |
|
Expected return on plan assets | (5,242 | ) | | (4,612 | ) | | (12,231 | ) | | (10,761 | ) | (5,370 | ) | | (5,652 | ) | | (12,531 | ) | | (13,188 | ) |
Actuarial loss | 4,116 |
| | 2,864 |
| | 9,604 |
| | 6,683 |
| 2,172 |
| | 1,024 |
| | 5,068 |
| | 2,388 |
|
Amortization of unrecognized prior service cost | 62 |
| | 100 |
| | 145 |
| | 233 |
| |
Amortization of unrecognized prior service costs | | 62 |
| | 62 |
| | 145 |
| | 145 |
|
Net periodic benefit cost | $ | 6,639 |
| | $ | 5,752 |
| | $ | 15,492 |
| | $ | 13,421 |
| $ | 4,009 |
| | $ | 2,673 |
| | $ | 9,354 |
| | $ | 6,235 |
|
Postretirement healthcare plans: | | | | | | | | | | | | | | |
Service cost | $ | — |
| | $ | 14 |
| | $ | — |
| | $ | 33 |
| |
Interest cost | 366 |
| | 373 |
| | 854 |
| | 870 |
| $ | 276 |
| | $ | 379 |
| | $ | 644 |
| | $ | 883 |
|
Actuarial loss | 183 |
| | 21 |
| | 426 |
| | 48 |
| 42 |
| | 125 |
| | 98 |
| | 292 |
|
Net periodic benefit cost | $ | 549 |
| | $ | 408 |
| | $ | 1,280 |
| | $ | 951 |
| $ | 318 |
| | $ | 504 |
| | $ | 742 |
| | $ | 1,175 |
|
Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of the date of our last actuarial funding valuation, there was no minimum contribution funding requirement. Details regarding fiscal 20132015 contributions are as follows (in thousands):
| | | Defined Benefit Pension Plans | | Postretirement Healthcare Plans | Defined Benefit Pension Plans | | Postretirement Healthcare Plans |
Net year-to-date contributions | $ | 6,995 |
| | $ | 628 |
| $ | 7,543 |
| | $ | 570 |
|
Remaining estimated net contributions during fiscal 2013 | $ | 11,400 |
| | $ | 800 |
| |
Remaining estimated net contributions during fiscal 2015 | | $ | 17,000 |
| | $ | 700 |
|
We will continue to evaluate contributions to our fundedqualified defined benefit pension plan based on changes in pension assets as a result of asset performance in the current market and economic environment.
| |
10.9. | SHARE-BASED COMPENSATION |
We offer share-based compensation plans to attract, retain and motivate key officers, employees and non-employee directors to work toward the financial success of the Company. In fiscal 20132015, we granted the following shares related to our share-based compensation awards in each period as follows:awards:
|
| | |
| Year-to-Date |
Stock options | 376,793123,042 |
|
Performance share awards | 89,23640,594 |
|
Nonvested stock units | 141,61693,570 |
|
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The components of share-based compensation expense recognized in each period are as follows (in thousands):
| | | Quarter | | Year-to-Date | Quarter | | Year-to-date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 | April 12, 2015 | | April 13, 2014 | | April 12, 2015 | | April 13, 2014 |
Stock options | $ | 1,269 |
| | $ | 785 |
| | $ | 3,159 |
| | $ | 1,975 |
| $ | 555 |
| | $ | 489 |
| | $ | 1,554 |
| | $ | 1,778 |
|
Performance share awards | 547 |
| | 172 |
| | 1,664 |
| | 502 |
| 991 |
| | 999 |
| | 2,072 |
| | 2,496 |
|
Nonvested stock awards | 85 |
| | 135 |
| | 219 |
| | 315 |
| 35 |
| | 45 |
| | 96 |
| | 218 |
|
Nonvested stock units | 1,416 |
| | 293 |
| | 2,337 |
| | 615 |
| 1,638 |
| | 796 |
| | 3,382 |
| | 1,638 |
|
Deferred compensation for non-management directors | 220 |
| | 155 |
| | 220 |
| | 155 |
| 263 |
| | 218 |
| | 263 |
| | 218 |
|
Total share-based compensation expense | $ | 3,537 |
| | $ | 1,540 |
| | $ | 7,599 |
| | $ | 3,562 |
| $ | 3,482 |
| | $ | 2,547 |
| | $ | 7,367 |
| | $ | 6,348 |
|
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
11.
10. STOCKHOLDERS’ EQUITY
Repurchases of common stock — In November 2011,February 2014 and July 2014, the Board of Directors approved a program,two programs, both expiring in November 2013,2015, which provided repurchase authorizations for up to repurchase $100.0$200.0 million and $100.0 million, respectively, in shares of our common stock. Additionally, in November 2014, the Board of Directors approved another $100.0 million stock buyback program that expires in November 2016. During 2013,fiscal 2015, we repurchased approximately 1.42.08 million shares at an aggregate cost of $41.3$176.6 million and fully utilized the February and July 2014 authorizations. As of April 12, 2015, there was $40.5 million remaining under this authorization. Inour November 2012,2014 stock-buyback program which expires in November 2016.
Repurchases of common stock included in our condensed consolidated statements of cash flows for 2015 and 2014 include $3.1 million and $7.3 million, respectively, related to repurchase transactions traded in the prior fiscal year and settled in the subsequent quarter. Additionally, these cash flows exclude $5.6 million and $3.9 million related to repurchase transactions traded in the second quarter and settled in the third quarter of 2015 and 2014, respectively.
Dividends—During the third quarter of fiscal 2014, the Board of Directors approved the initiation of a new programregular quarterly cash dividend. In fiscal 2015, the Board of Directors declared two cash dividends of $0.20 per share each, which were paid to repurchase upshareholders of record as of December 1, 2014 and March 6, 2015 and totaled $15.5 million. Future dividends are subject to an additional $100.0 million in sharesapproval by our Board of our common stock through November 2014. As of April 14, 2013, the aggregate remaining amount authorized for repurchase was $135.6 million under both authorizations.Directors.
Accumulated other comprehensive loss — The components of accumulated other comprehensive loss, net of taxes, were as follows at the end of each period (in thousands):
|
| | | | | | | |
| April 14, 2013 | | September 30, 2012 |
Unrecognized periodic benefit costs, net of tax benefits of $79,704 and $83,605, respectively | $ | (128,239 | ) | | $ | (134,513 | ) |
Net unrealized losses related to cash flow hedges, net of tax benefits of $689 and $933, respectively | (1,110 | ) | | (1,500 | ) |
Foreign currency translation adjustment, net of tax expense of $2 | 5 |
| | — |
|
Accumulated other comprehensive loss | $ | (129,344 | ) | | $ | (136,013 | ) |
| |
12.11. | 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, non-management director stock equivalents and shares issuable under our employee stock purchase plan. Performance share awards are included in the weighted-averageaverage diluted shares outstanding each period if the performance criteria have been met at the end of the respective periods.
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):
| | | Quarter | | Year-to-Date | Quarter | | Year-to-date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 | April 12, 2015 | | April 13, 2014 | | April 12, 2015 | | April 13, 2014 |
Weighted-average shares outstanding – basic | 43,747 |
| | 43,937 |
| | 43,319 |
| | 43,896 |
| 37,970 |
| | 41,464 |
| | 38,353 |
| | 42,018 |
|
Effect of potentially dilutive securities: | | | | | | | | | | | | | | |
Stock options | 950 |
| | 470 |
| | 840 |
| | 403 |
| 246 |
| | 640 |
| | 337 |
| | 725 |
|
Nonvested stock awards and units | 368 |
| | 264 |
| | 350 |
| | 261 |
| 190 |
| | 243 |
| | 195 |
| | 318 |
|
Performance share awards | 209 |
| | 240 |
| | 227 |
| | 215 |
| 160 |
| | 285 |
| | 154 |
| | 275 |
|
Weighted-average shares outstanding – diluted | 45,274 |
| | 44,911 |
| | 44,736 |
| | 44,775 |
| 38,566 |
| | 42,632 |
| | 39,039 |
| | 43,336 |
|
Excluded from diluted weighted-average shares outstanding: | | | | | | | | | | | | | | |
Antidilutive | 215 |
| | 3,092 |
| | 1,094 |
| | 2,975 |
| — |
| | 185 |
| | 78 |
| | 152 |
|
Performance conditions not satisfied at the end of the period | 223 |
| | 351 |
| | 223 |
| | 351 |
| 6 |
| | 20 |
| | 14 |
| | 30 |
|
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
13.12. | VARIABLE INTEREST ENTITIES |
In January 2011, we formed Jack in the Box Franchise Finance, LLC (“FFE”) for the purpose of operating a franchisee lending program to assist Jack in the Box franchisees in re-imaging their restaurants. We are the sole equity investor in FFE. The lending program was comprised of a $20.0 million commitment from the Company in the form of a capital note and an $80.0 million Senior Secured Revolving Securitization Facility entered into with a third party. The lending period and the revolving period expired in June 20122012. At April 12, 2015, we had no borrowings under the FFE Facility and the third party facility repayments were completed in August 2012.we do not plan to make any further contributions.
We have determined that FFE is a VIE.VIE, and that we are the primary beneficiary. We considered a variety of factors in identifying the primary beneficiary of FFE including, but not limited to, who holds the power to direct matters that most significantly impact FFE’s economic performance (such as determining the underwriting standards and credit management policies), as well as what party has the obligation to absorb the losses of FFE. Based on these considerations, we have
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
determined that the Company iswe are the primary beneficiary and have reflected the entity is reflected in the accompanying condensed consolidated financial statements.
FFE’s assets consolidated by the Companyus represent assets that can be used only to settle obligations of the consolidated VIE. Likewise, FFE’s liabilities consolidated by the Companyus do not represent additional claims on the Company’sour general assets; rather they represent claims against the specific assets of FFE. The impacts of FFE’s results were not material to the Company’sour condensed consolidated statements of earnings or cash flows. earnings.
The FFE’s balance sheet consisted of the following at the end of each period (in thousands):
| | | April 14, 2013 | | September 30, 2012 | April 12, 2015 | | September 28, 2014 |
Cash | $ | — |
| | $ | 444 |
| $ | — |
| | $ | — |
|
Other current assets (1) | 2,323 |
| | 2,536 |
| 1,072 |
| | 2,494 |
|
Other assets, net (1) | 9,835 |
| | 11,051 |
| 2,539 |
| | 5,776 |
|
Total assets | $ | 12,158 |
| | $ | 14,031 |
| $ | 3,611 |
| | $ | 8,270 |
|
| | | | | | |
Current liabilities(2) | $ | 89 |
| | $ | 14 |
| $ | 1,203 |
| | $ | 2,833 |
|
Other long-term liabilities (2) | 12,338 |
| | 14,428 |
| 2,276 |
| | 5,367 |
|
Retained earnings | (269 | ) | | (411 | ) | 132 |
| | 70 |
|
Total liabilities and stockholders’ equity | $ | 12,158 |
| | $ | 14,031 |
| $ | 3,611 |
| | $ | 8,270 |
|
____________________________
| |
(1) | Consists primarily of amounts due from franchisees. |
| |
(2) | Consists primarily of the capital note contributionscontribution from Jack in the Box which areis eliminated in consolidation. |
In 2015, we received $3.9 million of early prepayments on notes receivable due from franchisees, which increased our cash flows from investing activities in the year-to-date period.
The Company’sOur maximum exposure to loss is equal to its outstanding contributions as of April 14, 201312, 2015. This amount represents estimated losses that would be incurred should all franchisees default on their loans without any consideration of recovery. To offset the credit risk associated with the Company’sour variable interest in FFE, the Company holdswe hold a security interest in the assets of FFE subordinate and junior to all other obligations of FFE.
14.13. CONTINGENCIES AND LEGAL MATTERS
Legal matters— The Company assesses contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in its financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred 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/or 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. The Companyliability or financial exposure. We regularly reviewsreview contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates.
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 (“FLSA”) and Oregon wage and hour laws. The plaintiffs allegealleged that the Company failed to pay non-exempt employees for certain meal breaks and improperly recordedmade payroll deductions for shoe purchases and for workers’ compensation expenses. In April 2013,2014, the district court: (i)court granted certificationour motion for summary judgment, and dismissed all claims without prejudice to re-filing in state court. In July 2014, the plaintiffs re-filed similar claims, and additional claims relating to timing of thefinal pay and related wage and hour claims involving employees of a franchisee, in Oregon state law claims with respect to payroll deductionscourt. The amended complaint seeks damages of $45.0 million but does not provide a basis for shoe purchases and workers’ compensation expenses, (ii) granted conditional certification for these same claims under the FLSA, and (iii) denied certification for meal break claims under both federal and Oregon law. We intend to vigorously defend against this lawsuit. We have made an accrualthat amount. In fiscal 2012, we accrued for a single claim for which we believe a loss is both probable and estimable. Thisestimable; this accrued loss contingency did not have a material effect on our results of operations. Due to the procedural status of the other claims in this case, weWe have not established a loss contingency accrual for those claims as theto which we believe liability with respect to these claims is not probable or estimable, and we are currently unableplan to estimate a range of loss.vigorously defend against this lawsuit. Nonetheless, an unfavorable resolution of this matter in excess of our current accrued loss contingencies could have a material adverse effect on our business, results of operations, liquidity or financial condition.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Other Legal Matterslegal matters — In addition to the matter described above, the Company iswe are subject to normal and routine litigation brought by former, current or prospective employees, customers, franchisees, vendors, landlords, shareholders or others.others, whether individually, collectively or on behalf of a proposed class. We intend to defend ourselves in any such matters. Some of these matters may be covered, at least in part, by insurance. Our insurance liability (undiscounted) and reserves are established in part by using independent actuarial estimates of expected losses for reported claims and for estimating claims incurred but not reported. As of April 12, 2015, our estimated liability for general liability and workers’ compensation claims exceeded our self-insurance retention limits by $24.6 million. We expect to be fully covered for these amounts by surety bond issuers or our insurance providers. Although we currently believe that the ultimate outcomedetermination of liability in connection with legal claims pending against it, if any, in excess of amounts already provided for these 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, of the Company, it is possible that our business, results of operations, liquidity, or financial position could be materially affected in anya particular future reporting period by the unfavorable resolution of one or more of these matters or contingencies. contingencies during such period.
Lease Guaranteesguarantees — In connection with the sale of the Jack in the Box distribution business, we have assigned the leases at two of our distribution centers to third parties. Under these agreements, which expire in 2015 and 2017, the Company remainswe remain secondarily liable for the lease payments for which we were responsible under the original lease. As of April 14, 2013,12, 2015, the amount remaining under these lease guarantees totaled $3.4 million.$1.5 million. We have not recorded a liability for the guarantees as the likelihood of the third party defaulting on the assignment agreements was deemed to be less than probable.
We are principally engaged inOur principal business consists of developing, operating and franchising our Jack in the Box and Qdoba quick-service restaurant concepts, botheach of which we consider reportable operating segments. This segment reporting structure reflects the Company’sour current management structure, internal reporting method and financial information used in deciding how to allocate Companyour resources. Based upon certain quantitative thresholds, botheach operating segments aresegment is considered a reportable segments.segment.
We measure and evaluate our segments based on segment revenues and earnings from operations. Summarized financial information concerning ourThe reportable segments is showndo not include an allocation of the costs related to shared service functions, such as accounting/finance, human resources, audit services, legal, tax and treasury; nor do they include unallocated costs such as pension expense and share-based compensation. These costs are reflected in the caption “Shared services and unallocated costs,” and therefore, the measure of segment profit or loss is before such items. The following tablestable provides information related to our segments in each period (in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Revenues by segment: | | | | | | | |
Jack in the Box restaurant operations segment | $ | 277,916 |
| | $ | 299,418 |
| | $ | 645,492 |
| | $ | 682,076 |
|
Qdoba restaurant operations segment | 77,707 |
| | 67,066 |
| | 175,654 |
| | 142,329 |
|
Consolidated revenues | $ | 355,623 |
| | $ | 366,484 |
| | $ | 821,146 |
| | $ | 824,405 |
|
Earnings from operations by segment: | | | | | | | |
Jack in the Box restaurant operations segment | $ | 22,300 |
| | $ | 33,510 |
| | $ | 59,517 |
| | $ | 55,647 |
|
Qdoba restaurant operations segment | 2,468 |
| | 3,869 |
| | 4,965 |
| | 6,043 |
|
FFE operations | (38 | ) | | (44 | ) | | (87 | ) | | (100 | ) |
Consolidated earnings from operations | $ | 24,730 |
| | $ | 37,335 |
| | $ | 64,395 |
| | $ | 61,590 |
|
Total depreciation expense by segment: | | | | | | | |
Jack in the Box restaurant operations segment | $ | 17,750 |
| | $ | 18,035 |
| | $ | 41,433 |
| | $ | 42,328 |
|
Qdoba restaurant operations segment | 4,640 |
| | 3,970 |
| | 10,658 |
| | 8,752 |
|
Consolidated depreciation expense | $ | 22,390 |
| | $ | 22,005 |
| | $ | 52,091 |
| | $ | 51,080 |
|
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| April 12, 2015 | | April 13, 2014 | | April 12, 2015 | | April 13, 2014 |
Revenues by segment: | | | | | | | |
Jack in the Box restaurant operations | $ | 269,444 |
| | $ | 260,089 |
| | $ | 621,395 |
| | $ | 609,912 |
|
Qdoba restaurant operations | 88,678 |
| | 80,781 |
| | 205,348 |
| | 181,040 |
|
Consolidated revenues | $ | 358,122 |
| | $ | 340,870 |
| | $ | 826,743 |
| | $ | 790,952 |
|
Earnings from operations by segment: | | | | | | | |
Jack in the Box restaurant operations | $ | 64,313 |
| | $ | 53,617 |
| | $ | 145,168 |
| | $ | 129,920 |
|
Qdoba restaurant operations | 8,778 |
| | 7,105 |
| | 23,460 |
| | 16,713 |
|
Shared services and unallocated costs | (26,203 | ) | | (29,600 | ) | | (59,354 | ) | | (58,768 | ) |
(Losses) gains on the sale of company-operated restaurants | (5,020 | ) | | 1,757 |
| | (4,170 | ) | | 2,218 |
|
Consolidated earnings from operations | 41,868 |
| | 32,879 |
| | 105,104 |
| | 90,083 |
|
Interest expense, net | 4,220 |
| | 4,311 |
| | 9,433 |
| | 8,853 |
|
Consolidated earnings from continuing operations and before income taxes | $ | 37,648 |
| | $ | 28,568 |
| | $ | 95,671 |
| | $ | 81,230 |
|
Total depreciation expense by segment: | | | | | | | |
Jack in the Box restaurant operations | $ | 14,699 |
| | $ | 15,418 |
| | $ | 34,314 |
| | $ | 36,269 |
|
Qdoba restaurant operations | 4,035 |
| | 3,906 |
| | 9,315 |
| | 9,136 |
|
Shared services and unallocated costs | 1,612 |
| | 1,785 |
| | 3,872 |
| | 3,924 |
|
Consolidated depreciation expense | $ | 20,346 |
| | $ | 21,109 |
| | $ | 47,501 |
| | $ | 49,329 |
|
Interest income and expense, incomeIncome taxes and total assets are not reported for our segments in accordance with our method of internal reporting.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table provides detail of the change in the balance of goodwill for each of our reportable segments (in thousands):
|
| | | | | | | |
| April 14, 2013 | | September 30, 2012 |
Goodwill by segment (in thousands): | | | |
Jack in the Box | $ | 48,953 |
| | $ | 47,847 |
|
Qdoba | 99,982 |
| | 92,775 |
|
Consolidated goodwill | $ | 148,935 |
| | $ | 140,622 |
|
|
| | | | | | | | | | | |
| Qdoba | | Jack in the Box | | Total |
Balance at September 28, 2014 | $ | 100,597 |
| | $ | 48,477 |
| | $ | 149,074 |
|
Disposals | — |
| | (32 | ) | | (32 | ) |
Balance at April 12, 2015 | $ | 100,597 |
| | $ | 48,445 |
| | $ | 149,042 |
|
Refer to Note 4,3, Summary of Refranchisings, FranchiseFranchisee Development and Acquisitions, for information regarding the transactions resulting in the changes in goodwill during 2013.goodwill.
| |
16.15. | SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands) |
| | | | | | | Year-to-date |
| April 14, 2013 | | April 15, 2012 | April 12, 2015 | | April 13, 2014 |
Cash paid during the year for: | | | | | | |
Interest, net of amounts capitalized | $ | 8,556 |
| | $ | 11,089 |
| $ | 9,166 |
| | $ | 9,114 |
|
Income tax payments | $ | 22,907 |
| | $ | 24,125 |
| $ | 1,087 |
| | $ | 28,701 |
|
Non-cash transactions: | | | | |
Increase in dividends accrued at period end | | $ | 70 |
| | $ | — |
|
Increase in property and equipment through accrued purchases at period end | | $ | 5,395 |
| | $ | 9,070 |
|
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
17.16. | SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands) |
| |
|
| | April 14, 2013 | | September 30, 2012 | April 12, 2015 | | September 28, 2014 |
Prepaid expenses: | | | | |
Prepaid income taxes | | $ | 13,493 |
| | $ | 27,956 |
|
Prepaid rent | | 8,961 |
| | 178 |
|
Other | | 6,994 |
| | 8,180 |
|
| | $ | 29,448 |
| | $ | 36,314 |
|
Other assets, net: | | | | | | |
Company-owned life insurance policies | $ | 91,375 |
| | $ | 86,276 |
| $ | 104,388 |
| | $ | 100,753 |
|
Deferred tax asset | 108,855 |
| | 115,537 |
| |
Deferred tax assets | | 48,953 |
| | 50,807 |
|
Other | 76,314 |
| | 69,317 |
| 83,376 |
| | 85,738 |
|
| $ | 276,544 |
| | $ | 271,130 |
| $ | 236,717 |
| | $ | 237,298 |
|
Accrued liabilities: | | | | | | |
Payroll and related taxes | $ | 44,191 |
| | $ | 58,503 |
| $ | 49,404 |
| | $ | 54,905 |
|
Insurance | | 33,569 |
| | 34,834 |
|
Advertising | | 17,029 |
| | 21,452 |
|
Deferred rent income | | 11,044 |
| | 2,432 |
|
Lease commitments related to closed or refranchised locations | | 10,383 |
| | 10,258 |
|
Sales and property taxes | 12,699 |
| | 13,055 |
| 8,958 |
| | 11,760 |
|
Advertising | 16,029 |
| | 21,400 |
| |
Insurance | 33,319 |
| | 33,391 |
| |
Deferred beverage allowance | 14,656 |
| | 4,583 |
| |
Other | 39,687 |
| | 33,705 |
| 29,246 |
| | 27,985 |
|
| $ | 160,581 |
| | $ | 164,637 |
| $ | 159,633 |
| | $ | 163,626 |
|
Other long-term liabilities: | | | | | | |
Pension plans | $ | 212,604 |
| | $ | 213,854 |
| $ | 140,436 |
| | $ | 143,838 |
|
Straight-line rent accrual | 53,768 |
| | 54,288 |
| 47,052 |
| | 48,835 |
|
Other | 103,295 |
| | 103,060 |
| 119,945 |
| | 116,762 |
|
| $ | 369,667 |
| | $ | 371,202 |
| $ | 307,433 |
| | $ | 309,435 |
|
| |
ITEM 2.17. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSUBSEQUENT EVENTS |
GENERAL
All comparisons between Declaration of dividend2013 and 2012 refer— On May 7, 2015, the Board of Directors declared a cash dividend of $0.30 per share, to the 12-weeks (“quarter”) and 28-weeks (“year-to-date”) ended April 14, 2013 and April 15, 2012, respectively, unless otherwise indicated.
For an understandingbe paid on June 12, 2015 to shareholders of record as of the significant factors that influenced our performance during the quarterly and year-to-date periods ended April 14, 2013 and April 15, 2012, our Management’s Discussion and Analysisclose of Financial Condition and Results of Operations (“MD&A”) shouldbusiness on June 1, 2015. Future dividends will 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, 2012.
Our MD&A consists of the following sections:
Overview — a general description of our business and fiscal 2013 highlights.
Financial reporting — a discussion of changes in presentation.
Results of operations — an analysis of our 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 capital expenditures, share repurchase activity, known trends that may impact liquidity and the impact of inflation.
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.
Cautionary statements regarding forward-looking statements — a discussion of the risks and uncertainties that may cause our actual resultssubject to differ materially from any forward-looking statements made by management.
OVERVIEW
As of April 14, 2013, we operated and franchised 2,256 Jack in the Box quick-service restaurants, primarily in the western and southern United States, and 647 Qdoba Mexican Grill (“Qdoba”) fast-casual restaurants throughout the United States and including two in Canada.
Our primary source of revenue is from retail sales at Jack in the Box and Qdoba company-operated restaurants. We also derive revenue from Jack in the Box and Qdoba franchise restaurants, including royalties (based upon a percent of sales), franchise fees and rents from Jack in the Box franchisees. Historically, we also generated revenue from distribution sales of food and packaging commodities to franchisees. We completed the outsourcing of this function in the first quarter of fiscal 2013, and franchisees who previously utilized our distribution services now purchase product directly from our distribution service providers or other approved suppliers. In addition, we recognize gains from the sale of company-operated restaurants to franchisees. These gains are presented as a reduction of operating costs and expenses, net in the accompanying condensed consolidated statements of earnings.
The following summarizes the most significant events occurring in fiscal 2013 and certain trends compared to a year ago:
Restaurant Sales— Sales at restaurants open more than one year (“same-store sales”) changed as follows:
|
| | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Jack in the Box: | | | | | | | |
Company | 0.9% | | 5.6% | | 1.6% | | 5.5% |
Franchise | (0.2)% | | 3.6% | | 0.9% | | 3.1% |
System | 0.1% | | 4.2% | | 1.1% | | 3.8% |
Qdoba: | | | | | | | |
Company | (2.0)% | | 3.8% | | (0.1)% | | 3.7% |
Franchise | (0.9)% | | 2.2% | | (0.1)% | | 3.2% |
System | (1.5)% | | 3.0% | | (0.1)% | | 3.4% |
Commodity Costs— Commodity costs increased approximately 2.6% and 1.8% at our Jack in the Box and Qdoba restaurants, respectively, in the quarter and 1.0% and 1.4%, respectively, year-to-date compared to a year ago. We expect our overall commodity costs to increase approximately 2%-2.5% in fiscal 2013.
New Unit Development— We continued to grow our brands with the opening of new company-operated and franchise-operated restaurants. Year-to-date, we opened 12 Jack in the Box locations and 32 Qdoba locations system-wide.
Franchising Program— Qdoba and Jack in the Box franchisees opened a total of 29 restaurants year-to-date, including two Qdoba franchise locations in Canada. Our Jack in the Box system was approximately 76% franchised at the end of the second quarter and we plan to ultimately increase franchise ownership to be between 80% to 85%.
Credit Facility— In November 2012, we entered into a new credit agreement consisting of a $400.0 million revolving credit facility and a $200.0 million term loan, both with a five-year maturity.
Distribution Outsourcing— During the first quarter of 2013, we completed the outsourcing of our Jack in the Box distribution business. As a result, we recorded after-tax charges in the second quarter totaling $0.1 million, or $0.00 per diluted share, and $3.4 million, or $0.08 per diluted share, year-to-date. These charges are presented as discontinued operations in each period.
Share Repurchases— Pursuant to a share repurchase program authorizedapproval by our Board of Directors.
On May 7, 2015, the Board of Directors we repurchased approximately 1.4authorized an additional $100.0 million shares of our common stock at an average price of $29.39 per share during the year, including the cost of brokerage fees. stock-buyback program that expires in November 2016.
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.
CONSOLIDATED STATEMENTS OF EARNINGS DATA
|
| | | | | | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Revenues: | | | | | | | |
Company restaurant sales | 77.9 | % | | 79.3 | % | | 77.6 | % | | 79.4 | % |
Franchise revenues | 22.1 | % | | 20.7 | % | | 22.4 | % | | 20.6 | % |
Total revenues | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Operating costs and expenses, net: | | | | | | | |
Company restaurant costs: | | | | | | | |
Food and packaging (1) | 32.7 | % | | 32.6 | % | | 32.4 | % | | 33.1 | % |
Payroll and employee benefits (1) | 28.7 | % | | 29.1 | % | | 28.8 | % | | 29.2 | % |
Occupancy and other (1) | 22.8 | % | | 22.8 | % | | 23.0 | % | | 23.2 | % |
Total company restaurant costs (1) | 84.2 | % | | 84.5 | % | | 84.3 | % | | 85.6 | % |
Franchise costs (1) | 50.6 | % | | 50.2 | % | | 50.1 | % | | 51.8 | % |
Selling, general and administrative expenses | 14.9 | % | | 14.9 | % | | 14.7 | % | | 14.6 | % |
Impairment and other charges, net | 0.7 | % | | 1.4 | % | | 0.7 | % | | 1.1 | % |
Losses (gains) on the sale of company-operated restaurants | 0.7 | % | | (3.8 | )% | | 0.2 | % | | (1.8 | )% |
Earnings from operations | 7.0 | % | | 10.2 | % | | 7.8 | % | | 7.5 | % |
Income tax rate (2) | 37.1 | % | | 34.1 | % | | 32.8 | % | | 34.2 | % |
____________________________
| |
(1) | As a percentage of the related sales and/or revenues. |
| |
(2) | As a percentage of earnings from continuing operations and before income taxes. |
The following table presents Jack in the Box and Qdoba company restaurant sales, costs and costs as a percentage of the related sales. Percentages may not add due to rounding.
SUPPLEMENTAL COMPANY-OPERATED RESTAURANTS STATEMENTS OF EARNINGS DATA
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Jack in the Box: | | | | | | | | | | | | | | | |
Company restaurant sales | $ | 203,439 |
| | | | $ | 227,828 |
| | | | $ | 470,615 |
| | | | $ | 522,181 |
| | |
Company restaurant costs: | | | | | | | | | | | | | | | |
Food and packaging | 68,195 |
| | 33.5 | % | | 76,508 |
| | 33.6 | % | | 155,993 |
| | 33.1 | % | | 178,098 |
| | 34.1 | % |
Payroll and employee benefits | 58,108 |
| | 28.6 | % | | 67,128 |
| | 29.5 | % | | 135,110 |
| | 28.7 | % | | 153,697 |
| | 29.4 | % |
Occupancy and other | 42,421 |
| | 20.9 | % | | 48,900 |
| | 21.5 | % | | 99,009 |
| | 21.0 | % | | 114,191 |
| | 21.9 | % |
Total company restaurant costs | $ | 168,724 |
| | 82.9 | % | | $ | 192,536 |
| | 84.5 | % | | $ | 390,112 |
| | 82.9 | % | | $ | 445,986 |
| | 85.4 | % |
Qdoba: | | | | | | | | | | | | | | | |
Company restaurant sales | $ | 73,758 |
| | | | $ | 62,975 |
| | | | $ | 166,676 |
| | | | $ | 132,724 |
| | |
Company restaurant costs: | | | | | | | | | | | | | | | |
Food and packaging | 22,493 |
| | 30.5 | % | | 18,402 |
| | 29.2 | % | | 50,796 |
| | 30.5 | % | | 38,919 |
| | 29.3 | % |
Payroll and employee benefits | 21,512 |
| | 29.2 | % | | 17,438 |
| | 27.7 | % | | 48,574 |
| | 29.1 | % | | 37,680 |
| | 28.4 | % |
Occupancy and other | 20,731 |
| | 28.1 | % | | 17,284 |
| | 27.4 | % | | 47,497 |
| | 28.5 | % | | 37,936 |
| | 28.6 | % |
Total company restaurant costs | $ | 64,736 |
| | 87.8 | % | | $ | 53,124 |
| | 84.4 | % | | $ | 146,867 |
| | 88.1 | % | | $ | 114,535 |
| | 86.3 | % |
The following table summarizes the year-to-date changes in the number of Jack in the Box (“JIB”) and Qdoba company and franchise restaurants:
|
| | | | | | | | | | | | | | | | | |
| April 14, 2013 | | April 15, 2012 |
| Company | | Franchise | | Total | | Company | | Franchise | | Total |
Jack in the Box: | | | | | | | | | | | |
Beginning of year | 547 |
| | 1,703 |
| | 2,250 |
| | 629 |
| | 1,592 |
| | 2,221 |
|
New | 3 |
| | 9 |
| | 12 |
| | 9 |
| | 14 |
| | 23 |
|
Refranchised | (4 | ) | | 4 |
| | — |
| | (37 | ) | | 37 |
| | — |
|
Acquired from franchisees | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Closed | (1 | ) | | (5 | ) | | (6 | ) | | — |
| | (2 | ) | | (2 | ) |
End of period | 546 |
| | 1,710 |
| | 2,256 |
| | 601 |
| | 1,641 |
| | 2,242 |
|
% of JIB system | 24 | % | | 76 | % | | 100 | % | | 27 | % | | 73 | % | | 100 | % |
% of consolidated system | 62 | % | | 85 | % | | 78 | % | | 68 | % | | 84 | % | | 79 | % |
Qdoba: | | | | | | | | | | | |
Beginning of year | 316 |
| | 311 |
| | 627 |
| | 245 |
| | 338 |
| | 583 |
|
New | 12 |
| | 20 |
| | 32 |
| | 8 |
| | 15 |
| | 23 |
|
Acquired from franchisees | 12 |
| | (12 | ) | | — |
| | 36 |
| | (36 | ) | | — |
|
Closed | — |
| | (12 | ) | | (12 | ) | | — |
| | (1 | ) | | (1 | ) |
End of period | 340 |
| | 307 |
| | 647 |
| | 289 |
| | 316 |
| | 605 |
|
% of Qdoba system | 53 | % | | 47 | % | | 100 | % | | 48 | % | | 52 | % | | 100 | % |
% of consolidated system | 38 | % | | 15 | % | | 22 | % | | 32 | % | | 16 | % | | 21 | % |
Consolidated: | | | | | | | | | | | |
Total system | 886 |
| | 2,017 |
| | 2,903 |
| | 890 |
| | 1,957 |
| | 2,847 |
|
% of consolidated system | 31 | % | | 69 | % | | 100 | % | | 31 | % | | 69 | % | | 100 | % |
Revenues
As we execute our refranchising strategy for Jack in the Box, which includes the sale of restaurants to franchisees, we expect the number of company-operated restaurants and the related sales to decrease while revenues from franchise restaurants increase. As such, company restaurant sales decreased $13.6 million, or 4.7%, in the quarter and $17.6 million, or 2.7%, year-to-date compared with the prior year. The decreases in restaurant sales are due primarily to decreases in the average number of Jack in the Box company-operated restaurants, partially offset by increases in the number of Qdoba company-operated restaurants and increases in average unit sales volumes (“AUVs”) at our Jack in the Box restaurants in both periods and at our Qdoba restaurants year-to-date.
The following table presents the approximate impact of these increases (decreases) on company restaurant sales (in thousands):
|
| | | | | | | |
| Quarter | | Year-to-Date |
Decrease in the average number of Jack in the Box restaurants | $ | (29,900 | ) | | $ | (70,300 | ) |
Jack in the Box AUV increase | 5,500 |
| | 18,700 |
|
Increase in the average number of Qdoba restaurants | 11,100 |
| | 29,700 |
|
Qdoba AUV increase (decrease) | (300 | ) | | 4,300 |
|
Total decrease in company restaurant sales | $ | (13,600 | ) | | $ | (17,600 | ) |
Same-store sales at Jack in the Box company-operated restaurants increased 0.9% in the quarter and 1.6% year-to-date primarily driven by price increases. Same-store sales at Qdoba company-operated restaurants decreased 2.0% in the quarter and 0.1% year-to-date primarily driven by transaction declines and the impact of greater promotional activity, partially offset by a combination of price increases and higher catering sales. The following table summarizes the change in company-operated same-store sales:
|
| | | |
| Quarter | | Year-to-Date |
Jack in the Box: | | | |
Transactions | (0.7)% | | (0.4)% |
Average check (1) | 1.6% | | 2.0% |
Change in same-store sales | 0.9% | | 1.6% |
Qdoba: | | | |
Change in same-store sales (2) | (2.0)% | | (0.1)% |
____________________________
| |
(1) | Includes price increases of approximately 2.7% and 2.6%, in the quarter and year-to-date, respectively.
|
| |
(2) | Includes price increases of approximately 1.4% and 1.8%, in the quarter and year-to-date, respectively.
|
Franchise revenues increased $2.7 million in the quarter and $14.4 million year-to-date primarily reflecting an increase in the average number of Jack in the Box franchise restaurants, which contributed additional royalties and rents of approximately $4.4 million and $10.6 million, respectively. To a lesser extent, a decrease in re-image contributions to franchisees, which are recorded as a reduction of franchise revenues, also contributed to the increase in both periods. The impact of these increases were partially offset by a decrease in revenues from initial franchise fees. The following table reflects the detail of our franchise revenues in each period and other information we believe is useful in analyzing the change in franchise revenues (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Royalties | $ | 30,515 |
| | $ | 29,382 |
| | $ | 70,793 |
| | $ | 67,511 |
|
Rents | 47,099 |
| | 44,427 |
| | 111,051 |
| | 104,094 |
|
Re-image contributions to franchisees | (515 | ) | | (827 | ) | | (1,128 | ) | | (6,535 | ) |
Franchise fees and other | 1,327 |
| | 2,699 |
| | 3,139 |
| | 4,430 |
|
Franchise revenues | $ | 78,426 |
| | $ | 75,681 |
| | $ | 183,855 |
| | $ | 169,500 |
|
% increase | 3.6 | % | |
|
| | 8.5 | % | |
|
|
Average number of franchise restaurants | 2,018 |
| | 1,929 |
| | 2,016 |
| | 1,933 |
|
% increase | 4.6 | % | | | | 4.3 | % | | |
Changes in franchise-operated same-store sales: | | | | | | | |
Jack in the Box | (0.2 | )% | | 3.6 | % | | 0.9 | % | | 3.1 | % |
Qdoba | (0.9 | )% | | 2.2 | % | | (0.1 | )% | | 3.2 | % |
Royalties as a percentage of estimated franchise restaurant sales: | | | | | | | |
Jack in the Box | 5.2 | % | | 5.3 | % | | 5.2 | % | | 5.2 | % |
Qdoba | 4.9 | % | | 5.0 | % | | 4.9 | % | | 5.0 | % |
Operating Costs and Expenses
Food and packaging costs were 32.7% of company restaurant sales in the quarter and 32.4% year-to-date compared with 32.6% and 33.1%, respectively, a year ago. Higher commodity costs and greater promotional activity at our Qdoba restaurants were mostly offset in the quarter and more than offset year-to-date by the benefit of selling price increases, favorable product mix at our Jack in the Box restaurants, and a greater proportion of Qdoba company restaurants which generally have lower food and packaging costs than our Jack in the Box restaurants.
Commodity costs increased as follows compared with the prior year:
|
| | | |
| Quarter | | Year-to-Date |
Jack in the Box | 2.6% | | 1.0% |
Qdoba | 1.8% | | 1.4% |
Costs were higher for most commodities other than bakery in both periods and dairy year-to-date. We expect overall commodity costs for fiscal 2013 to increase approximately 2%-2.5%. Beef represents the largest portion, or approximately 20%,
of the Company’s overall commodity spend. We typically do not enter into fixed price contracts for our beef needs. For the full year, we currently expect beef costs to increase approximately 3.0%, and most other major commodities to be higher in 2013 compared with last year.
Payroll and employee benefit costs decreased to 28.7% of company restaurant sales in the quarter and 28.8% year-to-date from 29.1% and 29.2%, respectively, in 2012, reflecting leverage from Jack in the Box same-store sales increases, lower levels of incentive compensation, the modest benefits of refranchising Jack in the Box restaurants and the favorable impact of recent acquisitions of Qdoba franchised restaurants.
Occupancy and other costs were 22.8% of company restaurant sales in the quarter and 23.0% year-to-date, compared with 22.8% and 23.2%, respectively, last year. The lower percentage in 2013 is due primarily to leverage from Jack in the Box same-store sales increases and the favorable impact of recent acquisitions of Qdoba franchised restaurants, partially offset by a greater proportion of Qdoba company restaurants which generally have higher occupancy and other costs than our Jack in the Box restaurants.
Franchise costs, principally rents and depreciation on properties leased to Jack in the Box franchisees, increased $1.7 million in the quarter and $4.3 million year-to-date, due primarily to an increase in the number of franchised restaurants, partially offset by cost savings associated with our restructuring initiatives. As a percentage of the related revenues, franchise costs in the quarter
increased to 50.6% in 2013 from 50.2% in 2012 and decreased to 50.1% from 51.8%, respectively, year-to-date. The franchise cost percentages are impacted by changes in franchise fees, re-image contributions to franchisees, which are recorded as a reduction of franchise revenues, and same-store sales. The higher percentage in the quarter is primarily attributable to lower franchise fees while year-to-date the reduction in re-image contributions to franchisees more than offset the impact of lower franchise fees resulting in a decrease in the franchise cost rate.
The following table presents the change in selling, general and administrative (“SG&A”) expenses compared with the prior year (in thousands):
|
| | | | | | | |
| Increase / (Decrease) |
| Quarter | | Year-to-Date |
Advertising | $ | 163 |
| | $ | (247 | ) |
Refranchising strategy | (192 | ) | | (1,053 | ) |
Incentive compensation (including share-based compensation) | 804 |
| | 3,259 |
|
Cash surrender value of COLI policies, net | (271 | ) | | 1,587 |
|
Pension and postretirement benefits | 1,028 |
| | 2,400 |
|
Pre-opening costs | (745 | ) | | (1,653 | ) |
Other, including savings from restructuring initiatives | (2,312 | ) | | (4,199 | ) |
| $ | (1,525 | ) | | $ | 94 |
|
Our refranchising strategy has resulted in a decrease in the number of Jack in the Box company-operated restaurants and the related overhead expenses to manage and support those restaurants, including advertising costs, which are primarily contributions to our marketing fund determined as a percentage of restaurant sales. As such, advertising costs decreased at Jack in the Box and were higher at Qdoba due to an increase in the number of company-operated restaurants.
The higher levels of incentive compensation primarily reflect increases in share-based compensation expense due to changes in the attribution period over which certain share-based compensation awards are recognized and a change in the timing of share-based compensation grants to non-management directors from the fourth quarter last year to the second quarter of 2013, offset in part by a decline in Qdoba’s results compared with performance goals. The cash surrender value of our company-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 $1.4 million in the quarter and $2.7 million year-to-date compared with $1.1 million and $4.3 million, respectively, a year ago. The increase in pension and postretirement benefits expense principally relates to a decrease in the discount rate as compared with a year ago. The decrease in pre-opening costs primarily relate to higher expenses incurred in the prior year related to restaurant openings in new Jack in the Box markets.
Impairment and other charges, net is comprised of the following (in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Impairment charges | $ | 362 |
| | $ | 910 |
| | $ | 2,884 |
| | $ | 2,109 |
|
Losses on the disposition of property and equipment, net | 1,248 |
| | 1,775 |
| | 416 |
| | 2,858 |
|
Costs of closed restaurants (primarily lease obligations) and other | 429 |
| | 864 |
| | 1,190 |
| | 2,933 |
|
Restructuring costs | 343 |
| | 1,525 |
| | 1,155 |
| | 1,525 |
|
| $ | 2,382 |
| | $ | 5,074 |
| | $ | 5,645 |
| | $ | 9,425 |
|
Impairment and other charges, net decreased $2.7 million in the quarter and $3.8 million year-to-date compared to a year ago reflecting decreases in restructuring costs incurred in connection with the comprehensive review of our organizational structure and declines in lease obligation costs associated with closed restaurants. Year-to-date, income of $2.4 million recognized on the disposition of property and equipment in 2013 from the resolution of two eminent domain matters involving Jack in the Box restaurants, partially offset by higher impairment charges related to Jack in the Box restaurants we intend to close or have closed also contributed to the decrease. Refer to Note 7, Impairment, Disposition of Property and Equipment, Restaurant Closing Costs and Restructuring, of the notes to the condensed consolidated financial statements for additional information regarding costs associated with closed restaurants.
Gains (losses) on the sale of company-operated restaurants to franchisees, net are detailed in the following table (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Number of restaurants sold to franchisees | 4 |
| | 37 |
| | 4 |
| | 37 |
|
Gains on the sale of company-operated restaurants | $ | 331 |
| | $ | 14,078 |
| | $ | 1,079 |
| | $ | 15,200 |
|
Loss on expected sale of market | (2,749 | ) | | — |
| | (2,749 | ) | | — |
|
Gains (losses) on the sale of company-operated restaurants, net | $ | (2,418 | ) | | $ | 14,078 |
| | $ | (1,670 | ) | | $ | 15,200 |
|
Gains are impacted by the number of restaurants sold and changes in average gains recognized, which relate to the specific sales and cash flows of those restaurants. In 2013 and 2012, gains on the sale of company-operated restaurants include additional gains recognized upon the extension of the underlying franchise and lease agreements related to restaurants sold in a prior year of $0.2 million and $0.9 million, respectively, in the quarter and $1.0 million and $2.1 million, respectively, year-to-date. In 2013, gains (losses) on the sale of company-operated restaurants includes a loss of $2.7 million relating to the anticipated sale of a Jack in the Box market.
Interest Expense, Net
Interest expense, net is comprised of the following (in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter | | Year-to-Date |
| April 14, 2013 | | April 15, 2012 | | April 14, 2013 | | April 15, 2012 |
Interest expense | $ | 3,698 |
| | $ | 5,152 |
| | $ | 9,514 |
| | $ | 11,756 |
|
Interest income | (272 | ) | | (618 | ) | | (723 | ) | | (1,165 | ) |
Interest expense, net | $ | 3,426 |
| | $ | 4,534 |
| | $ | 8,791 |
| | $ | 10,591 |
|
Interest expense, net decreased $1.1 million in the quarter and $1.8 million year-to-date compared with a year ago primarily due to lower average borrowings and average interest rates, partially offset year-to-date by a $0.9 million charge in 2013 to write-off deferred financing fees in connection with the refinancing of our credit facility.
Income Taxes
The tax rate in 2013 was 37.1% in the quarter and 32.8% year-to-date, compared with 34.1% and 34.2%, respectively, in the prior year. The tax rate in the second quarter of fiscal 2013 was affected by the timing of tax credits associated with the Work Opportunity Tax Credit. The tax rates in all periods were impacted by the market performance of insurance investment products used to fund certain non-qualified retirement plans. Changes in the cash value of the insurance products are not included in taxable income. We expect the fiscal year tax rate to be approximately 35%-36%. The annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual rate could differ from our current estimates.
Earnings from Continuing Operations
Earnings from continuing operations were $13.4 million, or $0.30 per diluted share, in the quarter compared with $21.6 million, or $0.48 per diluted share, a year ago. Year-to-date earnings from continuing operations were $37.4 million, or $0.84 per diluted share, compared with $33.6 million or $0.75 per diluted share, a year ago.
Losses from Discontinued Operations, Net
As described in Note 2, Discontinued Operations, in the notes to the condensed consolidated financial statements, the losses from our distribution business have been reported as discontinued operations. Losses from discontinued operations, net were $0.1 million in the quarter and $3.4 million year-to-date and reflect exit costs associated with the outsourcing of our distribution business. These losses had no effect on diluted earnings per share in the quarter and reduced diluted earnings per share by approximately $0.08 year-to-date.
LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations, our revolving bank credit facility and the sale and leaseback of certain restaurant properties.
We generally reinvest available cash flows from operations to improve our restaurant facilities and develop new restaurants, to reduce debt and to repurchase shares of our common stock. Our cash requirements consist principally of:
working capital;
capital expenditures for new restaurant construction and restaurant renovations;
income tax payments;
debt service requirements; 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 other financing alternatives in place or available, will be sufficient to meet our capital expenditure, working capital and debt service requirements for the foreseeable future.
As is common in the restaurant industry, we 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.
Cash Flows
The table below summarizes our cash flows from operating, investing and financing activities (in thousands):
|
| | | | | | | |
| Year-to-Date |
| April 14, 2013 | | April 15, 2012 |
Total cash provided by (used in): | | | |
Operating activities | $ | 121,605 |
| | $ | 69,588 |
|
Investing activities | (45,494 | ) | | (64,592 | ) |
Financing activities | (74,378 | ) | | (5,112 | ) |
Net increase (decrease) in cash and cash equivalents | $ | 1,733 |
| | $ | (116 | ) |
Operating Activities. Operating cash flows increased $52.0 million compared with a year ago due primarily to the outsourcing of our distribution business which freed up working capital previously tied up in franchise receivables and distribution inventory. Additionally, a $33.3 million increase in net income adjusted for non-cash items excluded from cash flows and timing differences associated with rent payments for the month of October also contributed to the increase in operating cash flows. The impact of these increases in cash flows were partially offset by an increase in incentive compensation payments in the first quarter of 2013 compared with the same period a year ago.
Investing Activities. Cash used in investing activities decreased $19.1 million compared with a year ago due primarily to a decrease in cash used to acquire franchise-operated restaurants as well as an increase in proceeds from assets held for sale and leaseback. The impact of these decreases in cash outflows were partially offset by a decrease in proceeds from the sale of company-operated restaurants.
Capital Expenditures— The composition of capital expenditures in each period follows (in thousands):
|
| | | | | | | |
| Year-to-Date |
| April 14, 2013 | | April 15, 2012 |
Jack in the Box: | | | |
New restaurants | $ | 2,555 |
| | $ | 7,527 |
|
Restaurant facility improvements | 20,511 |
| | 16,748 |
|
Other, including corporate | 3,326 |
| | 7,408 |
|
| $ | 26,392 |
| | $ | 31,683 |
|
Qdoba: | | | |
New restaurants | $ | 11,955 |
| | $ | 6,517 |
|
Other, including corporate | 3,407 |
| | 2,409 |
|
| $ | 15,362 |
| | $ | 8,926 |
|
| | | |
Consolidated capital expenditures | $ | 41,754 |
| | $ | 40,609 |
|
Our capital expenditure program includes, among other things, investments in new locations, restaurant remodeling, new equipment and information technology enhancements. Capital expenditures increased compared to a year ago due primarily to an increase in spending related to new Qdoba restaurants partially offset by a decrease in spending related to new Jack in the Box restaurants. We expect fiscal 2013 capital expenditures to be approximately $95-$105 million. We plan to open approximately 6 Jack in the Box and 40 Qdoba company-operated restaurants in 2013.
Sale of Company-Operated Restaurants— We continue to expand franchise ownership in the Jack in the Box system primarily through the sale of company-operated restaurants to franchisees. The following table details proceeds received in connection with our refranchising activities in each period (dollars in thousands):
|
| | | | | | | |
| Year-to-Date |
| April 14, 2013 | | April 15, 2012 |
Number of restaurants sold to franchisees | 4 |
| | 37 |
|
| | | |
Total proceeds | $ | 2,866 |
| | $ | 21,964 |
|
Average Proceeds | $ | 717 |
| | $ | 594 |
|
In certain instances, we may provide financing to facilitate the closing of certain transactions. As of April 14, 2013, notes receivable related to prior year refranchisings were $2.2 million.
Assets Held for Sale and Leaseback— We use sale and leaseback financing to lower the initial cash investment in our Jack in the Box restaurants to the cost of the equipment, whenever possible. The following table summarizes the cash flow activity related to sale and leaseback transactions in each period (dollars in thousands):
|
| | | | | | | |
| Year-to-Date |
| April 14, 2013 | | April 15, 2012 |
Number of restaurants sold and leased back | 12 |
| | 5 |
|
| | | |
Proceeds from sale and leaseback of assets | $ | 22,892 |
| | $ | 9,312 |
|
Purchases of assets intended for sale and leaseback | (25,165 | ) | | (22,000 | ) |
Net cash flows related to assets held for sale and leaseback | $ | (2,273 | ) | | $ | (12,688 | ) |
As of April 14, 2013, we had investments of $35.9 million in 18 operating and under construction restaurant properties that we expect to sell and leaseback during the next 12 months.
Acquisition of Franchise-Operated Restaurants— In each period, we acquired Qdoba franchise restaurants in select markets where we believe there is continued opportunity for restaurant development. Additionally, in 2013 we exercised our right of first refusal and acquired one Jack in the Box franchise restaurant. The following table details franchise-operated restaurant acquisition activity (dollars in thousands):
|
| | | | | | | |
| Year-to-Date |
| April 14, 2013 | | April 15, 2012 |
Number of Jack in the Box restaurants acquired from franchisees | 1 |
| | — |
|
Number of Qdoba restaurants acquired from franchisees | 12 |
| | 36 |
|
Cash used to acquire franchise-operated restaurants | $ | 11,014 |
| | $ | 39,195 |
|
The purchase prices were primarily allocated to property and equipment, goodwill and reacquired franchise rights. For additional information, refer to Note 4, Summary of Refranchisings, Franchise Development and Acquisitions, of the notes to the condensed consolidated financial statements.
Financing Activities. Cash flows used in financing activities increased $69.3 million compared with a year ago primarily attributable to an increase in cash used to repurchase shares of our common stock, a decrease in borrowings under our credit facility, and the change in our book overdraft related to the timing of working capital receipts and disbursements. These increases in cash outflows were partially offset by an increase in proceeds from the issuance of common stock related to stock option exercises.
New Credit Facility— In November 2012, we replaced our existing credit facility with a new credit facility intended to provide a more flexible capital structure and take advantage of lower interest rates. The new facility is comprised of (i) a $400.0 million revolving credit facility and (ii) a $200.0 million term loan, both maturing on November 5, 2017, and both bearing interest at London Interbank Offered Rate (“LIBOR”) plus 2.00%, as of April 14, 2013. As part of the credit agreement, we may also request the issuance of up to $75.0 million in letters of credit, the outstanding amount of which reduces the net borrowing capacity under the agreement. The credit facility requires the payment of an annual commitment fee based on the unused portion of the credit facility. The credit facility’s interest rate is based on the Company’s financial leverage ratio, as defined in the credit agreement, and can range from LIBOR plus 1.75% to 2.25%with no floor. We may make voluntary prepayments of the loans under the revolving credit facility and term loan at any time without premium or penalty. Specific events, such as asset sales, certain issuances of debt, and insurance and condemnation recoveries, could trigger a mandatory prepayment.
The Company borrowed approximately $220.0 million under the revolving credit facility and $200.0 million under the term loan. The proceeds were used to repay all borrowings under the prior credit facility and the related transaction fees and expenses, including those associated with the new credit facility. Loan origination costs associated with the new credit facility were $4.4 million and are included as deferred costs in other assets, net in the accompanying condensed consolidated balance sheet as of April 14, 2013. At April 14, 2013, we had $195.0 million outstanding under the term loan, borrowings under the revolving credit facility of $190.0 million and letters of credit outstanding of $30.9 million.
We are subject to a number of customary covenants under our new credit facility, including limitations on additional borrowings, acquisitions, loans to franchisees, capital expenditures, lease commitments, stock repurchases, dividend payments and requirements to maintain certain financial ratios defined in our credit agreement. We were in compliance with all covenants as of April 14, 2013.
Interest Rate Swaps— To reduce our exposure to rising interest rates under our variable rate debt, we consider interest rate swaps. In August 2010, we entered into two forward-looking swaps that effectively convert the first $100.0 million of our variable rate term loan to a fixed-rate basis from September 2011 through September 2014. Based on the term loan’s applicable margin of 2.00% as of April 14, 2013, these agreements would have an average pay rate of 1.54%, yielding an “all-in” fixed rate of 3.54%. For additional information related to our interest rate swaps, refer to Note 6, Derivative Instruments, of the notes to the condensed consolidated financial statements.
Repurchases of Common Stock— In November 2011, the Board of Directors approved a program, expiring November 2013, to repurchase $100.0 million in shares of our common stock. During 2013, we repurchased approximately 1.4 million shares at an aggregate cost of $41.3 million under this authorization. In November 2012, the Board of Directors approved a new program to repurchase up to an additional $100.0 million in shares of our common stock through November 2014. As of April 14, 2013, the aggregate remaining amount authorized for repurchase was $135.6 million under both authorizations.
Off-Balance Sheet Arrangements
We are not a party to any 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.
DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those the Company believes 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, 2012.
NEW ACCOUNTING PRONOUNCEMENTS
Accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our condensed consolidated financial statements upon adoption.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the federal securities laws. 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 important factors described in the “Discussion of Critical Accounting Estimates,” and in other sections in this Form 10-Q and in our most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2012 (“Form 10-K”) and other Securities and Exchange Commission filings, including:
Food service businesses such as ours may be materially and adversely affected by changes in consumer preferences or dining habits, and economic, political and socioeconomic conditions. Adverse economic conditions such as unemployment and decreased discretionary spending may result in reduced restaurant traffic and sales and impose practical limits on pricing.
Our profitability depends in part on food and commodity costs and availability, including animal feed costs and fuel costs and other supply and distribution costs. The risks of increased commodities costs and volatility in costs could adversely affect our profitability and results of operations.
Multi-unit food service businesses such as ours can be materially and adversely affected by widespread negative publicity of any type, particularly regarding food quality or public health issues. Negative publicity regarding our brands or the restaurant industry in general could cause a decline in system restaurant sales and could have a material adverse effect on our financial condition and results of operations.
Similarly, food service businesses such as ours are subject to the risk that shortages or interruptions in supply could adversely affect the availability, quality and cost of ingredients.
Our business can be materially and adversely affected by severe weather conditions, which can result in lost restaurant sales, supply chain interruptions and increased costs.
Growth and new restaurant development involve substantial risks, including risks associated with unavailability of suitable franchisees, limited financing availability, cost overruns and the inability to secure suitable sites on acceptable terms. In addition, our growth strategy includes opening restaurants in new markets where we cannot assure that we will be able to successfully expand or acquire critical market presence, attract customers or otherwise operate profitably.
The restaurant industry is highly competitive with respect to price, service, location, brand identification and menu quality and innovation. We cannot assure that we will be able to effectively respond to aggressive competitors (including competitors with significantly greater financial resources); that our facility improvements and related strategies will increase our same-store sales and AUVs; or that our new products, service initiatives or our overall strategies will be successful.
Should our advertising and promotions be less effective than our competitors, there could be a material adverse effect on our results of operations and financial condition.
The cost-saving initiatives taken in recent years, including the outsourcing of our distribution business, are subject to risk and uncertainties, and we cannot assure that these activities, or any other activities we undertake in the future, will achieve the desired savings and efficiencies.
The loss of key personnel could have a material adverse effect on our business.
The costs of compliance with government regulations, including those resulting in increased labor costs, could negatively affect our results of operations and financial condition.
A material failure or interruption of service or a breach in security of our information technology systems or databases could cause reduced efficiency in operations, loss or misappropriation of data or business interruptions.
We maintain a documented system of internal controls, which is reviewed and monitored by an Internal Controls Committee and tested by the Company’s full-time internal audit department. Any failures in the effectiveness of our internal controls could have a material adverse effect on our operating results or cause us to fail to meet reporting obligations.
Failure to comply with environmental laws could result in the imposition of severe penalties or restrictions on operations by governmental agencies or courts of law, which could adversely affect operations.
Our ability to repay expected borrowings under our credit facility and to meet our other debt or contractual obligations will depend upon our future performance and our cash flows from operations, both of which are subject to prevailing economic conditions and financial, business and other known and unknown risks and uncertainties, certain of which are beyond our control.
Changes in accounting standards, policies or related interpretations by accountants or regulatory entities may negatively impact our results.
We are subject to litigation which is inherently unpredictable and can result in unfavorable resolutions where the amount of ultimate loss may exceed our estimated loss contingencies, or impose other costs in defense of claims or distract management from our operations.
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
Our primary exposure to risks relating to our financial instruments are changes in interest rates. Our credit facility, which is comprised of a revolving credit facility and a term loan, bears interest at an annual rate equal to the prime rate of LIBOR plus an applicable margin based on a financial leverage ratio. As of April 14, 2013, the applicable margin for the LIBOR-based revolving loans and term loan was set at 2.00%.
We use interest rate swap agreements to reduce exposure to interest rate fluctuations. In August 2010, we entered into two interest rate swap agreements that effectively convert $100.0 million of our variable rate term loan borrowings to a fixed-rate basis beginning September 2011 through September 2014. Based on the term loan’s applicable margin of 2.00% as of April 14, 2013, these agreements would have an average pay rate of 1.54%, yielding a fixed rate of 3.54%.
A hypothetical 100 basis point increase in short-term interest rates, based on the outstanding unhedged balance of our revolving credit facility and term loan at April 14, 2013, would result in an estimated increase of $2.9 million in annual interest expense.
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. From time to time, we enter into futures and option contracts to manage these fluctuations. At April 14, 2013, we had no such contracts in place.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on an evaluation 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 April 14, 2013, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) have concluded that the Company’s disclosure controls and procedures were effective.
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 April 14, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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 14, Contingencies and Legal Matters, of the notes to the unaudited condensed consolidated financial statements for a discussion of our contingencies and legal matters.
ITEM 1A. RISK FACTORS
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, 2012, which we filed with the SEC on November 21, 2012, together with 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 when evaluating our business and our prospects. 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, 2012, including our financial statements and the related notes. There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As of April 14, 2013, our credit agreement provides for up to $500.0 million for the potential payment of cash dividends and stock repurchases, subject to certain limitations based on our leverage ratio as defined in our credit agreement.
Dividends— We did not pay any cash or other dividends during the last two fiscal years and do not anticipate paying dividends in the foreseeable future.
Stock Repurchases— In November 2011, the Board of Directors approved a program, expiring November 2013, to repurchase $100.0 million in shares of our common stock. During 2013, we repurchased approximately 1.4 million shares at an aggregate cost of $41.3 million under this authorization. In November 2012, the Board of Directors approved a new program to repurchase up to an additional $100.0 million in shares of our common stock through November 2014. As of April 14, 2013, the aggregate remaining amount authorized for repurchase was $135.6 million under both authorizations. The following table summarizes shares repurchased during the quarter ended April 14, 2013:
|
| | | | | | | | | | | | | |
| (a) Total number of shares purchased | | (b) Average price paid per share | | (c) Total number of shares purchased as part of publicly announced programs | | (d) Maximum dollar value that may yet be purchased under these programs |
| | | | | | | $ | 150,000,016 |
|
January 21, 2013 - February 17, 2013 | — |
| | $ | — |
| | — |
| | $ | 150,000,016 |
|
February 18, 2013 - March 17, 2013 | — |
| | — |
| | — |
| | $ | 150,000,016 |
|
March 18, 2013 - April 14, 2013 | 421,120 |
| | 34.28 |
| | 421,120 |
| | $ | 135,554,862 |
|
Total | 421,120 |
| | $ | 34.28 |
| | 421,120 |
| | |
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
|
| | | |
Number | Description | Form | Filed with SEC |
3.1 | Restated Certificate of Incorporation, as amended, dated September 21, 2007 | 10-K | 11/20/2009 |
3.1.1 | Certificate of Amendment of Restated Certificate of Incorporation, dated September 21, 2007 | 8-K | 9/24/2007 |
3.2 | Amended and Restated Bylaws, dated April 9, 2012August 7, 2013 | 8-K10-Q | 4/10/20128/8/2013 |
10.3 | Form of Restricted Stock Unit Grant Agreement for Non-Employee Directors under the 2004 Stock Incentive Plan (dated Feb. 11, 2015) | 10-Q | 5/14/2015 |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | — | Filed herewith |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | — | Filed herewith |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | — | Filed herewith |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | — | Filed herewith |
101.INS*101.INS | XBRL Instance Document | | |
101.SCH*101.SCH | XBRL Taxonomy Extension Schema Document | | |
101.CAL*101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | |
101.DEF*101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | |
101.LAB*101.LAB | XBRL Taxonomy Extension Label Linkbase Document | | |
101.PRE*101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | | |
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* | In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.” |
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. |
| | |
| By: | /S/ JERRY P. REBEL |
| | Jerry P. Rebel |
| | Executive Vice President and Chief Financial Officer (principal financial officer) (Duly Authorized Signatory) |
Date: May 16, 201315, 2015