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.
Yesþ 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).
Yesþ 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 February 12, 2021, 22,827,870 shares of the registrant’s common stock were outstanding.
Proceeds from the sale of company-operated restaurants
133
1,575
Other
2,677
—
Cash flows (used in) provided by investing activities
(637)
32,364
Cash flows from financing activities:
Principal repayments on debt
(211)
(198)
Debt issuance costs
—
(216)
Dividends paid on common stock
(9,089)
(9,412)
Proceeds from issuance of common stock
114
184
Repurchases of common stock
—
(155,576)
Payroll tax payments for equity award issuances
(773)
(3,108)
Cash flows used in financing activities
(9,959)
(168,326)
Net increase (decrease) in cash and restricted cash
51,655
(113,275)
Cash and restricted cash at beginning of period
236,920
151,561
Cash and restricted cash at end of period
$
288,575
$
38,286
See accompanying notes to condensed consolidated financial statements.
5
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:
January 17, 2021
January 19, 2020
Company-operated
148
137
Franchise
2,089
2,107
Total system
2,237
2,244
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 27, 2020 (“2020 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2020 Form 10-K with the exception of the accounting standards adopted in fiscal 2021, which are 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 one 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 52 weeks, respectively. Our first quarter includes 16 weeks and all other quarters include 12 weeks, with the exception of the fourth quarter of fiscal 2021, which includes 13 weeks. All comparisons between 2021 and 2020 refer to the 16 weeks (“quarter”) ended January 17, 2021 and January 19, 2020, 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.
COVID-19 Pandemic — The COVID-19 pandemic has continued to have varying degrees of disruption on our business. Substantially all of our restaurants continue to remain open, with dining rooms closed and locations operating in an off-premise model, leveraging our drive-thru, carryout and delivery capabilities. We continue to prioritize the health and safety of team members and guests through adhering to all safety procedures that were implemented last year.
Our operating results substantially depend upon our franchisees’ sales volumes, restaurant profitability, and financial stability. In the second quarter of 2020, to ensure financial health of our valued franchise operators, we reduced March and April marketing fees and postponed collection of these marketing fees and the collection of certain franchisee rental payments. In 2021, with the exception of March 2020 marketing fees which we postponed collection over 24 months, all rent and marketing deferrals have been repaid. As of January 17, 2021, postponed marketing fees which remain uncollected were $6.6 million, of which $4.4 million is included within “Accounts and other receivable, net” and $2.2 million is included within “Other assets, net” in our condensed consolidated balance sheet.
At this time, the ultimate impact of COVID-19 cannot be reasonably estimated due to the uncertainty about the extent and duration of the spread of the virus. A lack of containment could lead to further restrictions, temporary restaurant closures, disruptions in our supply chain and restaurant staffing which could adversely impact our financial statements.
Advertising costs — We administer a marketing fund which includes contractual contributions. In 2021 and 2020, marketing fund contributions from franchise and company-operated restaurants were approximately 5.0% of gross revenues.
Total contributions made by the Company are included in “Selling, general, and administrative expenses” in the accompanying condensed consolidated statements of earnings and for the quarter totaled $5.8 million and $5.3 million in 2021 and 2020, respectively.
6
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 quarterly interest and commitments fees required for the Class A-1 and Class A-2 Notes. As of January 17, 2021 and September 27, 2020, restricted cash balances were $37.3 million.
Effect of new accounting pronouncements adopted in fiscal 2021 — In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance 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 in the first quarter of 2021. The adoption of this standard did 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.
2.REVENUE
Nature of products and services — We derive revenue from retail sales at Jack in the Box company-operated restaurants and rental revenue, royalties, advertising, and franchise and other fees from franchise-operated restaurants.
Our franchise arrangements generally provide for an initial franchise fee of $50,000 per restaurant and generally require that franchisees pay royalty and marketing fees at 5% of gross sales. The agreement also requires franchisees to pay sourcing, technology and other miscellaneous fees.
Disaggregation of revenue — The following table disaggregates revenue by primary source (in thousands):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Sources of revenue:
Company restaurant sales
$
114,278
$
105,364
Franchise rental revenues
103,749
96,084
Franchise royalties
57,343
50,243
Marketing fees
55,776
48,835
Technology and sourcing fees
5,090
4,924
Franchise fees and other services
2,305
2,223
Total revenue
$
338,541
$
307,673
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 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):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Deferred franchise fees at beginning of period
$
43,541
$
46,273
Revenue recognized
(1,779)
(1,632)
Additions
428
895
Deferred franchise fees at end of period
$
42,190
$
45,536
7
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied as of January 17, 2021 (in thousands):
Remainder of 2021
$
3,504
2022
4,786
2023
4,635
2024
4,445
2025
4,215
Thereafter
20,605
$
42,190
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.
3.SUMMARY OF REFRANCHISINGS AND FRANCHISE ACQUISITIONS
Refranchisings — In 2021 and 2020, no company-operated restaurants were sold to franchisees. Amounts included in “Gains on the sale of company-operated restaurants” in both periods related to resolutions of certain contingencies from the sale of restaurants in prior years.
Franchise acquisitions — In fiscal 2021, we acquired four franchise restaurants in connection with exercising our right of 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 acquisition was not material to our condensed consolidated financial statements.
4.LEASES
As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees subsequent to refranchising transactions. 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.”
The following table presents rental income (in thousands):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Operating lease income - franchise
$
72,242
$
72,663
Variable lease income - franchise
31,507
23,421
Franchise rental revenues
$
103,749
$
96,084
Operating lease income - closed restaurants and other (1)
$
1,865
$
2,057
____________________________
(1)Primarily relates to closed restaurant properties included in “Impairment and other gains, net” in our condensed consolidated statements of earnings.
8
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5.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)
Fair value measurements as of January 17, 2021:
Non-qualified deferred compensation plan (1)
$
21,926
$
21,926
$
—
$
—
Total liabilities at fair value
$
21,926
$
21,926
$
—
$
—
Fair value measurements as of September 27, 2020:
Non-qualified deferred compensation plan (1)
$
25,071
$
25,071
$
—
$
—
Total liabilities at fair value
$
25,071
$
25,071
$
—
$
—
____________________________
(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 January 17, 2021 and September 27, 2020 (in thousands):
January 17, 2021
September 27, 2020
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Class A-2 Notes
$
1,290,251
$
1,354,188
$
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 2021, no material fair value adjustments were required.
6.IMPAIRMENT AND OTHER GAINS, NET
Impairment and other gains, net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Restructuring costs
$
6
$
1,045
Costs of closed restaurants and other
1,023
101
Gains on disposition of property and equipment, net (1)
(2,160)
(10,437)
Accelerated depreciation
679
—
$
(452)
$
(9,291)
____________________________
(1)In 2021, includes gains on the sale of two real estate properties. In 2020, includes a $10.8 million gain related to the sale of one of our corporate office buildings.
Costs of closed restaurants and other — Costs of closed restaurants include impairment charges as a result of our decision to close restaurants, ongoing costs associated with closed restaurants, and canceled project costs.
9
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Accelerated depreciation — When a long-lived asset will be replaced or otherwise disposed of prior to the end of its estimated useful life, the useful life of the asset is adjusted based on the estimated disposal date and accelerated depreciation is recognized.
7.INCOME TAXES
The income tax provisions reflect tax rates of 25.1% in 2021 and 28.4% in 2020. The major components of the year-over-year change in tax rates were an increase in operating earnings before income tax, a decrease in the impact of non-deductible compensation for certain officers, and an increase in the impact of excess tax benefit on stock compensation as opposed to the prior year’s tax deficiency.
8.RETIREMENT PLANS
Defined benefit pension plans — We sponsor two defined benefit pension plans, a frozen “Qualified Plan” covering substantially all full-time employees hired prior to January 1, 2011, and an unfunded supplemental executive retirement plan (“SERP”) which provides certain employees additional pension benefits and was closed to new participants effective January 1, 2007. Benefits under both plans are based on the employee’s years of service and compensation over defined periods of employment.
In the fourth quarter of 2019, the Company amended its Qualified Plan to add a limited lump sum payment window whereby certain terminated participants with a vested pension benefit could elect to receive either an immediate lump sum or a monthly annuity payment of their accrued benefit. The offering period began September 16, 2019 and ended October 31, 2019. The participants that elected a lump sum benefit under the program were paid in December 2019, which triggered settlement accounting. As a result of the offering, the Company’s Qualified Plan paid $122.3 million from its plan assets to those who accepted the offer, thereby reducing the plan’s pension benefit obligation (“PBO”). The transaction had no cash impact to the Company but did result in a non-cash settlement charge of $38.6 million in the first quarter of fiscal 2020.
Post-retirement healthcare plans — We also sponsor two healthcare plans, closed to new participants, that provide post-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.
Net periodic benefit cost — The components of net periodic benefit cost in each period were as follows (in thousands):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Defined benefit pension plans:
Interest cost
$
4,532
$
5,076
Expected return on plan assets
(5,951)
(6,656)
Pension settlement charge (1)
—
38,606
Actuarial losses (1)
1,616
1,672
Amortization of unrecognized prior service costs (1)
6
26
Net periodic benefit cost
$
203
$
38,724
Post-retirement healthcare plans:
Interest cost
$
173
$
248
Actuarial (gains) losses (1)
(105)
6
Net periodic benefit cost
$
68
$
254
___________________________
(1)Amounts were reclassified from accumulated OCI into net earnings as a component of “Other pension and post-retirement expenses, net.”
10
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of January 1, 2020, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for the Qualified Plan. Details regarding 2021 contributions are as follows (in thousands):
SERP
Post-Retirement Healthcare Plans
Net year-to-date contributions
$
1,749
$
312
Remaining estimated net contributions during fiscal 2021
$
3,474
$
948
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 2021.
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):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Balance at beginning of period
$
(793,361)
$
(737,584)
Shares issued under stock plans, including tax benefit
114
184
Share-based compensation expense
1,231
3,184
Dividends declared
(9,089)
(9,425)
Purchases of treasury stock
—
(153,550)
Net earnings
50,859
7,897
Other comprehensive income, net of taxes
1,123
51,011
Cumulative-effect from a change in accounting principle
—
(2,870)
Balance at end of period
$
(749,123)
$
(841,153)
Repurchases of common stock— There were no repurchases of common stock in the first quarter of fiscal 2021. As of January 17, 2021, this leaves $200.0 million remaining under share repurchase programs authorized by the Board of Directors, consisting of $100.0 million that expires in November 2021 and $100.0 million that expires in November 2022.
Dividends— During 2021, the Board of Directors declared a cash dividend of $0.40 per common totaling $9.1 million. Future dividends are subject to approval by our Board of Directors.
10.AVERAGE SHARES OUTSTANDING
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Weighted-average shares outstanding – basic
22,968
23,741
Effect of potentially dilutive securities:
Nonvested stock awards and units
54
181
Stock options
5
7
Performance share awards
2
7
Weighted-average shares outstanding – diluted
23,029
23,936
Excluded from diluted weighted-average shares outstanding:
Antidilutive
99
224
Performance conditions not satisfied at the end of the period
29
80
11
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
11.COMMITMENTS AND CONTINGENCIES
Legal matters— We assess contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been 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 January 17, 2021 and September 27, 2020, the Company had recorded aggregate liabilities of $3.8 million 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.
Gessele v. Jack in the Box Inc.— In August 2010, five former employees instituted litigation in federal court in Oregon alleging claims under the federal Fair Labor Standards Act and Oregon wage and hour laws. The plaintiffs alleged that the Company failed to pay non-exempt employees for certain meal breaks and improperly made payroll deductions for shoe purchases and for workers’ compensation expenses, and later added additional claims relating to timing of final pay and related wage and hour claims involving employees of a franchisee. In 2016, the court dismissed the federal claims and those relating to franchise employees. In June 2017, the court granted class certification with respect to state law claims of improper deductions and late payment of final wages. In November 2019, the court issued a ruling on various dispositive motions, disallowing a 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 requested permission to seek appellate review of that decision, but that request was rejected by the Ninth Circuit. The parties were recently advised that the trial of this matter would be reassigned to a new judge.The Company continues to dispute liability and the plaintiffs’ damage calculations and will continue to vigorously defend against the lawsuit.
Other legal matters — In addition to the matter described above, we are subject to normal and routine litigation brought by former or current employees, customers, franchisees, vendors, landlords, shareholders or others. We intend to defend ourselves in any such matters. Some of these matters may be covered, at least in part, by insurance or other third party indemnity obligation. 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.
Lease guarantees — We remain contingently liable for certain leases relating to our former Qdoba business which we sold in fiscal 2018. Under the Qdoba Purchase Agreement, the buyer has indemnified the Company of all claims related to these guarantees. As of January 17, 2021, the maximum potential liability of future undiscounted payments under these leases is approximately $27.5 million. The lease terms extend for a maximum of approximately 15 more years and we would remain a guarantor of the leases in the event the leases are extended for any established renewal periods. In the event 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. The Company has not recorded a liability for these guarantees as we believe the likelihood of making any future payments is remote.
12
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12.SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Non-cash investing and financing transactions:
Decrease in obligations for treasury stock repurchases
$
—
$
2,025
Decrease in obligations for purchases of property and equipment
$
74
$
2,377
Increase in dividends accrued or converted to common stock equivalents
$
53
$
63
Right-of use assets obtained in exchange for operating lease obligations
$
40,266
$
51,311
Right-of use assets obtained in exchange for finance lease obligations
$
65
$
—
13.SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)
January 17, 2021
September 27, 2020
Accounts and other receivables, net:
Trade
$
53,623
$
77,082
Notes receivable
1,368
1,193
Income tax receivable
1,258
1,591
Other
3,972
4,092
Allowance for doubtful accounts
(5,519)
(5,541)
$
54,702
$
78,417
Other assets, net:
Company-owned life insurance policies
$
117,855
$
113,767
Deferred rent receivable
47,894
48,604
Franchise tenant improvement allowance
28,782
29,437
Other
17,262
18,815
$
211,793
$
210,623
Accrued liabilities:
Payroll and related taxes
$
28,628
$
34,475
Insurance
25,482
25,310
Sales and property taxes
19,287
22,038
Deferred franchise fees
4,987
4,934
Gift card liability
2,601
2,195
Other
44,359
40,479
$
125,344
$
129,431
Other long-term liabilities:
Defined benefit pension plans
$
117,644
$
120,811
Deferred franchise fees
37,203
38,607
Other
53,695
47,076
$
208,542
$
206,494
14.SUBSEQUENT EVENTS
On January 21, 2021 and January 25, 2021, through two separate payments totaling $107.9 million, the Company repaid the full amount of outstanding borrowings on its Variable Funding Notes.
On February 12, 2021, the Board of Directors declared a cash dividend of $0.40 per common share, to be paid on March 16, 2021, to shareholders of record as of the close of business on March 3, 2021.
13
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All comparisons between 2021 and 2020 refer to the 16 weeks (“quarter”) ended January 17, 2021 and January 19, 2020, respectively, unless otherwise indicated.
For an understanding of the significant factors that influenced our performance during 2021 and 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 27, 2020.
Our MD&A consists of the following sections:
•Overview — a general description of our business and 2021 highlights.
•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 capital expenditures, share repurchase activity, dividends, and known known trends that may impact 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 income taxes, interest expense, net, gains on the sale of company-operated restaurants, impairment and other 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.
14
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 have remained open, with dining rooms closed and locations operating in an off-premise capacity, leveraging our drive-thru, carryout and delivery capability. We have continued to follow the guidance of expert health authorities to ensure 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, starting in the third quarter and carrying into fiscal 2021, we have seen a significant acceleration of system same-store sales. The acceleration of sales during the last three quarters has been largely driven by average check growth while experiencing a significant decline in traffic. It remains uncertain whether restaurant traffic will return to levels prior to the outbreak of COVID-19.
Given the ongoing uncertainty surrounding the future impact of COVID-19 on the economy and our business, the Company has not provided any guidance for fiscal 2021 at this time, but will evaluate on a quarterly basis, with the intent to return to providing guidance once the visibility into sustained trends becomes more clear.
OTHER RECENT DEVELOPMENTS
On February 16, 2021, a franchisee that operates 68 restaurants filed for Chapter 11 bankruptcy. Of these restaurants, the Company subleases 50 of the locations to the franchisee and owns the land and building for the remaining 18 locations. Through the bankruptcy proceedings, a number of these leases may get rejected, resulting in potential impairment costs related to future lease obligations. As of the date of this report, 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 results as we work through this franchisee’s bankruptcy.
OVERVIEW
As of January 17, 2021, we operated and franchised 2,237 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 2021, and certain trends compared to a year ago:
•System same-store sales — System same-store sales increased by 12.5% in the first quarter, continuing the strong sales momentum from the second half of fiscal 2020.
•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 from 75.2% to 74.5% in the quarter, primarily due to favorable changes in product mix and leverage from higher same-store sales.
•Franchise operations — Franchise same-store sales increased by 13.0% in the quarter, driving higher royalty and rent revenues of $7.1 million and $7.7 million, respectively.
•Selling, general and administrative (“SG&A”) expenses — SG&A decreased by $7.7 million in the quarter, primarily due to lower litigation-related charges and favorable mark-to-market adjustments on investments supporting the Company’s non-qualified retirement plans.
•Adjusted EBITDA — Adjusted EBITDA increased to $102.4 million from $76.6 million in the prior year.
15
RESULTS OF OPERATIONS
Thefollowing 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
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Revenues:
Company restaurant sales
33.8
%
34.2
%
Franchise rental revenues
30.6
%
31.2
%
Franchise royalties and other
17.6
%
17.1
%
Franchise contributions for advertising and other services
18.0
%
17.5
%
100.0
%
100.0
%
Operating costs and expenses, net:
Food and packaging (1)
28.3
%
29.8
%
Payroll and employee benefits (1)
30.6
%
30.3
%
Occupancy and other (1)
15.6
%
15.1
%
Franchise occupancy expenses (2)
62.8
%
67.1
%
Franchise support and other costs (3)
5.5
%
8.9
%
Franchise advertising and other services expenses (4)
103.0
%
102.7
%
Selling, general and administrative expenses
6.1
%
9.2
%
Depreciation and amortization
4.3
%
5.4
%
Impairment and other gains, net
(0.1)
%
(3.0)
%
Gains on the sale of company-operated restaurants
(0.4)
%
(0.5)
%
Earnings from operations
26.3
%
22.7
%
Income tax rate (5)
25.1
%
28.4
%
____________________________
(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 operations and before income taxes.
16
The following table summarizes changes in same-store sales for company-owned, franchised, and system-wide restaurants:
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Company
7.5
%
2.9
%
Franchise
13.0
%
1.6
%
System
12.5
%
1.7
%
The following table summarizes changes in the number and mix of company and franchise restaurants:
2021
2020
Company
Franchise
Total
Company
Franchise
Total
Beginning of year
144
2,097
2,241
137
2,106
2,243
New
—
3
3
—
11
11
Acquired from franchisees
4
(4)
—
—
—
—
Closed
—
(7)
(7)
—
(10)
(10)
End of period
148
2,089
2,237
137
2,107
2,244
% of system
7
%
93
%
100
%
6
%
94
%
100
%
The following table summarizes restaurant sales for company-owned, franchised, and total system sales (in thousands):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Company-owned restaurant sales
$
114,278
$
105,364
Franchised restaurant sales (1)
1,115,826
979,345
System sales (1)
$
1,230,104
$
1,084,709
____________________________
(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):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Net earnings - GAAP
$
50,859
$
7,897
Income tax expense
17,061
3,133
Interest expense, net
20,735
19,942
Pension settlement charges
—
38,606
Gains on the sale of company-operated restaurants
(1,283)
(1,575)
Impairment and other gains, net
(452)
(9,291)
Depreciation and amortization
14,571
16,728
Amortization of franchise tenant improvement allowances and other
861
1,151
Adjusted EBITDA - Non-GAAP
$
102,352
$
76,591
17
Company Restaurant Operations
The following table presents company restaurant sales and costs as a percentage of the related sales. Percentages may not add due to rounding (dollars in thousands):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Company restaurant sales
$
114,278
$
105,364
Company restaurant costs:
Food and packaging
$
32,377
28.3
%
$
31,348
29.8
%
Payroll and employee benefits
$
34,931
30.6
%
$
31,890
30.3
%
Occupancy and other
$
17,835
15.6
%
$
15,958
15.1
%
Company restaurant sales increased $8.9 million or 8.5% compared to the prior year, primarily due to average check growth, menu price increases, and an increase in the number of company-operated restaurants; partially offset by a decline in traffic. The following table presents the approximate impact of these items on company restaurant sales (in millions):
Sixteen Weeks Ended
January 17, 2021
Increase in the average number of restaurants
$
2.2
AUV increase
6.7
Total change in company restaurant sales
$
8.9
Same-store sales at company-operated restaurants increased 7.5% compared to a year ago. The following table summarizes the change in company-operated same store-sales versus a year ago:
Sixteen Weeks Ended
January 17, 2021
Average check (1)
21.2
%
Transactions
(13.7)
%
Change in same-store sales
7.5
%
____________________________
(1)Includes price increases of approximately 3.1%.
Food and packaging costs as a percentage of company restaurant sales decreased to 28.3% in 2021 compared to 29.8% in the prior year due primarily to favorable changes in product mix as well as menu price increases, partially offset by higher ingredient costs. Commodity costs increased approximately 1.6% in 2021 primarily due to increases in produce, oil, and pork.
Payroll and employee benefit costs as a percentage of company restaurant sales increased to 30.6% in 2021 compared with 30.3% in the prior year due primarily to higher average wages resulting from wage inflation and a highly competitive labor market, and higher incentive compensation costs.
Occupancy and other costs, as a percentage of company restaurant sales, increased to 15.6% in 2021 compared with 15.1% a year ago due primarily to higher costs for delivery fees as we continue to grow our delivery sales mix, partially offset by leverage from higher same-store sales and lower costs for maintenance and repairs.
18
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):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Franchise rental revenues
$
103,749
$
96,084
Royalties
57,343
50,243
Franchise fees and other
2,305
2,223
Franchise royalties and other
59,648
52,466
Franchise contributions for advertising and other services
60,866
53,759
Total franchise revenues
$
224,263
$
202,309
Franchise occupancy expenses
$
65,169
$
64,517
Franchise support and other costs
3,273
4,676
Franchise advertising and other services expenses
62,695
55,224
Total franchise costs
$
131,137
$
124,416
Franchise costs as a percentage of total franchise revenues
58.5%
61.5%
Average number of franchise restaurants
2,078
2,087
Franchised restaurant sales
$
1,115,826
$
979,345
Franchised restaurant AUVs
$
537
$
469
Royalties as a percentage of total franchised restaurant sales
5.1%
5.1%
Franchise rental revenues increased $7.7 million, or 8.0% in 2021 compared to the prior year, primarily due to higher percentage rent driven by higher franchise restaurant sales.
Franchise royalties and other increased $7.2 million, or 13.7% in 2021 compared to the prior year due primarily to an increase in franchise restaurant sales driving royalties higher.
Franchise contributions for advertising and other services revenues increased $7.1 million, or 13.2% in 2021 compared to the prior year, due to an increase of $6.9 million in marketing contributions due to higher franchise restaurant sales.
Franchise occupancy expenses, primarily rent, increased $0.7 million, or 1.0% in 2021 compared to the prior year, primarily due to annual rent increases and higher costs for percentage rent expense.
Franchise support and other costs decreased $1.4 million in 2021 compared to the prior year, primarily due to a decrease in franchisee bad debt expense from specific franchise situations that occurred in the prior year.
Franchise advertising and other service expenses increased $7.5 million, or 13.5% in 2021 compared to the prior year due primarily to a $6.9 million increase in marketing fund contributions from our franchisees in the current year.
Depreciation and Amortization
Depreciation and amortization decreased by $2.2 million in 2021 compared with the prior year, primarily due to certain franchise building assets becoming fully depreciated in the current fiscal year.
19
Selling, General and Administrative (“SG&A”) Expenses
The following table presents the change in SG&A expenses compared with the prior year (in thousands):
Sixteen Weeks Ended
January 17, 2021
Advertising
$
451
Incentive compensation (including share-based compensation and related payroll taxes)
291
Cash surrender value of COLI policies, net
(2,664)
Litigation matters
(3,931)
Other
(1,896)
$
(7,749)
Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales. Advertising costs increased $0.5 million compared to the prior year primarily due to higher sales.
Incentive compensation increased by $0.3 million compared to the prior year due to a $2.2 million increase in the annual incentives mainly as a result of higher achievement levels compared to the prior year, partially offset by a $2.0 million decrease in stock-based compensation primarily related to turnover at the 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 $2.7 million compared to the prior year.
Litigation matters decreased by $3.9 million due primarily to the settlement of an employee litigation matter in the prior year.
Impairment and Other Gains, Net
Impairment and other gains, net is comprised of the following (in thousands):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Restructuring costs
$
6
$
1,045
Costs of closed restaurants and other
1,023
101
Gains on disposition of property and equipment, net
(2,160)
(10,437)
Accelerated depreciation
679
—
$
(452)
$
(9,291)
Impairment and other gains, net decreased by $8.8 million, primarily due to 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 2021.
Gains on the Sale of Company-Operated Restaurants
In 2021 and 2020, no company-operated restaurants were sold to franchisees. Amounts included in “Gains on the sale of company-operated restaurants” in both periods related to resolutions of certain contingencies from the sale of restaurants in prior years.
20
Other Pension and Post-Retirement Expenses, Net
Other pension and post-retirement expenses, net decreased by $38.7 million due to a non-cash pension settlement charge of $38.6 million in the first quarter of the prior year. Refer to Note 8, Retirement Plans, of the notes to the condensed consolidated financial statements for additional information.
Interest Expense, Net
Interest expense, net is comprised of the following (in thousands):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Interest expense
$
20,739
$
20,419
Interest income
(4)
(477)
Interest expense, net
$
20,735
$
19,942
Interest expense, net increased by $0.8 million primarily due to higher average borrowings compared to the prior year, as well as a decrease in interest income as a result of lower interest rates.
Income Tax Expense
The income tax provisions reflect tax rates of 25.1% in 2021 and 28.4% in 2020. The major components of the year-over-year change in tax rates were an increase in operating earnings before income tax, a decrease in the impact of non-deductible compensation for certain officers, and an increase in the impact of excess tax benefit on stock compensation as opposed to the prior year’s tax deficiency.
21
LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of liquidity and capital resources are cash flows from operations and borrowings available under our 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 borrowings under our Variable Funding Notes. As of January 17, 2021, the Company had $288.6 million of cash and restricted cash on its balance sheet. Subsequent to the end of the quarter, the Company repaid $107.9 million on its Variable Funding Notes, and anticipates resuming share repurchases in the second quarter of 2021.
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with our securitized financing facility including our Variable Funding Notes, will be sufficient to meet our capital expenditure, working capital and debt service requirements for at least the next twelve months and the foreseeable future.
Cash Flows
The table below summarizes our cash flows from continuing operations (in thousands):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Total cash provided by (used in):
Operating activities
$
62,251
$
22,687
Investing activities
(637)
32,364
Financing activities
(9,959)
(168,326)
Net cash flows
$
51,655
$
(113,275)
Operating Activities. Operating cash flows increased $39.6 million compared with a year ago, primarily due to favorable changes in working capital of $33.7 million and higher net income adjusted for non-cash items of $5.8 million. Favorable changes in working capital were due to higher collections and favorable timing on receivables of $30.3 million, impacted by collections on marketing and rent deferrals provided to our franchisees in the prior year, lower cash paid for interest of $7.5 million; partially offset by unfavorable changes in payables of $10.3 million, impacted by our repayment of rent deferrals provided by our landlords in the prior year.
Pension and Post-Retirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, 2020, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for our qualified pension plan. In 2021, we contributed $2.1 million to our non-qualified pension plan and post-retirement plans.
Investing Activities. Cash provided by investing activities decreased by $33.0 million compared with a year ago, primarily due to $17.4 million of proceeds received in the prior year as a result of a sale and partial leaseback of a multi-tenant property, and $17.0 million lower proceeds received on the sale of property and equipment, primarily due to proceeds received on the sale of a corporate office building in the prior year.
22
Capital Expenditures— The composition of capital expenditures in each period follows (in thousands):
Sixteen Weeks Ended
January 17, 2021
January 19, 2020
Restaurants:
Restaurant facility expenditures
$
5,319
$
3,500
Other, including information technology
407
1,552
5,726
5,052
Corporate Services:
Information technology
466
1,760
Other, including facility improvements
884
390
1,350
2,150
Total capital expenditures
$
7,076
$
7,202
Financing Activities. Cash flows used in financing activities decreased by $158.4 million compared with a year ago, primarily due to a decrease in stock repurchases.
Repurchases of Common Stock— The Company did not repurchase any shares in the first quarter of 2021, and as announced on April 15, 2020, temporarily suspended its share repurchase program. As of January 17, 2021, this leaves $200.0 million remaining under share repurchase programs authorized by the Board of Directors, consisting of $100.0 million that expires in November 2021 and $100.0 million that expires in November 2022. The Company anticipates resuming share repurchases in the second quarter of 2021.
Dividends — During 2021, the Board of Directors declared a cash dividend of $0.40 per common share totaling $9.1 million.
Long-Term Debt — As of January 17, 2021, we had $1.4 billion of outstanding borrowings under our securitized financing facility, which includes $1,290.3 million of total principal outstanding on the Class A-2 Notes (as defined below) and $107.9 million drawn on our $150.0 million Variable Funding Notes (as defined below). Subsequent to the first quarter of 2021, the Company fully paid down its outstanding borrowings on the Variable Funding Notes.
On July 8, 2019, Jack in the Box Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of the Company, completed its securitization transaction and issued $575.0 million of its Series 2019-1 3.982% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”), $275.0 million of its Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”) and $450.0 million of its Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes”) and together with the Class A-2-I Notes and 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. The quarterly principal payment of $3.25 million on the Class A-2 Notes may be suspended 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. Exceeding the leverage ratio of 5.0x does not violate any covenant related to the Class A-2 Notes. As of September 27, 2020 and January 17, 2021, the Company’s actual leverage ratio was under 5.0x, and as a result, quarterly principal payments 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.
23
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 January 17, 2021, the Master Issuer had restricted cash of $37.3 million, which primarily represented cash collections and cash reserves held by the trustee to be used for payments of interest and commitment fees required for the Class A-1 and A-2 Notes. Beginning in the second quarter of 2020, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we voluntarily elected to fund cash held in trust for an additional quarterly payment of interest and commitment fees. Subsequent to the first quarter of 2021, upon repaying outstanding borrowings on our Variable Funding Notes, we do not expect to make this voluntary election in the foreseeable future.
Covenants and Restrictions—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 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 January 17, 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 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, 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 27, 2020.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, Basis of Presentation, of the notes to condensed consolidated financial 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 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.
•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-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. 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.
•Our tax provision may fluctuate due to changes in expected earnings.
•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.
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•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.
•Our insurance may not provide adequate levels of coverage against claims.
•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 27, 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our quantitative 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 fiscal year ended September 27, 2020.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s quarter ended January 17, 2021, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) have concluded that the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended January 17, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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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 11, Commitments and Contingencies, of the notes to the condensed consolidated financial statements for a discussion of our contingencies and legal matters.
ITEM 1A. RISK FACTORS
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 27, 2020, which we filed with the SEC on November 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 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock Repurchases — We did not repurchase any shares of our common stock in the first quarter of 2021. As of January 17, 2021, there was $100.0 million remaining under the Board-authorized stock buyback program which expires in November 2021 and $100.0 million which expires in November 2022.
Cover Page Interactive Data File formatted in iXBRL
* Management contract or compensatory plan
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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/ TIM MULLANY
Tim Mullany
Executive Vice President and Chief Financial Officer (principal financial officer) (Duly Authorized Signatory)
