Jack In The Box Inc 10-Q for FY2020 Q2
Jack In The Box Inc (JACK)
10-Q
2020-05-14
For: 2020-04-12
View Original
Added on
April 06, 2026
About this 10-Q
Jack In The Box Inc filed this 10-Q on May 14, 2020, covering the quarter ended April 12, 2020 (FY2020 Q2).
Headline figures
Quarter ended April 12, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $216.16M
- up 0.2% from $215.73M a year earlier
- Net income
- $11.46M
- down 54.3% from net income of $25.09M a year earlier
- Diluted EPS
- $0.50
- down 47.9% from $0.96 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended April 12, 2020
or
for the transition period from ________to________.
Commission File Number: 1-9390
____________________________________________________
(Exact name of registrant as specified in its charter)
_______________________________________________________________________________________
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
(Address of principal executive offices)
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 | ||||||
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.
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).
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.
| 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 May 8, 2020, 22,671,849 shares of the registrant’s common stock were outstanding.
JACK IN THE BOX INC. AND SUBSIDIARIES
INDEX
| Page | ||||||||
| PART I – FINANCIAL INFORMATION | ||||||||
| Item 1. | ||||||||
Condensed Consolidated Statements of Earnings | ||||||||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II – OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | Defaults of Senior Securities | |||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
1
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)
| April 12, 2020 | September 29, 2019 | |||||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash | $ | $ | ||||||||||||||||||
| Restricted cash | ||||||||||||||||||||
| Accounts and other receivables, net | ||||||||||||||||||||
| Inventories | ||||||||||||||||||||
| Prepaid expenses | ||||||||||||||||||||
| Current assets held for sale | ||||||||||||||||||||
| Other current assets | ||||||||||||||||||||
| Total current assets | ||||||||||||||||||||
| Property and equipment: | ||||||||||||||||||||
| Property and equipment, at cost | ||||||||||||||||||||
| Less accumulated depreciation and amortization | ( | ( | ||||||||||||||||||
| Property and equipment, net | ||||||||||||||||||||
| Other assets: | ||||||||||||||||||||
| Operating lease right-of-use assets | — | |||||||||||||||||||
| Intangible assets, net | ||||||||||||||||||||
| Goodwill | ||||||||||||||||||||
| Deferred tax assets | ||||||||||||||||||||
| Other assets, net | ||||||||||||||||||||
| Total other assets | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Current maturities of long-term debt | $ | $ | ||||||||||||||||||
| Current operating lease liabilities | — | |||||||||||||||||||
| Accounts payable | ||||||||||||||||||||
| Accrued liabilities | ||||||||||||||||||||
| Total current liabilities | ||||||||||||||||||||
| Long-term liabilities: | ||||||||||||||||||||
| Long-term debt, net of current maturities | ||||||||||||||||||||
| Long-term operating lease liabilities, net of current portion | — | |||||||||||||||||||
| Other long-term liabilities | ||||||||||||||||||||
| Total long-term liabilities | ||||||||||||||||||||
| Stockholders’ deficit: | ||||||||||||||||||||
Preferred stock $ | ||||||||||||||||||||
Common stock $ | ||||||||||||||||||||
| Capital in excess of par value | ||||||||||||||||||||
| Retained earnings | ||||||||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||||||||
Treasury stock, at cost, | ( | ( | ||||||||||||||||||
| Total stockholders’ deficit | ( | ( | ||||||||||||||||||
| $ | $ | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
2
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
| Company restaurant sales | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Franchise rental revenues | |||||||||||||||||||||||||||||||||||
| Franchise royalties and other | |||||||||||||||||||||||||||||||||||
| Franchise contributions for advertising and other services | |||||||||||||||||||||||||||||||||||
| Operating costs and expenses, net: | |||||||||||||||||||||||||||||||||||
| Company restaurant costs (excluding depreciation and amortization): | |||||||||||||||||||||||||||||||||||
| Food and packaging | |||||||||||||||||||||||||||||||||||
| Payroll and employee benefits | |||||||||||||||||||||||||||||||||||
| Occupancy and other | |||||||||||||||||||||||||||||||||||
| Total company restaurant costs | |||||||||||||||||||||||||||||||||||
| Franchise occupancy expenses (excluding depreciation and amortization) | |||||||||||||||||||||||||||||||||||
| Franchise support and other costs | |||||||||||||||||||||||||||||||||||
| Franchise advertising and other services expenses | |||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||||||||
| Impairment and other charges, net | ( | ||||||||||||||||||||||||||||||||||
| Gains on the sale of company-operated restaurants | ( | ( | |||||||||||||||||||||||||||||||||
| Earnings from operations | |||||||||||||||||||||||||||||||||||
| Other pension and post-retirement expenses, net | |||||||||||||||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||||||||||||||
| Earnings from continuing operations and before income taxes | |||||||||||||||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||||||||||||||
| Earnings from continuing operations | |||||||||||||||||||||||||||||||||||
| (Losses) earnings from discontinued operations, net of income taxes | ( | ||||||||||||||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Net earnings per share - basic: | |||||||||||||||||||||||||||||||||||
| Earnings from continuing operations | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Earnings from discontinued operations | |||||||||||||||||||||||||||||||||||
| Net earnings per share (1) | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Net earnings per share - diluted: | |||||||||||||||||||||||||||||||||||
| Earnings from continuing operations | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Earnings from discontinued operations | |||||||||||||||||||||||||||||||||||
| Net earnings per share (1) | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
Cash dividends declared per common share | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
____________________________
(1)Earnings per share may not add due to rounding.
See accompanying notes to condensed consolidated financial statements.
3
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
(Unaudited)
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||||||||||||||
| Net change in fair value of derivatives | ( | ( | |||||||||||||||||||||||||||||||||
| Net loss reclassified to earnings | |||||||||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||||||||
| Tax effect | |||||||||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||||||||
| Unrecognized periodic benefit costs: | |||||||||||||||||||||||||||||||||||
| Actuarial losses arising during the period | ( | ( | |||||||||||||||||||||||||||||||||
| Actuarial losses and prior service costs reclassified to earnings | |||||||||||||||||||||||||||||||||||
| ( | |||||||||||||||||||||||||||||||||||
| Tax effect | ( | ( | ( | ||||||||||||||||||||||||||||||||
| ( | |||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, net of taxes | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Comprehensive (loss) income | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Year-to-date | |||||||||||||||||
| April 12, 2020 | April 14, 2019 | ||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net earnings | $ | $ | |||||||||||||||
| Earnings from discontinued operations | |||||||||||||||||
| Earnings from continuing operations | |||||||||||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Amortization of franchise tenant improvement allowances and other | |||||||||||||||||
| Deferred finance cost amortization | |||||||||||||||||
| Excess tax benefits from share-based compensation arrangements | ( | ( | |||||||||||||||
| Deferred income taxes | |||||||||||||||||
| Share-based compensation expense | |||||||||||||||||
| Pension and postretirement expense | |||||||||||||||||
| Losses (gains) on cash surrender value of company-owned life insurance | ( | ||||||||||||||||
| Gains on the sale of company-operated restaurants | ( | ( | |||||||||||||||
| Gains on the disposition of property and equipment, net | ( | ( | |||||||||||||||
| Non-cash operating lease costs | ( | — | |||||||||||||||
| Impairment charges and other | |||||||||||||||||
| Changes in assets and liabilities, excluding acquisitions: | |||||||||||||||||
| Accounts and other receivables | ( | ( | |||||||||||||||
| Inventories | ( | ||||||||||||||||
| Prepaid expenses and other current assets | ( | ||||||||||||||||
| Accounts payable | ( | ||||||||||||||||
| Accrued liabilities | ( | ||||||||||||||||
| Pension and postretirement contributions | ( | ( | |||||||||||||||
| Franchise tenant improvement allowance distributions | ( | ( | |||||||||||||||
| Other | ( | ( | |||||||||||||||
| Cash flows provided by operating activities | |||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchases of property and equipment | ( | ( | |||||||||||||||
| Proceeds from the sale of property and equipment | |||||||||||||||||
| Proceeds from the sale and leaseback of assets | |||||||||||||||||
| Proceeds from the sale of company-operated restaurants | |||||||||||||||||
| Collections on notes receivable | |||||||||||||||||
| Other | |||||||||||||||||
| Cash flows provided by (used in) investing activities | ( | ||||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Borrowings on revolving credit facilities | |||||||||||||||||
| Repayments of borrowings on revolving credit facilities | ( | ( | |||||||||||||||
| Principal repayments on debt | ( | ( | |||||||||||||||
| Debt issuance costs | ( | ( | |||||||||||||||
| Dividends paid on common stock | ( | ( | |||||||||||||||
| Proceeds from issuance of common stock | |||||||||||||||||
| Repurchases of common stock | ( | ( | |||||||||||||||
| Payroll tax payments for equity award issuances | ( | ( | |||||||||||||||
| Cash flows used in financing activities | ( | ( | |||||||||||||||
| Net increase (decrease) in cash and restricted cash | ( | ||||||||||||||||
| Cash and restricted cash at beginning of period | |||||||||||||||||
| Cash and restricted cash at end of period | $ | $ | |||||||||||||||
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
| April 12, 2020 | April 14, 2019 | ||||||||||
| Company-operated | |||||||||||
| Franchise | |||||||||||
| Total system | |||||||||||
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, 2019 (“2019 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2019 Form 10-K with the exception of the new lease accounting standard adopted in fiscal 2020, which is 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.
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 Company is subject to risks and uncertainties as a result of the rapidly spreading outbreak of a novel strain of coronavirus (“COVID-19”). The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the response to the pandemic varies by state and municipalities within states. In the last five weeks of the quarter we experienced 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 as have been mandated or encouraged by federal, state and local governments. During the COVID-19 impacted weeks, substantially all of our restaurants remained open, with dining rooms closed and all locations operating in an off-premise capacity, which represents close to 90% of the Company’s business historically, including drive-thru, third-party delivery, and carry-out.
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 and we are working closely with our franchisees to monitor and assist them with access to appropriate sources of liquidity in order to sustain their businesses throughout this crisis.
6
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Advertising costs — We administer a marketing fund which includes contractual contributions. In 2020 and 2019, 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 marketing fees to 4.0 % and postponed the collection of these fees over the course of 24 months. April marketing fees will range from 2 % to 4 % based on annualized sales volumes, and these fees will be collected over three months beginning October 2020.
In 2019, incremental contributions made by the Company were $2.0 million. There have been no 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 $3.5 million and $8.9 million, respectively, in 2020 and $3.9 million and $11.1 million, respectively, in 2019.
Restricted cash — In accordance with the terms of our securitized financing facility, certain cash balances are required to be held in trust. Such restricted cash primarily represents cash collections and cash reserves held by the trustee to be used for payments of principal, interest and commitments fees required for the Class A-2 Notes. As of April 12, 2020 and September 29, 2019, restricted cash balances were $37.0 million and $26.0 million, respectively. During the second quarter, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we voluntarily elected to reserve quarterly interest and principal payments due in August 2020.
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 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.
7
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 | $ | — | $ | $ | |||||||||||||
| Intangible assets, net | $ | $ | ( | $ | |||||||||||||
| Deferred income taxes | $ | $ | $ | ||||||||||||||
| Liabilities and Stockholders’ Deficit | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Current operating lease liabilities | $ | — | $ | $ | |||||||||||||
| Accrued liabilities | $ | $ | ( | $ | |||||||||||||
| Long-term liabilities: | |||||||||||||||||
| Long-term operating lease liabilities, net of current portion | $ | — | $ | $ | |||||||||||||
| Other long-term liabilities | $ | $ | ( | $ | |||||||||||||
| Stockholders’ deficit: | |||||||||||||||||
| Retained earnings | $ | $ | ( | $ | |||||||||||||
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
Effect of new accounting pronouncements to be adopted in future periods — In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will replace the incurred loss methodology of recognizing credit losses on financial instruments that is currently required with a methodology that estimates the expected credit loss on financial instruments and reflects the net amount expected to be collected on the financial instrument. Application of the new guidance may result in the earlier recognition of credit losses as the new methodology will require entities to consider forward-looking information in addition to historical and current information used in assessing incurred losses. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The Company will be required to adopt the new guidance on a modified retrospective basis. We are currently in the process of evaluating the effects of this pronouncement on our consolidated financial statements and do not expect there to be a material impact upon adoption.
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. ASU 2018-15 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Companies can choose to adopt the new guidance prospectively or retrospectively. We are currently in the process of evaluating the effects of this pronouncement on our consolidated financial statements and do not expect there to be a material impact upon adoption.
8
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2.REVENUE
Nature of products and services — We derive revenue from retail sales at Jack in the Box company-operated restaurants and rental revenue, royalties, advertising, and franchise and other fees from franchise-operated restaurants.
Our franchise arrangements generally provide for an initial franchise fee of $50,000 per restaurant and generally require that franchisees pay royalty and marketing fees at 5 % of gross sales. The agreement also requires franchisees to pay sourcing, technology and other miscellaneous fees.
Disaggregation of revenue — The following table disaggregates revenue by primary source (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Sources of revenue: | |||||||||||||||||||||||||||||||||||
| Company restaurant sales | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Franchise rental revenues | |||||||||||||||||||||||||||||||||||
| Franchise royalties | |||||||||||||||||||||||||||||||||||
| Marketing fees | |||||||||||||||||||||||||||||||||||
| Technology and sourcing fees | |||||||||||||||||||||||||||||||||||
| Franchise fees and other services | |||||||||||||||||||||||||||||||||||
Total revenue | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
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 | |||||||||||||||||
| April 12, 2020 | April 14, 2019 | ||||||||||||||||
| Deferred franchise fees at beginning of period | $ | $ | |||||||||||||||
| Revenue recognized | ( | ( | |||||||||||||||
| Additions | |||||||||||||||||
| Deferred franchise fees at end of period | $ | $ | |||||||||||||||
The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied as of April 12, 2020 (in thousands):
| Remainder of 2020 | $ | |||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Thereafter | ||||||||
| $ | ||||||||
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.
9
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3.SUMMARY OF REFRANCHISINGS AND FRANCHISEE DEVELOPMENT
Refranchisings and franchisee development — Through the second quarter in 2020 and 2019, no 1.6 million and $0.2 million, respectively, pertain to meeting certain contingent consideration provisions included in the sale of restaurants in previous years. The following table summarizes the number of restaurants developed and closed by franchisees.
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| New restaurants opened by franchisees | |||||||||||||||||||||||||||||||||||
| Franchisee restaurants closed | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
Franchise acquisitions — During the second quarter of 2020, we acquired eight franchise restaurants as a result of a legal action filed in October 2019 against a franchisee in which we obtained a judgment in January 2020 granting us the possession of the restaurants.
We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). The goodwill recorded primarily relates to the sales growth potential of the market acquired and is expected to be deductible for income tax purposes.
Total consideration on the acquisition was $0.9 million, comprised of receivables that were eliminated in acquisition accounting.
The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for the restaurants acquired (in thousands):
| Inventory | $ | ||||
| Property and equipment | |||||
| Intangible assets | |||||
| Other assets | |||||
| Goodwill | |||||
| Liabilities assumed | ( | ||||
| Total consideration | $ | ||||
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.
10
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 and June until future periods and total approximately $13.4 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 will not remeasure our lease ROU assets and liabilities, and as of April 12, 2020 have bifurcated our operating lease liabilities into the portion that remains subject to accretion of $940.0 million, and the portion that is related to April rent deferrals of $4.8 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 $10.4 million of the rent concessions secured from our landlords for April, May and June.
Company as Lessee
Leased assets and liabilities consisted of the following as of April 12, 2020 (in thousands):
| April 12, 2020 | |||||
| Assets: | |||||
| Operating lease ROU assets | $ | ||||
| Finance lease ROU assets (1) | |||||
| Total ROU assets | $ | ||||
| Liabilities: | |||||
| Current operating lease liabilities | $ | ||||
| Current finance lease liabilities (2) | |||||
| Long term operating lease liabilities | |||||
| Long-term finance lease liabilities (2) | |||||
| Total lease liabilities | $ | ||||
____________________________
(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.
11
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 | |||||||||||||
| April 12, 2020 | April 12, 2020 | |||||||||||||
| Lease costs: | ||||||||||||||
| Finance lease cost: | ||||||||||||||
| Amortization of ROU assets (1) | $ | $ | ||||||||||||
| Interest on lease liabilities (2) | ||||||||||||||
| Operating lease cost (3) | ||||||||||||||
| Short-term lease cost (3) | ||||||||||||||
| Variable lease cost (3)(4) | ||||||||||||||
| $ | $ | |||||||||||||
____________________________
(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 $20.2 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:
| April 12, 2020 | |||||
| Weighted-average remaining lease term (in years): | |||||
| Finance leases | |||||
| Operating leases | |||||
| Weighted-average discount rate: | |||||
| Finance leases | % | ||||
| Operating leases | % | ||||
The following table presents as of April 12, 2020, the annual maturities of our lease liabilities (in thousands):
| Finance Leases | Operating Leases | |||||||||||||
| Fiscal year: | ||||||||||||||
| Remainder of 2020 (1) | $ | $ | ||||||||||||
| 2021 (1) | ||||||||||||||
| 2022 | ||||||||||||||
| 2023 | ||||||||||||||
| 2024 | ||||||||||||||
| Thereafter | ||||||||||||||
| Total future lease payments (2) | $ | $ | ||||||||||||
| Less: imputed interest | ( | ( | ||||||||||||
| Present value of lease liabilities | $ | $ | ||||||||||||
____________________________
(1)The impact of rent concessions reduced 2020 operating leases maturities by $1.3 million and increased 2021 by $6.0 million.
(2)Total future lease payments include non-cancellable commitments of $3.6 million for finance leases and $1,090 million for operating leases.
12
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 | $ | $ | ||||||||||||
| 2021 | ||||||||||||||
| 2022 | ||||||||||||||
| 2023 | ||||||||||||||
| 2024 | ||||||||||||||
| Thereafter | ||||||||||||||
| Total minimum lease payments | $ | $ | ||||||||||||
| Less: imputed interest | ( | |||||||||||||
| Present value of lease liability | $ | |||||||||||||
The following table includes supplemental cash flow and non-cash information related to our lessee leases (in thousands):
| Year-to-date | ||||||||
| April 12, 2020 | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | |||||||
| Operating cash flows from financing leases | $ | |||||||
| Financing cash flows from financing leases | $ | |||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | $ | |||||||
| Financing leases | $ | |||||||
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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 12, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Owned Properties | Leased Properties | Total | Owned Properties | Leased Properties | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating lease income - franchise | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Variable lease income - franchise | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Franchise rental revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating lease income - closed restaurants and other (1) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
____________________________
13
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents as of April 12, 2020, future minimum rental receipts for non-cancellable leases and subleases (in thousands):
| April 12, 2020 | |||||
| Fiscal year: | |||||
| Remainder of 2020 (1)(2) | $ | ||||
| 2021 (2) | |||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| Thereafter | |||||
| Total minimum rental receipts | $ | ||||
____________________________
(1)Includes $9.1 million of postponed April rents to be repaid over three months beginning July 2020.
(2)The impact of rent concessions passed on to franchisees reduced 2020 by $1.7 million and increased 2021 by $4.7 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 | $ | ||||
| 2021 | |||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| Thereafter | |||||
| Total minimum rental receipts | $ | ||||
5.INDEBTEDNESS
Long-term debt as of April 12, 2020 and September 29, 2019 consisted of the following (in thousands):
| April 12, 2020 | September 29, 2019 | ||||||||||
| Class A-2-I Notes | $ | $ | |||||||||
| Class A-2-II Notes | |||||||||||
| Class A-2-III Notes | |||||||||||
| Class A-1 Variable Funding Notes | |||||||||||
| Finance lease obligations | |||||||||||
| Total debt | |||||||||||
| Less current maturities of long-term debt | ( | ( | |||||||||
| Less unamortized debt issuance costs | ( | ( | |||||||||
| Long-term debt | $ | $ | |||||||||
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.
14
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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) | ||||||||||||||||||||
| Fair value measurements as of April 12, 2020: | |||||||||||||||||||||||
| Non-qualified deferred compensation plan (1) | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Fair value measurements as of September 29, 2019: | |||||||||||||||||||||||
| Non-qualified deferred compensation plan (1) | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
____________________________
(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 April 12, 2020 and September 29, 2019 (in thousands):
| April 12, 2020 | September 29, 2019 | ||||||||||||||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||||||||||||||
| Class A-2 Notes | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
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, no material fair value adjustments were required. Refer to Note 8, Impairment and Other Charges, Net, for additional information regarding impairment charges.
7.DERIVATIVE INSTRUMENTS
15
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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. 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 | ||||||||||||||||||||||||
| April 14, 2019 | April 14, 2019 | |||||||||||||||||||||||||
| Loss recognized in OCI | N/A | $ | ( | $ | ( | |||||||||||||||||||||
Loss reclassified from accumulated OCI into net earnings | Interest expense, net | $ | $ | |||||||||||||||||||||||
8.IMPAIRMENT AND OTHER CHARGES, NET
Impairment and other charges, net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Restructuring costs | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Costs of closed restaurants and other | |||||||||||||||||||||||||||||||||||
| Losses (gains) on disposition of property and equipment, net (1) | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Accelerated depreciation | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
____________________________
(1)In 2020, includes a $10.8 million gain related to the sale of one of our corporate office buildings. Refer to Note 4, Leases, for further information.
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.
The following is a summary of our restructuring costs (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Employee severance and related costs | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Strategic Alternatives Evaluation (1) | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
____________________________
(1) Strategic Alternative Evaluation costs primarily relate to third party advisory services.
We do not expect any significant severance and related costs for the remainder of fiscal 2020 related to these initiatives.
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 | $ | |||||||
| Costs incurred | ||||||||
| Cash payments | ( | |||||||
| Balance as of April 12, 2020 | $ | |||||||
16
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
9.INCOME TAXES
The income tax provisions reflect tax rates of 32.3 % in the second quarter and 30.7 % year-to-date, compared with 25.0 % and 24.0 %, respectively, in fiscal year 2019. The major components of the year-over-year change in tax rates were a decrease in operating earnings before income tax, an increase in the impact of non-deductible compensation for certain officers, an increase in losses from the market performance of insurance products used to fund certain non-qualified retirement plans which are excluded from taxable income, and an increase in non-deductible legal settlements. 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 enacted in the U.S. on March 27, 2020. The CARES Act includes several U.S. income tax provisions related to, among other things, modifications to the net interest deduction limitations, and technical amendments regarding the income tax depreciation of qualified improvement property placed in service after December 31, 2017. The CARES Act is not expected to have a material impact on the Company’s financial results.
10.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. Routine lump sum payments made in the second quarter of fiscal 2020 resulted in a non-cash settlement charge of $0.3 million.
Postretirement healthcare plans — We also sponsor two healthcare plans, closed to new participants, that provide postretirement medical benefits to certain employees who have met minimum age and service requirements. The plans are contributory, 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):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Defined benefit pension plans: | |||||||||||||||||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Expected return on plan assets (1) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Pension settlements (2) | |||||||||||||||||||||||||||||||||||
| Actuarial losses (2) | |||||||||||||||||||||||||||||||||||
| Amortization of unrecognized prior service costs (2) | |||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Postretirement healthcare plans: | |||||||||||||||||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Actuarial losses (gains) (2) | ( | ( | |||||||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
___________________________
(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 and 5.2 % as of March 31, 2020, upon remeasurement of the Qualified Plan’s assets and PBO as required by settlement accounting.
17
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, 2019, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement. Details regarding 2020 contributions are as follows ( in thousands):
| SERP | Postretirement Healthcare Plans | ||||||||||
| Net year-to-date contributions | $ | $ | |||||||||
| Remaining estimated net contributions during fiscal 2020 | $ | $ | |||||||||
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.
11.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 | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Shares issued under stock plans, including tax benefit | |||||||||||||||||||||||||||||||||||
| Share-based compensation expense | |||||||||||||||||||||||||||||||||||
| Dividends declared | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Purchases of treasury stock | ( | ||||||||||||||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of taxes | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Cumulative-effect from a change in accounting principle | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at end of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
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 no repurchases of common stock in the second quarter of fiscal 2020. As of April 12, 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, the Board of Directors declared two 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 $18.5 million. Future dividends are subject to approval by our Board of Directors.
18
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12.AVERAGE SHARES OUTSTANDING
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Weighted-average shares outstanding – basic | |||||||||||||||||||||||||||||||||||
| Effect of potentially dilutive securities: | |||||||||||||||||||||||||||||||||||
| Nonvested stock awards and units | |||||||||||||||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||||||||||||||
| Performance share awards | |||||||||||||||||||||||||||||||||||
| Weighted-average shares outstanding – diluted | |||||||||||||||||||||||||||||||||||
| Excluded from diluted weighted-average shares outstanding: | |||||||||||||||||||||||||||||||||||
| Antidilutive | |||||||||||||||||||||||||||||||||||
| Performance conditions not satisfied at the end of the period | |||||||||||||||||||||||||||||||||||
13.CONTINGENCIES AND LEGAL MATTERS
Legal matters — We assess contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that liability is adverse to the Company and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates. As of April 12, 2020 and September 29, 2019, the Company had recorded aggregate liabilities of $14.2 million and $10.0 million, respectively, within “Accrued liabilities” on our condensed consolidated balance sheets, for all matters including those described below, that were probable and reasonably estimable. While we believe that additional losses beyond these accruals are reasonably possible, we cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond these accruals.
Gessele v. Jack in the Box Inc. — In August 2010, five former employees instituted litigation in federal court in Oregon alleging claims under the federal Fair Labor Standards Act and Oregon wage and hour laws. The plaintiffs alleged that the Company failed to pay non-exempt employees for certain meal breaks and improperly made payroll deductions for shoe purchases and for workers’ compensation expenses, and later added additional claims relating to timing of final pay and related wage and hour claims involving employees of a franchisee. In 2016, the court dismissed the federal claims and those relating to franchise employees. In June 2017, the court granted class certification with respect to state law claims of improper deductions and late payment of final wages. In February 2019, plaintiff’s 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 in claimed damages. The parties participated in a voluntary mediation on March 16, 2020, but the matter did not settle. The plaintiff recently filed a motion for reconsideration of the court’s prior denial of class certification regarding meal and rest break claims. The Company has opposed the motion and will continue to vigorously defend against this 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.
19
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 $3.9 million in attorney fees. As of April 12, 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.
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. 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.DISCONTINUED OPERATIONS
Qdoba — In December 2017, we entered into a stock purchase agreement (the “Qdoba Purchase Agreement”) with the Buyer to sell all issued and outstanding shares of Qdoba. The Buyer completed the acquisition of Qdoba on March 21, 2018 (the “Qdoba Sale”).
We also entered into a Transition Services Agreement with the Buyer pursuant to which the Buyer received certain services (the “Services”) to enable it to operate the Qdoba business after the closing of the Qdoba Sale. The Services included information technology, finance and accounting, human resources, supply chain and other corporate support services. Under the Agreement, the Services were provided at cost for a period of up to 12 months, with two 3 -month extensions available for certain services. As of September 21, 2019, we are no longer providing transition services to Qdoba. In 2019, we recorded $1.9 million in the quarter and $5.6 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.
The following table presents Qdoba’s results of operations in periods which have been included in discontinued operations (in thousands, except per share data):
| Quarter | Year-to-date | |||||||||||||
| April 14, 2019 | April 14, 2019 | |||||||||||||
| Selling, general and administrative expenses | $ | $ | ( | |||||||||||
| Loss on Qdoba Sale | ||||||||||||||
| (Losses) earnings from discontinued operations before income taxes | ( | |||||||||||||
| Income tax benefit (1) | ||||||||||||||
| (Losses) earnings from discontinued operations, net of income taxes | $ | ( | $ | |||||||||||
| Basic and diluted earnings per share from discontinued operations: | $ | $ | ||||||||||||
____________________________
(1)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.
20
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
15.SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)
| Year-to-date | |||||||||||||||||
| April 12, 2020 | April 14, 2019 | ||||||||||||||||
| Non-cash investing and financing transactions: | |||||||||||||||||
| Decrease in obligations for treasury stock repurchases | $ | $ | |||||||||||||||
| Decrease in obligations for purchases of property and equipment | $ | $ | |||||||||||||||
| Increase in dividends accrued or converted to common stock equivalents | $ | $ | |||||||||||||||
| Consideration for franchise acquisitions | $ | $ | |||||||||||||||
| Decrease in finance lease obligations from the termination of equipment and building leases | $ | $ | |||||||||||||||
21
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
16.SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)
| April 12, 2020 | September 29, 2019 | ||||||||||
| Accounts and other receivables, net: | |||||||||||
| Trade | $ | $ | |||||||||
| Notes receivable | |||||||||||
| Income tax receivable | |||||||||||
| Other | |||||||||||
| Allowance for doubtful accounts | ( | ( | |||||||||
| $ | $ | ||||||||||
| Prepaid expenses: | |||||||||||
| Prepaid income taxes | $ | $ | |||||||||
| Prepaid advertising | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
| Other assets, net: | |||||||||||
| Company-owned life insurance policies | $ | $ | |||||||||
| Deferred rent receivable | |||||||||||
| Franchise tenant improvement allowance | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
| Accrued liabilities: | |||||||||||
| Insurance | $ | $ | |||||||||
| Payroll and related taxes | |||||||||||
| Deferred franchise fees | |||||||||||
| Sales and property taxes | |||||||||||
| Gift card liability | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
| Other long-term liabilities: | |||||||||||
| Defined benefit pension plans | $ | $ | |||||||||
| Deferred franchise fees | |||||||||||
| Straight-line rent accrual | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All comparisons between 2020 and 2019 refer to the 12-weeks (“quarter”) and 28-weeks (“year-to-date”) ended April 12, 2020 and April 14, 2019, respectively, unless otherwise indicated.
For an understanding of the significant factors that influenced our performance during 2020 and 2019, our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended September 29, 2019.
Our MD&A consists of the following sections:
•Overview — a general description of our business and 2020 highlights.
•Financial reporting — a discussion of changes in presentation, if any.
•Results of operations — an analysis of our condensed consolidated statements of earnings for the periods presented in our condensed consolidated financial statements.
•Liquidity and capital resources — an analysis of our cash flows including pension and postretirement health contributions, capital expenditures, franchise tenant improvement allowance distributions, share repurchase activity, dividends, known trends that may impact liquidity and the impact of inflation, if applicable.
•Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates.
•New accounting pronouncements — a discussion of new accounting pronouncements, dates of implementation and the impact on our consolidated financial position or results of operations, if any.
•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, 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.
23
IMPACT OF COVID-19
As of May 8, 2020, substantially all of our restaurants remain open, with dining rooms closed and all locations operating in an off-premise capacity, which represents close to 90% of the Company’s business historically, including drive-thru, third-party delivery, and carry-out. While we navigate through this time of uncertainty, Jack in the Box remains committed to operating our restaurants with integrity, providing great guest service, and most importantly, protecting the health and safety of our employees and guests.
Our system same store sales decreased by 4.2% in the quarter; however, the outbreak did not materially impact the business until late in the quarter. Prior to the rise in “shelter-in-place” mandates and “social distancing” requirements across the country, same store sales increased 5.2% in the seven weeks ended March 8, 2020, compared to the 17.0% decrease in same store sales we experienced in the last five weeks of the quarter.
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 provided protective masks, gloves, sneeze guards and thermometers to all company-owned and franchised locations.
Given the level of volatility and uncertainty surrounding the future impact of COVID-19 on the broader US economy and specific impacts to our business, we have withdrawn our previously issued fiscal 2020 and long-term guidance. The Company will provide an update when it can reasonably estimate the impacts of the COVID-19 pandemic on business results.
OTHER RECENT DEVELOPMENTS
On April 16, 2020, we announced that Darin Harris has been appointed by our Board of Directors as Chief Executive Officer and will join the Board of Directors, both effective on the start of his employment no later than June 15, 2020. Our Board of Directors has also elected David Goebel to serve as non-executive Chairman of the Board, effective when Mr. Harris begins employment with the Company.
Mr. Harris takes over from Lenny Comma, who announced his intent to retire in December 2019 and has served as Chief Executive Officer and Chairman of the Board of Directors since 2014. Mr. Comma’s last day of employment will be effective upon Mr. Harris’ start date, at which time Mr. Comma will also leave the Board of Directors.
OVERVIEW
As of April 12, 2020, we operated and franchised 2,246 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 fiscal 2020, and certain trends compared to a year ago:
•System same-store sales — System same-store sales decreased by 4.2% in the quarter and 0.8% year-to-date. Company same-store sales decreased 4.1% in the quarter, driven by a 10.5% decrease in transactions, partially offset by average check growth of 6.4%. As previously disclosed, system-same store sales increased 5.2% in the seven weeks ended March 8, 2020, prior to any impacts from the COVID-19 pandemic.
•Company restaurant operations — Company restaurant costs as a percentage of company restaurant sales increased in the quarter to 79.4% from 72.4% a year ago primarily due to sales deleverage during COVID-19 impacted weeks and wage and commodity inflation.
•Franchise operations — Excluding the impacts of ASC 842 described in the Financial Reporting section below, our franchise operating results were impacted by a decrease in royalties and rent margins in the quarter and year-to-date, primarily due to lower franchise sales during COVID-19 impacted weeks, and a $2.0 million year-to-date increase in franchisee bad debt expense compared to the prior year.
•Selling, general and administrative (“SG&A”) expenses - SG&A increased by $6.6 million for the quarter and $10.8 million year-to-date, largely due to unfavorable mark-to-market adjustments on investments supporting the Company’s non-qualified retirement plans and higher costs related to litigation matters compared to the prior year.
•Adjusted EBITDA — Adjusted EBITDA decreased in 2020 to $122.9 million from $144.2 million in 2019.
24
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 $20.2 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 $0.9 million in the quarter and $2.1 million and $2.6 million, respectively, year-to-date.
25
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 | ||||||||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||
| Company restaurant sales | 34.4 | % | 35.5 | % | 34.3 | % | 35.4 | % | |||||||||||||||||||||||||||||||||
| Franchise rental revenues | 32.3 | % | 28.6 | % | 31.7 | % | 28.7 | % | |||||||||||||||||||||||||||||||||
| Franchise royalties and other | 17.5 | % | 17.8 | % | 17.2 | % | 17.9 | % | |||||||||||||||||||||||||||||||||
| Franchise contributions for advertising and other services | 15.8 | % | 18.1 | % | 16.8 | % | 17.9 | % | |||||||||||||||||||||||||||||||||
| Total revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||||||||||||||||||||
| Operating costs and expenses, net: | |||||||||||||||||||||||||||||||||||||||||
| Company restaurant costs (excluding depreciation and amortization): | |||||||||||||||||||||||||||||||||||||||||
| Food and packaging (1) | 29.9 | % | 28.3 | % | 29.8 | % | 28.6 | % | |||||||||||||||||||||||||||||||||
| Payroll and employee benefits (1) | 32.6 | % | 29.7 | % | 31.2 | % | 29.5 | % | |||||||||||||||||||||||||||||||||
| Occupancy and other (1) | 16.9 | % | 14.5 | % | 15.9 | % | 15.1 | % | |||||||||||||||||||||||||||||||||
| Total company restaurant costs (1) | 79.4 | % | 72.4 | % | 76.9 | % | 73.2 | % | |||||||||||||||||||||||||||||||||
| Franchise occupancy expenses (2) | 69.2 | % | 62.6 | % | 68.0 | % | 61.4 | % | |||||||||||||||||||||||||||||||||
| Franchise support and other costs (3) | 7.9 | % | 7.3 | % | 8.5 | % | 6.2 | % | |||||||||||||||||||||||||||||||||
| Franchise advertising and other services expenses (4) | 104.7 | % | 103.2 | % | 103.5 | % | 104.1 | % | |||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 11.2 | % | 8.2 | % | 10.0 | % | 8.2 | % | |||||||||||||||||||||||||||||||||
| Depreciation and amortization | 5.7 | % | 5.9 | % | 5.5 | % | 5.9 | % | |||||||||||||||||||||||||||||||||
| Impairment and other charges, net | 0.3 | % | 0.5 | % | (1.6) | % | 1.7 | % | |||||||||||||||||||||||||||||||||
| Gains on the sale of company-operated restaurants | — | % | — | % | (0.3) | % | — | % | |||||||||||||||||||||||||||||||||
| Earnings from operations | 15.2 | % | 21.8 | % | 19.6 | % | 20.8 | % | |||||||||||||||||||||||||||||||||
| Income tax rate (5) | 32.3 | % | 25.0 | % | 30.7 | % | 24.0 | % | |||||||||||||||||||||||||||||||||
____________________________
(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.
26
The following table summarizes changes in same-store sales for company-owned, franchised, and system-wide restaurants:
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||||||||
| Company | (4.1) | % | 0.6 | % | (0.1) | % | 0.5 | % | |||||||||||||||||||||||||||||||||
| Franchise | (4.2) | % | 0.1 | % | (0.9) | % | — | % | |||||||||||||||||||||||||||||||||
| System | (4.2) | % | 0.2 | % | (0.8) | % | — | % | |||||||||||||||||||||||||||||||||
The following table summarizes changes in the number and mix of company and franchise restaurants:
| 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company | Franchise | Total | Company | Franchise | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning of year | 137 | 2,106 | 2,243 | 137 | 2,100 | 2,237 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| New | — | 16 | 16 | — | 11 | 11 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquired from franchisees | 8 | (8) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Closed | (1) | (12) | (13) | — | (8) | (8) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| End of period | 144 | 2,102 | 2,246 | 137 | 2,103 | 2,240 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| % of system | 6 | % | 94 | % | 100 | % | 6 | % | 94 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||
The following table summarizes restaurant sales for company-owned, franchised, and total system sales (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Company-owned restaurant sales | $ | 74,380 | $ | 76,682 | $ | 179,744 | $ | 179,514 | |||||||||||||||||||||||||||
| Franchised restaurant sales (1) | 695,926 | 721,350 | 1,675,271 | 1,681,310 | |||||||||||||||||||||||||||||||
| System sales (1) | $ | 770,306 | $ | 798,032 | $ | 1,855,015 | $ | 1,860,824 | |||||||||||||||||||||||||||
____________________________
(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 | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Net earnings - GAAP | $ | 11,463 | $ | 25,089 | $ | 19,360 | $ | 59,187 | |||||||||||||||||||||||||||
| Losses (earnings) from discontinued operations, net of taxes | — | 41 | — | (2,936) | |||||||||||||||||||||||||||||||
| Income tax expense | 5,458 | 8,374 | 8,591 | 17,747 | |||||||||||||||||||||||||||||||
| Interest expense, net | 15,409 | 13,276 | 35,351 | 30,650 | |||||||||||||||||||||||||||||||
| Pension settlement charges | 321 | — | 38,927 | — | |||||||||||||||||||||||||||||||
| Gains on the sale of company-operated restaurants | — | — | (1,575) | (219) | |||||||||||||||||||||||||||||||
| Impairment and other charges, net | 716 | 1,125 | (8,575) | 8,823 | |||||||||||||||||||||||||||||||
| Depreciation and amortization | 12,282 | 12,690 | 29,010 | 29,859 | |||||||||||||||||||||||||||||||
| Amortization of franchise tenant improvement allowances and other | 614 | 607 | 1,765 | 1,137 | |||||||||||||||||||||||||||||||
| Adjusted EBITDA - Non-GAAP | $ | 46,263 | $ | 61,202 | $ | 122,854 | $ | 144,248 | |||||||||||||||||||||||||||
27
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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company restaurant sales | $ | 74,380 | $ | 76,682 | $ | 179,744 | $ | 179,514 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company restaurant costs: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Food and packaging | 22,237 | 29.9 | % | 21,676 | 28.3 | % | 53,585 | 29.8 | % | 51,292 | 28.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payroll and employee benefits | 24,261 | 32.6 | % | 22,768 | 29.7 | % | 56,151 | 31.2 | % | 53,042 | 29.5 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Occupancy and other | 12,570 | 16.9 | % | 11,100 | 14.5 | % | 28,528 | 15.9 | % | 27,113 | 15.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total company restaurant costs | $ | 59,068 | 79.4 | % | $ | 55,544 | 72.4 | % | $ | 138,264 | 76.9 | % | $ | 131,447 | 73.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company restaurant sales decreased $2.3 million, or 3.0% in the quarter due primarily to a decrease in traffic during COVID-19 impacted weeks, partially offset by changes in product mix, retail price increases and an increase in the number of company-operated restaurants related to the acquisition of eight restaurants from a franchisee during the quarter. Year-to-date, restaurant sales increased $0.2 million, or 0.1% versus a year ago due to an increase in the number of company-operated restaurants and retail price increases, which more than offset declines in traffic.
Same-store sales at company-operated restaurants decreased 4.1% in the quarter and 0.1% 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 | |||||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | |||||||||||||||||||||||||||||||||||
| Average check (1) | 6.4 | % | 2.8 | % | 4.2 | % | 3.4 | % | ||||||||||||||||||||||||||||||
| Transactions | (10.5) | % | (2.2) | % | (4.3) | % | (2.9) | % | ||||||||||||||||||||||||||||||
| Change in same-store sales | (4.1) | % | 0.6 | % | (0.1) | % | 0.5 | % | ||||||||||||||||||||||||||||||
____________________________
(1)Amounts in 2020 include price increases of approximately 2.4% in the quarter and 2.6% year-to-date. Amounts in 2019 include price increases of approximately 2.1% in the quarter and 2.3% year-to-date.
Food and packaging costs as a percentage of company restaurant sales increased to 29.9% in the quarter and 29.8% year-to-date in 2020 compared to 28.3% in the quarter and 28.6% year-to-date in 2019, due primarily to higher costs for ingredients and changes in product mix, partially offset by menu price increases. Commodity costs increased in the quarter and year-to-date by approximately 4.4% and 4.7%, respectively, due primarily to increases in beef, cheese and beverages.
Payroll and employee benefit costs as a percentage of company restaurant sales increased to 32.6% in the quarter and 31.2% year-to-date in 2020 compared with 29.7% in the quarter and 29.5% year-to-date in 2019, due primarily to higher average wages resulting from wage inflation and a highly competitive labor market, maintaining pre-COVID-19 staffing levels during the COVID-19 impacted weeks, and sales deleverage in the quarter, and was partially offset by lower costs for incentive compensation.
Occupancy and other costs as a percentage of company restaurant sales, increased to 16.9% in the quarter and 15.9% year-to-date in 2020 compared with 14.5% in the quarter and 15.1% year-to-date in 2019. Sales deleverage contributed to the increase in the quarter. Furthermore, in the quarter and year-to-date, the acquisition of eight restaurants with lower than average sales volumes, and higher costs for repairs and maintenance, third party delivery fees, and utilities, drove occupancy and other costs higher as a percentage of company restaurant sales.
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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 | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Franchise rental revenues | $ | 69,885 | $ | 61,646 | $ | 165,969 | $ | 145,536 | |||||||||||||||||||||||||||
| Royalties | 36,049 | 37,148 | 86,292 | 86,655 | |||||||||||||||||||||||||||||||
| Franchise fees and other | 1,715 | 1,262 | 3,938 | 4,005 | |||||||||||||||||||||||||||||||
| Franchise royalties and other | 37,764 | 38,410 | 90,230 | 90,660 | |||||||||||||||||||||||||||||||
| Franchise contributions for advertising and other services | 34,128 | 38,989 | 87,887 | 90,803 | |||||||||||||||||||||||||||||||
| Total franchise revenues | $ | 141,777 | $ | 139,045 | $ | 344,086 | $ | 326,999 | |||||||||||||||||||||||||||
| Franchise occupancy expenses (excluding depreciation and amortization) | $ | 48,341 | $ | 38,618 | $ | 112,858 | $ | 89,331 | |||||||||||||||||||||||||||
| Franchise support and other costs | 2,971 | 2,797 | 7,647 | 5,642 | |||||||||||||||||||||||||||||||
| Franchise advertising and other services expenses | 35,734 | 40,245 | 90,958 | 94,515 | |||||||||||||||||||||||||||||||
| Total franchise costs | $ | 87,046 | $ | 81,660 | $ | 211,463 | $ | 189,488 | |||||||||||||||||||||||||||
| Franchise costs as a percentage of total franchise revenues | 61.4 | % | 58.7 | % | 61.5 | % | 57.9 | % | |||||||||||||||||||||||||||
| Average number of franchise restaurants | 2,085 | 2,085 | 2,086 | 2,085 | |||||||||||||||||||||||||||||||
| Decrease in franchise-operated same-store sales | (4.2) | % | (0.9) | % | |||||||||||||||||||||||||||||||
| Franchised restaurant sales | $ | 695,926 | $ | 721,350 | $ | 1,675,271 | $ | 1,681,310 | |||||||||||||||||||||||||||
| Franchised restaurant AUVs | $ | 334 | $ | 345 | $ | 803 | $ | 806 | |||||||||||||||||||||||||||
| Royalties as a percentage of total franchised restaurant sales | 5.2 | % | 5.1 | % | 5.2 | % | 5.2 | % | |||||||||||||||||||||||||||
Franchise rental revenues increased $8.2 million, or 13.4% in the quarter and $20.4 million, or 14.0% year-to-date compared to the prior year, primarily from our adoption of ASC 842, which increased rental revenues $9.5 million in the quarter and $22.3 million year-to-date, partially offset by a decrease in percentage rent revenue from lower franchise restaurant sales.
Franchise royalties and other decreased $0.6 million, or 1.7% in the quarter and $0.4 million, or 0.5% year-to-date compared to the prior year, due primarily to a decrease in franchise same-store sales driving royalties lower, partially offset year-to-date by an $0.8 million increase in franchise incentives recorded as a reduction of franchise royalties.
Franchise contributions for advertising and other services decreased $4.9 million, or 12.5% in the quarter and $2.9 million, or 3.2% year-to-date compared to the prior year, primarily due to lower marketing contributions from our franchisees of $5.4 million in the quarter and $4.4 million year-to-date mainly as a result of a decrease in the contribution percentage and lower franchise restaurant sales, partially offset by an increase in technology fees charged to our franchisees.
Franchise occupancy expenses, principally rents, increased $9.7 million in the quarter and $23.5 million year-to-date compared to the prior year, due primarily to the adoption of ASC 842, which increased franchise occupancy expenses by $9.5 million in the quarter and $22.8 million year-to-date.
Franchise support and other costs increased $0.2 million in the quarter and $2.0 million year-to-date compared to the prior year, primarily as a result of an increase in franchisee bad debt expense.
Franchise advertising and other service expenses decreased $4.5 million, or 11.2% in the quarter and $3.6 million, or 3.8% year-to-date compared to the prior year, due to a decrease in marketing contributions from our franchisees of $5.4 million in the quarter and $4.4 million year-to-date, partially offset by an increase in information technology costs.
Depreciation and Amortization
Depreciation and amortization decreased by $0.4 million in the quarter and $0.8 million year-to-date compared with the prior year, primarily due to our franchise building assets becoming fully depreciated in the current fiscal year.
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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) | |||||||||||||||||
| Quarter | Year-to-date | ||||||||||||||||
| Advertising | $ | (349) | $ | (2,222) | |||||||||||||
| Incentive compensation (including share-based compensation and related payroll taxes) | (2,373) | 641 | |||||||||||||||
| Cash surrender value of COLI policies, net | 7,221 | 3,715 | |||||||||||||||
| Litigation matters | 1,917 | 5,799 | |||||||||||||||
| Other (includes transition services income and savings related to our restructuring plan) | 202 | 2,850 | |||||||||||||||
| $ | 6,618 | $ | 10,783 | ||||||||||||||
Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales. Advertising costs decreased $0.3 million in the quarter and $2.2 million year-to-date compared to the prior year. In the quarter, the decrease was driven by a decrease in the contribution percentage and lower company-operated restaurant sales. Year-to-date 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.
Incentive compensation decreased by $2.4 million in the quarter mainly as a result of lower achievement levels compared to the prior year for performance-stock units and the Company’s annual incentive plan.
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 negative impact of $7.2 million in the quarter and $3.7 million year-to-date, compared to the prior year.
Litigation matters increased by $1.9 million in the quarter and $5.8 million year-to-date, primarily due to costs accrued in 2020 for 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.
Impairment and Other Charges, Net
Impairment and other charges, net is comprised of the following (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Restructuring costs | $ | 118 | $ | 946 | $ | 1,163 | $ | 6,786 | |||||||||||||||||||||||||||
| Costs of closed restaurants and other | 331 | 383 | 432 | 1,249 | |||||||||||||||||||||||||||||||
| Losses (gains) on disposition of property and equipment, net | 267 | (714) | (10,170) | (138) | |||||||||||||||||||||||||||||||
| Accelerated depreciation | — | 510 | — | 926 | |||||||||||||||||||||||||||||||
| $ | 716 | $ | 1,125 | $ | (8,575) | $ | 8,823 | ||||||||||||||||||||||||||||
Impairment and other charges, net decreased by $0.4 million in the quarter compared to a year ago, driven by a $1.0 million increase in losses on the disposition of property and equipment due to an eminent domain gain in the prior year, partially offset by a decrease in restructuring costs as we conclude our restructuring initiative. Year-to-date, impairment and other charges, net decreased $17.4 million due to a $10.8 million gain related to the sale of one of our corporate office buildings in first quarter of the 2020, as well as $5.6 million decrease in restructuring costs.
Gains on the Sale of Company-Operated Restaurants
In 2020 and 2019, no company-operated restaurants were sold to franchisees. Gains on the sale of company-operated restaurants in both periods pertain to meeting certain contingent consideration provisions included in restaurants sold in previous years.
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Other Pension and Post-Retirement Expenses, Net
Other pension and post-retirement expenses, net increased by $0.2 million in the quarter and $39.5 million year-to-date versus the prior year, primarily due to non-cash pension settlement charges in 2020. Refer to Note 10, Retirement Plans, of the notes to the condensed consolidated financial statements for additional information regarding these charges.
Interest Expense, Net
Interest expense, net is comprised of the following (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| April 12, 2020 | April 14, 2019 | April 12, 2020 | April 14, 2019 | ||||||||||||||||||||||||||||||||
| Interest expense | $ | 15,458 | $ | 13,414 | $ | 35,877 | $ | 31,026 | |||||||||||||||||||||||||||
| Interest income | (49) | (138) | (526) | (376) | |||||||||||||||||||||||||||||||
| Interest expense, net | $ | 15,409 | $ | 13,276 | $ | 35,351 | $ | 30,650 | |||||||||||||||||||||||||||
Interest expense, net increased $2.1 million in the quarter and $4.9 million year-to-date compared with a year ago, primarily due to higher average borrowings which contributed additional interest expense of approximately $2.8 million and $6.1 million, respectively; partially offset by lower average interest rates.
Income Taxes
The tax rate in 2020 was 32.3% in the quarter and 30.7% year-to-date, compared with 25.0% and 24.0% respectively, in fiscal year 2019. The major components of the change in tax rates were a decrease in operating earnings before income tax, an increase in the impact of non-deductible compensation for certain officers, an increase in losses from the market performance of insurance products used to fund certain non-qualified retirement plans which are excluded from taxable income, and an increase in non-deductible legal settlements. 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.
LIQUIDITY AND CAPITAL RESOURCES
General
As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories, and our vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. As a result, we may at times maintain current liabilities in excess of current assets, which results in a working capital deficit. We generally reinvest available cash flows from operations to enhance existing restaurants, to reduce debt, to repurchase shares of our common stock, and to pay cash dividends. Our cash requirements consist principally of working capital, capital expenditures, income tax payments, debt service requirements, franchise tenant improvement allowance distributions, and obligations related to our benefit plans.
Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available financing in place. On July 8, 2019, we completed a refinancing of our existing senior credit facility with a new securitized financing facility, comprised of $1.3 billion of senior fixed-rate term notes and $150.0 million of variable funding notes. During the second quarter of fiscal 2020, to secure our liquidity position and provide financial flexibility given the uncertain market conditions, we drew down on our Variable Funding Notes, which provided us $107.9 million of unrestricted cash. As of the end of our second quarter, the Company had $169.2 million of cash and restricted cash on its balance sheet.
In the context of an unprecedented global pandemic, we believe it is prudent to maintain maximum financial flexibility by preserving our capital and maintaining the Company’s healthy liquidity position. As a result, we have suspended our quarterly cash dividend and all share repurchase activity, significantly reduced capital expenditures to essential spend only, and have negotiated rent concessions with our landlords, which were passed on to our franchisees. Additional measures we have taken to ensure the financial health of our franchise operators include deferring approximately 40% of April rents, reducing and deferring March and April marketing fees to give operators more cash, and delaying remodel requirements and development agreements for at least six months.
We believe that our cash on hand, cash flow from operations, and the actions taken to mitigate the effects of the COVID-19 pandemic discussed above will provide us with adequate liquidity for the next twelve months and the foreseeable future.
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Cash Flows
The table below summarizes our cash flows from continuing operations (in thousands):
| Year-to-date | |||||||||||||||||
| April 12, 2020 | April 14, 2019 | ||||||||||||||||
| Total cash provided by (used in): | |||||||||||||||||
| Operating activities | $ | 58,927 | $ | 60,816 | |||||||||||||
| Investing activities | 29,601 | (8,144) | |||||||||||||||
| Financing activities | (70,905) | (53,787) | |||||||||||||||
| Net cash flows | $ | 17,623 | $ | (1,115) | |||||||||||||
Operating Activities. Operating cash flows decreased $1.9 million compared with a year ago, primarily due to lower net income adjusted for non-cash items of $13.4 million, partially offset by favorable changes in working capital of $11.5 million, primarily due to an increase in payables from both timing of payments and extending payment terms during the period; partially offset by lower collections on receivables as a result of postponing collections on marketing and rent payments from our franchisees.
Pension and Postretirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, 2019, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for our qualified pension plan. We continue to evaluate contributions to our Qualified Plan based on changes in pension assets as a result of asset performance in the current market and the economic environment. We do not anticipate making any contributions to our Qualified Plan in fiscal 2020. In 2020, we contributed $3.6 million to our non-qualified pension plan and postretirement plans.
Investing Activities. Cash provided by investing activities increased by $37.7 million compared with a year ago, primarily due to higher proceeds from the sale and leaseback of assets of $15.4 million, higher proceeds from the sale of property and equipment of $20.9 million, and $5.4 million of lower capital expenditure spending, partially offset by $6.5 million of lower repayments received on notes issued in connection with 2018 refranchising transactions.
Capital Expenditures — The composition of capital expenditures in each period follows (in thousands):
| Year-to-date | |||||||||||||||||
| April 12, 2020 | April 14, 2019 | ||||||||||||||||
| Jack in the Box: | |||||||||||||||||
| Restaurant facility expenditures | $ | 6,443 | $ | 9,780 | |||||||||||||
| New restaurants | — | 1,452 | |||||||||||||||
| Other, including information technology | 1,967 | 6,586 | |||||||||||||||
| 8,410 | 17,818 | ||||||||||||||||
| Corporate Services: | |||||||||||||||||
| Information technology | 2,926 | 373 | |||||||||||||||
| Other, including facility improvements | 1,441 | — | |||||||||||||||
| 4,367 | 373 | ||||||||||||||||
| Total capital expenditures | $ | 12,777 | $ | 18,191 | |||||||||||||
Our capital expenditure program includes, among other things, restaurant remodeling, information technology enhancements, and investments in new locations and equipment. Capital expenditures decreased by $5.4 million compared to a year ago primarily due to lower facility expenditures from restaurant remodels and technology initiatives; partially offset by higher spending on certain corporate technology initiatives in 2020.
Sale leaseback transactions — We use sale and leaseback financing to lower the initial cash investment in our restaurants to the cost of the equipment, whenever possible. 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.
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In 2020, we also completed the sale of one of our corporate office buildings as we move forward with our previously announced consolidation of our corporate facilities. We entered into a lease with the buyer to leaseback the property for up to a period of 18 months with an option to terminate earlier without penalty, upon providing a 90-day notice. We received net proceeds of $20.6 million on the sale.
Financing Activities. Cash flows used in financing activities increased by $17.1 million compared with a year ago, primarily due to a net increase in borrowings under our revolving credit facilities of $98.9 million, lower principal repayments of $18.1 million as a result of our debt recapitalization completed in the prior year, and lower payments for debt issuance costs of $3.4 million; partially offset by higher stock repurchases of $141.2 million.
Repurchases of Common Stock — The Company repurchased approximately 1.9 million shares of its common stock in the first quarter of fiscal 2020 at an average price of $81.41 per share for an aggregate cost of $153.5 million. Repurchases of common stock included in our condensed consolidated statement of cash flows for fiscal 2020 includes $2.0 million related to repurchase transactions traded in the prior year that settled in 2020.
This leaves approximately $122.2 million remaining under share repurchase programs authorized by the Company’s Board of Directors, consisting of $22.2 million that expires in November 2020 and approximately $100.0 million that expires in November 2021. As previously announced, we have temporarily paused our share repurchase program and did not buy back any shares in the second quarter.
Dividends — During 2020, the Board of Directors declared two quarterly cash dividends of $0.40 per common share totaling $18.5 million.
In addition to temporarily suspending our share repurchase program, on May 8, 2020, the Board of Directors approved our voluntary election to temporarily suspend quarterly dividend payments. We will continue to monitor and revisit our capital allocation policies throughout the third quarter with the goal of reinstating dividends and share repurchases once we have more clarity around the scope and duration of the disruption caused by COVID-19.
Class A-2 Notes — Interest and principal payments on the Class A-2 Notes are payable on a quarterly basis. In general, no principal payments will be required if a specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as defined in the Indenture), is less than or equal to 5.0x. The Company’s actual leverage ratio exceeded 5.0x, and as a result, we are required to make quarterly principal payments of $3.25 million. The Company anticipates that we will be required to make quarterly principal payments on the Class A-2 Notes for the foreseeable future.
The legal final maturity date of the Class A-2 Notes is in August 2049, but it is expected that, unless earlier prepaid to the extent permitted under the Indenture, the anticipated repayment dates of the Class A-2-I Notes, the Class A-2-II Notes and the Class A-2-III Notes 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 April 12, 2020, $1,296.8 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 April 12, 2020, the Master Issuer had restricted cash of $37.0 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-2 Notes. During the second quarter, as a cautionary measure, we voluntarily elected to reserve the third quarter’s principal and interest payments due in August 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 April 12, 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 April 12, 2020, remaining borrowing availability under our Variable Funding Notes was $1.1 million.
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Covenants and restrictions — 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 April 12, 2020, 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. 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.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, Basis of Presentation, of the notes to condensed consolidated financial statements.
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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 impacts to our business and operations resulting from the coronavirus COVID-19 pandemic.
•We face significant competition in the food service industry and our inability to compete may adversely affect our business.
•Changes in demographic trends and in customer tastes and preferences could cause sales and the royalties we receive from franchisees to decline.
•Changes in consumer confidence and declines in general economic conditions could negatively impact our financial results.
•Increases in food and commodity costs could decrease our profit margins or result in a modified menu, which could adversely affect our financial results.
•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 in the United States. If our suppliers or distributors are unable to fulfill their obligations under their contracts, it could harm our operations.
•Food safety and food-borne illness concerns may have an adverse effect on our business by reducing demand and increasing costs.
•Negative publicity relating to our business or industry could adversely impact our reputation.
•Our business could be adversely affected by increased labor 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.
•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.
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•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.
•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 dividends and 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.
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, 2019 (“Form 10-K”). These documents may be read free of charge on the SEC’s website at www.sec.gov. Potential investors are urged to consider these factors, more fully described in our Form 10-K, carefully in evaluating any forward-looking statements, and are cautioned not to place undue reliance on the forward-looking statements. All forward-looking statements are made only as of the date issued, and we do not undertake any obligation to update any forward-looking statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In connection with the securitized refinancing completed on July 8, 2019, we are only exposed to interest rate risk on borrowings under our $150.0 million variable funding notes. During the second quarter of 2020, we borrowed $107.9 million under the variable funding notes, which remains outstanding as of April 12, 2020 and are subject to variable interest rates.
We are also exposed to the impact of commodity and utility price fluctuations. Many of the ingredients we use are commodities or ingredients that are affected by the price of other commodities, weather, seasonality, production, availability and various other factors outside our control. In order to minimize the impact of fluctuations in price and availability, we monitor the primary commodities we purchase and may enter into purchasing contracts and pricing arrangements when considered to be advantageous. However, certain commodities remain subject to price fluctuations. We are exposed to the impact of utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs for commodities and utilities through higher prices is limited by the competitive environment in which we operate. We also could experience shortages of key ingredients if our suppliers need to close or restrict operations due to the impact of the COVID-19 pandemic. We have not experienced any material disruptions in our supply chains as of the date of this report.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Management, under the oversight of the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive and principal financial officer, respectively), evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13-1-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by the Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended September 29, 2019.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended April 12, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Remediation of Material Weakness
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended September 29, 2019, we began implementing a remediation plan to address the material weakness mentioned above. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
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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 13, Contingencies and Legal Matters, of the notes to the condensed consolidated financial statements for a discussion of our contingencies and legal matters.
ITEM 1A. RISK FACTORS
The risk factors set forth below contain material changes to the risk factors previously disclosed and included in our Annual Report on Form 10-K for the fiscal year ended September 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, which we filed with the SEC on November 21, 2019, as updated in this Item 1A. You should also consider the risks and uncertainties discussed under the heading “Cautionary Statements Regarding Forward-Looking Statements” in Item 2 of this Quarterly Report on Form 10-Q. You should also refer to the other information set forth in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended September 29, 2019, including our financial statements and the related notes. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the risks or uncertainties actually occurs, our business and financial results could be harmed. In that case, the market price of our common stock could decline.
The novel coronavirus (COVID-19) outbreak 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 pandemic novel coronavirus (COVID-19) 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.
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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 any shares of our common stock in the second quarter of 2020. As of April 12, 2020, there was approximately $22.2 million remaining under the Board-authorized stock buyback program which expires in November 2020 and approximately $100.0 million which expires in November 2021.
ITEM 3. DEFAULTS OF SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Effective May 8, 2020, the Board of Directors approved the Amended and Restated Bylaws of the Company, which were updated to establish the roles and duties of the Chairman of the Board and Lead Director, and to provide that the Chairman of the Board, rather than the Chief Executive Officer, can call special meetings. The foregoing summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the complete copy of the Amended and Restated Bylaws, which has been filed as Exhibit 3.2, hereto and is hereby incorporated herein by reference. Interested parties should read the document in its entirety.
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ITEM 6. EXHIBITS
| Number | Description | Form | Filed with SEC | |||||||||||||||||
| 3.1† | 10-Q | Filed herewith | ||||||||||||||||||
| 3.2 | 10-Q | Filed herewith | ||||||||||||||||||
| 10.2.14* | 10-Q | Filed herewith | ||||||||||||||||||
| 10.2.15* | 8-K | March 4, 2020 | ||||||||||||||||||
| 10.2.16* | 8-K | April 16, 2020 | ||||||||||||||||||
| 10.2.17* | 8-K | April 16, 2020 | ||||||||||||||||||
| 31.1 | — | Filed herewith | ||||||||||||||||||
| 31.2 | — | Filed herewith | ||||||||||||||||||
| 32.1 | — | Filed herewith | ||||||||||||||||||
| 32.2 | — | Filed herewith | ||||||||||||||||||
| 101.INS | XBRL Instance Document | |||||||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||||||||||
| † Originally filed as Exhibit 3.1 to the registrant’s Annual Report on Form 10-K filed on December 2, 1999 | ||||||||||||||||||||
* 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/ LANCE TUCKER | ||||||||||
| Lance Tucker | |||||||||||
| Executive Vice President and Chief Financial Officer (principal financial officer) (Duly Authorized Signatory) | |||||||||||
Date: May 14, 2020
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,: State of Delaware PAGE 1 Office of the Secretary of State I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY' CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF'. RESTATED CERTIFICATE OF INCORPORATION OF "FOODMAKER~ INc:; _.'' FILED IN THIS OFFICE ON THE TENTH DAY OF MARCH, A.D. 1992, AT 9 O'CLOCK A.M. * * * * * * * * * * William T. Quillen, SecretanJ of State *4134605 ALTHENTICA TION: 933095072 11/05/1993 DATE:
UlVl~lUN ur LUK~UHATIONS FILED 09:00 AM 03/10/1992 920705017 - 773942 RESTATED CERTIFICATE OF INCORPORATION OF FOODMAKER, INC. Foodmaker, Inc., a corporation organized and existing under the laws of the State of Delaware hereby certifies as follows: 1. The name of the Corporation is Foodmaker, Inc. Foodmaker, Inc. was originally incorporated under the name National Restaurant Systems, Inc., and the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on July 28, 1971. 2. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this Corporation. 3. The text of the Restated Certificate of Ineorporation as heretofore amended or supplemented is hereby restated and further amended to read in its entirety as follows: ARTICLE I NAME OF CORPORATION The name of this Corporation is Foodmaker1 Inc. ARTICLE II REGISTERED OFFICE The address of the registered office of the corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of its registered agent at that address is The Corporation Trust Company.
ARTICLE III PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware (the "GCL"). ARTICLE IV AUTHORIZED CAPITAL STOCK A. The total number of shares which the Corporation shall have authority to issue is ninety million (90,000,000) shares, consisting of seventy-five million (75,000,000) shares of Common Stock, par value of $.01 per share (the "Common Stock"), and fifteen million (15,000,000) shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). B. The Board of Directors is hereby authorized to issue the Preferred Stock in one or more series, to fix the number of shares of any such series of Preferred Stock, to determine the designation of any such series, and to fix the powers, preferences and rights, and the qualifications, limitations or restrictions of the Preferred Stock to the full extent permitted under the GCL. C. The authority of the Board of Directors shall include, without limitation, the power to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of reoemption (including sinking fund provisions, if any), the redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such unissued series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. The designation and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof of the initial series of Preferred Stock are the following: 2
(1) Designation and Number of Shares. The distinctive designation of such series of Preferred Stock is •Junior Preferred Stock" (the "Junior Preferred Stock•). The number of shares of Junior Preferred Stock shall be 5,000,000. (2) Dividends. The holders of shares of the Junior Preferred Stock shall be entitled to receive, from and after the filing of this Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, when, as and if declared by the Board of Directors of the Corporation out of the funds of the Corporation legally available therefor, dividends at the rate of nine dollars ($9) per year, payable only in th~ form of additional shares of Junior Preferred Stock {valued at $100 per share) and not in cash. Dividends shall be paid on a quarterly basis in arrears and will be cumulative from the date of issue~ · Fractional shares of Junior Preferred stock shall be issued to the extent necessary to make such dividend payments. Each fractional share of Junior Preferred Stock outstanding shall be entitled to a ratably proportionate amount of all dividends accruing with respect to each outstanding share of the Junior Preferred Stock pursuant to this paragraph (2), and all of such dividends with respect to such outstanding fractional shares shall be fully cumulative and shall accrue {whether or not declared), and shall be payable in the same manner and at such times as provided for in this paragraph {2) with respect to dividends on each outstanding share of the Junior Preferred Stock. (3) Priority With Respect to Dividends. Shares of Junior Preferred Stock shall have priority as to the payment of dividends with respect to the Common Stock of the Corporation and other future series of Preferred Stock ranking junior to the Junior Preferred Stock as to the payment of dividends. No dividends may be paid on any junior series of Preferred Stock or on the Common Stock {other than dividends payable in the Corporation's capital stock) unless full cumulative dividends have been paid {or declared and shares sufficient for the payment thereof set apart for such payment) on the Junior Preferred Stock for all quarterly dividend periods terminating on or prior to the date of payment in full of such dividends on the Common Stock and Junior Preferred Stock. The Corporation may not redeem or purchase or otherwise acquire for value shares of Common Stock or any other class of stock or series of Preferred Stock thereof ranking junior to or a parity with the Junior Preferred Stock as to dividends or upon liquidation {other than 3
redemptions pursuant to employee stock subscription agreements between the Corporation and certain officers and key employees of the Corporation or its subsidiaries) unless, at the time of making such redemption, purchase or other acquisition, the Corporation is not. in default with respect to any dividends payable on, or any obligation to redeem or retire, shares of the Junior Preferred Stock. (4) voting Rights. The holders of the Junior Preferred Stock shall not be entitled to vote, except as hereinafter provided in this paragraph (4) or as otherwise provided by law. On matters subject to a vote by holders of the Junior Preferred Stock, the holders shall be entitled to one vote per share. (a) So long as shares of Junior Preferred Stock remain outstanding, the Corporation shall not directly or indirectly or through merger or consolidation with any other Corporation, without the affirmative vote at a meeting (or the written consent with or without a meeting) of the holders of at least a majority in number of shares of the Junior Preferred Stock then outstanding, (i) create any class or classes of stock ranking equal or prior to the Junior Preferred Stock, either as to dividends or upon liquidation, or increase the number of authorized shares of any class or classes of stock ranking equal or prior to the Junior Preferred Stock either as to dividends or upon liquidation, (ii) amend, alter or repeal (whether by merger, consolidation or otherwise and whether or not the Corporation is the surviving corporation) any of the provisions of the Certificate of Incorporation of the Corporation so as to affect adversely the preferences, special rights or powers of the Junior Preferred Stock or (iii) authorize any reclassification of the Junior Preferred Stock. (b) In the event that six (6) or more quarterly dividends (whether or not consecutive) payable on the Junior Preferred Stock are in arrears, the number of directors of the Corporation shall automatically be increased by one and the holders of all outstanding shares of Junior Preferred Stock, voting as a separate class, shall be entitled to elect one director of the Corporation. Such voting right shall remain vested until such time as all dividends in arrears are paid (or declared and a sum sufficient for the payment thereof set aside for payment). (i) Whenever such voting right shall have vested, such right may be exercised initially either at a 4
special meeting of the holders of the Junior Preferred Stock, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such annual meetings or by the written consent of the holders of the Junior Preferred Stock pursuant to Section 228 of the GCL. Such voting right shall continue until such time as (x) all cumulative dividends accumulated on the Junior Preferred Stock, together with additional dividends accrued thereon, if any, shall have been paid in full, and (y) all mandatory redemption obligations with respect to the Junior Preferred Stock which have matured have been met, at which time such voting right of the holders of the Junior Preferred Stock shall terminate, subject to revesting in the event of each and every subsequent event of default of the character indicated above. (ii) At any time when such voting right shall have vested in the holders of the Junior Preferred Stock, and if such right shall not already have been initially exercised, a proper officer of the Corporation shall, upon the written request of the holders of record of ten percent (10%) of the shares of Junior Preferred Stock then outstanding, addressed to the Secretary of the Corporation, call a special meeting of the holders of the Junior Preferred Stock and of any other class or classes of stock having voting power with respect thereto for the purpose of electing directors. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or, if none, at a place designated by the Secretary of the Corporation. If such meeting shall not be called by the proper officers of the corporation within 30 days after the personal service of such written request upon the Secretary of the Corporation, or within 30 days after mailing the same within the United States, by registered mail, addressed to the Secretary of the Corporation at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), the holders of record of ten percent (10%) of the shares of the Junior Preferred Stock then outstanding may designate in writing a holder of Junior Preferred Stock to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders and shall be held at the same place as is elsewhere provided in this sub-paragraph (ii). Any holder of Junior Preferred Stock entitled to vote at such meeting shall have access to the stock books of the Corporation for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this sub-paragraph (ii). 5
Notwithstanding the provisions of this sub-paragraph (ii), however, no such special meeting shall be called during a period within ninety (90-) days immediately preceding the date fixed for the next annual meeting of stockholders. (iii) At any meeting held for the purpose of electing directors at which the holders of Junior Preferred Stock shall have the right to elect a director as provided herein, the presence in person or by proxy of the holders of a majority of the then outstanding shares of Junior Preferred Stock shall be required and be sufficient to constitute a quorum of such class for the election of directors by such class. At any such meeting or adjournment thereof (x) the absence of a quorum of the holders of the Junior Preferred Stock having such right shall not prevent the election of directors other than those to be elected by the holders of Junior Preferred Stock and the absence of a quorum or quorums of the holders of capital stock entitled to elect such other directors shall not prevent the election of directors to be elected by the holders of the Junior Preferred Stock entitled io elect such directors and (y) in the absence of a quorum of the holders of any class of stock entitled to vote for the election of directors, a majority of the holders of such class present in person or by proxy shall have the power to adjourn the meeting for the election of directors which the holders of such class are entitled to elect, from time to time, without notice (except as required by law) other than announcement at the meeting, until a quorum shall be present. (iv) Any director elected by the holders of Junior Preferred Stock pursuant to sub-paragraph (b) shall serve until the earlier of payment in full of the dividend arrearage or the next annual meeting of stockholders, and may be otherwise removed, with or without cause, only by the holders of at least a majority of the shares of Junior Preferred Stock outstanding at the time of such removal. (5) Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Junior Preferred Stock (including shares issued as dividends) will be entitled to receive $100 per share (or pro rata portion thereof with respect to fractional shares) plus an amount equal to the cash value of accrued and unpaid dividends to the date fixed for distribution before any distribution of assets may be made to holders of Common Stock or of any other class of stock of the corporation or series of Preferred Stock ranking junior to the Junior Preferred Stock with respect to the 6
distribution of assets. If upon any liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to the Junior Preferred Stock and any other shares of capital stock of the Corporation ranking as to any such distribution on a parity with the Junior Preferred Stock are not paid in full, the holders of the Junior Preferred Stock and of such other shares will share ratably in any such distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Junior Preferred Stock will not be entitled to any further participation in any distribution of assets by the Corporation. Such liquidation rights are not triggered by any consolidation or merger of the Corporation with or into any other corporation or by the sale, transfer or lease of all or substantially all'of the Corporation's assets, provided that the Corporation shall not effect any such transaction unless provision is made in the certificate of incorporation of the resulting and surviving corporation or otherwise for the protection of the rights of the holders of Junior Preferred Stock. (6) Optional Redemption. The Junior Preferred Stock may be redeemed at any time at the option of the Corporation, in whole or in part, upon not less than thirty (30) nor more than sixty (60) days• prior notice at a redemption price of $100 per share plus an amount equal to the cash value of all accrued and unpaid dividends to the redemption date. On and after the redemption date, dividends shall cease to accumulate on shares of Junior Preferred Stock called for redemption. (7) Mandatory Redemption. The Corporation shall redeem all outstanding shares of Junior Preferred Stock at a redemption price of $100 per share plus an amount equal to the cash value of ·al 1 accrued and unpaid dividends to the redemption date upon or immediately prior to the occurrence of any of the following: (i) the sale of all or substantially all of the Corporation's assets to any person other than an affiliate of the Corporation; (ii) the merger or consolidation of the Corporation ~ith or into another corporation or of another corporation with or into the Corporation with the effect that the common stockholders of the Corporation immediately prior to such transaction hold less than 50\ of th~ total voting power entitled to vote in election of directors, managers or trustees of the surviving corporation of such merger; -{iii) the liquidation or dissolution of the Corporation; or (iv) the completion by the Corporation of one or more 7
public offerings of Common Stock for aggregate net proceeds of at least $75 million; provided, however, that no such redemption may be effected until the earlier of May 15, 1998 and the date on which no 14-1/4\ Senior Subordinated Notes due 1998 of the Corporation remain outstanding. If, for any reason, the Corporation shall fail to discharge its mandatory obligations pursuant to this paragraph (7), such mandatory redemption obligations shall be discharged as soon as the Corporation is able to discharge such obligations, but the redemption price shall be determined as of the date such redemption should have occurred except with respect to the calculation of the amount equal to accrued and unpaid dividends, which calculation shall include all such dividends to the date of payment. If and so long as any mandatory redemption obligations with respect to the Junior Preferred Stock shall not be fully discharged, the Corporation shall not declare or pay any cash dividend or make any distributions in cash upon, or, directly or indirectly, purchase, redeem or otherwise acquire, any capital stock (including any warrants, rights or options exercisable for or convertible into any capital stock of the Corporation, but not including the Junior Preferred Stock) or permit any of its subsidiaries or affiliates to, directly or indirectly, purchase or acquire any such capital stock. Dividends shall continue to accrue on a compounding basis on any mandatory redemption obligation that has not been discharged by the Corporation pursuant to this paragraph (7). (8) Selection of Securities to be Redeemed. In the event that fewer than all of the outitanding shares of Junior Preferred Stock are to be redeemed at any time, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined as follows: first, all fractional shares of Junior Preferred Stock shall be redeemed, then the Corporation shall select the remaining shares of Junior Preferred Stock to be redeemed pro rata or by lot as may be determined by the Board of Directors. (9) Procedure for Redemption. (a) In the event the Corporation shall redeem shares of Junior Preferred Stock at any time, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior to the redemption date, to each 8
holder of record of the shares to be redeemed at such holder's address as the same appears on the stock register of the Corporation; provided. however, that no failure to mail such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of Junior Preferred Stock to be redeemed except as to the holder to whom the Corporation has failed to mail said notice or except as to the holder whose notice was defective. Each such notice shall state: (i) the redemption date; (ii) the number of shares of Junior Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed from such holder, the number of shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date, unless the Corporation defaults in making such payment. (b) Notice having been mailed as aforesaid, from and after the redemption date (unless the Corporation shall fail to provide money for the payment of the redemption price of the shares called for redemption) dividends on the shares of Jun~.or Preferred Stock so called for redemption shall cease to accrue,. and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price including an amount equal to any accrued and unpaid dividends) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (propeily endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. ARTICLE V DIRECTORS The number of directors may hereafter be fixed from time to time pursuant to procedures set forth in the Corporation's bylaws. 9
ARTICLE VI BOARD POWER REGARDING BYLAWS In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind the bylaws of the Corporation. ARTICLE VII ELECTION OF DIRECTORS Elections of directors at annual or special meetings need not be by written ballot unless the bylaws of the Corporation shall so provide. ARTICLE VIII LIMITATION OF DIRECTOR LIABILITY To the fullest extent permitted by the GCL as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the GCL is amended after the date of the filing of this Restated Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the GCL, as so amended from time to time. No repeal or modification of this Article VIII by the stockholders shall adversely affect any right or protection of a director of the Corporation existing by virtue of this Article VIII at the time of such repeal or modification . ARTICLE IX INDEMNIFICATION OF DIRECTORS The Corporation s~l indemnify, in the manner and to the full extent permitted\by law, any person (or the estate of any person) wh wasv'or is a party to, or is threatened to be made a party to"'-any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative, investigative or otherwise, by 10
reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise. The Corporation may, to the full extent permitted by law, purchase and maintain insurance on behalf of any such person against any liability which may be asserted against him. To the full extent permitted by law, the indemnification provided herein shall include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, and, in the manner provided by law, any such expenses may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person seeking indemnification to repay such amounts if it is ultimately determined that he is not entitled to be indemnified. The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the full extent permitted by law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. ARTICLE X SECTION 203 ELECTION The Corporation expressly elects not to be governed by Section 203 of the General Corporation Law. ARTICLE XI CORPORATE POWER The Corporation reserves the right to amend, alterj change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. 11
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed under the seal of the Corporation this~ day of March, 1992. By: Robert L. Suttie Corporate Vice President and Controller Attest: William E. Rulon Secretary LA:1099J SD:3904H 12
Exhibit 3.2
JACK IN THE BOX INC.
(a Delaware corporation)
BY-LAWS
AMENDED AND RESTATED
Effective May 8, 2020
ARTICLE I
Offices
SECTION 1.01Registered Office. The registered office of Jack in the Box Inc. (hereinafter called the “Corporation”) in the State of Delaware shall be at 1209 Orange Street, City of Wilmington, County of New Castle, and the name of the registered agent in charge thereof shall be The Corporation Trust Company.
SECTION 1.02Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board of Directors (hereinafter called the “Board”) may from time to time determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 2.01Annual Meetings. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution. In lieu of holding an annual meeting of stockholders at a designated place, the Board may, in its sole discretion, determine that any annual meeting of stockholders may be held solely by means of remote communication.
SECTION 2.02Special Meetings. A special meeting of the stockholders for the transaction of any proper business may be called at any time by a majority of the Board or by the Chairman of the Board for any purpose or purposes prescribed in the notice of the meeting and shall be held at such place (if any) on such date and at such time as the Board may fix. In lieu of holding a special meeting of stockholders at a designated place, the Board may, in its sole discretion, determine that any special meeting of stockholders may be held solely by means of remote communication. Business transacted at a special meeting of stockholders shall be confined to the purpose or purposes stated in the notice of meeting.
SECTION 2.03Place of Meetings. All meetings of the stockholders shall be held at such places (if any), within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meeting and specified in the respective notices or waivers of notice thereof.
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SECTION 2.04Notice of Meetings.
(a)Except as otherwise required by law or in the Certificate of Incorporation, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Every notice of a meeting of the stockholders shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting. The notice of a special meeting, shall state, in addition, the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except as a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(b)Notice to stockholders may be given by personal delivery, mail, or, with the consent of the stockholder entitled to receive notice, by facsimile or other means of electronic transmission. If mailed, such notice shall be delivered by postage prepaid envelope directed to each stockholder at such stockholder’s address as it appears in the records of the Corporation and shall be deemed given when deposited in the United States mail. Notice given by electronic transmission pursuant to this subsection shall be deemed given: (i) if by facsimile telecommunication, when directed to a facsimile telecommunication number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder in a form in which such stockholder has consented to receive notice. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the Corporation that the notice has been given by personal delivery, by mail, or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
(c)Notice of any meeting of stockholders need not be given to any stockholder if waived by such stockholder either in a writing signed by such stockholder or by electronic transmission, whether such waiver is given before or after such meeting is held. If such a waiver is given by electronic transmission, the electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder.
SECTION 2.05Adjournments. Any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these By-laws by the chairman of the meeting or, in the absence of such person, by any officer entitled to preside at or to act as secretary of such meeting, or by the holders of a majority of the shares of stock present or represented at the meeting and entitled to vote, although less than a quorum. When a meeting is adjourned to another place, date or time, written notice need not be given of
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the adjourned meeting if the date, time, and place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, if any, date, and time of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, shall be given in conformity herewith. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting.
SECTION 2.06Quorum. Except as otherwise provided by law or these By-laws, the holders of a majority of the shares of the capital stock of the Corporation entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. Where a separate class vote by a class or classes or series is required, a majority of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.
SECTION 2.07Voting.
(a)Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation having voting rights on the matter in question and which shall have been held by him or her and registered in his or her name on the books of the Corporation:
(i)on the date fixed pursuant to Section 6.05 of these By-laws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting; or
(ii)if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held.
(b)Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he or she shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his or her proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants in common, tenants by entirety or otherwise, or with respect to which two or more persons have the
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same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware.
(c)Any such voting rights may be exercised by the stockholder entitled thereto in person or by his or her proxy appointed by an instrument in writing, subscribed by such stockholder or by his or her attorney thereunto authorized, or by any other means permitted by the Delaware General Corporation Law, and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he or she shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in these By-laws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his or her proxy, if there be such proxy, and it shall state the number of shares voted.
SECTION 2.08Voting List. The Secretary of the Corporation shall prepare at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, in the manner provided by law. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. This list shall determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.
SECTION 2.09Inspector of Elections. The Corporation shall appoint one or more inspectors to act at any meeting of stockholders. If an inspector is not able to act, the person presiding at the meeting of stockholders shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of the inspector’s ability. The inspector shall decide upon the validity of proxies and ballots and shall report the number of shares represented at the meeting and entitled to vote on each question; shall count the votes and ballots, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against each question. Reports of inspectors shall be in writing and subscribed and delivered by them to the Secretary of the Corporation.
SECTION 2.10Action Without Meeting.
(a)Request for Record Date. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be as fixed by the board of
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directors or as otherwise established under this section. Any person seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written notice addressed to the secretary of the Corporation and delivered to the Corporation and signed by a stockholder of record, request that a record date be fixed for such purpose. The written notice must contain the information set forth in paragraph (b) of this section. Following receipt of the notice, the board shall have ten days to determine the validity of the request, and if appropriate, adopt a resolution fixing the record date for such purpose. The record date for such purpose shall be no more than ten days after the date upon which the resolution fixing the record date is adopted by the board and shall not precede the date such resolution is adopted. If the board fails within ten days after the Corporation receives such notice to fix a record date for such purpose, the record date shall be the day on which the first written consent is delivered to the Corporation in the manner described in paragraph (d) of this section; except that, if prior action by the board is required under the provisions of Delaware law, the record date shall be at the close of business on the day on which the board adopts the resolution taking such prior action.
(b)Notice Requirements. Any stockholder’s notice required by paragraph (a) of this section must describe the action that the stockholder proposes to take by consent. For each such proposal, every notice by a stockholder must state (i) the information required by Article II, Section 2.11 as though such stockholder was intending to make a nomination or to bring any other matter before a meeting of stockholders, (ii) the text of the proposal (including the text of any resolutions to be effected by consent and the language of any proposed amendment to the Bylaws of the Corporation), (iii) the reasons for soliciting consents for the proposal, (iv) any material interest in the proposal held by the stockholder and the beneficial owner, if any, on whose behalf the action is to be taken, and (v) any other information relating to the stockholder, the beneficial owner, or the proposal that would be required to be disclosed in filings in connection with the solicitation of proxies or consents pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder (or any successor provision of the Exchange Act or the rules or regulations promulgated thereunder). In addition to the foregoing, the notice must state as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the notice is given (i) the class and number of shares of capital stock of the Corporation that are owned beneficially and of record by such stockholder and such beneficial owner, as to the stockholder giving the notice, (ii) a description of all arrangements or understandings between such stockholder and any other person or persons regarding the proposed action by consent, and (iii) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends to (a) deliver a proxy statement and/or consent solicitation statement to stockholders of at least the percentage of the Corporation’s outstanding capital stock required to effect the action by consent either to solicit consents or to solicit proxies to execute consents, and/or (b) otherwise solicit proxies or consents from stockholders in support of the action to be taken by consent, and (c) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies or consents relating to the proposed action by consent pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (or any successor provision of the Exchange Act or the rules or regulations promulgated thereunder). The Corporation may require the stockholder of record and/or beneficial owner requesting a
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record date for proposed stockholder action by consent to furnish such other information as it may reasonably require to determine the validity of the request for a record date.
(c)Date of Consent. Every written consent purporting to take or authorize the taking of corporate action (each such written consent is referred to in this paragraph and in paragraph (d) as a “Consent”) must bear the date of signature of each stockholder who signs the Consent, and no Consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated Consent delivered in the manner required by this section, Consents signed by a sufficient number of stockholders to take such action are so delivered to the Corporation.
(d)Delivery of Consent. Consent must be delivered to the Corporation by delivery to its registered office in the State of Delaware or its principal place of business. Delivery must be made by hand or by certified or registered mail, return receipt requested. In the event of the delivery to the Corporation of Consents, the secretary of the Corporation, or such other officer of the Corporation as the board of directors may designate, shall provide for the safe-keeping of such Consents and any related revocations and shall promptly conduct such ministerial review of the sufficiency of all Consents and any related revocations and of the validity of the action to be taken by stockholder consent as the secretary of the Corporation, or such other officer of the Corporation as the board may designate, as the case may be, deems necessary or appropriate, including, without limitation, whether the stockholders of a number of shares having the requisite voting power to authorize or take the action specified in Consents have given consent; provided, however, that the secretary of the Corporation, or such other officer of the Corporation as the board may designate, as the case may be, may alternatively designate two persons, who shall not be members of the board, to serve as inspectors (“Inspectors”) with respect to such Consent and such Inspectors shall discharge the functions of the secretary of the Corporation, or such other officer of the Corporation as the board may designate, as the case may be, under this section. If after such investigation the secretary of the Corporation, such other officer of the Corporation as the board may designate, or the Inspectors, as the case may be, shall determine that the action purported to have been taken is duly authorized by the Consents, that fact shall forthwith be certified on the records of the Corporation kept for the purpose of recording the proceedings of meetings of stockholders, and the Consents shall be filed in such records. In conducting the investigation required by this section, the secretary of the Corporation, such other officer of the Corporation as the board may designate, or the Inspectors, as the case may be, may, at the expense of the Corporation, retain special legal counsel and any other necessary or appropriate professional advisors, and such other personnel as such person or persons may deem necessary or appropriate and shall be fully protected in relying in good faith upon the opinion of such counsel or advisors.
(e)Effectiveness of Consent. No action by written consent without a meeting shall be effective until such date as the secretary of the Corporation, such other officer of the Corporation as the board may designate, or the Inspectors, as applicable, certify to the Corporation that the consents delivered to the Corporation in accordance with paragraph (d) of this section, represent at least the minimum number of votes that would be necessary to take the corporate action.
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(f)Challenge to Validity of Consent. Nothing contained in this section shall in any way be construed to suggest or imply that the board of directors of the Corporation or any stockholder shall not be entitled to contest the validity of any Consent or related revocations, whether before or after such certification by the secretary of the Corporation, such other officer of the Corporation as the board may designate, or the Inspectors, as the case may be, or to take any other action (including, without limitation, the commencement, prosecution, or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
SECTION 2.11Stockholder Proposals at Annual Meetings.
(a)Other than a proposal sought to be included in the Corporation’s proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 (the “Exchange Act”), or a nomination for election as a director of the Corporation governed by Section 3.16 hereof, business may be properly brought before an annual meeting by a stockholder only upon the stockholder’s timely notice thereof in writing to the Secretary of the Corporation pursuant to the terms of this Section 2.11 and only if such business is a proper subject for stockholder action. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one hundred twenty (120) days and not more than one hundred fifty (150) days in advance of the first anniversary of the date of the previous year’s annual meeting of stockholders; provided, however, that if either (i) no annual meeting was held in the previous year, or (ii) the date of the annual meeting is advanced by more than thirty (30) calendar days or delayed by more than seventy (70) calendar days from the date of the previous year’s annual meeting, then notice by the stockholder must be received not earlier than one hundred fifty (150) days prior to such annual meeting and not later than the close of business on the later of: (i) one hundred twenty (120) days prior to such annual meeting or (ii) the tenth (10th) day following the day on which the date of the annual meeting is publicly announced. A public announcement for purposes of these By-laws means disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. For purposes of this Section 2.11, any adjournment(s) or postponement(s) of the original meeting that do not require a new written notice to stockholders shall be deemed for purposes of notice to be a continuance of the original meeting and no new business may be brought before any reconvened meeting by a stockholder unless timely notice of such business was given to the Secretary of the Corporation for the meeting as originally scheduled.
(b)To be proper, a stockholder’s notice to the Secretary pursuant to Section 2.11(a) must set forth, as to each matter the stockholder proposes to bring before the annual meeting:
(i)the name and address of each of the Proponents (as defined below);
(ii)a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and the text of the proposal or business (including the text of any resolutions proposed for
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consideration and, in the event that such business includes a proposal to amend the By-laws of the Corporation, the language of the proposed amendment);
(iii)any interest in such business, including any anticipated benefit of such business to any of the Proponents other than solely as a result of their ownership of the Corporation’s stock, that is material to any Proponent individually, or to the Proponents in the aggregate;
(iv)the class and number of all shares of stock of the Corporation owned, of record or beneficially, by the Proponents as of the date of the notice;
(v)a description of all Derivative Transactions (as defined below) that have been entered into by the Proponents as of the date of the Proponents’ notice, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, such Derivative Transactions;
(vi)whether any of the Proponents holds a proxy, or is a party to any contract, arrangement, understanding, or relationship pursuant to which any of the Proponents has the right to vote, or control or direct the voting of, the Corporation’s stock, the material terms thereof and the number of shares of the Corporation’s stock subject thereto;
(vii)a brief description of all plans, proposals, understandings, agreements and arrangements (whether oral or in writing) in connection with which the Proponents are providing the notice and intending to bring the business named therein before the meeting, including without limitation any plans, proposals, understandings, agreements and arrangements that would be required to be disclosed pursuant to Items 4, 5 and 6 of Exchange Act Schedule 13D (regardless of whether the requirement to file a Schedule 13D is applicable to the Proponents);
(viii)a representation that the Proponents intend to appear in person or by proxy to bring such matter before the meeting, and, if any of the Proponents intend to solicit proxies in respect to the business named in the notice, a representation to that effect; and
(ix)to the extent known by the Proponents, the name and address of any other stockholder supporting the proposal on the date of such stockholder’s notice.
(c)The following definitions apply for purposes of these By-laws:
(i)“Affiliate” means, with respect to a specified natural person or entity, any natural person or entity that directly, or indirectly through one or more
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intermediaries, controls, is controlled by, or is under common control with, such specified person.
(ii)“Derivative Transaction” means any (A) transaction in, or arrangement, agreement or understanding with respect to, any option, warrant, convertible security, stock appreciation right or similar right with an exercise, conversion or exchange privilege, or settlement payment or mechanism related to, any security of the Corporation, or similar instrument with a value derived in whole or in part from the value of a security of the Corporation, in any such case whether or not it is subject to settlement in a security of the Corporation or otherwise, and (B) any transaction, arrangement, agreement or understanding (including short positions, hedging transactions and transactions involving borrowed or loaned shares) that included or includes an opportunity for such person, directly or indirectly, to profit or share in any profit derived from any increase or decrease in the value of any security of the Corporation, to mitigate any loss or manage any risk associated with any increase or decrease in the value of any security of the Corporation or to increase or decrease the number of securities of the Corporation that such person was, is or will be entitled to vote, in any case whether or not such security is subject to settlement in a security of the Corporation or otherwise.
(iii)“Proponents” means, collectively, the stockholder of record providing the notice to the Corporation, any beneficial owner or beneficial owners (within the meaning of Section 13(d) of the Exchange Act) upon whose behalf such stockholder of record is providing such notice, and any Stockholder Associated Person. Any one of the foregoing is referred to herein as a “Proponent”.
(iv)“Stockholder Associated Person” means any Affiliate of either the stockholder of record providing notice to the Corporation or, if different, the beneficial owner or beneficial owners on whose behalf such notice is being provided, and any other person knowingly acting in concert, or towards a common goal, with the proposing stockholder of record or the beneficial owner or beneficial owners on whose behalf the notice is being provided.
(d)Notwithstanding anything to the contrary in Section 2.11(b), a broker acting solely as the nominee record holder of shares of the Corporation’s stock held in street name on behalf of a beneficial owner need not provide the information required by Section 2.11(b)(v) and Section 2.11(b)(vi) with respect to such broker or any of its Affiliates, so long as such broker (including its Affiliates): (i) will not share in any of the profits earned, or bear the risk of any losses incurred, by the beneficial owner of the Corporation’s stock held by such broker; (ii) does not hold investment control with respect to the Corporation’s stock held by such broker for the beneficial owner on whose behalf the notice is being provided, or voting control of such stock with respect to the business being proposed by such stockholder of record; and (iii) is not acting
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pursuant to any arrangement, agreement or understanding other than a usual and customary brokerage relationship.
(e)A stockholder providing notice of business proposed to be brought before an annual meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.11 is true and correct in all material respects as of the record date for the meeting and as of the date that is five (5) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to or mailed and received by the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than three (3) business days prior to the date for the meeting or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of five (5) business days prior to the meeting or any adjournment or postponement thereof).
(f)Nothing in this By-law shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(g)The chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.11, and in such case, any such business not properly brought before the meeting shall not be transacted.
(h)The provisions of this Section 2.11 shall apply to any amendments to these By-laws proposed by the shareholders under Section 8.08.
ARTICLE III
Board of Directors
SECTION 3.01General Powers. The property, business and affairs of the Corporation shall be managed by the Board.
SECTION 3.02Number and Term of Office. The exact number of directors shall be fixed from time to time by resolution of the board of directors or the stockholders. Directors need not be stockholders. Each of the directors of the Corporation shall hold office until his or her successor shall have been duly elected and shall qualify or until he or she shall resign or shall have been removed in the manner hereinafter provided.
SECTION 3.03Chairman of the Board. Except as otherwise provided by law, the Certificate of Incorporation, or in Section 4 of this Article III, the Chairman of the Board of Directors shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors.
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SECTION 3.04Lead Director. If at any time the Chairman of the Board shall be an executive officer or former executive officer of the Corporation or for any reason shall not be an independent director, a Lead Director shall be selected by the independent directors from among the directors who are not executive officers or former executive officers of the Corporation and are otherwise independent. If the Chairman of the Board of Directors is not present, the Lead Director shall chair meetings of the Board of Directors. The Lead Director shall chair any meeting of the independent Directors and shall also perform such other duties as may be assigned to the Lead Director by these Bylaws or the Board of Directors.
SECTION 3.05Election of Directors.
(a)The directors shall be elected annually by the stockholders of the Corporation. Directors shall hold office until the next annual meeting and until their successors shall be duly elected and qualified.
(b)Except as provided in Section 3.05 of this Article, each director shall be elected by the vote of a majority of the votes cast with respect to the director at any meeting for the election of directors at which a quorum is present, provided that if the number of nominees exceeds the number of directors to be elected, the directors shall be elected by the vote of a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. For purposes of this Section, a “majority of votes cast” means that the number of shares voted “for” a director must exceed the number of votes cast against that director. The Nominating and Governance Committee shall establish procedures under which any director who is not elected shall tender his or her resignation to the Board. The Nominating and Governance Committee will make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. The Board will act on the Committee’s recommendation and publicly disclose its decision and the rationale behind it within ninety (90) days from the date of the certification of the election results. If, for any cause, the board of Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these By-laws.
SECTION 3.06Resignations. Any director may resign at any time by delivering his or her written resignation to the Secretary, who shall promptly inform the Nominating and Governance Committee. Such resignation shall specify whether it will be effective at a particular time, upon receipt by the Secretary, or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one (1) or more directors shall resign from the Board effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his or her successor shall have been duly elected and qualified.
SECTION 3.07Vacancies. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification,
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an increase in the number of directors, or if the stockholders fail at any meeting of stockholders at which directors are to be elected, to elect the number of directors then constituting the whole Board, or any other cause, may be filled by vote of the majority of the directors then in office, although less than a quorum, or by the sole remaining director. Each director so chosen to fill a vacancy shall hold office until his or her successor shall have been elected and shall qualify or until he or she shall resign or shall have been removed in the manner hereinafter provided.
SECTION 3.08Place of Meeting, Etc. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting.
SECTION 3.09First Meeting. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required.
SECTION 3.10Regular Meetings. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as provided by law, notice of regular meetings need not be given.
SECTION 3.11Special Meetings. Special meetings of the Board shall be held whenever called by the Chief Executive Officer or a majority of the authorized number of directors. Except as otherwise provided by law or by these By-laws, notice of the time and place of each such special meeting shall be given in accordance with Section 8.05 of these By-laws. Except where otherwise required by law or by these By-laws, notice of the purpose of a special meeting need not be given. Notice of any meeting of the Board shall not be required to be given to any director who is present at such meeting, except a director who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
SECTION 3.12Quorum and Manner of Acting. Except as otherwise provided in these By-laws or by law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such.
SECTION 3.13Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, or an electronic
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transmission is delivered by such members of the Board or of such committee, as the case may be, and such written consent or electronic transmission is filed with the minutes of proceedings of the Board or committee.
SECTION 3.14Emergency. In the event of any emergency, disaster or catastrophe, or similar emergency condition, as referred to in Section 110 of the Delaware General Corporation Law, as a result of which a quorum of the Board or a standing committee thereof cannot be readily convened for action, any director or officer of the Corporation may call a meeting of the Board or any standing committee of the Board. Notice of such meeting shall be adequate if the director or officer calling such meeting has informed, or attempted to inform all directors by means of telephone, facsimile, email and cell phone, using such telephone, facsimile, email and cell phone numbers and addresses as are on file with the Corporation for each director from time to time or, in the event such numbers and addresses are not readily available from the Corporation, at the most recent number or address available to the director or officer calling the meeting. If, as a result of such an emergency, disaster or catastrophe, a quorum of the Board or a standing committee of the Board cannot readily be convened for action, the director or directors in attendance at the meeting shall constitute a quorum. Such director or directors in attendance may further take action to appoint one or more of themselves or other directors to membership on any standing or temporary committees of the Board as they shall deem necessary and appropriate.
SECTION 3.15Removal of Directors. Subject to the provisions of the Certificate of Incorporation, any director may be removed at any time, either with or without cause, by the affirmative vote of the stockholders holding a majority of the outstanding shares entitled to vote at a special meeting of the stockholders called for the purpose.
SECTION 3.16Compensation. The directors shall receive only such compensation for their services as directors as may be allowed by resolution of the Board. The Board may also provide that the Corporation shall reimburse each such director for any expense incurred by him or her on account of his or her attendance at any meetings of the Board or Committees of the Board. Neither the payment of such compensation nor the reimbursement of such expenses shall be construed to preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving compensation therefor.
SECTION 3.17Committees. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board and except as otherwise limited by law, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of the Board. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member.
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SECTION 3.18Nominations for Election to the Board of Directors.
(a)Subject to the rights of holders of any class or series of Preferred Stock then outstanding, nominations for the election of directors at an annual meeting may be made by (i) the Board or a duly authorized committee thereof or (ii) any stockholder entitled to vote in the election of directors generally who complies with the procedures set forth in this By-law and who is a stockholder of record at the time notice is delivered to the Secretary of the Corporation. Any stockholder entitled to vote in the election of directors may nominate one or more persons for election as directors at an annual meeting only if timely notice of such stockholder’s intent to make such nomination or nominations has been given in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation before the close of business not less than one hundred twenty (120) days and not more than one hundred fifty (150) days in advance of the first anniversary of the date of the previous year’s annual meeting of stockholders; provided, however, that if either (i) no annual meeting was held in the previous year, or (ii) the date of the annual meeting is advanced by more than thirty (30) calendar days or delayed by more than seventy (70) calendar days from the date of the previous year’s annual meeting, then notice by the stockholder must be received not earlier than one hundred fifty (150) days prior to such annual meeting and not later than the close of business on the later of: (i) one hundred twenty (120) days prior to such annual meeting or (ii) the close of business on the tenth (10th) day following the day on which the date of the annual meeting is publicly announced. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(b)To be proper, a stockholder’s notice to the Secretary pursuant to Section 3.16(a) must set forth: (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (A) the name, age, business and residence of such person, (B) the class and number of any shares of stock of the Corporation that are beneficially owned or owned of record by such person (C) the date or dates such shares were acquired and the investment intent of such acquisition, (D) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange Act, (E) the written consent of each nominee to serve as a director of the Corporation if so elected, (F) such other information as the Corporation may reasonably require to determine eligibility of such proposed nominee to serve as a director of the Corporation, specifically information related to the proposed nominee’s ability to comply with established standards of director independence and (G) a completed and signed questionnaire, representation, and agreement as provided in subsection (h) of this Section 3.16; (ii) as to the Proponents of such nomination (as such term is defined in Section 2.11(c) hereof), (A) the name and address of each Proponent, (B) a representation that the stockholder making the nomination is a holder of record of stock of the Corporation entitled to vote for the election of directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (C) a description of all arrangements, agreements or understandings (oral or written) between any of the Proponents and each nominee and any other person or persons (naming such
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person or persons) pursuant to which the nomination or nominations are to be made by the stockholder, and (D) the information required to be set forth in a notice to the Corporation under clauses (iv), (v), (vi), (vii) and (ix) of Section 2.11(b) hereof.
(c)A stockholder nominating a person for election or re-election as a director shall further update and supplement such notice thereof, if necessary, so that the information provided or required to be provided in such notice pursuant to Section 3.16(b) is true and correct in all material respects as of the record date for the meeting and as of the date that is five (5) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to or mailed and received by the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than three (3) business days prior to the date for the meeting or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of five (5) business days prior to the meeting or any adjournment or postponement thereof).
(d)Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting by (i) or at the direction of the Board or a committee thereof or (ii) any stockholder of the Corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in this By-law and who is a stockholder of record at the time such notice is delivered to the Secretary of the Corporation. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as are specified in the Corporation’s notice of meeting, if the stockholder’s notice as required by paragraph (a) of this By-law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the one hundred fiftieth (150th) day prior to such special meeting and not later than the close of business on the later of: (i) the one hundred twentieth (120th) day prior to such special meeting or (ii) the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(e)Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(f)Only persons nominated in accordance with the procedures set forth in this Section 3.16 are eligible to serve as directors. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty (i) to determine whether a nomination was made in accordance with the procedures set forth in this Section 3.16 and (ii) if any
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proposed nomination was not made in compliance with this Section 3.16, to declare that such nomination shall be disregarded.
(g)If the Chairman of the meeting for the election of directors determines that a nomination of any candidate for election as a director at such meeting was not made in accordance with the applicable provisions of this Section 3.16, such nomination shall be void; provided, however, that nothing in this Section 3.16 shall be deemed to limit any voting rights upon the occurrence of dividend arrearages provided to holders of Preferred Stock pursuant to the Preferred Stock designation for any series of Preferred Stock.
(h)To be eligible to be a nominee for election as a director of the Corporation, the proposed nominee must deliver (in accordance with the time periods prescribed for delivery of notice under Section 3.16) to the secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such proposed nominee (which questionnaire shall be provided by the secretary upon written request) and a written representation and agreement (in a form provided by the secretary upon written request) that such proposed nominee (i) is not and will not become a party to (A) any agreement, arrangement, or understanding with, and has not given any commitment or assurance to, any person or entity as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a "Voting Commitment") that has not been disclosed to the Corporation or (B) any Voting Commitment that could limit or interfere with such proposed nominee’s ability to comply, if elected as a director of the Corporation, with such proposed nominee’s fiduciary duties under applicable law, (ii) is not, and will not become a party to any agreement, arrangement, or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement, or indemnification in connection with service or action as a director that has not been disclosed to the Corporation and (iii) in such proposed nominee’s individual capacity and on behalf of the Proponents on whose behalf the nomination is made, would be in compliance, if elected as a director of the Corporation, and will comply with applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.
ARTICLE IV
Officers
SECTION 4.01Number. The officers of the Corporation shall be a Chief Executive Officer and / or a President, one or more Vice Presidents (the number thereof and their respective titles to be determined by the Board), a Secretary and such other officers as the Board may determine from time to time.
SECTION 4.02Election, Term of Office and Qualifications. The officers of the Corporation, except such officers as may be appointed in accordance with Section 4.03, shall be elected annually by the Board at the first meeting thereof held after the election thereof. Each officer shall hold office until his or her successor shall have been duly chosen and shall qualify or until his or her resignation or removal in the manner hereinafter provided.
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SECTION 4.03Assistants, Agents and Employees, Etc. In addition to the officers specified in Section 4.01, the Board may appoint other assistants, agents and employees as it may deem necessary or advisable, including one or more Assistant Secretaries each of whom shall hold office for such period, have such authority, and perform such duties as the Board may from time to time determine. The Board may delegate to any officer of the Corporation or any committee of the Board the power to appoint, remove and prescribe the duties of any such assistants, agents or employees.
SECTION 4.04Removal. Any officer, assistant, agent or employee of the Corporation may be removed, with or without cause, at any time: (i) in the case of an officer, assistant, agent or employee appointed by the Board, only by resolution of the Board; and (ii) in the case of an officer, assistant, agent or employee, by any officer of the Corporation or committee of the Board upon whom or which such power of removal may be conferred by the Board.
SECTION 4.05Resignations. Any officer or assistant may resign at any time by giving written notice of his or her resignation to the Board or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, upon receipt thereof by the Board or the Secretary, as the case may be; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 4.06Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or other cause, may be filled for the unexpired portion of the term thereof in the manner prescribed in these By-laws for regular appointments or elections to such office.
SECTION 4.07The Chief Executive Officer. The Chief Executive Officer of the Corporation shall have, subject to the control of the Board, general and active supervision and management over the business of the Corporation and over its several officers, assistants, agents and employees.
SECTION 4.07AThe President. To the extent that the Board has appointed a President of the Corporation, the President shall have such powers and perform such duties as the Board may from time to time prescribe. At the request of the Chief Executive Officer, or in case of the Chief Executive Officer’s absence or inability to act, upon the request of the Board, the President shall perform the duties of the Chief Executive Officer and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Chief Executive Officer. In the event the Board has not appointed a Chief Executive Officer, the President shall be the chief executive officer of the Corporation.
SECTION 4.08The Vice Presidents. Each Vice President shall have such powers and perform such duties as the Board may from time to time prescribe. At the request of the President, or in case of the President’s absence or inability to act upon the request of the Board, a Vice President shall perform the duties of the President and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President.
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SECTION 4.09The Secretary. The Secretary or an Assistant Secretary shall record the proceedings of all meetings of the stockholders and directors in one or more books kept for that purpose, and, in general, perform all the duties incident to the office of Secretary and such other duties as may from time to time be assigned by the Board.
SECTION 4.10Compensation. The compensation of the officers of the Corporation shall be fixed from time to time by the Board or the compensation committee of the Board. None of such officers shall be prevented from receiving such compensation by reason of the fact that he or she is also a director of the Corporation. Nothing contained herein shall preclude any officer from serving the Corporation, or any subsidiary Corporation, in any other capacity and receiving such compensation by reason of the fact that he or she is also a director of the Corporation. Nothing contained herein shall preclude any officer from serving the Corporation, or any subsidiary Corporation, in any other capacity and receiving proper compensation therefor.
ARTICLE V
Contracts, Checks, Drafts, Bank Accounts, Etc.
SECTION 5.01Execution of Contracts. The Board, except as in these By-laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by these By-laws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount.
SECTION 5.02Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such officer, assistant, agent or attorney shall give such bond, if any, as the Board may require.
SECTION 5.03Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the Chief Executive Officer, the President, or any Vice President (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation.
SECTION 5.04General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or
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officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these By-laws, as it may deem expedient.
ARTICLE VI
Shares and Their Transfer
SECTION 6.01Certificates for Stock. The shares of the Corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any class or series of its stock shall be uncertificated shares; provided, however, that no such resolution shall apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of stock of the Corporation represented by certificates, and, upon written request to the Corporation’s transfer agent or registrar, any holder of uncertificated shares, shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board, certifying the number and class of shares owned by him or her in the Corporation. Each such certificate shall be signed by, or in the name of the Corporation by, the Chairman or Vice Chairman, if any, of the Board, or the President or a Vice President, or the Secretary or an Assistant Secretary of the Corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock that are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the By-laws, applicable securities laws or any agreement among any number of stockholders or among such holders and the Corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction.
SECTION 6.02Transfers. Except as otherwise established by rules and regulations adopted by the Board, and subject to applicable law, shares of stock may be transferred on the books of the Corporation: (i) in the case of shares represented by a certificate, by the surrender to the Corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or authenticity of signature as the Corporation or its transfer agent may reasonably require; and (ii) in the case of uncertificated shares, upon the receipt of proper transfer instructions from the registered owner thereof. Except as may be otherwise required by law, the Certificate of Incorporation or the By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.
SECTION 6.03Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these By-laws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and
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one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them.
SECTION 6.04Lost, Stolen or Destroyed Certificates. The corporation may issue a new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen, or destroyed, or it may issue uncertificated shares if the shares represented by such certificate have been designated as uncertificated shares in accordance with Section 4.2, upon such terms and conditions as the Board may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity as the Board may require for the protection of the Corporation or any transfer agent or registrar.
SECTION 6.05Record Date. The Board may fix in advance a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, concession or exchange of stock, or for the purpose of any other lawful action, except as otherwise provided pursuant to Article II, Section 2.10 of these Bylaws. Such record date shall not precede the date on which the resolution fixing the record date is adopted and shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action to which such record date relates.
If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be in accordance with Article II, Section 2.10 of these Bylaws. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating to such purpose. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VII
Indemnification
SECTION 7.01Action, Etc., Other Than by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or
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proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he or she had reasonable cause to believe that his or her conduct was unlawful.
SECTION 7.02Actions, Etc., by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
SECTION 7.03Determination of Right of Indemnification. Any indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 7.01 and 7.02. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, or (iv) by the stockholders.
SECTION 7.04Indemnification Against Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that a present or former director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith.
SECTION 7.05Prepaid Expenses. Expenses (including attorneys’ fees) incurred by an officer or director in defending a civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board in the specific case upon receipt of an undertaking by
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or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate.
SECTION 7.06Other Rights and Remedies. The indemnification and advancement of expenses provided by, or granted pursuant to this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-laws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. A right to indemnification or to advancement of expenses arising under a provision of the certificate of incorporation or a By-law shall not be eliminated or impaired by an amendment to such provision after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought.
SECTION 7.07Insurance. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article.
SECTION 7.08Constituent Corporations. For the purposes of this Article, references to “the Corporation” include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.
SECTION 7.09Other Enterprises, Fines, and Serving at Corporation’s Request. For purposes of this Article, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of
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an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article.
ARTICLE VIII
Miscellaneous
SECTION 8.01Corporate Seal. The corporate seal shall be in such form as shall be approved by the Board.
SECTION 8.02Waiver of Notice. Whenever any notice whatsoever is required to be given by law, by the Certificate of Incorporation or by these By-laws, a waiver of such notice either in writing signed by the person entitled to such notice or such person’s duly authorized attorney, or by electronic transmission or any other method permitted under the Delaware General Corporation Law, whether before, at or after the time stated in such waiver, or the appearance of such person or persons at such meeting in person or by proxy, shall be deemed equivalent to such notice. Neither the business nor the purpose of any meeting need be specified in such a waiver. Attendance at any meeting shall constitute waiver of notice except attendance for the sole purpose of objecting to the timeliness of notice.
SECTION 8.03Evidence of Authority. A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the Corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action.
SECTION 8.04Severability. Any determination that any provision of these By-laws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these By-laws.
SECTION 8.05Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by commercial courier service, or by facsimile or other electronic transmission, provided that notice to stockholders by electronic transmission shall be given in the manner provided in Section 232 of the Delaware General Corporation Law. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice shall be deemed to be given shall be the time such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if delivered by hand, facsimile, other electronic transmission or commercial courier service, or the time such notice is dispatched, if delivered through the mails. Without limiting the manner by which notice otherwise may be given effectively, notice to any stockholder shall be deemed given: (1) if by facsimile, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by a posting on an electronic network together with separate
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notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; (4) if by any other form of electronic transmission, when directed to the stockholder; and (5) if by mail, when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation.
SECTION 8.06Reliance Upon Books, Reports and Records. Each director, each member of any committee designated by the Board, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation as provided by law, including reports made to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care.
SECTION 8.07Forum. Unless the Corporation, in writing, selects or consents to the selection of an alternative forum, the sole and exclusive forum for any current or former stockholder (including any current or former beneficial owner) to bring internal corporate claims (as defined below), to the fullest extent permitted by law, and subject to applicable jurisdictional requirements, shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another state court or a federal court located within the State of Delaware). For purposes of this Section 8.07, internal corporate claims means claims, including claims in the right of the Corporation: (a) that are based upon a violation of a duty by a current or former director, officer, employee or stockholder in such capacity; or (b) as to which the Delaware General Corporation Law confers jurisdiction upon the Court of Chancery.
SECTION 8.08Amendments. These By-laws, or any of them, may be altered, amended or repealed, and new By-laws may be made, (i) by the Board, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board, or (ii) by the stockholders, at any annual meeting of stockholders, or at any special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of special meeting. Any By-laws made or altered by the stockholders may be altered or repealed by either the Board or the stockholders.
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Exhibit 10.2.14
SEPARATION AND RELEASE AGREEMENT
I, Phillip Rudolph, whose address is [ ], understand that my employment with Jack in the Box Inc. and/or any past or present subsidiary, affiliate, predecessor, or successor, (Collectively referred to herein as “Company”) will terminate March 2, 2020 (“Termination Date”). This Separation and Release Agreement (“Agreement”) is entered into in connection with my termination.
Company Offer. Although the Company has no obligation to do so, if I: (i) fulfill the Requirements to Accept Offer; and (ii) comply with all of my legal and contractual obligations to the Company, then the Company will provide me with the following severance benefits (the “Severance Benefits”):
(a) Severance Payment. The Company will pay me, as severance, the amount of $686,538 (less required payroll deductions and any other offsets for money I owe the Company) (“Separation Payment”).
(b) Medical Insurance. If I timely elect continued medical coverage under COBRA, the Company will pay for the COBRA medical premium (taxable) to continue my medical insurance coverage (including medical coverage for eligible dependents, if applicable) (“COBRA Premium”) through the period (the “COBRA Medical Premium Period”) starting on the first of the month following Termination Date and ending on the earliest to occur of: (i) 16 months from the first of the month following Termination Date (March 2, 2020); or (ii) the date I request to cease COBRA medical coverage; or (iii) the date I cease to be eligible for COBRA medical continuation coverage for any reason. In the event I cease to be eligible for COBRA during the COBRA Medical Premium Period, I agree to immediately notify the Company of such event.
(c) Outplacement Support. The Company will provide me up to (12) months of outplacement support through a provider selected and paid for by the Company.
In order to receive any of the Severance Benefits, the Requirements to Accept Offer described below must be fulfilled. If the Requirements to Accept Offer are not fulfilled, the Company Offer automatically terminates. The Severance Benefits are in addition to wages due to me for work performed and will be paid to me as consideration for my settlement, release and discharge of any and all known or unknown claims as described below.
Requirements to Accept Offer. In order to accept the Company Offer I must:
(a) sign this Agreement and return it to the Company by either:
(i)hand-delivering the Agreement to Melissa Corrigan, 9330 Balboa Avenue, San Diego, CA 92123 no later than close of business on April 6, 2020; or
(ii) mailing or sending the Agreement by overnight service such as Federal Express to:
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Melissa Corrigan
Vice President, Chief Human Resources Officer
9330 Balboa Ave.
San Diego, CA 92123
If mailed, the envelope must be postmarked no later than April 6, 2020, and must be received within a reasonable time thereafter. If overnighted, it must be received no later than April 6, 2020.
(iii) Faxing the Agreement to Melissa Corrigan at 858-694-1570 no later than April 6, 2020; or
(iv) Sending the Agreement via Electronic Mail (email) to Melissa Corrigan at [ ] no later than April 6, 2020.
(b) not revoke this Agreement during the seven (7) day Revocation Period.
Time When Payment Will Be Made. If I fulfill the Requirements to Accept Offer described above, the Separation Payment will be issued to me in a one-time, lump-sum payment (via direct deposit or a mailed check, according to my previously designated preferences) within ten (10) days after the Revocation Period has expired or Termination Date, whichever is later.
Release of Claims. By signing and returning this Agreement to the Company, I hereby generally and completely settle, release and discharge any and all claims of every type, known or unknown, which I have or may have against the Company, and its shareholders, directors, officers, employees and representatives, whether known or unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to or on the date I sign this Agreement. This is a general release of all claims and includes, without limitation, all claims related to my employment with the Company or the termination of that employment, and all claims arising under any Federal, State, or local laws or regulations pertaining to employment, including discrimination on the basis of sex, pregnancy, race, color, marital status, religion, creed, national origin, age, disability, medical condition, or mental condition status or any status protected by any other anti-discrimination laws, including, without limitation, Title VII of the Civil Rights Act of 1964, the Family Medical Leave Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act and the California Fair Employment and Housing Act, and the California Family Rights Act, whether such claim be based on an action filed by me or by a governmental agency.
Waiver of Notice Requirements under State and Federal WARN Act. By signing and returning this Agreement to the Company and in further consideration of receipt of my Separation Package, I agree and understand that I am waiving my right to bring any and all claims which I have or may have relating to the minimum advanced notice requirements as set forth under the Federal or State WARN Act. I also understand and agree that I am waiving my right to receive pay in lieu of notice under the WARN Act.
Unknown Claims. This section shall be governed by California law. I understand that I may have claims of which I may be unaware or unsuspecting which I am giving up by signing this
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Agreement. I also expressly waive all rights I might have under Section 1542 of the Civil Code of California which reads as follows:
1542. Certain claims not affected by general release. A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her, would have materially affected his or her settlement with the debtor or released party.
Waiver of Age Discrimination Claims. I received this Agreement on February 21, 2020 and have been given a forty-five (45) day waiting period to consider whether to sign it. I understand that even if I sign and return this Agreement, I can still revoke this Agreement within seven (7) days after it is returned to the Company (the “Revocation Period”) and this Agreement will not become effective or enforceable until the Revocation Period has expired (such date, the “Effective Date”).
I understand and agree that I:
1. Have carefully read and fully understands all of the provisions of this Agreement;
2. Am, through this Agreement, releasing the Company from any and all claims I may have against it to date under the Age Discrimination in Employment Act of 1967 (29 U.S.C. § 621, et seq.);
3. Knowingly and voluntarily agree to all of the terms set forth in this Agreement;
4. Knowingly and voluntarily intend to be legally bound by the same;
5. Was advised and hereby am advised in writing to consider the terms of this Agreement and consult with an attorney of my choice prior to executing this Agreement; and,
6. Understand that rights or claims under the Age Discrimination in Employment Act of 1967 (29 U.S.C. §621, et seq.) that may arise after the date this Agreement is executed are not waived.
7. [Have been provided with the ADEA disclosure information (under 29 U.S.C. § 626(f)(1)(H)), attached hereto as Exhibit 1.]
Claims Not Affected. This is a general release of all claims, and excludes only (i) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party or under applicable law; (ii) any claims which I may have by reason of any Social Security, Worker’s Compensation, or Unemployment laws, or any benefits earned during my employment which may be payable to me now or in the future under any of the Benefit and/or Welfare Programs of the Company; (iii) any other rights which are not waivable as a matter of law; and (iii) any claims for breach of this Agreement.
Advice to Consult With Attorney. I have been (i) advised in writing to consult with an attorney, and (ii) given forty-five (45) days to thoroughly review and discuss all aspects of this Agreement with my attorney before signing this Agreement and I have thoroughly discussed, or in the alternative have freely elected to waive any further opportunity to discuss, this Agreement with my attorney.
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Agreement Knowingly and Voluntarily Executed. I freely and voluntarily entered into this Agreement on my own behalf, in the exercise of my own free act, deed and will, and without any duress or coercion. I understand that in executing this Agreement, it becomes final and conclusive.
Confidentiality. I agree that the terms and conditions of this Release shall remain confidential as between the Company and me and shall not be disclosed to any other person except as provided by law or to my attorney, spouse or significant other, accountant and/or financial advisor. I also agree that during my employment I may have had access to confidential information and trade secrets concerning products, business plans, marketing strategies and other Company information and that I shall keep these matters completely confidential. I understand that nothing in this Agreement prohibits me from disclosing facts or information that I have the right to disclose under state or federal law, including any facts relating to a claim for sexual harassment or discrimination based on sex.
Continuing Obligations; Non-Disparagement. I acknowledge that I remain bound by the previous Confidentiality and Restrictive Covenant Agreement between me and the Company and agree to abide by those continuing obligations. I also agree not to disparage the Company, its officers, directors, employees, shareholders, and agents, in any manner likely to be harmful to its or their business, business reputation, or personal reputation; provided that I may respond accurately and fully to any question, inquiry or request for information when required by legal process.
Notice of Rights Pursuant to Section 7 of the Defend Trade Secrets Act (DTSA). Notwithstanding any provisions in this agreement or the Company policy applicable to the unauthorized use or disclosure of trade secrets, I am hereby notified that, pursuant to Section 7 of the DTSA, I cannot be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law. I also may not be held so liable for such disclosures made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, individuals who file a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order.
Reporting to Governmental Agencies. Nothing in this Agreement prevents me from filing a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). I understand this Agreement does not limit my ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company.
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No Admission of Wrongdoing by the Company. The Company expressly denies any violation of any federal, state or local law. Accordingly, while this Agreement resolves all issues referred to in this Agreement, it is not, and shall not be construed as, an admission by the Company of any violation of any federal, state or local law, or of any liability whatsoever. I am unaware of any claims against (or wrongdoing by) the Company.
General Provisions. This Agreement, including its Exhibits, constitutes the complete, final and exclusive embodiment of the entire agreement between me and the Company with regard to its subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both me and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both me and the Company, and inure to the benefit of both me and the Company, their heirs, successors and assigns. The Company may freely assign this Agreement, without my prior written consent. I may not assign any of my duties hereunder, and I may only assign any of my rights hereunder with the written consent of the Company. If any provision of this Agreement is held to be contrary to applicable law, it shall be modified or disregarded as necessary and the remainder of the Agreement will remain in full force and effect. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California without regard to conflict of laws principles. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement shall be in writing and shall not be deemed to be a waiver of any successive breach. A facsimile, copy or electronic mail (scanned PDF) of this Agreement shall be deemed an original.
I have read and understand all of the provisions of this Agreement and I voluntarily enter into this Agreement by signing it on February 24, 2020.
/s/ Phillip Rudolph | ||||||||
Witness Signature | Phillip Rudolph | |||||||
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Exhibit 31.1
CERTIFICATION
I, Leonard A. Comma, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Jack in the Box Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Dated: | May 14, 2020 | /S/ LEONARD A. COMMA | ||||||
| Leonard A. Comma | ||||||||
Chief Executive Officer & Chairman of the Board | ||||||||
Exhibit 31.2
CERTIFICATION
I, Lance Tucker, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Jack in the Box Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions)
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Dated: | May 14, 2020 | /S/ LANCE TUCKER | ||||||
| Lance Tucker | ||||||||
| Chief Financial Officer | ||||||||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Leonard A. Comma, Chief Executive Officer of Jack in the Box Inc. (the “Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)the quarterly report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| Dated: | May 14, 2020 | /S/ LEONARD A. COMMA | ||||||
| Leonard A. Comma | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Lance Tucker, Chief Financial Officer of Jack in the Box Inc. (the “Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)the quarterly report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| Dated: | May 14, 2020 | /S/ LANCE TUCKER | ||||||
| Lance Tucker | ||||||||
| Chief Financial Officer | ||||||||