UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 5, 2020April 11, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ________to________.
Commission File Number: 1-9390
JACK IN THE BOX INC.
(Exact name of registrant as specified in its charter)
_______________________________________________________________________________________
| | | | | | | | | | | | | | |
Delaware | | | | 95-2698708 |
(State of Incorporation) | | | | (I.R.S. Employer Identification No.) |
9357 Spectrum Center Blvd.
San Diego, California 92123
(Address of principal executive offices)
9330 Balboa Avenue
San Diego, California 92123
(Former name or former address, if changed since last report)
Registrant’s telephone number, including area code (858) 571-2121
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | JACK | NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | þ | Smaller reporting company | ☐ |
Accelerated filer | ☐ | Emerging growth company | ☐ |
Non-accelerated filer | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No þ
As of the close of business July 30, 2020, 22,677,817May 7, 2021, 22,228,146 shares of the registrant’s common stock were outstanding.
JACK IN THE BOX INC. AND SUBSIDIARIES
INDEX
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| | Page |
| PART I – FINANCIAL INFORMATION | |
Item 1. | | |
| | |
| Condensed Consolidated Statements of Earnings | |
| | |
| | |
| | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | | |
Item 4. | | |
| PART II – OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | Defaults of Senior Securities | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
| | |
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
| | | July 5, 2020 | | September 29, 2019 | | April 11, 2021 | | September 27, 2020 |
ASSETS | ASSETS | | ASSETS |
Current assets: | Current assets: | | Current assets: | |
Cash | Cash | $ | 159,540 | | | $ | 125,536 | | Cash | $ | 90,637 | | | $ | 199,662 | |
Restricted cash | Restricted cash | 37,373 | | | 26,025 | | Restricted cash | 18,137 | | | 37,258 | |
Accounts and other receivables, net | Accounts and other receivables, net | 88,242 | | | 45,235 | | Accounts and other receivables, net | 86,721 | | | 78,417 | |
Inventories | Inventories | 1,835 | | | 1,776 | | Inventories | 2,158 | | | 1,808 | |
Prepaid expenses | Prepaid expenses | 13,447 | | | 9,015 | | Prepaid expenses | 6,784 | | | 10,114 | |
Current assets held for sale | Current assets held for sale | 6,191 | | | 16,823 | | Current assets held for sale | 3,883 | | | 4,598 | |
Other current assets | Other current assets | 3,504 | | | 2,718 | | Other current assets | 3,703 | | | 3,724 | |
Total current assets | Total current assets | 310,132 | | | 227,128 | | Total current assets | 212,023 | | | 335,581 | |
Property and equipment: | Property and equipment: | | | | Property and equipment: | | | |
Property and equipment, at cost | Property and equipment, at cost | 1,140,285 | | | 1,176,241 | | Property and equipment, at cost | 1,144,503 | | | 1,132,430 | |
Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | (796,159) | | | (784,307) | | Less accumulated depreciation and amortization | (812,489) | | | (796,448) | |
Property and equipment, net | Property and equipment, net | 344,126 | | | 391,934 | | Property and equipment, net | 332,014 | | | 335,982 | |
Other assets: | Other assets: | | | | Other assets: | | | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 902,858 | | | — | | Operating lease right-of-use assets | 914,010 | | | 904,548 | |
Intangible assets, net | Intangible assets, net | 283 | | | 425 | | Intangible assets, net | 262 | | | 277 | |
Goodwill | Goodwill | 47,161 | | | 46,747 | | Goodwill | 47,161 | | | 47,161 | |
Deferred tax assets | Deferred tax assets | 66,132 | | | 85,564 | | Deferred tax assets | 71,167 | | | 72,322 | |
Other assets, net | Other assets, net | 216,008 | | | 206,685 | | Other assets, net | 214,138 | | | 210,623 | |
Total other assets | Total other assets | 1,232,442 | | | 339,421 | | Total other assets | 1,246,738 | | | 1,234,931 | |
| | $ | 1,886,700 | | | $ | 958,483 | | | $ | 1,790,775 | | | $ | 1,906,494 | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | LIABILITIES AND STOCKHOLDERS’ DEFICIT | | LIABILITIES AND STOCKHOLDERS’ DEFICIT |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Current maturities of long-term debt | Current maturities of long-term debt | $ | 13,821 | | | $ | 774 | | Current maturities of long-term debt | $ | 850 | | | $ | 818 | |
Current operating lease liabilities | Current operating lease liabilities | 169,347 | | | — | | Current operating lease liabilities | 153,297 | | | 179,000 | |
Accounts payable | Accounts payable | 26,339 | | | 37,066 | | Accounts payable | 24,695 | | | 31,105 | |
Accrued liabilities | Accrued liabilities | 143,344 | | | 120,083 | | Accrued liabilities | 123,550 | | | 129,431 | |
Total current liabilities | Total current liabilities | 352,851 | | | 157,923 | | Total current liabilities | 302,392 | | | 340,354 | |
Long-term liabilities: | Long-term liabilities: | | | | Long-term liabilities: | | | |
Long-term debt, net of current maturities | Long-term debt, net of current maturities | 1,366,171 | | | 1,274,374 | | Long-term debt, net of current maturities | 1,271,412 | | | 1,376,913 | |
Long-term operating lease liabilities, net of current portion | Long-term operating lease liabilities, net of current portion | 777,883 | | | — | | Long-term operating lease liabilities, net of current portion | 792,183 | | | 776,094 | |
Other long-term liabilities | Other long-term liabilities | 216,752 | | | 263,770 | | Other long-term liabilities | 205,345 | | | 206,494 | |
Total long-term liabilities | Total long-term liabilities | 2,360,806 | | | 1,538,144 | | Total long-term liabilities | 2,268,940 | | | 2,359,501 | |
Stockholders’ deficit: | Stockholders’ deficit: | | | | Stockholders’ deficit: | | | |
Preferred stock $0.01 par value, 15,000,000 shares authorized, NaN issued | Preferred stock $0.01 par value, 15,000,000 shares authorized, NaN issued | — | | | — | | Preferred stock $0.01 par value, 15,000,000 shares authorized, NaN issued | 0 | | | 0 | |
Common stock $0.01 par value, 175,000,000 shares authorized, 82,320,270 and 82,159,002 issued, respectively | 823 | | | 822 | | |
Common stock $0.01 par value, 175,000,000 shares authorized, 82,510,007 and 82,369,714 issued, respectively | | Common stock $0.01 par value, 175,000,000 shares authorized, 82,510,007 and 82,369,714 issued, respectively | 825 | | | 824 | |
Capital in excess of par value | Capital in excess of par value | 491,594 | | | 480,322 | | Capital in excess of par value | 496,798 | | | 489,515 | |
Retained earnings | Retained earnings | 1,607,485 | | | 1,577,034 | | Retained earnings | 1,704,766 | | | 1,636,211 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (117,553) | | | (140,006) | | Accumulated other comprehensive loss | (108,640) | | | (110,605) | |
Treasury stock, at cost, 59,646,773 and 57,760,573 shares, respectively | (2,809,306) | | | (2,655,756) | | |
Treasury stock, at cost, 60,287,482 and 59,646,773 shares, respectively | | Treasury stock, at cost, 60,287,482 and 59,646,773 shares, respectively | (2,874,306) | | | (2,809,306) | |
Total stockholders’ deficit | Total stockholders’ deficit | (826,957) | | | (737,584) | | Total stockholders’ deficit | (780,557) | | | (793,361) | |
| | $ | 1,886,700 | | | $ | 958,483 | | | $ | 1,790,775 | | | $ | 1,906,494 | |
See accompanying notes to condensed consolidated financial statements.
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Revenues: | | | | | | | |
Company restaurant sales | $ | 82,444 | | | $ | 78,434 | | | $ | 262,188 | | | $ | 257,948 | |
Franchise rental revenues | 76,021 | | | 63,359 | | | 241,990 | | | 208,895 | |
Franchise royalties and other | 43,239 | | | 40,180 | | | 133,469 | | | 130,840 | |
Franchise contributions for advertising and other services | 40,571 | | | 40,386 | | | 128,458 | | | 131,189 | |
| 242,275 | | | 222,359 | | | 766,105 | | | 728,872 | |
Operating costs and expenses, net: | | | | | | | |
Company restaurant costs (excluding depreciation and amortization): | | | | | | | |
Food and packaging | 24,077 | | | 23,058 | | | 77,662 | | | 74,350 | |
Payroll and employee benefits | 25,085 | | | 23,121 | | | 81,236 | | | 76,163 | |
Occupancy and other | 12,334 | | | 11,052 | | | 40,862 | | | 38,165 | |
Total company restaurant costs | 61,496 | | | 57,231 | | | 199,760 | | | 188,678 | |
Franchise occupancy expenses (excluding depreciation and amortization) | 48,612 | | | 38,371 | | | 161,470 | | | 127,702 | |
Franchise support and other costs | 2,692 | | | 2,695 | | | 10,339 | | | 8,337 | |
Franchise advertising and other services expenses | 42,176 | | | 41,882 | | | 133,134 | | | 136,397 | |
Selling, general and administrative expenses | 13,680 | | | 24,389 | | | 66,131 | | | 66,057 | |
Depreciation and amortization | 12,141 | | | 12,786 | | | 41,151 | | | 42,645 | |
Impairment and other charges, net | 738 | | | (3,256) | | | (7,837) | | | 5,567 | |
Gains on the sale of company-operated restaurants | (1,050) | | | — | | | (2,625) | | | (219) | |
| 180,485 | | | 174,098 | | | 601,523 | | | 575,164 | |
Earnings from operations | 61,790 | | | 48,261 | | | 164,582 | | | 153,708 | |
Other pension and post-retirement expenses, net | 1,482 | | | 342 | | | 40,972 | | | 1,141 | |
Interest expense, net | 15,700 | | | 36,494 | | | 51,051 | | | 67,144 | |
Earnings from continuing operations and before income taxes | 44,608 | | | 11,425 | | | 72,559 | | | 85,423 | |
Income tax expense (benefit) | 12,432 | | | (2,048) | | | 21,023 | | | 15,699 | |
Earnings from continuing operations | 32,176 | | | 13,473 | | | 51,536 | | | 69,724 | |
Earnings (losses) from discontinued operations, net of income taxes | 379 | | | (284) | | | 379 | | | 2,652 | |
Net earnings | $ | 32,555 | | | $ | 13,189 | | | $ | 51,915 | | | $ | 72,376 | |
| | | | | | | |
Net earnings per share - basic: | | | | | | | |
Earnings from continuing operations | $ | 1.41 | | | $ | 0.52 | | | $ | 2.22 | | | $ | 2.69 | |
Earnings (losses) from discontinued operations | 0.02 | | | (0.01) | | | 0.02 | | | 0.10 | |
Net earnings per share (1) | $ | 1.42 | | | $ | 0.51 | | | $ | 2.24 | | | $ | 2.79 | |
Net earnings per share - diluted: | | | | | | | |
Earnings from continuing operations | $ | 1.40 | | | $ | 0.51 | | | $ | 2.21 | | | $ | 2.67 | |
Earnings (losses) from discontinued operations | 0.02 | | | (0.01) | | | 0.02 | | | 0.10 | |
Net earnings per share (1) | $ | 1.42 | | | $ | 0.50 | | | $ | 2.23 | | | $ | 2.77 | |
| | | | | | | |
Cash dividends declared per common share | $ | — | | | $ | 0.40 | | | $ | 0.80 | | | $ | 1.20 | |
____________________________ | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Revenues: | | | | | | | |
Company restaurant sales | $ | 85,962 | | | $ | 74,380 | | | $ | 200,240 | | | $ | 179,744 | |
Franchise rental revenues | 77,901 | | | 69,885 | | | 181,650 | | | 165,969 | |
Franchise royalties and other | 47,231 | | | 37,764 | | | 106,879 | | | 90,230 | |
Franchise contributions for advertising and other services | 46,123 | | | 34,128 | | | 106,989 | | | 87,887 | |
| 257,217 | | | 216,157 | | | 595,758 | | | 523,830 | |
Operating costs and expenses, net: | | | | | | | |
Food and packaging | 23,938 | | | 22,237 | | | 56,315 | | | 53,585 | |
Payroll and employee benefits | 26,440 | | | 24,261 | | | 61,371 | | | 56,151 | |
Occupancy and other | 13,349 | | | 12,570 | | | 31,184 | | | 28,528 | |
Franchise occupancy expenses | 48,904 | | | 48,341 | | | 114,073 | | | 112,858 | |
Franchise support and other costs | 3,341 | | | 2,971 | | | 6,614 | | | 7,647 | |
Franchise advertising and other services expenses | 47,104 | | | 35,734 | | | 109,799 | | | 90,958 | |
Selling, general and administrative expenses | 18,861 | | | 24,203 | | | 39,360 | | | 52,451 | |
Depreciation and amortization | 10,696 | | | 12,282 | | | 25,267 | | | 29,010 | |
Impairment and other charges (gains), net | 1,228 | | | 716 | | | 776 | | | (8,575) | |
Gains on the sale of company-operated restaurants | (1,532) | | | 0 | | | (2,815) | | | (1,575) | |
| 192,329 | | | 183,315 | | | 441,944 | | | 421,038 | |
Earnings from operations | 64,888 | | | 32,842 | | | 153,814 | | | 102,792 | |
Other pension and post-retirement expenses, net | 203 | | | 512 | | | 474 | | | 39,490 | |
Interest expense, net | 15,227 | | | 15,409 | | | 35,962 | | | 35,351 | |
Earnings before income taxes | 49,458 | | | 16,921 | | | 117,378 | | | 27,951 | |
Income taxes | 13,524 | | | 5,458 | | | 30,585 | | | 8,591 | |
| | | | | | | |
| | | | | | | |
Net earnings | $ | 35,934 | | | $ | 11,463 | | | $ | 86,793 | | | $ | 19,360 | |
| | | | | | | |
Earnings per share: | | | | | | | |
Basic | $ | 1.58 | | | $ | 0.50 | | | $ | 3.80 | | | $ | 0.83 | |
Diluted | $ | 1.58 | | | $ | 0.50 | | | $ | 3.78 | | | 0.82 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Dividends declared per common share | $ | 0.40 | | | $ | 0.40 | | | $ | 0.80 | | | $ | 0.80 | |
(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 (LOSS)
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Net earnings | $ | 32,555 | | | $ | 13,189 | | | $ | 51,915 | | | $ | 72,376 | |
Cash flow hedges: | | | | | | | |
Net change in fair value of derivatives | — | | | (11,499) | | | — | | | (23,625) | |
Net loss reclassified to earnings | — | | | 23,715 | | | — | | | 24,328 | |
| — | | | 12,216 | | | — | | | 703 | |
Tax effect | — | | | (6,132) | | | — | | | (3,165) | |
| — | | | 6,084 | | | — | | | (2,462) | |
Unrecognized periodic benefit costs: | | | | | | | |
Actuarial income (losses) arising during the period | 19,666 | | | — | | | (12,841) | | | — | |
Actuarial losses and prior service costs reclassified to earnings | 1,494 | | | 904 | | | 43,166 | | | 3,013 | |
| 21,160 | | | 904 | | | 30,325 | | | 3,013 | |
Tax effect | (5,493) | | | (232) | | | (7,872) | | | (777) | |
| 15,667 | | | 672 | | | 22,453 | | | 2,236 | |
| | | | | | | |
Other comprehensive income (loss), net of taxes | 15,667 | | | 6,756 | | | 22,453 | | | (226) | |
| | | | | | | |
Comprehensive income | $ | 48,222 | | | $ | 19,945 | | | $ | 74,368 | | | $ | 72,150 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Net earnings | $ | 35,934 | | | $ | 11,463 | | | $ | 86,793 | | | $ | 19,360 | |
Other comprehensive income (loss): | | | | | | | |
Actuarial losses arising during the period | 0 | | | (61,090) | | | 0 | | | (32,507) | |
Actuarial losses and prior service costs reclassified to earnings | 1,138 | | | 1,362 | | | 2,655 | | | 41,672 | |
| 1,138 | | | (59,728) | | | 2,655 | | | 9,165 | |
Tax effect | (296) | | | 15,503 | | | (690) | | | (2,379) | |
Other comprehensive income (loss), net of taxes | 842 | | | (44,225) | | | 1,965 | | | 6,786 | |
| | | | | | | |
Comprehensive income (loss) | $ | 36,776 | | | $ | (32,762) | | | $ | 88,758 | | | $ | 26,146 | |
See accompanying notes to condensed consolidated financial statements.
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | Year-to-date | | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net earnings | Net earnings | $ | 51,915 | | | $ | 72,376 | | Net earnings | $ | 86,793 | | | $ | 19,360 | |
Earnings from discontinued operations | 379 | | | 2,652 | | |
Earnings from continuing operations | 51,536 | | | 69,724 | | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | Adjustments to reconcile net earnings to net cash provided by operating activities: | | Adjustments to reconcile net earnings to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 41,151 | | | 42,645 | | Depreciation and amortization | 25,267 | | | 29,010 | |
Amortization of franchise tenant improvement allowances and other | Amortization of franchise tenant improvement allowances and other | 2,383 | | | 1,524 | | Amortization of franchise tenant improvement allowances and other | 1,534 | | | 1,765 | |
Deferred finance cost amortization | Deferred finance cost amortization | 4,337 | | | 1,903 | | Deferred finance cost amortization | 3,013 | | | 3,046 | |
Excess tax benefits from share-based compensation arrangements | (71) | | | (66) | | |
Excess tax benefit from share-based compensation arrangements | | Excess tax benefit from share-based compensation arrangements | (1,112) | | | (77) | |
Deferred income taxes | Deferred income taxes | 12,567 | | | (1,745) | | Deferred income taxes | (882) | | | 6,783 | |
Share-based compensation expense | Share-based compensation expense | 7,612 | | | 6,589 | | Share-based compensation expense | 2,836 | | | 5,865 | |
Pension and postretirement expense | 40,972 | | | 1,141 | | |
Gains on cash surrender value of company-owned life insurance | (1,861) | | | (3,117) | | |
Pension and post-retirement expense | | Pension and post-retirement expense | 474 | | | 39,490 | |
(Gains) losses on cash surrender value of company-owned life insurance | | (Gains) losses on cash surrender value of company-owned life insurance | (9,352) | | | 3,150 | |
Gains on the sale of company-operated restaurants | Gains on the sale of company-operated restaurants | (2,625) | | | (219) | | Gains on the sale of company-operated restaurants | (2,815) | | | (1,575) | |
Gains on the disposition of property and equipment, net | Gains on the disposition of property and equipment, net | (10,386) | | | (5,756) | | Gains on the disposition of property and equipment, net | (1,931) | | | (10,170) | |
Non-cash operating lease costs | Non-cash operating lease costs | (5,689) | | | — | | Non-cash operating lease costs | (11,870) | | | (13,118) | |
Impairment charges and other | Impairment charges and other | 195 | | | 1,624 | | Impairment charges and other | 1,340 | | | 133 | |
Changes in assets and liabilities, excluding acquisitions: | Changes in assets and liabilities, excluding acquisitions: | | Changes in assets and liabilities, excluding acquisitions: | |
Accounts and other receivables | Accounts and other receivables | (39,198) | | | (3,555) | | Accounts and other receivables | (4,490) | | | (22,858) | |
Inventories | Inventories | 14 | | | (79) | | Inventories | (288) | | | 28 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | (5,034) | | | 1,509 | | Prepaid expenses and other current assets | 3,461 | | | (10,350) | |
Accounts payable | Accounts payable | (4,620) | | | 24,321 | | Accounts payable | (14,614) | | | 20,660 | |
Accrued liabilities | Accrued liabilities | 15,755 | | | 9,363 | | Accrued liabilities | 6,499 | | | 1,400 | |
Pension and postretirement contributions | (4,921) | | | (5,126) | | |
Franchise tenant improvement allowance distributions | (7,105) | | | (7,875) | | |
Pension and post-retirement contributions | | Pension and post-retirement contributions | (3,577) | | | (3,582) | |
Franchise tenant improvement allowance disbursements | | Franchise tenant improvement allowance disbursements | (567) | | | (5,811) | |
Other | Other | (4,844) | | | (16,012) | | Other | (1,175) | | | (4,222) | |
Cash flows provided by operating activities | Cash flows provided by operating activities | 90,168 | | | 116,793 | | Cash flows provided by operating activities | 78,544 | | | 58,927 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Purchases of property and equipment | Purchases of property and equipment | (16,736) | | | (25,041) | | Purchases of property and equipment | (22,928) | | | (12,777) | |
Proceeds from the sale of property and equipment | Proceeds from the sale of property and equipment | 22,790 | | | 7,563 | | Proceeds from the sale of property and equipment | 3,629 | | | 22,394 | |
Proceeds from the sale and leaseback of assets | Proceeds from the sale and leaseback of assets | 19,828 | | | 3,056 | | Proceeds from the sale and leaseback of assets | 0 | | | 17,373 | |
Proceeds from the sale of company-operated restaurants | Proceeds from the sale of company-operated restaurants | 2,625 | | | 133 | | Proceeds from the sale of company-operated restaurants | 965 | | | 1,575 | |
Collections on notes receivable | — | | | 15,239 | | |
Other | Other | 1,036 | | | — | | Other | 2,616 | | | 1,036 | |
Cash flows provided by investing activities | 29,543 | | | 950 | | |
Cash flows (used in) provided by investing activities | | Cash flows (used in) provided by investing activities | (15,718) | | | 29,601 | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Borrowings on revolving credit facilities | Borrowings on revolving credit facilities | 111,376 | | | 229,798 | | Borrowings on revolving credit facilities | 0 | | | 111,376 | |
Repayments of borrowings on revolving credit facilities | Repayments of borrowings on revolving credit facilities | (3,500) | | | (252,800) | | Repayments of borrowings on revolving credit facilities | (107,875) | | | (3,500) | |
Principal repayments on debt | Principal repayments on debt | (7,094) | | | (32,611) | | Principal repayments on debt | (415) | | | (3,640) | |
Debt issuance costs | Debt issuance costs | (216) | | | (5,088) | | Debt issuance costs | 0 | | | (216) | |
Dividends paid on common stock | Dividends paid on common stock | (18,466) | | | (30,929) | | Dividends paid on common stock | (18,130) | | | (18,466) | |
Proceeds from issuance of common stock | Proceeds from issuance of common stock | 3,559 | | | 696 | | Proceeds from issuance of common stock | 4,340 | | | 3,559 | |
Repurchases of common stock | Repurchases of common stock | (155,576) | | | (14,362) | | Repurchases of common stock | (65,000) | | | (155,576) | |
Payroll tax payments for equity award issuances | Payroll tax payments for equity award issuances | (4,442) | | | (2,705) | | Payroll tax payments for equity award issuances | (3,892) | | | (4,442) | |
Cash flows used in financing activities | Cash flows used in financing activities | (74,359) | | | (108,001) | | Cash flows used in financing activities | (190,972) | | | (70,905) | |
Net increase in cash and restricted cash | 45,352 | | | 9,742 | | |
Net (decrease) increase in cash and restricted cash | | Net (decrease) increase in cash and restricted cash | (128,146) | | | 17,623 | |
Cash and restricted cash at beginning of period | Cash and restricted cash at beginning of period | 151,561 | | | 2,705 | | Cash and restricted cash at beginning of period | 236,920 | | | 151,561 | |
Cash and restricted cash at end of period | Cash and restricted cash at end of period | $ | 196,913 | | | $ | 12,447 | | Cash and restricted cash at end of period | $ | 108,774 | | | $ | 169,184 | |
See accompanying notes to condensed consolidated financial statements.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.BASIS OF PRESENTATION
Nature of operations — Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box® quick-service restaurants. The following table summarizes the number of restaurants as of the end of each period:
| | | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 |
Company-operated | Company-operated | 144 | | | 137 | | Company-operated | 148 | | | 144 | |
Franchise | Franchise | 2,100 | | | 2,105 | | Franchise | 2,080 | | | 2,102 | |
Total system | Total system | 2,244 | | | 2,242 | | Total system | 2,228 | | | 2,246 | |
References to the Company throughout these notes to condensed consolidated financial statements are made using the first person notations of “we,” “us” and “our.”
Basis of presentation — The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 201927, 2020 (“20192020 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 20192020 Form 10-K with the exception of the new lease accounting standardstandards adopted in fiscal 2020,2021, which isare described below.
In our opinion, all adjustments considered necessary for a fair presentation of financial condition and results of operations for these interim periods have been included. Operating results for one interim period are not necessarily indicative of the results for any other interim period or for the full year.
Segment reporting — The Company is comprised of 1 operating segment.
Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 2021 and 2020 include 53 and 2019 include 52 weeks.weeks, respectively. Our first quarter includes 16-weeks16 weeks and all other quarters include 12-weeks.12 weeks, with the exception of the fourth quarter of fiscal 2021, which includes 13 weeks. All comparisons between 20202021 and 20192020 refer to the 12-weeks (“quarter”) and 40-weeks28-weeks (“year-to-date”) ended July 5,April 11, 2021 and April 12, 2020, and July 7, 2019, respectively, unless otherwise indicated.
Use of estimates — In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates.
Risks and uncertainties — The novel coronavirus (“COVID-19”)COVID-19 pandemic has disrupted and is expectedcontinued to continue to disrupthave varying degrees of disruption on our business. While sales have accelerated in the third quarter of 2020, we continue to see a significant reduction in guest traffic at our restaurants due to changes in consumer behavior as social distancing practices, dining room closures, and other restrictions have been mandated or encouraged by federal, state, and local governments. Throughout the pandemic substantially all of our restaurants have remained open, with the majority of our dining rooms closed and locations operating in an off-premise capacity, which has historically represented closemodel, leveraging our drive-thru, carryout and delivery capabilities. We continue to 90%prioritize the health and safety of the Company’s business, including drive-thru, third-party delivery,team members and carry-out.guests through adhering to all safety procedures that were implemented last year.
The Company is closely monitoringWhile we do not know the future impact of the pandemic on all aspects of its business and is unable to predict the continued financial impact of the COVID-19 pandemicwill have on our business, due to numerous uncertainties. We cannot predict how or when the social impacts resultingour business will fully return to normal operations, we expect to see a continued impact from the pandemic may change, or how any such change will impact our business. Ongoing material adverse effectsCOVID-19 on our company-owned restaurants or the financial health of our franchisees could negatively affect our operating results including reductions in revenue and cash flow and could impact the recoverability of our accounts receivable, long-lived assets, and/or goodwill.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2021.
Advertising costs — We administer a marketing fund which includes contractual contributions. In 20202021 and 2019,2020, marketing fund contributions from franchise and company-operated restaurants were approximately 5.0% of gross revenues, with the exception of our March and April 2020 marketing fees. In response to the economic burden associated with the COVID-19 pandemic, the Company reduced March 2020 marketing fees to 4.0% and postponed the collection of these fees over the course of 24 months starting in October 2020.months. April 2020 marketing fees ranged from 2% to 4% based on annualized sales volumes and these fees will bewere collected over three months beginning October 2020. As of July 5, 2020,April 11, 2021, postponed marketing fees which remain uncollected were $16.2$5.5 million, of which $10.3$4.4 million is included within “Accounts and other receivable, net” and $5.9$1.1 million is included within “Other assets, net” in our condensed consolidated balance sheet.
In 2019, incremental contributions made by the Company were $2.0 million. There have been 0 incremental contributions made in 2020. Total contributions made by the Company including incremental contributions, are included in “Selling, general, and administrative expenses” in the accompanying condensed consolidated statements of earnings and for the quarter and year-to-date totaled $3.9$4.3 million and $12.8$10.1 million, respectively, in 20202021 and $4.0$3.5 million and $15.0$8.9 million, respectively, in 2019.2020.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Restricted cash — In accordance with the terms of our securitized financing facility, certain cash balances are required to be held in trust. Such restricted cash primarily represents cash collections and cash reserves held by the trustee to be used for payments of principal,quarterly interest and commitmentscommitment fees required for the Class A-1 and Class A-2 Notes. AsStarting in the second quarter of July 5, 2020, and September 29, 2019, restricted cash balances were $37.4 million and $26.0 million, respectively. During the third quarter, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we continued to voluntarily electelected to fund cash held in trust for one additional quarterly interest and principal payments duecommitment fee payment. This voluntary election was discontinued in November 2020.the second quarter of 2021. As of April 11, 2021 and September 27, 2020, restricted cash balances were $18.1 million and $37.3 million, respectively.
Effect of new accounting pronouncements adopted in fiscal 2020 — We adopted ASU 2016-02, Leases (Topic 842) (“ASC 842”) in the first quarter of 2020. The new guidance requires the recognition of lease liabilities, representing future minimum lease payments on a discounted basis, and corresponding right-of-use (“ROU”) assets on the balance sheet for most leases. The Company adopted the new guidance in the first quarter of 2020 using the alternative transition method; therefore, the comparative period has not been restated and continues to be reported under the previous lease guidance.
We elected the transition package of three practical expedients, which, among other items, permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs. We also elected the short-term lease recognition exemption for all leases that qualify, permitting us to not apply the recognition requirements of this standard to leases with a term of 12 months or less, and an accounting policy to not separate lease and non-lease components for underlying assets subject to real estate leases. As lessor, we elected for all classes of underlying leased assets to account for lease and non-lease components, primarily property taxes and maintenance, as a single lease component. We did not elect the use-of-hindsight practical expedient, and therefore continued to utilize lease terms determined under the existing lease guidance.
The adoption had a material impact on our consolidated balance sheet. As a result of the adoption, we recognized operating lease assets and liabilities of $880.6 million and $931.0 million, respectively, at the date of adoption. The ROU assets were adjusted for certain lease-related assets and liabilities at adoption, primarily comprised of straight-line rent accruals of $29.0 million, incentives and unfavorable lease liabilities of $2.1 million, sublease loss and exit-related lease liabilities of $19.4 million, which were previously reported in “Accrued liabilities” and “Other long-term liabilities”, as well as favorable lease assets of $0.4 million, which were previously reported in “Intangible assets, net” in our condensed consolidated balance sheet. We also recorded a cumulative adjustment to opening retained earnings of $2.9 million, net of tax, as a result of the impairment of certain newly recognized ROU assets and derecognition of deferred gains and losses on sale-leaseback transactions upon transition to the new guidance.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The effects of the changes made to the Company's condensed consolidated balance sheet as of September 29, 2019 for the adoption of the new lease guidance were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Balance at September 29, 2019 | | Adjustments due to ASC 842 adoption | | Balance at September 30, 2019 |
Assets | | | | | |
Other assets: | | | | | |
Operating lease ROU assets | $ | — | | | $ | 880,564 | | | $ | 880,564 | |
Intangible assets, net | $ | 425 | | | $ | (386) | | | $ | 39 | |
Deferred income taxes | $ | 85,564 | | | $ | 1,006 | | | $ | 86,570 | |
Liabilities and Stockholders’ Deficit | | | | | |
Current liabilities: | | | | | |
Current operating lease liabilities | $ | — | | | $ | 159,821 | | | $ | 159,821 | |
Accrued liabilities | $ | 120,083 | | | $ | (4,702) | | | $ | 115,381 | |
Long-term liabilities: | | | | | |
Long-term operating lease liabilities, net of current portion | $ | — | | | $ | 770,818 | | | $ | 770,818 | |
Other long-term liabilities | $ | 263,770 | | | $ | (41,883) | | | $ | 221,887 | |
Stockholders’ deficit: | | | | | |
Retained earnings | $ | 1,577,034 | | | $ | (2,870) | | | $ | 1,574,164 | |
The accounting guidance for lessors remains largely unchanged from previous guidance, except for the presentation of certain lease costs that the Company passes through to lessees, including but not limited to, property taxes and maintenance. These costs are generally paid by the Company and reimbursed by the lessee. Historically, these costs have been recorded on a net basis in our condensed consolidated statements of earnings but are now presented gross upon adoption of the new guidance. As a result, we expect annual revenues and expenses reported in “Franchise rental revenues” and “Franchise occupancy expenses” to increase by approximately $37.7 million in fiscal 2020. Refer to Note 4, Leases, for further information on our leases and the impact on the Company’s accounting policies.
Effect of new accounting pronouncements to be adopted in future periods — In June 2016,August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will replace the incurred loss methodology that is currently required with a methodology that instead reflects a current estimate of all expected credit losses on financial assets, including receivables. The guidance requires that an entity measure and recognize expected credit losses at the time the asset is recorded, while considering a broader range of information to estimate credit losses, including macroeconomic conditions that correlate with historical loss experience, delinquency trends, and aging behavior of receivables, among others. The standard is effective for the Company beginning with our 2021 fiscal year. We do not anticipate the adoption of this standard will have a material impact to our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted the standard is effective forin the Company beginning with our 2021 fiscal year. We do not anticipate thefirst quarter of 2021. The adoption of this standard willdid not have a material impact to our consolidated financial statements.
In June 2016, the FASB issued guidance replacing the incurred loss impairment methodology with a new methodology that reflects current expected losses on financial assets, including trade accounts receivables. The new methodology requires entities to estimate and recognize credit losses each reporting period. The Company adopted the new guidance in the first quarter of 2021 using the modified retrospective method. The adoption did not have a material impact to our consolidated financial statements.
The Company closely monitors the financial condition of our franchisees and estimates the allowance for credit losses based on the lifetime expected loss on receivables. These estimates are based on historical collection experience with our franchisees as well as other factors, including current market conditions and events. Credit quality is monitored through the timing of payments compared to predefined aging criteria and known facts regarding the financial condition of the franchisee or customer. Account balances are charged off against the allowance after recovery efforts have ceased. The Company’s allowance for receivables have not historically been material.
The following table summarizes the activity in our allowance for doubtful accounts (in thousands):
JACK IN THE BOX INC. AND SUBSIDIARIES | | | | | |
Balance as of September 27, 2020 | $ | (5,541) | |
Provision for expected credit losses | (476) | |
Write-offs charged against the allowance | 19 | |
Balance as of April 11, 2021 | $ | (5,998) | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our consolidated financial statements.
2.REVENUE
Nature of products and services — We derive revenue from retail sales at Jack in the Box company-operated restaurants and rental revenue, royalties, advertising, and franchise and other fees from franchise-operated restaurants.
Our franchise arrangements generally provide for an initial franchise fee of $50,000 per restaurant and generally require that franchisees pay royalty and marketing fees at 5% of gross sales. The agreementThese arrangements also requiresrequire franchisees to pay sourcing, technology, and other miscellaneous fees.
Disaggregation of revenue — The following table disaggregates revenue by primary source (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Sources of revenue: | | | | | | | |
Company restaurant sales | $ | 82,444 | | | $ | 78,434 | | | $ | 262,188 | | | $ | 257,948 | |
Franchise rental revenues | 76,021 | | | 63,359 | | | 241,990 | | | 208,895 | |
Franchise royalties | 41,537 | | | 38,752 | | | 127,829 | | | 125,407 | |
Marketing fees | 36,757 | | | 37,269 | | | 116,142 | | | 121,078 | |
Technology and sourcing fees | 3,814 | | | 3,117 | | | 12,316 | | | 10,111 | |
Franchise fees and other services | 1,702 | | | 1,428 | | | 5,640 | | | 5,433 | |
Total revenue | $ | 242,275 | | | $ | 222,359 | | | $ | 766,105 | | | $ | 728,872 | |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | Year-to-date |
| April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Sources of revenue: | | | | | | | |
Company restaurant sales | $ | 85,962 | | | $ | 74,380 | | | $ | 200,240 | | | $ | 179,744 | |
Franchise rental revenues | 77,901 | | | 69,885 | | | 181,650 | | | 165,969 | |
Franchise royalties | 43,620 | | | 36,049 | | | 100,963 | | | 86,292 | |
Marketing fees | 42,317 | | | 30,550 | | | 98,093 | | | 79,385 | |
Technology and sourcing fees | 3,806 | | | 3,578 | | | 8,896 | | | 8,502 | |
Franchise fees and other services | 3,611 | | | 1,715 | | | 5,916 | | | 3,938 | |
Total revenue | $ | 257,217 | | | $ | 216,157 | | | $ | 595,758 | | | $ | 523,830 | |
Contract liabilities — Our contract liabilities consist of deferred revenue resulting from initial fees received from franchisees for new restaurant openings or new franchise terms, which are generally recognized over the franchise term. We classify these contract liabilities as “Accrued liabilities” and “Other long-term liabilities” in our condensed consolidated balance sheets.
A summary of significant changes in our contract liabilities is presented below (in thousands):
| | | Year-to-date | | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 |
Deferred franchise fees at beginning of period | Deferred franchise fees at beginning of period | $ | 46,272 | | | $ | 50,018 | | Deferred franchise fees at beginning of period | $ | 43,541 | | | $ | 46,272 | |
Revenue recognized | Revenue recognized | (4,249) | | | (3,953) | | Revenue recognized | (3,075) | | | (3,061) | |
Additions | Additions | 1,923 | | | 970 | | Additions | 1,118 | | | 1,488 | |
Deferred franchise fees at end of period | Deferred franchise fees at end of period | $ | 43,946 | | | $ | 47,035 | | Deferred franchise fees at end of period | $ | 41,584 | | | $ | 44,699 | |
The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied as of July 5, 2020April 11, 2021 (in thousands):
| Remainder of 2020 | | $ | 1,136 | | |
2021 | | 4,947 | | |
Remainder of 2021 | | Remainder of 2021 | | $ | 2,397 | |
2022 | 2022 | | 4,742 | | 2022 | | 4,812 | |
2023 | 2023 | | 4,590 | | 2023 | | 4,661 | |
2024 | 2024 | | 4,398 | | 2024 | | 4,471 | |
2025 | | 2025 | | 4,241 | |
Thereafter | Thereafter | | 24,133 | | Thereafter | | 21,002 | |
| | $ | 43,946 | | | $ | 41,584 | |
We have applied the optional exemption, as provided for under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3.SUMMARY OF REFRANCHISINGS AND FRANCHISEE DEVELOPMENTFRANCHISE ACQUISITIONS
Refranchisings and franchisee development/closures — Through the third quarter inIn 2021 and 2020, and 2019, 0 company-operated restaurants were sold to franchisees. In 2020 and 2019, amounts presentedAmounts included in “Gains on the sale of company-operated restaurants” in both periods related to resolutions of $2.6 million and $0.2 million, respectively, pertain to meeting certain contingent consideration provisions included incontingencies from the sale of restaurants in previousprior years. The following table summarizes the number of restaurants developed and closed by franchisees.
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
New restaurants opened by franchisees | 4 | | | 5 | | | 20 | | | 16 | |
Franchisee restaurants closed | (6) | | | (3) | | | (18) | | | (11) | |
Franchise acquisitions — During the second quarter of 2020,In fiscal 2021, we acquired 84 franchise restaurants as a resultin connection with exercising our right of a legal action filed in October 2019 against a franchisee in which we obtained a judgment in January 2020 granting us the possession of the restaurants.
first refusal. We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). The goodwill recorded primarily relates to the sales growth potential of the market acquired and is expected to be deductible for income tax purposes.
Total consideration on the acquisition was $0.9 million, comprised of receivables that were eliminated in acquisition accounting.
The table below presents the allocation of the total purchase pricenot material to the fair value of assets acquired and liabilities assumed for the restaurants acquired (our condensed consolidated financial statements.in thousands):
| | | | | |
Inventory | $ | 73 | |
Property and equipment | 903 | |
Intangible assets | 263 | |
Other assets | 6 | |
Goodwill | 414 | |
Liabilities assumed | (800) | |
Total consideration | $ | 859 | |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4.LEASES
Nature of leases — We own restaurant sites and we also lease restaurant sites from third parties. Some of these owned or leased sites are leased and/or subleased to franchisees. Initial terms of our real estate leases are generally 20 years, exclusive of options to renew, which are generally exercisable at our sole discretion for 1 to 20 years. In some instances, our leases have provisions for contingent rentals based upon a percentage of defined revenues. Many of our restaurants also have rent escalation clauses and require the payment of property taxes, insurance, and maintenance costs. Variable lease costs include contingent rent, cost-of-living index adjustments, and payments for additional rent such as real estate taxes, insurance and common area maintenance, which are excluded from the measurement of the lease liability. We also lease certain restaurant and office equipment with initial terms generally ranging from 3 to 8 years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees subsequent to refranchising transactions. The lease descriptions, terms, variable lease payments and renewal options are generally the same as the lessee leases described above. Revenues from leasing arrangements with our franchisees are presented in “Franchise rental revenues” in the accompanying condensed consolidated statements of earnings, and the related expenses are presented in “Franchise occupancy expenses.”
Significant assumptions and judgements — We evaluate the contracts entered into by the Company to determine whether such contracts contain leases. A contract contains a lease if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. At commencement, contracts containing a lease are further evaluated for classification as an operating or finance lease where the Company is a lessee, or as an operating, sales-type or direct financing lease where the Company is a lessor, based on their terms.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The lease term and incremental borrowing rate for each lease requires judgement by management and can impact the classification of our leases as well as the value of our lease assets and liabilities. When determining the lease term, we consider option periods available, and include option periods in the measurement of the lease ROU asset and lease liability where the exercise is reasonably certain to occur. As our leases do not provide an implicit discount rate, we have determined it is appropriate to use our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, in calculating our lease liabilities.
Rent Concessions as Lessee
In response to the pandemic, certain landlords have agreed to temporary rent concessions. These concessions generally relate to the deferral of certain rent payments for April, May, June, and July until future periods and total approximately $15.5 million. We considered the FASB’s recent guidance regarding rent concessions related to the effects of the COVID-19 pandemic and have elected to apply the temporary practical expedient to account for rent concessions as though enforceable rights and obligations for those concessions existed in the lease agreements. Therefore, we did not remeasure our lease ROU assets and liabilities, and we have not bifurcated our operating lease liabilities into the portion that remains subject to accretion of $934.5 million, and the portion that is related to the rent deferrals of $12.7 million.
Rent Concessions as Lessor
We postponed collection of approximately 40% of April rents due from our franchisees totaling approximately $9.1 million, to be collected over three months beginning July 2020. Furthermore, we passed on to our franchisees approximately $5.6 million of the rent concessions secured from our landlords for April, May, June, and July. As of the end of the third quarter, $6.2 million of the postponed April rent has been repaid and the franchisees have chosen to pay according to the original lease terms on approximately half of the rent concessions that we offered.
Company as Lessee
Leased assets and liabilities consisted of the following as of July 5, 2020 (in thousands):
| | | | | |
| July 5, 2020 |
Assets: | |
Operating lease ROU assets | $ | 902,858 | |
Finance lease ROU assets (1) | 2,511 | |
Total ROU assets | $ | 905,369 | |
Liabilities: | |
Current operating lease liabilities | $ | 169,347 | |
Current finance lease liabilities (2) | 821 | |
Long term operating lease liabilities | 777,883 | |
Long-term finance lease liabilities (2) | 2,306 | |
Total lease liabilities | $ | 950,357 | |
____________________________
(1)Included in “Property and equipment, net” on our condensed consolidated balance sheet.
(2)Included in “Current maturities of long-term debt” and “Long-term debt, net of current maturities” on our condensed consolidated balance sheet.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents the components of our lease costs (in thousands):
| | | | | | | | | | | | |
| Quarter | | Year-to-date | |
| July 5, 2020 | | July 5, 2020 | |
Lease costs: | | | | |
Finance lease cost: | | | | |
Amortization of ROU assets (1) | $ | 177 | | | $ | 590 | | |
Interest on lease liabilities (2) | 27 | | | 88 | | |
Operating lease cost (3) | 44,006 | | | 146,409 | | |
Short-term lease cost (3) | 46 | | | 149 | | |
Variable lease cost (3)(4) | 9,494 | | | 31,317 | | |
| $ | 53,750 | | | $ | 178,553 | | |
____________________________
(1)Included in “Depreciation and amortization” in our condensed consolidated statement of earnings.
(2)Included in “Interest expense, net” in our condensed consolidated statement of earnings.
(3)Operating lease, short-term and variable lease costs associated with franchisees and company-operated restaurants are included in “Franchise occupancy expenses” and “Occupancy and other,” respectively, in our condensed consolidated statement of earnings. For our closed restaurants, these costs are included in “Impairment and other, net” and all other costs are included in “Selling, general and administrative expenses.”
(4)Includes $8.6 million in the quarter and $28.8 million year-to-date of property taxes and common area maintenance costs which are reimbursed by sub-lessees.
The following table presents supplemental information related to leases:
| | | | | |
| July 5, 2020 |
Weighted-average remaining lease term (in years): | |
Finance leases | 3.5 |
Operating leases | 8.3 |
Weighted-average discount rate: | |
Finance leases | 3.6 | % |
Operating leases | 4.2 | % |
The following table presents as of July 5, 2020, the annual maturities of our lease liabilities (in thousands):
| | | | | | | | | | | | | | |
| | Finance Leases | | Operating Leases |
Fiscal year: | | | | |
Remainder of 2020 (1) | | $ | 405 | | | $ | 38,311 | |
2021 (1) | | 917 | | | 211,404 | |
2022 | | 906 | | | 163,586 | |
2023 | | 893 | | | 136,250 | |
2024 | | 217 | | | 104,566 | |
Thereafter | | 49 | | | 484,203 | |
Total future lease payments (2) | | $ | 3,387 | | | $ | 1,138,320 | |
Less: imputed interest | | (260) | | | (191,090) | |
Present value of lease liabilities | | $ | 3,127 | | | $ | 947,230 | |
____________________________
(1)The impact of rent concessions increased 2020 operating leases maturities by $5.5 million and increased 2021 by $7.3 million.
(2)Total future lease payments include non-cancellable commitments of $3.4 million for finance leases and $1,080 million for operating leases.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents as of September 29, 2019, future minimum lease payments for non-cancellable leases (in thousands):
| | | | | | | | | | | | | | |
| | Capital Leases | | Operating Leases |
Fiscal year: | | | | |
2020 | | $ | 879 | | | $ | 193,313 | |
2021 | | 879 | | | 186,226 | |
2022 | | 879 | | | 145,794 | |
2023 | | 864 | | | 117,753 | |
2024 | | 396 | | | 87,420 | |
Thereafter | | 40 | | | 363,505 | |
Total minimum lease payments | | $ | 3,937 | | | $ | 1,094,011 | |
Less: imputed interest | | (343) | | | |
Present value of lease liability | | $ | 3,594 | | | |
The following table includes supplemental cash flow and non-cash information related to our lessee leases (in thousands):
| | | | | | |
| Year-to-date | |
| July 5, 2020 | |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flows from operating leases | $ | 151,981 | | |
Operating cash flows from financing leases | $ | 88 | | |
Financing cash flows from financing leases | $ | 593 | | |
Right-of-use assets obtained in exchange for lease obligations: | | |
Operating leases | $ | 143,604 | | |
Financing leases | $ | 132 | | |
Sale leaseback transactions — In the first quarter of 2020, we completed a sale leaseback transaction of a multi-tenant commercial property in Los Angeles, California and leased back the parcel on which a company-operated restaurant is located. The Company received net proceeds of $17.4 million and recognized a $0.2 million loss on the sale. The initial term on the lease is 20 years and the lease has been accounted for as an operating lease.
In the first quarter of 2020, we completed the sale of one of our corporate office buildings as we move forward with our previously announced consolidation of our headquarters. We entered into a lease with the buyer to leaseback the property for up to 18 months with an option to terminate earlier without penalty, upon providing a 90-day notice. The net proceeds received on the sale was $20.6 million and the lease has been accounted for as an operating lease. A gain on the sale of $10.8 million was recognized, and is presented within “Impairment and other charges, net” in our condensed consolidated statement of earnings.
Company as Lessor
The following table presents rental income (in thousands):
| | | Quarter | | | Year-to-date | | | | | | | | | | | | | | | | | | | | | |
| | July 5, 2020 | | | July 5, 2020 | | | Quarter | | Year-to-date |
| | Owned Properties | | Leased Properties | | Total | | Owned Properties | | Leased Properties | | Total | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Operating lease income - franchise | Operating lease income - franchise | $ | 4,562 | | | $ | 49,819 | | | $ | 54,381 | | | $ | 15,229 | | | $ | 166,511 | | | $ | 181,740 | | Operating lease income - franchise | $ | 54,142 | | | $ | 54,695 | | | $ | 126,384 | | | $ | 127,359 | |
Variable lease income - franchise | Variable lease income - franchise | 2,570 | | | 19,070 | | | 21,640 | | | 7,096 | | | 53,154 | | | 60,250 | | Variable lease income - franchise | 23,759 | | | 15,190 | | | 55,266 | | | 38,610 | |
Franchise rental revenues | Franchise rental revenues | $ | 7,132 | | | $ | 68,889 | | | $ | 76,021 | | | $ | 22,325 | | | $ | 219,665 | | | $ | 241,990 | | Franchise rental revenues | $ | 77,901 | | | $ | 69,885 | | | $ | 181,650 | | | $ | 165,969 | |
Operating lease income - closed restaurants and other (1) | Operating lease income - closed restaurants and other (1) | $ | — | | | $ | 1,442 | | | $ | 1,442 | | | $ | — | | | $ | 4,969 | | | $ | 4,969 | | Operating lease income - closed restaurants and other (1) | $ | 1,360 | | | $ | 1,470 | | | $ | 3,225 | | | $ | 3,527 | |
____________________________
(1)Primarily relates to closed restaurant properties included in “Impairment and other charges (gains), net” in our condensed consolidated statementstatements of earnings.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents as of July 5, 2020, future minimum rental receipts for non-cancellable leases and subleases (in thousands):
| | | | | |
| July 5, 2020 |
Fiscal year: | |
Remainder of 2020 (1)(2) | $ | 44,093 | |
2021 (2) | 262,910 | |
2022 | 233,084 | |
2023 | 226,507 | |
2024 | 201,325 | |
Thereafter | 1,259,936 | |
Total minimum rental receipts | $ | 2,227,855 | |
____________________________
(1)Includes $2.9 million of postponed April rents to be repaid over three months beginning July 2020.
(2)The impact of rent concessions passed on to franchisees increased 2020 by $1.9 million and increased 2021 by $2.7 million.
The following table presents as of September 29, 2019, future minimum rental receipts for non-cancellable leases and subleases (in thousands):
| | | | | |
| September 29, 2019 |
Fiscal year: | |
2020 | $ | 239,219 | |
2021 | 255,315 | |
2022 | 231,394 | |
2023 | 224,605 | |
2024 | 199,442 | |
Thereafter | 1,215,811 | |
Total minimum rental receipts | $ | 2,365,786 | |
5.INDEBTEDNESS
Long-term debt as of July 5, 2020 and September 29, 2019 consisted of the following (in thousands):
| | | | | | | | | | | |
| July 5, 2020 | | September 29, 2019 |
Class A-2-I Notes | $ | 572,125 | | | $ | 575,000 | |
Class A-2-II Notes | 273,625 | | | 275,000 | |
Class A-2-III Notes | 447,750 | | | 450,000 | |
Class A-1 Variable Funding Notes | 107,876 | | | — | |
Finance lease obligations | 3,127 | | | 3,594 | |
Total debt | 1,404,503 | | | 1,303,594 | |
Less current maturities of long-term debt | (13,821) | | | (774) | |
Less unamortized debt issuance costs | (24,511) | | | (28,446) | |
Long-term debt | $ | 1,366,171 | | | $ | 1,274,374 | |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company’s outstanding debt consists of Series 2019-1 3.982% Fixed Rate Senior Secured Notes (the “Class A-2-I Notes”), Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”), and Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes”) and together with the Class A-2-I Notes and the Class A-2-II Notes, (the “Class A-2 Notes”), issued by Jack in the Box Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of the Company. In addition, the Master Issuer entered into a revolving financing facility of Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Variable Funding Notes”), which allows for the drawing of up to $150.0 million under the Variable Funding Notes and the issuance of letters of credit. As of July 5, 2020 and September 29, 2019, $41.1 million and $45.6 million, respectively, of letters of credit were pledged against the Variable Funding Notes.
During the second quarter of 2020, to secure our liquidity position and provide financial flexibility given the uncertain market conditions, we borrowed $107.9 million under the Variable Funding Notes. As of July 5, 2020, unused borrowing capacity under our Variable Funding Notes was $1.1 million.
6.FAIR VALUE MEASUREMENTS
Financial assets and liabilities — The following table presents our financial assets and liabilities measured at fair value on a recurring basis (in thousands):
| | | Total | | Quoted Prices in Active Markets for Identical Assets (2) (Level 1) | | Significant Other Observable Inputs (2) (Level 2) | | Significant Unobservable Inputs (2) (Level 3) | | Total | | Quoted Prices in Active Markets for Identical Assets (2) (Level 1) | | Significant Other Observable Inputs (2) (Level 2) | | Significant Unobservable Inputs (2) (Level 3) |
Fair value measurements as of July 5, 2020: | | | | | | | | |
Fair value measurements as of April 11, 2021: | | Fair value measurements as of April 11, 2021: | | | | | | | |
Non-qualified deferred compensation plan (1) | Non-qualified deferred compensation plan (1) | $ | 26,638 | | | $ | 26,638 | | | $ | — | | | $ | — | | Non-qualified deferred compensation plan (1) | $ | 18,066 | | | $ | 18,066 | | | $ | 0 | | | $ | 0 | |
Total liabilities at fair value | Total liabilities at fair value | $ | 26,638 | | | $ | 26,638 | | | $ | — | | | $ | — | | Total liabilities at fair value | $ | 18,066 | | | $ | 18,066 | | | $ | 0 | | | $ | 0 | |
Fair value measurements as of September 29, 2019: | | | | | | | | |
Fair value measurements as of September 27, 2020: | | Fair value measurements as of September 27, 2020: | | | | | | | |
Non-qualified deferred compensation plan (1) | Non-qualified deferred compensation plan (1) | $ | 30,104 | | | $ | 30,104 | | | $ | — | | | $ | — | | Non-qualified deferred compensation plan (1) | $ | 25,071 | | | $ | 25,071 | | | $ | 0 | | | $ | 0 | |
Total liabilities at fair value | Total liabilities at fair value | $ | 30,104 | | | $ | 30,104 | | | $ | — | | | $ | — | | Total liabilities at fair value | $ | 25,071 | | | $ | 25,071 | | | $ | 0 | | | $ | 0 | |
____________________________
(1)We maintain an unfunded defined contribution plan for key executives and other members of management. The fair value of this obligation is based on the closing market prices of the participants’ elected investments. The obligation is included in “Accrued liabilities” and “Other long-term liabilities” on our condensed consolidated balance sheets.
(2)We did not have any transfers in or out of Level 1, 2 or 3.
The following table presents the carrying value and estimated fair value of our Class A-2 Notes as of July 5, 2020April 11, 2021 and September 29, 201927, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| July 5, 2020 | | | | September 29, 2019 | | |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Class A-2 Notes | $ | 1,293,500 | | | $ | 1,337,755 | | | $ | 1,300,000 | | | $ | 1,344,300 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| April 11, 2021 | | September 27, 2020 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Class A-2 Notes | $ | 1,290,251 | | | $ | 1,355,044 | | | $ | 1,290,251 | | | $ | 1,354,241 | |
The fair value of the Class A-2 Notes was estimated using Level 2 inputs based on quoted market prices in markets that are not considered active markets. The Company had $107.9 million of outstanding borrowings under its Variable Funding Notes. The fair value of this loan approximates carrying value due to the variable rate nature of these borrowings.
Non-financial assets and liabilities — Our non-financial instruments, which primarily consist of property and equipment, operating lease right-of-use assets, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on an annual basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial instruments are assessed for impairment. If applicable, the carrying values are written down to fair value.
In connection with our impairment reviews performed during 2020,2021, no material fair value adjustments were required. Refer to Note 8, Impairment and Other Charges, Net, for additional information regarding impairment charges.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7.DERIVATIVE INSTRUMENTS
Interest rate swaps — We have used interest rate swaps to mitigate interest rate volatility with regard to variable rate borrowings under our senior credit facility. In June 2015, we entered into forward-starting interest rate swap agreements that effectively converted $500.0 million of our variable rate borrowings to a fixed rate from October 2018 through October 2022. These agreements were designated as cash flow hedges under the terms of the FASB authoritative guidance for derivatives and hedging. Since they were effective in offsetting the variability of the hedged cash flows, changes in the fair values of the derivatives were not included in earnings but were included in other comprehensive income (“OCI”). These changes in fair value were subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments were made on our variable rate debt.
Effective July 2, 2019, the Company terminated all interest rate swap agreements in anticipation of the securitization transaction and related retirement of our senior credit facility in the fourth quarter of 2019. The fair value of the interest rate swaps at the termination date was $23.6 million, which was paid on July 8, 2019. As a result of the decision to extinguish the senior credit facility, forecasted cash flows associated with the variable-rate debt interest payments were no longer considered to be probable. Consequently, unrealized losses in other comprehensive income at the termination date were immediately reclassified to “Interest expense, net” in the condensed consolidated statement of earnings.
During fiscal 2019, our interest rate swaps had no hedge ineffectiveness.
Financial performance — The following table summarizes the OCI activity related to our interest rate swap derivative instruments and the amounts reclassified from accumulated OCI (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| Location in Income | | | | Quarter | | | Year-to-date |
| | | | | July 7, 2019 | | | July 7, 2019 |
Loss recognized in OCI | N/A | | | | $ | (11,499) | | | | $ | (23,625) | |
Loss reclassified from accumulated OCI into net earnings | Interest expense, net | | | | $ | 23,715 | | | | $ | 24,328 | |
8.6.IMPAIRMENT AND OTHER CHARGES (GAINS), NET
Impairment and other charges (gains), net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Costs of closed restaurants and other (1) | | Costs of closed restaurants and other (1) | $ | 441 | | | $ | 331 | | | $ | 1,464 | | | $ | 432 | |
Restructuring costs | Restructuring costs | $ | 2 | | | $ | (64) | | | $ | 1,165 | | | $ | 6,722 | | Restructuring costs | (2) | | | 118 | | | 4 | | | 1,163 | |
Costs of closed restaurants and other | 890 | | | 2,010 | | | 1,322 | | | 3,259 | | |
Gains on disposition of property and equipment, net (1) | (216) | | | (5,618) | | | (10,386) | | | (5,756) | | |
Losses (gains) on disposition of property and equipment, net (2) | | Losses (gains) on disposition of property and equipment, net (2) | 229 | | | 267 | | | (1,931) | | | (10,170) | |
Accelerated depreciation | Accelerated depreciation | 62 | | | 416 | | | 62 | | | 1,342 | | Accelerated depreciation | 560 | | | 0 | | | 1,239 | | | 0 | |
| | $ | 738 | | | $ | (3,256) | | | $ | (7,837) | | | $ | 5,567 | | | $ | 1,228 | | | $ | 716 | | | $ | 776 | | | $ | (8,575) | |
____________________________
(1)InCosts of closed restaurants primarily include impairment charges as a result of our decision to close restaurants, ongoing costs associated with closed restaurants, and canceled project costs.
(2)Year-to-date 2021, includes gains on the sale of two real estate properties. Year-to-date 2020, year-to-date includes a $10.8 million gain related to the sale of one of our corporate office buildings. In 2019, includes a $5.7 million gain related to a sale of property recognized in the third quarter.
Restructuring costs — Restructuring charges include costs resulting from the exploration of strategic alternatives (the “Strategic Alternatives Evaluation”) in 2019, which was concluded in the third quarter of 2019, and a plan that management initiated to reduce our general and administrative costs, which was completed in the third quarter of 2020. We do not expect any future severance and related costs under these initiatives.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following is a summary of our restructuring costs (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Employee severance and related costs | $ | 2 | | | $ | 287 | | | $ | 1,165 | | | $ | 5,436 | |
Strategic Alternatives Evaluation (1) | — | | | (351) | | | — | | | 1,286 | |
| $ | 2 | | | $ | (64) | | | $ | 1,165 | | | $ | 6,722 | |
____________________________
(1) Strategic Alternative Evaluation costs primarily relate to third party advisory services.
Total accrued severance costs related to our restructuring activities are included in “Accrued liabilities” on our condensed consolidated balance sheets, and changed as follows during 2020 (in thousands):
| | | | | | | | |
Balance as of September 29, 2019 | | $ | 2,100 | |
Costs incurred | | 1,165 | |
| | |
Cash payments | | (3,265) | |
Balance as of July 5, 2020 | | $ | — | |
9.7.INCOME TAXES
The income tax provisions reflect tax rates of 27.9%of 27.3% in the second quarter and 29.0%26.1% year-to-date, compared with (17.9%)32.3% and 18.4%30.7%, respectively, in fiscal year 2019.2020. The major components of the year-over-year changedecrease in tax rates were a decrease in the impact of non-recurring activity in fiscal year 2019 including the termination of interest rate swap agreements, the release of valuation reserves on state tax credits and losses, and the release of a federal tax liability due to expiration of statute of limitations, andnon-deductible compensation for certain officers, an increase in nondeductiblenon-taxable gains from the market performance of insurance products used to fund certain non-qualified retirement plans, and a decrease in non-deductible costs resulting from a California Private Attorney General Act lawsuit settled in the current year. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2020 rate could differ from our current estimates.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enactedprior year, partially offset by an adjustment related to state taxes recorded in the U.S. on March 27, 2020. The CARES Act includes several U.S. income tax provisions related to, among other things, modifications to the net interest deduction limitations, and technical amendments regarding the income tax depreciationsecond quarter of qualified improvement property placed in service after December 31, 2017. The CARES Act is not expected to have a material impact on the Company’s financial results.fiscal year 2021.
10.8.RETIREMENT PLANS
Defined benefit pension plans — We sponsor 2 defined benefit pension plans, a frozen “Qualified Plan” covering substantially all full-time employees hired prior to January 1, 2011, and an unfunded supplemental executive retirement plan (“SERP”) which provides certain employees additional pension benefits and was closed to new participants effective January 1, 2007. Benefits under both plans are based on the employee’s years of service and compensation over defined periods of employment.
In the fourth quarter of 2019, the Company amended its Qualified Plan to add a limited lump sum payment window whereby certain terminated participants with a vested pension benefit could elect to receive either an immediate lump sum or a monthly annuity payment of their accrued benefit. The offering period began September 16, 2019 and ended October 31, 2019. The participants that elected a lump sum benefit under the program were paid in December 2019, which triggered settlement accounting. As a result of the offering, the Company’s Qualified Plan paid $122.3 million from its plan assets to those who accepted the offer, thereby reducing the plan’s pension benefit obligation (“PBO”).obligation. The transaction had no cash impact to the Company but did result in a non-cash settlement charge of $38.6 million in the first quarter of fiscal 2020. Routine lump sum payments made in the second and third quartersquarter of fiscal 2020 resulted in non-cash settlement chargesa non-settlement charge of $0.3 million and $0.1 million, respectively.million.
PostretirementPost-retirement healthcare plans — We also sponsor 2 healthcare plans, closed to new participants, that provide postretirementpost-retirement medical benefits to certain employees who have met minimum age and service requirements. The plans are contributory, with retiree contributions adjusted annually, and they contain other cost-sharing features such as deductibles and coinsurance.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Net periodic benefit cost — The components of net periodic benefit cost in each period were as follows (in thousands):
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Defined benefit pension plans: | Defined benefit pension plans: | | | | | | | | Defined benefit pension plans: | | | | | | | |
Interest cost | Interest cost | $ | 3,581 | | | $ | 5,286 | | | $ | 12,326 | | | $ | 17,619 | | Interest cost | $ | 3,398 | | | $ | 3,669 | | | $ | 7,930 | | | $ | 8,745 | |
Expected return on plan assets (1) | Expected return on plan assets (1) | (3,779) | | | (6,077) | | | (15,141) | | | (20,257) | | Expected return on plan assets (1) | (4,463) | | | (4,706) | | | (10,414) | | | (11,362) | |
Pension settlements (2)(1) | Pension settlements (2)(1) | 103 | | | — | | | 39,030 | | | — | | Pension settlements (2)(1) | 0 | | | 321 | | | 0 | | | 38,927 | |
Actuarial losses (2)(1) | Actuarial losses (2)(1) | 1,367 | | | 914 | | | 4,058 | | | 3,046 | | Actuarial losses (2)(1) | 1,213 | | | 1,019 | | | 2,829 | | | 2,691 | |
Amortization of unrecognized prior service costs (2)(1) | Amortization of unrecognized prior service costs (2)(1) | 20 | | | 27 | | | 65 | | | 89 | | Amortization of unrecognized prior service costs (2)(1) | 4 | | | 19 | | | 10 | | | 45 | |
Net periodic benefit cost | Net periodic benefit cost | $ | 1,292 | | | $ | 150 | | | $ | 40,338 | | | $ | 497 | | Net periodic benefit cost | $ | 152 | | | $ | 322 | | | $ | 355 | | | $ | 39,046 | |
Postretirement healthcare plans: | | | | | | | | |
Post-retirement healthcare plans: | | Post-retirement healthcare plans: | | | | | | | |
Interest cost | Interest cost | $ | 186 | | | $ | 229 | | | $ | 621 | | | $ | 766 | | Interest cost | $ | 130 | | | $ | 187 | | | $ | 303 | | | $ | 435 | |
Actuarial losses (gains) (2) | 4 | | | (37) | | | 13 | | | (122) | | |
Actuarial (gains) losses (1) | | Actuarial (gains) losses (1) | (79) | | | 3 | | | (184) | | | 9 | |
Net periodic benefit cost | Net periodic benefit cost | $ | 190 | | | $ | 192 | | | $ | 634 | | | $ | 644 | | Net periodic benefit cost | $ | 51 | | | $ | 190 | | | $ | 119 | | | $ | 444 | |
___________________________
(1)Based on a return on asset, net of administrative expenses, assumption of 5.8% determined at the end of fiscal 2019, subsequently updated to 5.9% as of December 31, 2019, 5.2% as of March 31, 2020, and 5.4% as of June 30, 2020, upon remeasurement of the Qualified Plan’s assets and PBO as required by settlement accounting.
(2)Amounts were reclassified from accumulated OCIother comprehensive loss into net earnings as a component of “Other pension and post-retirement expenses, net.”
Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of January 1, 2019,2020, the date of our last actuarial funding valuation, there was 0 minimum contribution funding requirement.requirement for the Qualified Plan. Details regarding 20202021 contributions are as follows (in thousands):
| | | SERP | | Postretirement Healthcare Plans | | SERP | | Post-Retirement Healthcare Plans |
Net year-to-date contributions | Net year-to-date contributions | $ | 4,070 | | | $ | 851 | | Net year-to-date contributions | $ | 3,060 | | | $ | 517 | |
Remaining estimated net contributions during fiscal 2020 | $ | 1,301 | | | $ | 550 | | |
Remaining estimated net contributions during fiscal 2021 | | Remaining estimated net contributions during fiscal 2021 | $ | 2,163 | | | $ | 743 | |
We continue to evaluate contributions to our Qualified Plan based on changes in pension assets as a result of asset performance in the current market and the economic environment. We do not anticipate making any contributions to our Qualified Plan in fiscal 2020.2021.
11.9.STOCKHOLDERS’ DEFICIT
Summary of changes in stockholders’ deficit — A reconciliation of the beginning and ending amounts of stockholders’ deficit is presented below (in thousands):
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Balance at beginning of period | Balance at beginning of period | $ | (876,926) | | | $ | (592,514) | | | $ | (737,584) | | | $ | (591,699) | | Balance at beginning of period | $ | (749,123) | | | $ | (841,153) | | | $ | (793,361) | | | $ | (737,584) | |
Shares issued under stock plans, including tax benefit | Shares issued under stock plans, including tax benefit | — | | | 453 | | | 3,559 | | | 696 | | Shares issued under stock plans, including tax benefit | 4,226 | | | 3,375 | | | 4,340 | | | 3,559 | |
Share-based compensation expense | Share-based compensation expense | 1,747 | | | 1,881 | | | 7,612 | | | 6,589 | | Share-based compensation expense | 1,605 | | | 2,681 | | | 2,836 | | | 5,865 | |
Dividends declared | Dividends declared | — | | | (10,326) | | | (18,492) | | | (30,967) | | Dividends declared | (9,041) | | | (9,067) | | | (18,130) | | | (18,492) | |
Purchases of treasury stock | Purchases of treasury stock | — | | | — | | | (153,550) | | | — | | Purchases of treasury stock | (65,000) | | | 0 | | | (65,000) | | | (153,550) | |
Net earnings | Net earnings | 32,555 | | | 13,189 | | | 51,915 | | | 72,376 | | Net earnings | 35,934 | | | 11,463 | | | 86,793 | | | 19,360 | |
Other comprehensive income (loss), net of taxes | Other comprehensive income (loss), net of taxes | 15,667 | | | 6,756 | | | 22,453 | | | (226) | | Other comprehensive income (loss), net of taxes | 842 | | | (44,225) | | | 1,965 | | | 6,786 | |
Cumulative-effect from a change in accounting principle | Cumulative-effect from a change in accounting principle | — | | | — | | | (2,870) | | | (37,330) | | Cumulative-effect from a change in accounting principle | 0 | | | 0 | | | 0 | | | (2,870) | |
Balance at end of period | Balance at end of period | $ | (826,957) | | | $ | (580,561) | | | $ | (826,957) | | | $ | (580,561) | | Balance at end of period | $ | (780,557) | | | $ | (876,926) | | | $ | (780,557) | | | $ | (876,926) | |
Repurchases of common stock— The Company repurchased 0.6 million shares of its common stock in the second quarter of fiscal 2021 at an average price of $101.45 per share for an aggregate cost of $65.0 million. There were no repurchases of common stock in the first quarter of fiscal 2021. As of April 11, 2021, this leaves $135.0 million remaining under share repurchase programs authorized by the Board of Directors, consisting of $35.0 million that expires in November 2021 and $100.0 million that expires in November 2022.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Repurchases of common stock— The Company repurchased 1.9 million shares of its common stock in the first quarter of fiscal 2020 at an average price of $81.41 per share for an aggregate cost of $153.5 million. There were 0 repurchases of common stock in the second or third quarter of fiscal 2020. As of July 5, 2020, this leaves approximately $122.2 million remaining under share repurchase programs authorized by the Board of Directors, consisting of $22.2 million that expires in November 2020 and $100.0 million that expires in November 2021.
Repurchases of common stock included in our condensed consolidated statement of cash flows for fiscal 2020 include $2.0 million related to repurchase transactions traded in the prior year but settled in 2020.
Dividends — During 2020,2021, the Board of Directors declared 2two cash dividends of $0.40 per common share which were paid on March 17, 2020 and December 20, 2019 to shareholders of record as of the close of business on March 3, 2020 and December 5, 2019, respectively, and totaled $18.5totaling $18.2 million. Future dividends are subject to approval by our Board of Directors.
12.10.AVERAGE SHARES OUTSTANDING
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 |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Weighted-average shares outstanding – basic | Weighted-average shares outstanding – basic | 22,847 | | | 25,958 | | | 23,192 | | | 25,933 | | Weighted-average shares outstanding – basic | 22,723 | | | 22,803 | | | 22,863 | | | 23,339 | |
Effect of potentially dilutive securities: | Effect of potentially dilutive securities: | | Effect of potentially dilutive securities: | |
Nonvested stock awards and units | Nonvested stock awards and units | 62 | | | 206 | | | 123 | | | 205 | | Nonvested stock awards and units | 50 | | | 85 | | | 72 | | | 144 | |
Stock options | Stock options | — | | | 10 | | | — | | | 10 | | Stock options | 9 | | | 0 | | | 8 | | | 0 | |
Performance share awards | Performance share awards | 7 | | | 2 | | | 7 | | | 2 | | Performance share awards | 2 | | | 7 | | | 2 | | | 7 | |
Weighted-average shares outstanding – diluted | Weighted-average shares outstanding – diluted | 22,916 | | | 26,176 | | | 23,322 | | | 26,150 | | Weighted-average shares outstanding – diluted | 22,784 | | | 22,895 | | | 22,945 | | | 23,490 | |
Excluded from diluted weighted-average shares outstanding: | Excluded from diluted weighted-average shares outstanding: | | | | | | | | Excluded from diluted weighted-average shares outstanding: | | | | | | | |
Antidilutive | Antidilutive | 344 | | | 186 | | | 334 | | | 186 | | Antidilutive | 32 | | | 362 | | | 39 | | | 307 | |
Performance conditions not satisfied at the end of the period | Performance conditions not satisfied at the end of the period | 77 | | | 89 | | | 77 | | | 89 | | Performance conditions not satisfied at the end of the period | 36 | | | 77 | | | 36 | | | 77 | |
13.11.CONTINGENCIESCOMMITMENTS AND LEGAL MATTERSCONTINGENCIES
Legal matters — We assess contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability is adverse to the Companyhas 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 the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates. As of July 5, 2020April 11, 2021 and September 29, 2019,27, 2020, the Company had recorded aggregate liabilities of $14.9$3.9 million and $10.0$3.8 million, respectively, within “Accrued liabilities” on our condensed consolidated balance sheets, for all matters including those described below, that were probable and reasonably estimable. While we believe that additional losses beyond these accruals are reasonably possible, we cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond these accruals.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Gessele v. Jack in the Box Inc. — In August 2010, five5 former employees instituted litigation in federal court in Oregon alleging claims under the federal Fair Labor Standards Act and Oregon wage and hour laws. The plaintiffs alleged that the Company failed to pay non-exempt employees for certain meal breaks and improperly made payroll deductions for shoe purchases and for workers’ compensation expenses, and later added additional claims relating to timing of final pay and related wage and hour claims involving employees of a franchisee. In 2016, the court dismissed the federal claims and those relating to franchise employees. In June 2017, the court granted class certification with respect to state law claims of improper deductions and late payment of final wages. In February 2019, plaintiffs’ counsel reduced their earlier demand from $62.0 million to $42.0 million. In November 2019, the court issued a ruling on various dispositive motions, disallowing approximately $25.0 million ina portion of plaintiffs’ claimed damages. The parties participated in a voluntary mediation on March 16, 2020, but the matter did not settle. The plaintiffs recently filed a motion for reconsideration of the court’s prior denial of class certification regarding meal and rest break claims which was denied by the court. The plaintiffs have now filed a motion requestingrequested permission to appealseek appellate review of that decision, but that request was rejected by the Ninth Circuit. The trial of this ruling.matter was recently reassigned to a new judge and is scheduled for December 2021. The Company has opposedcontinues to dispute liability and the motionplaintiffs’ damage calculations and will continue to vigorously defend against thisthe lawsuit.
Marquez v. Jack in the Box Inc. — In August 2017, a former employee filed a class action lawsuit in California state court and as a Private Attorney General Act (“PAGA”) representative suit alleging that the Company failed to provide all non-exempt California employees with compliant rest and meal breaks, overtime pay, accurate wage statements, and final pay upon termination of employment. On January 29, 2020, the parties participated in voluntary mediation and reached a tentative agreement to settle the case. The parties have executed a settlement agreement and submitted the settlement to the court for final approval. The settlement was approved on July 1, 2020.
JACK IN THE BOX INC. AND SUBSIDIARIES
Ramirez v. Jack in the Box Inc. — On June 11, 2019, an unfavorable jury verdict was delivered in a wrongful termination lawsuit against the Company in Los Angeles Superior Court. Plaintiff in the case was a restaurant employee who was terminated in 2013. The jury’s verdict included $5.4 million in compensatory damages and $10.0 million in punitive damages. The Company filed post-trial motions with the trial judge for the purpose of setting aside or significantly reducing damages. These motions were granted, resulting in a reduction of damages from $15.4 million to $3.2 million. The plaintiff accepted the reduction. In October 2019, the plaintiff’s counsel filed a motion for attorney’s fees in the amount of $5.1 million. On January 9, 2020, the court issued its ruling awarding $4.1 million in attorney fees and costs. As of July 5, 2020, we have recorded an accrual for legal settlement of $7.3 million within “Accrued liabilities” and a litigation insurance recovery receivable of $7.3 million, which represents the expected payment of the settlement by the Company’s insurance carriers, within “Accounts and other receivable, net” in our condensed consolidated balance sheet.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Other legal matters — In addition to the matter described above, we are subject to normal and routine litigation brought by former or current employees, customers, franchisees, vendors, landlords, shareholders or others. We intend to defend ourselves in any such matters. Some of these matters may be covered, at least in part, by insurance or other third party indemnity obligations.obligation. We record receivables from third party insurers when recovery has been determined to be probable. We believe that the ultimate determination of liability in connection with legal claims pending against us, if any, in excess of amounts already provided for such matters in the consolidated financial statements, will not have a material adverse effect on our business, our annual results of operations, liquidity or financial position; however, it is possible that our business, results of operations, liquidity, or financial condition could be materially affected in a particular future reporting period by the unfavorable resolution of one or more matters or contingencies during such period.
14.Lease guarantees —DISCONTINUED OPERATIONS
We remain contingently liable for certain leases relating to our former Qdoba — In December 2017,business which we entered into a stock purchase agreement (the “Qdoba Purchase Agreement”) with the Buyer to sell all issued and outstanding shares of Qdoba. The Buyer completed the acquisition of Qdoba on March 21, 2018 (the “Qdoba Sale”).
We also entered into a Transition Services Agreement with the Buyer pursuant to which the Buyer received certain services (the “Services”) to enable it to operatesold in fiscal 2018. Under the Qdoba business after the closing of the Qdoba Sale. The Services included information technology, finance and accounting, human resources, supply chain and other corporate support services. Under thePurchase Agreement, the Services were provided at cost for a periodbuyer has indemnified the Company of upall claims related to 12 months, with 2 3-month extensions available for certain services.these guarantees. As of September 21, 2019, we are no longer providing transition services to Qdoba. In 2019, we recorded $0.9 million in the quarter and $6.5 million year-to-date, in income related to the Services as a reduction of “Selling, general and administrative expenses” in the condensed consolidated statements of earnings.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents results of operations in periods which have been included in discontinued operations (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter | | | | Year-to-date | | |
| July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 |
Total revenues | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Total cost and expense (income) (1) | (527) | | | 382 | | | (527) | | | 224 | |
Earnings (losses) before income taxes | 527 | | | (382) | | | 527 | | | (224) | |
Income tax expense (benefit) (2) | 148 | | | (98) | | | 148 | | | (2,876) | |
Earnings (losses) from discontinued operations, net of income taxes | $ | 379 | | | $ | (284) | | | $ | 379 | | | $ | 2,652 | |
____________________________
(1)Activity primarily consists of resolutions on certain liabilities related to our discontinued operations, including self-insurance reserves and asset retirement obligations.
(2)In fiscal 2019, the Company entered into a bilateral California election with Quidditch Acquisition, Inc. to retroactively treat the divestment of Qdoba Restaurant Corporation on March 21, 2018 as a sale of assets instead of a stock sale for income tax purposes. This election reduced the Company’s fiscal year 2018 California tax liability on the divestment by $2.8 million.
Lease guarantees — While all operating leases held in the name of Qdobawere part of the Qdoba Sale, some of the leases remain guaranteed by the Company pursuant to one or more written guarantees (the “Guarantees”). In the event Qdoba fails to meet its payment and performance obligations under such guaranteed leases, we may be required to make rent and other payments to the landlord under the requirements of the Guarantees. Should we, as guarantor of the lease obligations, be required to make any lease payments due for the remaining term of the subject leases,April 11, 2021, the maximum amount we may be required to paypotential liability of future undiscounted payments under these leases is approximately $29.3 million as of July 5, 2020.$26.4 million. The lease terms extend for a maximum of approximately 15 more years as of July 5, 2020, and we would remain a guarantor of the leases in the event the leases are extended for any established renewal periods. In the event that we are obligated to make payments under the Guarantees,of default, we believe the exposure is limited due to contractual protections and recourse available in the lease agreements, as well as the Qdoba Purchase Agreement, including a requirement of the landlord to mitigate damages by re-letting the properties in default, and indemnity from the Buyer. As of July 5, 2020, 0 amounts have been accrued relating toThe Company has not recorded a liability for these guarantees as we do not believe the likelihood of making any losses are probable.future payments is remote.
15.12.SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)
| | | Year-to-date | | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 |
Non-cash investing and financing transactions: | Non-cash investing and financing transactions: | | | | Non-cash investing and financing transactions: | | | |
Decrease in obligations for treasury stock repurchases | Decrease in obligations for treasury stock repurchases | $ | 2,025 | | | $ | 14,362 | | Decrease in obligations for treasury stock repurchases | $ | 0 | | | $ | (2,025) | |
Decrease in obligations for purchases of property and equipment | $ | 2,534 | | | $ | 5,421 | | |
Increase (decrease) in obligations for purchases of property and equipment | | Increase (decrease) in obligations for purchases of property and equipment | $ | 338 | | | $ | (1,247) | |
Increase in dividends accrued or converted to common stock equivalents | Increase in dividends accrued or converted to common stock equivalents | $ | 65 | | | $ | 184 | | Increase in dividends accrued or converted to common stock equivalents | $ | 108 | | | $ | 65 | |
Consideration for franchise acquisitions | Consideration for franchise acquisitions | $ | 859 | | | $ | — | | Consideration for franchise acquisitions | $ | 0 | | | $ | 859 | |
Decrease in finance lease obligations from the termination of equipment and building leases | $ | 24 | | | $ | 41 | | |
Right-of use assets obtained in exchange for operating lease obligations | | Right-of use assets obtained in exchange for operating lease obligations | $ | 92,723 | | | $ | 105,748 | |
Right-of use assets obtained in exchange for finance lease obligations | | Right-of use assets obtained in exchange for finance lease obligations | $ | 65 | | | $ | 132 | |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
16.13.SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)
| | | July 5, 2020 | | September 29, 2019 | | April 11, 2021 | | September 27, 2020 |
Accounts and other receivables, net: | Accounts and other receivables, net: | | | | Accounts and other receivables, net: | | | |
Trade | Trade | $ | 82,132 | | | $ | 36,907 | | Trade | $ | 87,284 | | | $ | 77,082 | |
Notes receivable | Notes receivable | 505 | | | 278 | | Notes receivable | 1,714 | | | 1,193 | |
Income tax receivable | Income tax receivable | 1,172 | | | 160 | | Income tax receivable | 1,119 | | | 1,591 | |
Other | Other | 10,273 | | | 10,855 | | Other | 2,602 | | | 4,092 | |
Allowance for doubtful accounts | Allowance for doubtful accounts | (5,840) | | | (2,965) | | Allowance for doubtful accounts | (5,998) | | | (5,541) | |
| | $ | 88,242 | | | $ | 45,235 | | | $ | 86,721 | | | $ | 78,417 | |
Prepaid expenses: | | | | |
Prepaid income taxes | $ | 6,881 | | | $ | 579 | | |
Prepaid advertising | 32 | | | 1,838 | | |
Other | 6,534 | | | 6,598 | | |
| $ | 13,447 | | | $ | 9,015 | | |
Other assets, net: | Other assets, net: | | | | Other assets, net: | | | |
Company-owned life insurance policies | Company-owned life insurance policies | $ | 112,984 | | | $ | 112,753 | | Company-owned life insurance policies | $ | 120,164 | | | $ | 113,767 | |
Deferred rent receivable | Deferred rent receivable | 48,832 | | | 49,333 | | Deferred rent receivable | 47,419 | | | 48,604 | |
Franchise tenant improvement allowance | Franchise tenant improvement allowance | 29,967 | | | 26,925 | | Franchise tenant improvement allowance | 28,888 | | | 29,437 | |
Other | Other | 24,225 | | | 17,674 | | Other | 17,667 | | | 18,815 | |
| | $ | 216,008 | | | $ | 206,685 | | | $ | 214,138 | | | $ | 210,623 | |
Accrued liabilities: | Accrued liabilities: | | | | Accrued liabilities: | | | |
Payroll and related taxes | | Payroll and related taxes | $ | 26,427 | | | $ | 34,475 | |
Insurance | Insurance | $ | 25,605 | | | $ | 27,888 | | Insurance | 23,383 | | | 25,310 | |
Payroll and related taxes | 30,214 | | | 31,095 | | |
Advertising | | Advertising | 16,144 | | | 9,861 | |
Sales and property taxes | | Sales and property taxes | 8,760 | | | 22,038 | |
Deferred franchise fees | Deferred franchise fees | 4,934 | | | 4,978 | | Deferred franchise fees | 4,999 | | | 4,934 | |
Sales and property taxes | 15,428 | | | 4,268 | | |
Gift card liability | 2,214 | | | 2,036 | | |
Deferred rent income | 17,347 | | | 915 | | |
Other | Other | 47,602 | | | 48,903 | | Other | 43,837 | | | 32,813 | |
| | $ | 143,344 | | | $ | 120,083 | | | $ | 123,550 | | | $ | 129,431 | |
Other long-term liabilities: | Other long-term liabilities: | | | | Other long-term liabilities: | | | |
Defined benefit pension plans | Defined benefit pension plans | $ | 126,217 | | | $ | 120,260 | | Defined benefit pension plans | $ | 115,268 | | | $ | 120,811 | |
Deferred franchise fees | Deferred franchise fees | 39,012 | | | 41,295 | | Deferred franchise fees | 36,585 | | | 38,607 | |
Straight-line rent accrual | — | | | 29,537 | | |
Other | Other | 51,523 | | | 72,678 | | Other | 53,492 | | | 47,076 | |
| | $ | 216,752 | | | $ | 263,770 | | | $ | 205,345 | | | $ | 206,494 | |
17.14.SUBSEQUENT EVENTS
On July 31, 2020,May 7, 2021, the Board of Directors declared a cash dividend of $0.40$0.44 per common share, to be paid on September 3, 2020June 11, 2021, to shareholders of record as of the close of business on August 18, 2020.May 26, 2021.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All comparisons between 20202021 and 20192020 refer to the 12-weeks (“quarter”) and 40-weeks28-weeks (“year-to-date”) ended July 5,April 11, 2021 and April 12, 2020, and July 7, 2019, respectively, unless otherwise indicated.
For an understanding of the significant factors that influenced our performance during 20202021 and 2019,2020, our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended September 29, 2019.27, 2020.
Our MD&A consists of the following sections:
•Overview — a general description of our business and 20202021 highlights.
•Financial reporting — a discussion of changes in presentation, if any.
•Results of operations — an analysis of our condensed consolidated statements of earnings for the periods presented in our condensed consolidated financial statements.
•Liquidity and capital resources — an analysis of our cash flows, including pension and postretirement health contributions, capital expenditures, franchise tenant improvement allowance distributions, share repurchase activity, dividends, and known known trends that may impact liquidity and the impact of inflation, if applicable.liquidity.
•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 results to differ materially from any forward-looking statements made by management.
We have included in our MD&A certain performance metrics that management uses to assess company performance and which we believe will be useful in analyzing and understanding our results of operations. These metrics include:
•Changes in sales at restaurants open more than one year (“same-store sales”), system restaurant sales, franchised restaurant sales, and average unit volumes (“AUVs”). Same-store sales, restaurant sales, and AUVs are presented for franchised restaurants and on a system-wide basis, which includes company and franchise restaurants. Franchise sales represent sales at franchise restaurants and are revenues of our franchisees. We do not record franchise sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchise sales. We believe franchise and system same-store sales, franchised and system restaurant sales, and AUV information are useful to investors as they have a direct effect on the Company’s profitability.
•Adjusted EBITDA which represents net earnings on a generally accepted accounting principles (“GAAP”) basis excluding earnings or losses from discontinued operations, income taxes, interest expense, net, gains or losses on the sale of company-operated restaurants, impairment and other charges (gains), net, depreciation and amortization, amortization of tenant improvement allowances and other, and pension settlement charges. We are presenting Adjusted EBITDA because we believe that it provides a meaningful supplement to net earnings of the Company's core business operating results, as well as a comparison to those of other similar companies. Management believes that Adjusted EBITDA, when viewed with the Company's results of operations in accordance with GAAP and the accompanying reconciliations within MD&A, provides useful information about operating performance and period-over-period change, and provides additional information that is useful for evaluating the operating performance of the Company's core business without regard to potential distortions. Additionally, management believes that Adjusted EBITDA permits investors to gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced.
Same-store sales, system restaurant sales, franchised restaurant sales, AUVs, and Adjusted EBITDA are not measurements determined in accordance with GAAP and should not be considered in isolation, or as an alternative to earnings from operations, or other similarly titled measures of other companies.
IMPACT OF COVID-19
The COVID-19 pandemic has continued to have varying degrees of disruption on our business. Throughout the pandemic substantially all of our restaurants remainhave remained open, with the majority of our dining rooms closed and all locations operating in an off-premise capacity, which has historically represented closeleveraging our drive-thru, carryout and delivery capability. We have continued to 90%follow the guidance of the Company’s business, including drive-thru, third-party delivery, and carry-out. While we navigate through this time of uncertainty, Jack in the Box remains committedexpert health authorities to operating our restaurants with integrity, providing great guest service, and most importantly, protectingensure precautionary steps are taken to protect the health and safety of our employees and guests.
In fiscal 2020 during the last five weeks of the second quarter, upon the rise in “shelter-in-place” mandates and “social distancing” requirements across the country, system same-store sales decreased by 17.0%; however, duringstarting in the third quarter ourand carrying into fiscal 2021, we have seen a significant acceleration of system same-store sales. The acceleration of sales have accelerated, increasingduring the last four quarters has been largely driven by 6.6%. Givenaverage check growth which has more than offset a decline in traffic. It remains uncertain whether restaurant traffic will return to levels achieved prior to the leveloutbreak of volatility and uncertainty surroundingCOVID-19.
While we do not know the future impact ofCOVID-19 will have on our business, or when our business will fully return to normal operations, we expect to see a continued impact from COVID-19 on our results in 2021.
OTHER RECENT DEVELOPMENTS
On February 16, 2021, a Midwest franchisee that operated 68 restaurants filed for Chapter 11 bankruptcy. Of these restaurants, we sublease 50 of the broader United States economylocations to the franchisee and specificown the land and building for the remaining 18 locations. Through the bankruptcy proceedings, the franchisee may reject the franchise agreements and leases for a number of these locations, resulting in potential impairment costs related to future lease obligations. As of the date of this report, franchise and lease agreements related to 3 of the locations have been rejected. The franchisee’s restaurants continue to operate, and the franchisee has remained current with their obligations to us, except for certain obligations that were not yet due as of the bankruptcy filing date which were not material to our consolidated financial statements. However, the Company could see negative impacts to our business, in the second quarterresults as we withdrew our previously issued fiscal 2020 and long-term guidance. We will provide an update when we can reasonably estimate the impacts of the COVID-19 pandemic on business results.
To mitigate the impact of COVID-19 on the Company, operations, franchisees and our employees, we have undertaken the following actions:
•Implemented a short-term cash preservation strategy (refer to the Liquidity and Capital Resources section for further information).
•Provided financial support to our franchisees in the form of a reduction and payment deferral of marketing fees, postponement of rent, and delayed remodel requirements and development agreements for at least six months.
•Instituted a new emergency paid sick leave program at company-operated restaurants and have procured protective masks, gloves, sneeze guards and thermometers at all company-owned and franchised locations.work through this franchisee’s bankruptcy.
OVERVIEW
As of July 5, 2020,April 11, 2021, we operated and franchised 2,2442,228 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam.
The following summarizes the most significant events occurring in the third quarter of 2020,2021, and certain trends compared to a year ago:
•System same-store sales — System same-store sales increased by 6.6%20.6% in the quarter and 1.5%15.9% year-to-date. Company restaurant same-store sales increased 4.1%14.5% in the quarter, driven by a 20.2% increase inreflecting average check growth partially offset byof 19.9% and a 16.1%5.4% decrease in transactions. Franchise same-store sales increased 21.3% in the quarter.
•Company restaurant operations — Company restaurant costs, including food and packaging, payroll and employee benefits, and occupancy and other operating costs, as a percentage of sales decreased in the quarter to 74.1% from 79.4% in the prior year quarter, primarily due to sales leverage as well as a decrease in food and packaging costs as a percentage of company restaurant sales increased in the quarter to 74.6% from 73.0% a year ago primarily due to wage inflation and increases in other operating costs.sales.
•Franchise operations — Franchise same-store sales increased by 6.9%21.3% in the quarter, resulting indriving higher royaltiesroyalty and percentage rent for the Company during the quarter.revenues of $7.6 million and $8.0 million, respectively.
•Selling, general and administrative (“SG&A”) expenses - —SG&A decreased by $10.7$5.3 million in the quarter, primarily due to lower litigation-related matters and favorable mark-to-market adjustments on investments supporting the Company’s non-qualified retirement plans.plans, lower costs related to litigation matters, and lower insurance costs versus the prior year quarter.
•Adjusted EBITDA — Adjusted EBITDA increased in 2021 to $72.9$178.1 million in the quarter from $57.8$122.9 million in the prior year.
FINANCIAL REPORTING
In fiscal 2020, we adopted Accounting Standards Codification Topic 842, Leases (“ASC 842”), effective at the beginning of our fiscal year on a modified retrospective basis using the effective date transition method. Our consolidated financial statements reflect the application of ASC 842 guidance beginning in 2020, while our consolidated financial statements for prior periods were prepared under the guidance of a previously applicable accounting standard.
The most significant effects of this transition that affect comparability of our results of operations between 2020 and 2019 include the following:
•Our transition to ASC 842 resulted in the gross presentation of property tax and maintenance expenses and related lessee reimbursements as “Franchise occupancy expenses” and “Franchise rental revenues”, respectively. These expenses and reimbursements were presented on a net basis under the previous accounting standard. Although there was no net impact to our consolidated statement of earnings from this change, the presentation resulted in total increases in “Franchise rental revenues” and “Franchise occupancy expenses” of $8.6 million in the quarter and $28.8 million year-to-date.
•ASC 842 also changed how lessees account for leases subleased at a loss. Under ASC 842, sublease income and lessee rent expense are recorded as franchise rent revenue and franchise occupancy costs as earned or incurred. As a result of this change, franchise revenues and franchise occupancy expenses increased by $1.1 million and $1.3 million, respectively, in the quarter and $3.2 million and $3.9 million year-to-date.
RESULTS OF OPERATIONS
The following table presents certain income and expense items included in our condensed consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS DATA
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Revenues: | Revenues: | | | | | | | | | Revenues: | | | | | | | |
Company restaurant sales | Company restaurant sales | 34.0 | % | | 35.3 | % | | 34.2 | % | | 35.4 | % | | Company restaurant sales | 33.4 | % | | 34.4 | % | | 33.6 | % | | 34.3 | % |
Franchise rental revenues | Franchise rental revenues | 31.4 | % | | 28.5 | % | | 31.6 | % | | 28.7 | % | | Franchise rental revenues | 30.3 | % | | 32.3 | % | | 30.5 | % | | 31.7 | % |
Franchise royalties and other | Franchise royalties and other | 17.8 | % | | 18.1 | % | | 17.4 | % | | 18.0 | % | | Franchise royalties and other | 18.4 | % | | 17.5 | % | | 17.9 | % | | 17.2 | % |
Franchise contributions for advertising and other services | Franchise contributions for advertising and other services | 16.7 | % | | 18.2 | % | | 16.8 | % | | 18.0 | % | | Franchise contributions for advertising and other services | 17.9 | % | | 15.8 | % | | 18.0 | % | | 16.8 | % |
Total revenues | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | |
| | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Operating costs and expenses, net: | Operating costs and expenses, net: | | | | | | | | | Operating costs and expenses, net: | | | | | | | |
Company restaurant costs (excluding depreciation and amortization): | | | |
Food and packaging (1) | Food and packaging (1) | 29.2 | % | | 29.4 | % | | 29.6 | % | | 28.8 | % | | Food and packaging (1) | 27.8 | % | | 29.9 | % | | 28.1 | % | | 29.8 | % |
Payroll and employee benefits (1) | Payroll and employee benefits (1) | 30.4 | % | | 29.5 | % | | 31.0 | % | | 29.5 | % | | Payroll and employee benefits (1) | 30.8 | % | | 32.6 | % | | 30.6 | % | | 31.2 | % |
Occupancy and other (1) | Occupancy and other (1) | 15.0 | % | | 14.1 | % | | 15.6 | % | | 14.8 | % | | Occupancy and other (1) | 15.5 | % | | 16.9 | % | | 15.6 | % | | 15.9 | % |
Total company restaurant costs (1) | 74.6 | % | | 73.0 | % | | 76.2 | % | | 73.1 | % | | |
Franchise occupancy expenses (2) | Franchise occupancy expenses (2) | 63.9 | % | | 60.6 | % | | 66.7 | % | | 61.1 | % | | Franchise occupancy expenses (2) | 62.8 | % | | 69.2 | % | | 62.8 | % | | 68.0 | % |
Franchise support and other costs (3) | Franchise support and other costs (3) | 6.2 | % | | 6.7 | % | | 7.7 | % | | 6.4 | % | | Franchise support and other costs (3) | 7.1 | % | | 7.9 | % | | 6.2 | % | | 8.5 | % |
Franchise advertising and other services expenses (4) | Franchise advertising and other services expenses (4) | 104.0 | % | | 103.7 | % | | 103.6 | % | | 104.0 | % | | Franchise advertising and other services expenses (4) | 102.1 | % | | 104.7 | % | | 102.6 | % | | 103.5 | % |
Selling, general and administrative expenses | Selling, general and administrative expenses | 5.6 | % | | 11.0 | % | | 8.6 | % | | 9.1 | % | | Selling, general and administrative expenses | 7.3 | % | | 11.2 | % | | 6.6 | % | | 10.0 | % |
Depreciation and amortization | Depreciation and amortization | 5.0 | % | | 5.8 | % | | 5.4 | % | | 5.9 | % | | Depreciation and amortization | 4.2 | % | | 5.7 | % | | 4.2 | % | | 5.5 | % |
Impairment and other charges, net | 0.3 | % | | (1.5) | % | | (1.0) | % | | 0.8 | % | | |
Impairment and other charges (gains), net | | Impairment and other charges (gains), net | 0.5 | % | | 0.3 | % | | 0.1 | % | | (1.6) | % |
Gains on the sale of company-operated restaurants | Gains on the sale of company-operated restaurants | (0.4) | % | | — | % | | (0.3) | % | | — | % | | Gains on the sale of company-operated restaurants | (0.6) | % | | — | % | | (0.5) | % | | (0.3) | % |
| Earnings from operations | Earnings from operations | 25.5 | % | | 21.7 | % | | 21.5 | % | | 21.1 | % | | Earnings from operations | 25.2 | % | | 15.2 | % | | 25.8 | % | | 19.6 | % |
Income tax rate (5) | Income tax rate (5) | 27.9 | % | | (17.9) | % | | 29.0 | % | | 18.4 | % | | Income tax rate (5) | 27.3 | % | | 32.3 | % | | 26.1 | % | | 30.7 | % |
____________________________
(1)As a percentage of company restaurant sales.
(2)As a percentage of franchise rental revenues.
(3)As a percentage of franchise royalties and other.
(4)As a percentage of franchise contributions for advertising and other services.
(5)As a percentage of earnings from continuing operations and before income taxes.
The following table summarizes changes in same-store sales for company-owned, franchised, and system-wide restaurants:
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 | |
Company | Company | 4.1 | % | | 2.8 | % | | 1.2 | % | | 1.2 | % | | Company | 14.5 | % | | (4.1) | % | | 10.4 | % | | (0.1) | % | |
Franchise | Franchise | 6.9 | % | | 2.7 | % | | 1.5 | % | | 0.8 | % | | Franchise | 21.3 | % | | (4.2) | % | | 16.5 | % | | (0.9) | % | |
System | System | 6.6 | % | | 2.7 | % | | 1.5 | % | | 0.8 | % | | System | 20.6 | % | | (4.2) | % | | 15.9 | % | | (0.8) | % | |
The following table summarizes changes in the number and mix of company and franchise restaurants:
| | | 2020 | | | 2019 | | | 2021 | | 2020 |
| | Company | | Franchise | | Total | | Company | | Franchise | | Total | | Company | | Franchise | | Total | | Company | | Franchise | | Total |
Beginning of year | Beginning of year | 137 | | | 2,106 | | | 2,243 | | | 137 | | | 2,100 | | | 2,237 | | Beginning of year | 144 | | | 2,097 | | | 2,241 | | | 137 | | | 2,106 | | | 2,243 | |
New | New | — | | | 20 | | | 20 | | | — | | | 16 | | | 16 | | New | — | | | 6 | | | 6 | | | — | | | 16 | | | 16 | |
| Acquired from franchisees | Acquired from franchisees | 8 | | | (8) | | | — | | | — | | | — | | | — | | Acquired from franchisees | 4 | | | (4) | | | — | | | 8 | | | (8) | | | — | |
Closed | Closed | (1) | | | (18) | | | (19) | | | — | | | (11) | | | (11) | | Closed | — | | | (19) | | | (19) | | | (1) | | | (12) | | | (13) | |
End of period | End of period | 144 | | | 2,100 | | | 2,244 | | | 137 | | | 2,105 | | | 2,242 | | End of period | 148 | | | 2,080 | | | 2,228 | | | 144 | | | 2,102 | | | 2,246 | |
% of system | % of system | 6 | % | | 94 | % | | 100 | % | | 6 | % | | 94 | % | | 100 | % | % of system | 7 | % | | 93 | % | | 100 | % | | 6 | % | | 94 | % | | 100 | % |
The following table summarizes restaurant sales for company-owned, franchised, and total system sales (in thousands):
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Company-owned restaurant sales | Company-owned restaurant sales | $ | 82,444 | | | $ | 78,434 | | | $ | 262,188 | | | $ | 257,948 | | Company-owned restaurant sales | $ | 85,962 | | | $ | 74,380 | | | $ | 200,240 | | | $ | 179,744 | |
Franchised restaurant sales (1) | Franchised restaurant sales (1) | 804,791 | | | 747,398 | | | 2,480,062 | | | 2,428,708 | | Franchised restaurant sales (1) | 847,363 | | | 695,926 | | | 1,963,189 | | | 1,675,271 | |
System sales (1) | System sales (1) | $ | 887,235 | | | $ | 825,832 | | | $ | 2,742,250 | | | $ | 2,686,656 | | System sales (1) | $ | 933,325 | | | $ | 770,306 | | | $ | 2,163,429 | | | $ | 1,855,015 | |
____________________________
(1)Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees. System sales include company and franchised restaurant sales. We do not record franchised sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchised sales. We believe franchised and system restaurant sales information is useful to investors as they have a direct effect on the Company's profitability.
Below is a reconciliation of Non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands):
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Net earnings - GAAP | Net earnings - GAAP | $ | 32,555 | | | $ | 13,189 | | | $ | 51,915 | | | $ | 72,376 | | Net earnings - GAAP | $ | 35,934 | | | $ | 11,463 | | | $ | 86,793 | | | $ | 19,360 | |
(Earnings) losses from discontinued operations, net of taxes | (379) | | | 284 | | | (379) | | | (2,652) | | |
Income tax expense (benefit) | 12,432 | | | (2,048) | | | 21,023 | | | 15,699 | | |
| Income tax expense | | Income tax expense | 13,524 | | | 5,458 | | | 30,585 | | | 8,591 | |
Interest expense, net | Interest expense, net | 15,700 | | | 36,494 | | | 51,051 | | | 67,144 | | Interest expense, net | 15,227 | | | 15,409 | | | 35,962 | | | 35,351 | |
Pension settlement charges | Pension settlement charges | 103 | | | — | | | 39,030 | | | — | | Pension settlement charges | — | | | 321 | | | — | | | 38,927 | |
Gains on the sale of company-operated restaurants | Gains on the sale of company-operated restaurants | (1,050) | | | — | | | (2,625) | | | (219) | | Gains on the sale of company-operated restaurants | (1,532) | | | — | | | (2,815) | | | (1,575) | |
Impairment and other charges, net | 738 | | | (3,256) | | | (7,837) | | | 5,567 | | |
Impairment and other charges (gains), net | | Impairment and other charges (gains), net | 1,228 | | | 716 | | | 776 | | | (8,575) | |
Depreciation and amortization | Depreciation and amortization | 12,141 | | | 12,786 | | | 41,151 | | | 42,645 | | Depreciation and amortization | 10,696 | | | 12,282 | | | 25,267 | | | 29,010 | |
Amortization of franchise tenant improvement allowances and other | Amortization of franchise tenant improvement allowances and other | 618 | | | 387 | | | 2,383 | | | 1,524 | | Amortization of franchise tenant improvement allowances and other | 673 | | | 614 | | | 1,534 | | | 1,765 | |
Adjusted EBITDA - Non-GAAP | Adjusted EBITDA - Non-GAAP | $ | 72,858 | | | $ | 57,836 | | | $ | 195,712 | | | $ | 202,084 | | Adjusted EBITDA - Non-GAAP | $ | 75,750 | | | $ | 46,263 | | | $ | 178,102 | | | $ | 122,854 | |
Company Restaurant Operations
The following table presents company restaurant sales and costs, and restaurant costs as a percentage of the related sales. Percentages may not add due to rounding (dollars in thousands):
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | | July 7, 2019 | | | July 5, 2020 | | | July 7, 2019 | | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Company restaurant sales | Company restaurant sales | $ | 82,444 | | | | | $ | 78,434 | | | | | $ | 262,188 | | | | | $ | 257,948 | | | | Company restaurant sales | $ | 85,962 | | | | $ | 74,380 | | | | $ | 200,240 | | | | $ | 179,744 | | |
Company restaurant costs: | Company restaurant costs: | | Company restaurant costs: | |
Food and packaging | Food and packaging | 24,077 | | | 29.2 | % | | 23,058 | | | 29.4 | % | | 77,662 | | | 29.6 | % | | 74,350 | | | 28.8 | % | Food and packaging | $ | 23,938 | | | 27.8 | % | | $ | 22,237 | | | 29.9 | % | | $ | 56,315 | | | 28.1 | % | | $ | 53,585 | | | 29.8 | % |
Payroll and employee benefits | Payroll and employee benefits | 25,085 | | | 30.4 | % | | 23,121 | | | 29.5 | % | | 81,236 | | | 31.0 | % | | 76,163 | | | 29.5 | % | Payroll and employee benefits | $ | 26,440 | | | 30.8 | % | | $ | 24,261 | | | 32.6 | % | | $ | 61,371 | | | 30.6 | % | | $ | 56,151 | | | 31.2 | % |
Occupancy and other | Occupancy and other | 12,334 | | | 15.0 | % | | 11,052 | | | 14.1 | % | | 40,862 | | | 15.6 | % | | 38,165 | | | 14.8 | % | Occupancy and other | $ | 13,349 | | | 15.5 | % | | $ | 12,570 | | | 16.9 | % | | $ | 31,184 | | | 15.6 | % | | $ | 28,528 | | | 15.9 | % |
Total company restaurant costs | $ | 61,496 | | | 74.6 | % | | $ | 57,231 | | | 73.0 | % | | $ | 199,760 | | | 76.2 | % | | $ | 188,678 | | | 73.1 | % | |
Company restaurant sales increased $4.0$11.6 million, or 5.1%15.6% in the quarter and $4.2$20.5 million, or 1.6%11.4% year-to-date versus a year ago primarily due primarily to increases in the average check growth, menu pricing,price increases, and an increase in the number of company-operated restaurants related to the acquisition of eight restaurants from a franchisee during the second quarter, and wererestaurants; partially offset by a declinedecrease in traffic. The following table presents the approximate impact of these items on company restaurant sales in 2021 (in millions):
| | | | | | | | | | | | | | |
| | Quarter | | Year-to-date |
AUV increase | | $ | 10.4 | | | $ | 17.1 | |
Increase in the average number of restaurants | | 1.2 | | | 3.4 | |
Total change in company restaurant sales | | $ | 11.6 | | | $ | 20.5 | |
Same-store sales at company-operated restaurants increased 4.1%14.5% in the quarter and 1.2%10.4% year-to-date compared to a year ago. The following table summarizes the change in company-operated same store-sales versus a year ago:
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | April 12, 2020 |
Average check (1) | Average check (1) | 20.2 | % | | 2.8 | % | | 9.1 | % | | 3.2 | % | | Average check (1) | 19.9 | % | | 6.4 | % | | 20.8 | % | 4.2 | % |
Transactions | Transactions | (16.1) | % | | — | % | | (7.9) | % | | (2.0) | % | | Transactions | (5.4) | % | | (10.5) | % | | (10.4) | % | (4.3) | % |
Change in same-store sales | Change in same-store sales | 4.1 | % | | 2.8 | % | | 1.2 | % | | 1.2 | % | | Change in same-store sales | 14.5 | % | | (4.1) | % | | 10.4 | % | (0.1) | % |
____________________________
(1)Amounts in 20202021 include price increases of approximately 3.0%3.1% in the quarter and 2.7%3.3% year-to-date. Amounts in 20192020 include price increasesincrease of approximately 2.3%2.4% in the quarter and 2.6% year-to-date.
Food and packaging costs as a percentage of company restaurant sales decreased to 29.2%27.8% in the quarter and increased to 29.6%28.1% year-to-date in 20202021 compared to 29.4%29.9% in the quarter and 28.8%29.8% year-to-date in 2019. In the quarter, menu price increases and2020, driven by favorable changes in product mix wereand menu price increases, partially offset by higher costs for ingredients. Year to date, the impact of higher costs for ingredients and changes in product mix were partially offset by menu price increases. Commodity costs increased in the quarter and year-to-date by 3.6%approximately 1.7% and 4.4%1.6%, respectively, primarily due primarily to increases in beefpork and oil, partially offset by a decrease in both periods and cheese year-to-date. Beef, our most significantbeef. For fiscal 2021, we currently expect commodity increased 27% in the quarter and 18% year-to-date.costs to increase by approximately 3% compared with fiscal 2020.
Payroll and employee benefit costs as a percentage of company restaurant sales increaseddecreased to 30.4%30.8% in the quarter and 31.0%30.6% year-to-date in 20202021 compared with 29.5%to 32.6% in the quarter and 31.2% year-to-date in 2019, due primarily to2020, driven by sales leverage, which more than offset higher average wages resulting from wage inflation and a highly competitive labor market, and higher incentive compensation in the quarter, as well as higher costs related to our new emergency paid sick leave program implemented in response to COVID-19.costs.
Occupancy and other costs, as a percentage of company restaurant sales, increaseddecreased to 15.0%15.5% in the quarter and 15.6% year-to-date in 20202021 compared with 14.1%to 16.9% in the quarter and 14.8%15.9% year-to-date in 2019 driven2020 primarily due to leverage from higher same-store sales and lower costs for maintenance and repairs, partially offset by higher costs for delivery fees higher costs for supplies relatedas we continue to COVID-19, and the acquisition in 2020 of eight restaurants with lower than averagegrow our delivery sales volumes.mix.
Franchise Operations
The following table presents franchise revenues and costs in each period and other information we believe is useful in analyzing the change in franchise operating results (dollars in thousands):
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Franchise rental revenues | Franchise rental revenues | $ | 76,021 | | | $ | 63,359 | | | $ | 241,990 | | | $ | 208,895 | | Franchise rental revenues | $ | 77,901 | | $ | 69,885 | | $ | 181,650 | | $ | 165,969 |
| Royalties | Royalties | 41,537 | | | 38,752 | | | 127,829 | | | 125,407 | | Royalties | 43,620 | | 36,049 | | 100,963 | | 86,292 |
Franchise fees and other | Franchise fees and other | 1,702 | | | 1,428 | | | 5,640 | | | 5,433 | | Franchise fees and other | 3,611 | | 1,715 | | 5,916 | | 3,938 |
Franchise royalties and other | Franchise royalties and other | 43,239 | | | 40,180 | | | 133,469 | | | 130,840 | | Franchise royalties and other | 47,231 | | 37,764 | | 106,879 | | 90,230 |
Franchise contributions for advertising and other services | Franchise contributions for advertising and other services | 40,571 | | | 40,386 | | | 128,458 | | | 131,189 | | Franchise contributions for advertising and other services | 46,123 | | 34,128 | | 106,989 | | 87,887 |
Total franchise revenues | Total franchise revenues | $ | 159,831 | | | $ | 143,925 | | | $ | 503,917 | | | $ | 470,924 | | Total franchise revenues | $ | 171,255 | | $ | 141,777 | | $ | 395,518 | | $ | 344,086 |
| Franchise occupancy expenses (excluding depreciation and amortization) | $ | 48,612 | | | $ | 38,371 | | | $ | 161,470 | | | $ | 127,702 | | |
Franchise occupancy expenses | | Franchise occupancy expenses | $ | 48,904 | | $ | 48,341 | | $ | 114,073 | | $ | 112,858 |
Franchise support and other costs | Franchise support and other costs | 2,692 | | | 2,695 | | | 10,339 | | | 8,337 | | Franchise support and other costs | 3,341 | | 2,971 | | 6,614 | | 7,647 |
Franchise advertising and other services expenses | Franchise advertising and other services expenses | 42,176 | | | 41,882 | | | 133,134 | | | 136,397 | | Franchise advertising and other services expenses | 47,104 | | 35,734 | | 109,799 | | 90,958 |
Total franchise costs | Total franchise costs | $ | 93,480 | | | $ | 82,948 | | | $ | 304,943 | | | $ | 272,436 | | Total franchise costs | $ | 99,349 | | $ | 87,046 | | $ | 230,486 | | $ | 211,462 |
Franchise costs as a percentage of total franchise revenues | Franchise costs as a percentage of total franchise revenues | 58.5 | % | | 57.6 | % | | 60.5 | % | | 57.9 | % | Franchise costs as a percentage of total franchise revenues | 58.0% | | 61.4% | | 58.3% | | 61.5% |
| Average number of franchise restaurants | Average number of franchise restaurants | 2,079 | | | 2,081 | | | 2,084 | | | 2,084 | | Average number of franchise restaurants | 2,071 | | 2,085 | | 2,075 | | 2,086 |
Increase in franchise-operated same-store sales | 6.9 | % | | 1.5 | % | | |
Franchised restaurant sales | Franchised restaurant sales | $ | 804,791 | | | $ | 747,398 | | | $ | 2,480,062 | | | $ | 2,428,708 | | Franchised restaurant sales | $ | 847,363 | | $ | 695,926 | | $ | 1,963,189 | | $ | 1,675,271 |
Franchised restaurant AUVs | Franchised restaurant AUVs | $ | 387 | | | $ | 359 | | | $ | 1,190 | | | $ | 1,166 | | Franchised restaurant AUVs | $ | 409 | | $ | 334 | | $ | 946 | | $ | 803 |
Royalties as a percentage of total franchised restaurant sales | Royalties as a percentage of total franchised restaurant sales | 5.2 | % | | 5.2 | % | | 5.2 | % | | 5.2 | % | Royalties as a percentage of total franchised restaurant sales | 5.1% | | 5.2% | | 5.1% | | 5.2% |
Franchise rental revenues increased $12.7$8.0 million, or 20.0%11.5% in the quarter, and $33.1$15.7 million or 15.8%9.4% year-to-date compared to the prior year, primarily from our adoption of ASC 842, which increased our rental revenues $9.7 million in the quarter and $32.0 million year-to-date, as well asdue to higher percentage rent revenues due to an increase indriven by higher franchise restaurant sales.
Franchise royalties and other increased $3.1$9.5 million, or 7.6%25.1% in the quarter, and $2.6$16.6 million, or 2.0%18.5% year-to-date compared to the prior year, primarily due primarily to an increase in franchise same-storerestaurant sales driving royalties higher.
Franchise contributions for advertising and other services revenues increased $0.2$12.0 million, or 0.5%35.1% in the quarter as a result of $0.7and $19.1 million, higher technology and sourcing fees, partially offset by $0.5 million lower marketing contributions. Marketing contributions were loweror 21.7% year-to-date compared to the prior year, mainly due to a reduction in April marketing fees and was largely offset by an increase in marketing contributions due to higher franchise restaurant sales compared with a year ago. Year-to-date, franchise contributions for advertising and other services revenues decreased $2.7 million, or 2.1%, as a result of $4.9 million lowerreducing our marketing contributions driven by a decrease infees at the contribution percentages; partially offset by $2.2 million higher technology and sourcing fees as a resultonset of an increase in technology fees in July 2019.the pandemic to provide additional financial support to our franchise operators.
Franchise occupancy expenses, principally rents,primarily rent, increased $10.2$0.6 million in the quarter and $33.8$1.2 million year-to-date compared to the prior year, mainly due primarily to the adoption of ASC 842, which increased franchise occupancy expenses by $9.9 million in the quarterannual base rent increases and $32.7 million year-to-date.higher costs for percentage rent expense.
Franchise support and other costs remained flatincreased $0.4 million in the quarter, primarily due to higher incentive compensation, and decreased $1.0 million year-to-date, driven by a decrease in franchisee bad debt expense from specific franchise situations that occurred in the prior year.
Franchise advertising and other service expenses increased $11.4 million in the quarter and increased $2.0$18.8 million year-to-date compared to the prior year, primarily as a result ofdue to an increase in franchisee bad debt expense related to specific franchise situations that occurred in the first quarter of 2020.
Franchise advertising and other service expenses increased $0.3 million, or 0.7% in the quarter as a result of higher technology and sourcing costs of $0.8 million; partially offset by lower marketing contributions of $0.5 million. Year-to-date, franchise advertising and other service expenses decreased $3.3 million, or 2.4% compared to the prior year, as a result of lower marketing contributions of $4.9 million, partially offset by an increase in technology and sourcing costs of $1.7 million.
from our franchisees.
Depreciation and Amortization
Depreciation and amortization decreased by $0.6$1.6 million in the quarter and $1.5$3.7 million year-to-date compared withto the prior year, primarily due to certain of our franchise building assets becoming fully depreciated in the current fiscal year.depreciated.
Selling, General and Administrative (“SG&A”) Expenses
The following table presents the change in 2020 SG&A expenses compared with the prior year (in thousands):
| | | Increase / (Decrease) | | | Increase/(Decrease) |
| | Quarter | | Year-to-date | | Quarter | | Year-to-date |
Advertising | Advertising | $ | (68) | | | $ | (2,290) | | Advertising | $ | 792 | | | $ | 1,243 | |
Incentive compensation (including share-based compensation and related payroll taxes) | Incentive compensation (including share-based compensation and related payroll taxes) | (2,489) | | | (2,111) | | Incentive compensation (including share-based compensation and related payroll taxes) | 2,282 | | | 2,573 | |
Cash surrender value of COLI policies, net | Cash surrender value of COLI policies, net | (2,587) | | | 1,128 | | Cash surrender value of COLI policies, net | (5,914) | | | (8,578) | |
Litigation matters | Litigation matters | (6,982) | | | (1,182) | | Litigation matters | (1,891) | | | (5,822) | |
Insurance | Insurance | 2,553 | | | 1,781 | | Insurance | (2,064) | | | (2,356) | |
Other (includes transition services income and savings related to our restructuring plan) | (1,136) | | | 2,748 | | |
Other | | Other | 1,453 | | | (151) | |
| | $ | (10,709) | | | $ | 74 | | | $ | (5,342) | | | $ | (13,091) | |
Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales. Advertising costs decreased $0.1increased $0.8 million in the quarter and $2.3$1.2 million year-to-date compared to the prior year. In the quarter, the decrease was driven byyear primarily due to higher company-operated restaurant sales, and a decrease in the contribution percentage largely offset by higher company-operated restaurant sales. Year-to-date,in the decrease was primarily due to a $2.0 million discretionary marketing fund contribution made by the Company in 2019 that was non-recurring in 2020.prior year.
Incentive compensation decreasedincreased by $2.5$2.3 million in the quarter and $2.1$2.6 million year-to-date versus a year ago primarily as a result of lowerhigher achievement levels compared to the prior year, forpartially offset by a decrease in stock-based compensation as a result of turnover at the Company’s annual incentive plan.executive level.
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 $2.6$5.9 million in the quarter and a negative impact of $1.1$8.6 million year-to-date compared to the prior year.
Litigation matters decreased by $7.0$1.9 million in the quarter and $1.2$5.8 million year-to-date primarily due to lower costs on certain employeeincurred in the prior year related to various employment litigation matters. Refer to Note 13, Contingencies and Legal Matters, of the notes to the condensed consolidated financial statements for additional information regarding these charges.
Insurance costs increaseddecreased by $2.6$2.1 million in the quarter and $1.8$2.4 million year-to-date, primarily due to less favorable claim development factors related to our workers’ compensation and general liability claims compared to the prior year.liabilities.
Impairment and Other Charges (Gains), Net
Impairment and other charges (gains), net is comprised of the following (in thousands):
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Costs of closed restaurants and other | | Costs of closed restaurants and other | $ | 441 | | | $ | 331 | | | $ | 1,464 | | | $ | 432 | |
Restructuring costs | Restructuring costs | $ | 2 | | | $ | (64) | | | $ | 1,165 | | | $ | 6,722 | | Restructuring costs | (2) | | | 118 | | | 4 | | | 1,163 | |
Costs of closed restaurants and other | 890 | | | 2,010 | | | 1,322 | | | 3,259 | | |
Gains on disposition of property and equipment, net | (216) | | | (5,618) | | | (10,386) | | | (5,756) | | |
Losses (gains) on disposition of property and equipment, net | | Losses (gains) on disposition of property and equipment, net | 229 | | | 267 | | | (1,931) | | | (10,170) | |
Accelerated depreciation | Accelerated depreciation | 62 | | | 416 | | | 62 | | | 1,342 | | Accelerated depreciation | 560 | | | — | | | 1,239 | | | — | |
| | $ | 738 | | | $ | (3,256) | | | $ | (7,837) | | | $ | 5,567 | | | $ | 1,228 | | | $ | 716 | | | $ | 776 | | | $ | (8,575) | |
Impairment and other charges (gains), net increased by $4.0$0.5 million in the quarter comparedand $9.4 million year-to-date. Year-to-date, the increase is primarily due to a year ago, driven by a gain on sale of a restaurant property in the prior year. Impairment and other charges, net decreased year-to-date by $13.4 million, as a result of a $10.8 million gain related to the sale of one of our corporate office buildings in 2020, partially offset by a $2.2 million gain on the sale of two real estate properties in the first quarter of 2020 and lower restructuring costs of $5.6 million.
Gains on the Sale of Company-Operated Restaurants
In 20202021 and 2019,2020, no company-operated restaurants were sold to franchisees. GainsAmounts included in “Gains on the sale of company-operated restaurants” in all periods related to resolutions of certain contingencies from the sale of restaurants in both periods pertain to meeting certain contingent consideration provisions included in restaurants sold in previousprior years.
Other Pension and Post-Retirement Expenses, Net
Other pension and post-retirement expenses, net increaseddecreased by $1.1$0.3 million in the quarter and $39.8$39.0 million year-to-date versus the prior year, primarily due to non-cash pension settlement charges of $0.1 million in the quarter and $39.0 million year-to-date.2020. Refer to Note 10,8, Retirement Plans, of the notes to the condensed consolidated financial statements for additional information regarding these charges.information.
Interest Expense, Net
Interest expense, net is comprised of the following (in thousands):
| | | Quarter | | | Year-to-date | | | Quarter | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 | | April 11, 2021 | | April 12, 2020 |
Interest expense | Interest expense | $ | 15,703 | | | $ | 36,561 | | | $ | 51,580 | | | $ | 67,587 | | Interest expense | $ | 15,241 | | | $ | 15,458 | | | $ | 35,980 | | | $ | 35,877 | |
Interest income | Interest income | (3) | | | (67) | | | (529) | | | (443) | | Interest income | (14) | | | (49) | | | (18) | | | (526) | |
Interest expense, net | Interest expense, net | $ | 15,700 | | | $ | 36,494 | | | $ | 51,051 | | | $ | 67,144 | | Interest expense, net | $ | 15,227 | | | $ | 15,409 | | | $ | 35,962 | | | $ | 35,351 | |
Interest expense, net decreased $20.8by $0.2 million in the quarter and $16.1increased $0.6 million year-to-date compared with a year ago,ago. In the quarter, the decrease is due to lower average debt balances compared to the prior year. Year-to-date, the increase is primarily due to a charge of $23.6 million for the early termination of ourdecrease in interest rate swaps inincome versus the prior year quarter. Excluding this impact, interest expense increased by $2.8 million in the quarter and $7.5 million year-to-date, primarily as a result of higher average debt balances.year.
Income Tax Expense (Benefit)
The income tax provisions reflect tax rates of 27.9%27.3% in the second quarter and 29.0%26.1% year-to-date, compared to (17.9%)with 32.3% and 18.4%30.7%, respectively, in fiscal year 2019.2020. The major components of the year-over-year changedecrease in tax rates were a decrease in the impact of non-recurring activity in fiscal year 2019 including the termination of interest rate swap agreements, the release of valuation reserves on state tax credits and losses, and the release of a federal tax liability due to expiration of statute of limitations, andnon-deductible compensation for certain officers, an increase in nondeductiblenon-taxable gains from the market performance of insurance products used to fund certain non-qualified retirement plans, and a decrease in non-deductible costs resulting from a California Private Attorney General Act lawsuit settled in the current year. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2020 rate could differ from our current estimates.
Earnings (Losses) from Discontinued Operations, Net
As described in Note 14, Discontinued Operations,prior year, partially offset by an adjustment related to state taxes recorded in the notes to condensed consolidated financial statements, the resultssecond quarter of operations from our former Qdoba business has been reported as discontinued operations for all periods presented. Refer to Note 14 for additional information regarding discontinued operations.fiscal year 2021.
LIQUIDITY AND CAPITAL RESOURCES
General
As is common in the restaurant industry, we generally maintain relatively low levelsOur primary sources of accounts receivableliquidity 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, whichcapital resources are reflected as long-term assets and not as part of working capital. As a result, we may at times maintain current liabilities in excess of current assets, which results in a working capital deficit. We generally reinvest available cash flows from operations to enhance existing restaurants, to reduce debt, to repurchase shares ofand borrowings available under our common stock, and to pay cash dividends.securitized financing facility. Our cash requirements consist principally of working capital, general corporate needs, capital expenditures, income tax payments, debt service requirements, franchise tenant improvement allowance distributions, dividend payments, and obligations related to our benefit plans. We generally reinvest available cash flows from operations to invest in our business, service our debt obligations, pay dividends and repurchase shares of our common stock.
Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available financing in place. On July 8, 2019, we completed a refinancing of our existing senior credit facility with a new securitized financing facility, comprised of $1.3 billion of senior fixed-rate term notes and $150.0 million of variable funding notes. During the second quarter of fiscal 2020, to secure our liquidity position and provide financial flexibility given the uncertain market conditions, we drew down onborrowings under our Variable Funding Notes, which provided us $107.9 million of unrestricted cash.Notes. As of the end of our third quarter,April 11, 2021, the Company had $196.9$108.8 million of cash and restricted cash on its balance sheet.sheet and $110.5 million of borrowing availability under its Variable Funding Notes.
In the contextBased upon current levels of an unprecedented global pandemic,operations and anticipated growth, we believe it is prudentexpect that cash flows from operations, combined with our securitized financing facility including our Variable Funding Notes, will be sufficient to maintain maximum financial flexibility by preservingmeet our capital expenditure, working capital and maintaining the Company’s healthy liquidity position. As a result, beginning in the second quarter, we have temporarily suspended all repurchase activity and significantly reduced capital expenditures to essential spend only. We also temporarily suspended our dividend payments beginning in the last quarter, which was subsequently reinstated. The reinstatement of the dividend reflects the strong financial health of the Company and our continued commitment to shareholders.
We believe that our cash on hand, cash flow from operations, and the actions taken to mitigate the effects of the COVID-19 pandemic discussed above will provide us with adequate liquiditydebt service requirements for at least the next twelve months and the foreseeable future.
Cash Flows
The table below summarizes our cash flows from continuing operations (in thousands):
| | | Year-to-date | | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 |
Total cash provided by (used in): | Total cash provided by (used in): | | | | Total cash provided by (used in): | | | |
Operating activities | Operating activities | $ | 90,168 | | | $ | 116,793 | | Operating activities | $ | 78,544 | | | $ | 58,927 | |
Investing activities | Investing activities | 29,543 | | | 950 | | Investing activities | (15,718) | | | 29,601 | |
Financing activities | Financing activities | (74,359) | | | (108,001) | | Financing activities | (190,972) | | | (70,905) | |
Net cash flows | Net cash flows | $ | 45,352 | | | $ | 9,742 | | Net cash flows | $ | (128,146) | | | $ | 17,623 | |
Operating Activities. Operating cash flows decreased $26.6increased $19.6 million compared with a year ago, primarily due to lowerhigher net income adjusted for non-cash items of $9.6 million and favorable changes in working capital of $10.0 million, mainly as a result of higher collections on receivables due to postponing collections of $23.6 millionmarketing and rent payments from rent and marketing payment deferrals we provided to our franchisees in the prior year, and higher income tax anddecreases in interest payments of $6.7 million and $8.4 million, respectively. These decreases werefranchise tenant improvements allowance disbursements, partially offset by lower rent payments of $12.7 million froma decrease in payables due to timing and extending payment deferrals we received from our landlords.terms in the prior year.
Pension and PostretirementPost-Retirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, 2019,2020, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for our qualified pension plan. We continue to evaluate contributions to our Qualified Plan based on changes in pension assets as a result of asset performance in the current market and the economic environment. We do not anticipate making any contributions to our Qualified Plan in fiscal 2020. In 2020,2021, we contributed $4.9$3.6 million to our non-qualified pension plan and postretirementpost-retirement plans.
Investing Activities. Cash provided by investing activities increaseddecreased by $28.6$45.3 million compared with a year ago, primarily due to higher$17.4 million of proceeds fromreceived in the prior year as a result of a sale and partial leaseback of assets of $16.8a multi-tenant property, $18.8 million higherlower proceeds fromreceived on the sale of property and equipment, of $15.2 million, and $8.3 million of lower capital expenditure spending, partially offset by $15.2 million of lower repaymentsprimarily due to proceeds received on notes issuedthe sale of a corporate office building in connection with 2018 refranchising transactions.the prior year, and $10.2 million higher capital expenditures.
Capital Expenditures — The composition of capital expenditures in each period follows (in thousands):
| | | Year-to-date | | | Year-to-date |
| | July 5, 2020 | | July 7, 2019 | | April 11, 2021 | | April 12, 2020 |
Jack in the Box: | | | | |
Restaurants: | | Restaurants: | | | |
Restaurant facility expenditures | Restaurant facility expenditures | $ | 8,385 | | | $ | 10,734 | | Restaurant facility expenditures | $ | 8,442 | | | $ | 6,026 | |
Purchases of assets intended for sale or sale and leaseback | Purchases of assets intended for sale or sale and leaseback | 417 | | | 4,236 | | Purchases of assets intended for sale or sale and leaseback | 10,343 | | | 417 | |
New restaurants | — | | | 701 | | |
Other, including information technology | Other, including information technology | 3,775 | | | 4,438 | | Other, including information technology | 1,639 | | | 1,967 | |
| | 12,577 | | | 20,109 | | | 20,424 | | | 8,410 | |
Corporate Services: | Corporate Services: | | Corporate Services: | |
Information technology | Information technology | 3,370 | | | 4,247 | | Information technology | 658 | | | 2,926 | |
Other, including facility improvements | Other, including facility improvements | 789 | | | 685 | | Other, including facility improvements | 1,846 | | | 1,441 | |
| | 4,159 | | | 4,932 | | | 2,504 | | | 4,367 | |
| Total capital expenditures | Total capital expenditures | $ | 16,736 | | | $ | 25,041 | | Total capital expenditures | $ | 22,928 | | | $ | 12,777 | |
OurIn 2021, capital expenditure program includes, among other things, restaurant remodeling, information technology enhancements, and investments in new locations and equipment. Capital expenditures decreasedincreased by $8.3$10.2 million compared to a year ago primarily asdue to a result$9.9 million increase in purchases of the Company reducing capital expenditures to essential spend only to provide additional liquidity and financial flexibility given the current uncertainty surrounding the pandemic.
Sale leaseback transactions — We useassets intended for sale and leaseback. During 2021, we exercised our right of first refusal related to four leased restaurant properties which we intend to sell and leaseback financing to lowerwithin the initial cash investment in our restaurants to the cost of the equipment, whenever possible. In 2020, we completed a sale leaseback transaction of a multi-tenant commercial property in Los Angeles, California and leased back the parcel on which a company-operated restaurant is located. We received net proceeds of $17.4 million during the first quarter of 2020 on this transaction.
In 2020, we also completed the sale of one of our corporate office buildings as we move forward with our previously announced consolidation of our corporate facilities. We entered into a lease with the buyer to leaseback the property for up to a period of 18 months with an option to terminate earlier without penalty, upon providing a 90-day notice. We received net proceeds of $20.6 million on the sale.next 12 months.
Financing Activities. Cash flows used in financing activities decreasedincreased by $33.6$120.1 million compared with a year ago, primarily due to a net increase inour repayment during the second quarter of $107.9 million of 2020 borrowings underon our revolving credit facilities of $130.9 million, lower principal repayments of $25.5 million as a result of our debt recapitalization completed in the prior year, lower dividends paid on common stock of$12.5 million, and lower payments for debt issuance costs of $4.9 million;Variable Funding Notes, partially offset by higher stock repurchases of $141.2 million.a $90.6 million decrease in cash used for share repurchases.
Repurchases of Common Stock — The Company repurchased approximately 1.90.6 million shares of its common stock in the firstsecond quarter of fiscal 2020 at an average price of $81.41 per share2021 for an aggregate cost of $153.5$65.0 million. RepurchasesAs of common stock included in our condensed consolidated statement of cash flows for fiscal 2020 includes $2.0April 11, 2021, $135.0 million related to repurchase transactions traded in the prior year that settled in 2020.
This leaves approximately $122.2 million remainingremained available under share repurchase programs authorized by the Company’s Board of Directors, consisting of $22.2$35.0 million that expires in November 20202021 and approximately $100.0 million that expires in November 2021. As previously announced, we have temporarily paused our share repurchase program and did not buy back any shares in the second or third quarter of 2020.2022.
Dividends — During 2020,2021, the Board of Directors declared two quarterly cash dividends of $0.40 per common share totaling $18.5$18.2 million.
Following our second quarter, we announced that our dividend would be temporarily suspended as a result of uncertainty caused by On May 7, 2021, the pandemic. On July 31, 2020, our Board of Directors declared a quarterly cash dividend of $0.40$0.44 per common share, to berepresenting a 10 percent increase from the prior dividend rate.
Long-Term Debt — As of April 11, 2021, we had $1.3 billion of outstanding borrowings under our securitized financing facility, comprised of total principal outstanding on the Class A-2 Notes (as defined below). During the second quarter of 2021, the Company fully paid down its outstanding borrowings on September 3, 2020 to shareholdersits Variable Funding Notes. As of record asApril 11, 2021, borrowing availability under the Variable Funding Notes was $110.5 million.
On July 8, 2019, Jack in the Box Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of the closeCompany, completed its securitization transaction and issued $575.0 million of business on August 18, 2020. Future dividends are subject to approval by our Boardits Series 2019-1 3.982% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”), $275.0 million of Directors.
its Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”) and $450.0 million of its Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes”) and together with the Class A-2-I Notes and the Class A-2-II Notes, (the “Class A-2 Notes”), in an offering exempt from registration under the Securities Act of 1933, as amended. In connection with the issuance of the Class A-2 Notes, — the Master Issuer also entered into a revolving financing facility of Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Variable Funding Notes”), which allows for the drawing of up to $150.0 million under the Variable Funding Notes and the issuance of letters of credit. The Class A-2 Notes and the Variable Funding Notes are referred to collectively as the “Notes.”
Interest and principal payments on the Class A-2 Notes are payable on a quarterly basis. In general, noThe quarterly principal payments willpayment of $3.25 million on the Class A-2 Notes may be required if asuspended when the specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as defined in the Indenture), is less than or equal to 5.0x. TheExceeding the leverage ratio of 5.0x does not violate any covenant related to the Class A-2 Notes. As of September 27, 2020 and April 11, 2021, the Company’s actual leverage ratio exceededwas under 5.0x, and as a result, we are required to make quarterly principal payments of $3.25 million. The Company anticipates that we will be required to make quarterly principal payments on the Class A-2 Notes for the foreseeable future.were not required.
The legal final maturity date of the Class A-2 Notes is in August 2049, but it is expected that, unless earlier prepaid to the extent permitted under the Indenture, the anticipated repayment dates of the Class A-2-I Notes, the Class A-2-II Notes and the Class A-2-III Notes will be August 2023, August 2026 and August 2029, respectively (the “Anticipated Repayment Dates”). If the Master Issuer has not repaid or refinanced the Class A-2 Notes prior to the respective anticipated repayment date, additional interest will accrue pursuant to the Indenture. As of July 5, 2020, $1,293.5 million of borrowings were outstanding on the Class A-2 Notes.
Restricted Cash —— In accordance with the terms of the Indenture, certain cash accounts have been established with the Indenture trustee for the benefit of the note holders and are restricted in their use. As of July 5, 2020,April 11, 2021, the Master Issuer had restricted cash of $37.4$18.1 million, which primarily represented cash collections and cash reserves held by the trustee to be used for payments of principal, interest and commitment fees required for the Class A-1 and A-2 Notes. During the third quarter, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we continued to voluntarily elect to fund cash held in trust for quarterly interest and principal payments due in November 2020.
Variable Funding Notes — The Variable Funding Notes were issued under the Indenture and allow for drawings of up to $150.0 million on a revolving basis and the issuance of letters of credit. Depending on the type of borrowing under the Variable Funding Notes, interest on the Variable Funding Notes will be based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the London interbank offered rate for U.S. Dollars or (iv) the lenders’ commercial paper funding rate plus any applicable margin, as set forth in the Variable Funding Note Purchase Agreement. There is a scaled commitment fee on the unused portion of the Variable Funding Notes facility of between 50 and 100 basis points. It is anticipated that the principal and interest on the Variable Funding Notes will be repaid in full on or prior to August 2024, subject to two one-year extensions at the option of the Company. Following the anticipated repayment date (and any extensions thereof), additional interest will accrue equal to 5.00% per annum. As of July 5, 2020 and September 29, 2019, $41.1 million and $45.6 million, respectively, of letters of credit were outstanding against the Variable Funding Notes. As of September 29, 2019, we had no outstanding borrowings under our Variable Funding Notes. During the second quarter of 2020, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we borrowed $107.9 million under the Variable Funding Notes. The Company may use the proceeds from the borrowings for working capital and general corporate purposes. As of July 5, 2020, remaining borrowing availability under our Variable Funding Notes was $1.1 million. As of July 5, 2020, $107.9 million of borrowings were outstanding under our Variable Funding Notes at a weighted average interest rate of 2.3%.
Covenants and restrictionsRestrictions —The Class A-2 Notes and the Variable Funding Notes (collectively referred to as the “Notes”) are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Notes are in stated ways defective or ineffective and (iv) covenants relating to recordkeeping, access to information and similar matters. The Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of global gross sales for specified restaurants being below certain levels on certain measurement dates, certain manager termination events, an event of default, and the failure to repay or refinance the Class A-2 Notes on the applicable scheduled maturity date. The Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments. As of July 5, 2020,April 11, 2021, we were in compliance with all of our debt covenant requirements and were not subject to any rapid amortization events.
Off-Balance Sheet Arrangements
We have entered into certain off-balance sheet contractual obligations and commitments in the ordinary course of business, which are recognized in our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles. There has been no material change in these arrangements as disclosed in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September 29, 2019.27, 2020. We are not a party to any other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.
DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those that we believe are most important for the portrayal of the Company’s financial condition and results, and that require management’s most subjective and complex judgments. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2019.27, 2020.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, Basis of Presentation, of the notes to condensed consolidated financial statements.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the federal securities laws, including further impacts that COVID-19 pandemic may have on our future operations. Any statements contained herein that are not historical facts may be deemed to be forward-looking statements. Forward-looking statements may be identified by words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “will,” “would”, “should” and similar expressions. These statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate. These estimates and assumptions involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause our actual results to differ materially from any forward-looking statements include, but are not limited to:
•The potential impactsCOVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which has affected and could continue to materially affect our operations, resulting from the coronavirus COVID-19 pandemic.financial condition, and results of operations for an extended period of time.
•We face significant competition in the food service industry and our inability to compete may adversely affect our business.
•Changes in demographic trends and in customer tastes and preferences could cause sales and the royalties we receive from franchisees to decline.
•Changes in consumer confidence and declines in general economic conditions could negatively impact our financial results.
•Increases in food and commodity costs could decrease our profit margins or result in a modified menu, which could adversely affect our financial results.
•Failure to receive scheduled deliveries of high qualityhigh-quality food ingredients and other supplies could harm our operations and reputation.
•We have a limited number of suppliers for our major products and rely on a distribution network with a limited number of distribution partners for the majority of our national distribution program in the United States.program. If our suppliers or distributors are unable to fulfill their obligations under their contracts, it could harm our operations.
•Food safety and food-borne illness concerns may have an adverse effect on our business by reducing demand and increasing costs.
•Negative publicity relating to our business or industry could adversely impact our reputation.
•Our business could be adversely affected by increased labor costs.
•Inability to attract, train and retain top-performing personnel could adversely impact our financial results or business.
•We may not have the same resources as our competitors for marketing, advertising and promotion.
•We may be adversely impacted by severe weather conditions, natural disasters, terrorist acts or civil unrest that could result in property damage, injury to employees and staff, and lost restaurant sales.
•We may not achieve our development goals.
•Our highly franchised business model presents a number of risks, and the failure of our franchisees to operate successful and profitable restaurants could negatively impact our business.
•We are subject to financial and regulatory risks associated with our owned and leased properties and real estate development projects.
•Changes to estimates related to our property, fixtures, and equipment or operating results that are lower than our current estimates at certain restaurant locations may cause us to incur impairment charges on certain long-lived assets, which may adversely affect our results of operations.
•Our tax provision may fluctuate due to changes in expected earnings.
•Activities related to our sale of Qdoba, and our refranchising, restructuring, and cost savings initiatives entail various risks and may negatively impact our financial results.
•We are subject to the risk of cybersecurity breaches, intrusions, data loss, or other data security incidents.
•We are subject to risks associated with our increasing dependence on digital commerce platforms and technologies to maintain and grow sales, and we cannot predict the impact that these digital commerce platforms and technologies, other new or improved technologies or alternative methods of delivery may have on consumer behavior and our financial results.
•We are dependent on information technology and digital service providers and any material failure, misuse, or interruption of our computer systems, supporting infrastructure, consumer-facing digital capabilities or social media platforms could adversely affect our business.
•If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, the Company’s stockholders could lose confidence in our financial results, which would harm our business and the value of the Company’s common shares.
•We may not be able to adequately protect our intellectual property, which could harm the value of our brands and adversely affect our business.
•Jack in the Box may be subject to risk associated with disagreements with key stakeholders, such as franchisees.
•The securitized debt instruments issued by certain of our wholly-owned subsidiaries have restrictive terms, and any failure to comply with such terms could result in default, which could harm the value of our brand and adversely affect our business.
•We have a significant amount of debt outstanding. Such indebtedness, along with the other contractual commitments of our Company or its subsidiaries, could adversely affect our business, financial condition and results of operations, as well as the ability of certain of our subsidiaries to meet debt payment obligations.
•The securitization transaction documents impose certain restrictions on our activities or the activities of our subsidiaries, and the failure to comply with such restrictions could adversely affect our business.
•Changes in accounting standards may negatively impact our results of operations.
•We are subject to increasing legal complexity and may be subject to claims or lawsuits that are costly to defend and could result in our payment of substantial damages or settlement costs.
•Unionization activities or labor disputes may disrupt our operations and affect our profitability.
•Increasing regulatory and legal complexity may adversely affect restaurant operations and our financial results; including federal, state, and local policies regarding mitigation strategies for controlling the coronavirus COVID-19 pandemic.results.
•Our insurance may not provide adequate levels of coverage against claims.
•Our quarterly results and, as a result, the price of our common stock, may fluctuate significantly and could fall below the expectations of securities analysts and investors due to various factors.
•The price of our common stock may be adversely affected by investor response to our temporary suspension of our stock repurchase program.
•Activities of activist stockholders could cause us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business.
•Governmental regulation may adversely affect our existing and future operations and results, including by harming our ability to profitably operate our restaurants.
•The proliferation of federal, state, and local regulations increases our compliance risks, which in turn could adversely affect our business.
•Legislation and regulations regarding our products and ingredients, including the nutritional content of our products, could impact customer preferences and negatively impact our financial results.
•Failure to obtain and maintain required licenses and permits or to comply with food control regulations could lead to the loss of our food service licenses and, thereby, harm our business.
•Our quarterly results and, as a result, the price of our common stock, may fluctuate significantly and could fall below the expectations of securities analysts and investors due to various factors.
•Actions of activist stockholders could cause us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business.
These and other factors are identified and described in more detail in our filings with the Securities and Exchange Commission, including, but not limited to: the “Discussion of Critical Accounting Estimates,” and other sections in this Form 10-Q and the “Risk Factors” section of our most recent Annual Report on Form 10-K for the fiscal year ended September 29, 201927, 2020 (“Form 10-K”). These documents may be read free of charge on the SEC’s website at www.sec.gov. Potential investors are urged to consider these factors, more fully described in our Form 10-K, carefully in evaluating any forward-looking statements, and are cautioned not to place undue reliance on the forward-looking statements. All forward-looking statements are made only as of the date issued, and we do not undertake any obligation to update any forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are only exposed to interest rate risk on borrowings under our Class A-1 Variable Funding Notes, a revolving credit facility, borrowings from which are subject to variable interest rates. In the second quarter of 2020, we borrowed $107.9 million under the variable funding notes, which remains outstanding as of July 5, 2020. Based on outstanding borrowings as of July 5, 2020, an increase or decrease of 100 basis points in interest rates would impact our interest expense by approximately $1.1 million on an annualized basis.
We are also exposed to the impact of commodity and utility price fluctuations. Many of the ingredients we use are commodities or ingredients that are affected by the price of other commodities, weather, seasonality, production, availability and various other factors outside our control. In order to minimize the impact of fluctuations in price and availability, we monitor the primary commodities we purchase and may enter into purchasing contracts and pricing arrangements when considered to be advantageous. However, certain commodities remain subject to price fluctuations. We are exposed to the impact of utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs for commodities and utilities through higher prices is limited by the competitive environment in which we operate. We also could experience shortages of key ingredients if our suppliers need to close or restrict operations due to the impact of the COVID-19 pandemic. WeThere have not experienced anybeen no material disruptionschanges in our supply chains as ofquantitative and qualitative market risks set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the date of this report.fiscal year ended September 27, 2020.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Management, underBased on an evaluation of the oversightCompany’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 11, 2021, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively), evaluated the effectiveness of have concluded that the Company’s disclosure controls and procedures as defined in Rules 13-1-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by the Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended September 29, 2019.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 July 5, 2020April 11, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Remediation of Material Weakness
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended September 29, 2019, we began implementing a remediation plan to address the material weakness mentioned above. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
PART II. OTHER INFORMATION
There is no information required to be reported for any items under Part II, except as follows:
ITEM 1. LEGAL PROCEEDINGS
See Note 13,11, ContingenciesCommitments and Legal MattersContingencies, of the notes to the condensed consolidated financial statements for a discussion of our contingencies and legal matters.
ITEM 1A. RISK FACTORS
The risk factors set forth below contain material changes to the risk factors previously disclosed and included in our Annual Report on Form 10-K for the fiscal year ended September 29, 2019. When evaluating our business and our prospects, you should consider the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended September 29, 2019,27, 2020, which we filed with the SEC on November 21, 2019,18, 2020, as updated in this Item 1A. You should also consider the risks and uncertainties discussed under the heading “Cautionary Statements Regarding Forward-Looking Statements” in Item 2 of this Quarterly Report on Form 10-Q. You should also refer to the other information set forth in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended September 29, 2019,27, 2020, including our financial statements and the related notes. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the risks or uncertainties actually occurs, our business and financial results could be harmed. In that case, the market price of our common stock could decline.
The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which has affected and could continue to materially affect our operations, financial condition and results of operations for an extended period of time.
The COVID-19 pandemic outbreak, federal, state and local government responses to COVID-19 and our responses to the outbreak have all disrupted and will continue to disrupt our business. In the United States, individuals are being encouraged to practice social distancing, restricted from gathering in groups, and in some areas, placed on complete restriction from non-essential movements outside of their homes. In response to the COVID-19 outbreak and these changing conditions, we previously announced that all company-owned and franchise-operated restaurants are operating in an off-premise capacity, including drive-thru, third-party delivery and carry-out. We have implemented a number of safety procedures, including implementing heightened sanitation requirements, practicing employee social distancing, and adhering to glove and mask protocol for all patrons and workers.
Our operating results substantially depend upon our franchisees’ sales volumes, restaurant profitability, and financial stability. The financial impact of COVID-19 has had, and is expected to continue to have, an adverse effect on our franchisees’ liquidity. To ensure financial health of our valued franchise operators, we have reduced marketing fees and postponed collection of these marketing fees, postponed the collection of certain franchisee rental payments and delayed all fiscal 2020 franchise development agreements by at least six months and suspended other required capital investments. To the extent our franchisees experience financial distress, our operating results may be adversely impacted, potentially materially affecting our liquidity, financial condition, or results of operations.
As discussed in this report, we have a significant amount of debt outstanding and have recently drawn down on our Variable Funding Notes, which provided us $107.9 million of unrestricted cash, to provide additional security to our liquidity position and provide financial flexibility given uncertain market and economic conditions as a result of the COVID-19 pandemic. A material increase in our level of debt could have certain material adverse effects on us. If the business interruptions caused by COVID-19 last longer than we expect, we may need to seek other sources of liquidity. The COVID-19 outbreak is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be readily available or available on favorable terms, especially the longer the COVID-19 outbreak lasts.
Our business could be further disrupted if any of our company or franchised restaurant employees are diagnosed with COVID-19 since this could require us or our franchisees to quarantine some or all of a restaurant’s employees and disinfect the restaurants facilities. If a significant percentage of our or our franchisees’ workforce is unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, our results may be adversely impacted, potentially materially affecting our liquidity, financial condition, or results of operations.
Our suppliers could be adversely impacted by the COVID-19 outbreak. If our suppliers’ employees are unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, we could face cost increases and/or shortages of food items or other supplies across our restaurants and our results could be adversely impacted by such supply interruptions.
The equity markets in the United States have been extremely volatile due to the COVID-19 outbreak and our stock price has fluctuated significantly.
Additional government regulations or legislation as a result of COVID-19 in addition to decisions we have made and may make in the future relating to the compensation of and benefit offerings for our company-operated restaurant team members could also have an adverse effect on our business. We cannot predict the types of government regulations or legislation that may be passed relating to employee compensation as a result of the COVID-19 outbreak. We have implemented an emergency paid sick leave program at our company-operated restaurants and taken other compensation and benefit actions to support our restaurant team members during the COVID-19 business interruption, but those actions may not be sufficient to compensate our team members for the entire duration of any business interruption resulting from COVID-19. Those team members might seek and find other employment during that interruption, which could materially adversely affect our ability to properly staff and reopen our restaurants with experienced team members when the business interruptions caused by COVID-19 abate or end.
The COVID-19 outbreak also may have the effect of heightening other risks disclosed in the Risk Factors section including in our Form 10-K filed on November 21, 2019, including, but not limited to, those related to consumer confidence, increase in food and commodity costs, supply chain interruptions, labor availability and cost, cybersecurity incidents, increased indebtedness, regulatory and legal complexity, and governmental regulation.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock Repurchases — We did not repurchase anyIn the second quarter of 2021 we repurchased 0.6 million shares of our common stock in the third quarterfor an aggregate cost of 2020.$65.0 million. As of July 5, 2020,April 11, 2021, there was approximately $22.2$35.0 million remaining under the Board-authorized stock buyback program which expires in November 20202021 and approximately $100.0 million which expires in November 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (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 |
| | | | | | | | $ | 200,000,000 | |
January 18, 2021 - February 14, 2021 | | — | | | $ | — | | | — | | | $ | 200,000,000 | |
February 15, 2021 - March 14, 2021 | | 566,528 | | | $ | 100.11 | | | 566,528 | | | $ | 143,286,701 | |
March 15, 2021 - April 11, 2021 | | 74,181 | | | $ | 111.71 | | | 74,181 | | | $ | 135,000,010 | |
Total | | 640,709 | | | | | 640,709 | | | |
ITEM 3. DEFAULTS OF SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Item 5.03. None.
ITEM 6. EXHIBITS
| | | | | | | | | | | |
Number | Description | Form | Filed with SEC |
10.2.18*10.2.22* | | — | Filed herewith |
10.2.23* | | — | Filed herewith |
10.2.24* | | — | Filed herewith |
10.2.25* | | 10-Q— | Filed herewith |
31.1 | | — | Filed herewith |
31.2 | | — | Filed herewith |
32.1 | | — | Filed herewith |
32.2 | | — | Filed herewith |
101.INS | XBRLiXBRL Instance Document | | |
101.SCH | XBRLiXBRL Taxonomy Extension Schema Document | | |
101.CAL | XBRLiXBRL Taxonomy Extension Calculation Linkbase Document | | |
101.DEF | XBRLiXBRL Taxonomy Extension Definition Linkbase Document | | |
101.LAB | XBRLiXBRL Taxonomy Extension Label Linkbase Document | | |
101.PRE | XBRLiXBRL Taxonomy Extension Presentation Linkbase Document | | |
104 | Cover Page Interactive Data File formatted in iXBRL | | |
| | | |
* Management contract or compensatory plan | | | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| JACK IN THE BOX INC. | |
| | |
| By: | /S/ LANCE TUCKERTIM MULLANY |
| | Lance TuckerTim Mullany |
| | Executive Vice President and Chief Financial Officer (principal financial officer) (Duly Authorized Signatory) |
Date: August 5, 2020May 12, 2021