Jack In The Box Inc 10-Q for FY2021 Q3
Jack In The Box Inc (JACK)
10-Q
2021-08-04
For: 2021-07-04
View Original
Added on
April 06, 2026
About this 10-Q
Jack In The Box Inc filed this 10-Q on August 4, 2021, covering the quarter ended July 4, 2021 (FY2021 Q3).
Headline figures
Quarter ended July 4, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $269.46M
- up 11.2% from $242.28M a year earlier
- Net income
- $40.03M
- up 23.0% from net income of $32.56M a year earlier
- Diluted EPS
- $1.79
- up 26.1% from $1.42 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended July 4, 2021
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 July 29, 2021, 21,671,547 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)
| July 4, 2021 | September 27, 2020 | ||||||||||
| 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 | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Company restaurant sales | $ | $ | $ | $ | |||||||||||||||||||
| Franchise rental revenues | |||||||||||||||||||||||
| Franchise royalties and other | |||||||||||||||||||||||
| Franchise contributions for advertising and other services | |||||||||||||||||||||||
| Operating costs and expenses, net: | |||||||||||||||||||||||
| Food and packaging | |||||||||||||||||||||||
| Payroll and employee benefits | |||||||||||||||||||||||
| Occupancy and other | |||||||||||||||||||||||
| Franchise occupancy expenses | |||||||||||||||||||||||
| Franchise support and other costs | |||||||||||||||||||||||
| Franchise advertising and other services expenses | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Impairment and other charges (gains), net | ( | ||||||||||||||||||||||
| Gains on the sale of company-operated restaurants | ( | ( | ( | ( | |||||||||||||||||||
| Earnings from operations | |||||||||||||||||||||||
| Other pension and post-retirement expenses, net | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Earnings before income taxes | |||||||||||||||||||||||
| Income taxes | |||||||||||||||||||||||
| Earnings from continuing operations | |||||||||||||||||||||||
| 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) | $ | $ | $ | $ | |||||||||||||||||||
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 INCOME
(In thousands)
(Unaudited)
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Actuarial income (losses) arising during the period | ( | ||||||||||||||||||||||
| Actuarial losses and prior service costs reclassified to earnings | |||||||||||||||||||||||
| Tax effect | ( | ( | ( | ( | |||||||||||||||||||
| Other comprehensive income, net of taxes | |||||||||||||||||||||||
| Comprehensive 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 | |||||||||||
| July 4, 2021 | July 5, 2020 | ||||||||||
| 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 incentives | |||||||||||
| Deferred finance cost amortization | |||||||||||
| Excess tax benefit from share-based compensation arrangements | ( | ( | |||||||||
| Deferred income taxes | ( | ||||||||||
| Share-based compensation expense | |||||||||||
| Pension and post-retirement expense | |||||||||||
| 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 post-retirement contributions | ( | ( | |||||||||
| Franchise tenant improvement allowance and incentive disbursements | ( | ( | |||||||||
| Other | ( | ( | |||||||||
| Cash flows provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from the sale of property and equipment | |||||||||||
| Proceeds from the sale and leaseback of assets | |||||||||||
| Proceeds from the sale of company-operated restaurants | |||||||||||
| Other | |||||||||||
| Cash flows (used in) provided by 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 (decrease) increase 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
| July 4, 2021 | July 5, 2020 | ||||||||||
| Company-operated | |||||||||||
| Franchise | |||||||||||
| 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”).
Certain prior period information on the condensed consolidated statement of cash flows has been reclassified to conform to the current year presentation.
These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended September 27, 2020 (“2020 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2020 Form 10-K with the exception of the accounting standards adopted in fiscal 2021, which are described below.
In our opinion, all adjustments considered necessary for a fair presentation of financial condition and results of operations for these interim periods have been included. Operating results for one interim period are not necessarily indicative of the results for any other interim period or for the full year.
Advertising costs — We administer a marketing fund which includes contractual contributions. In 2021 and 2020, marketing fund contributions from franchise and company-operated restaurants were approximately 5.0 % of gross revenues, with the exception of our March and April 2020 marketing fees. In response to the economic burden associated with the COVID-19 pandemic, the Company reduced March 2020 marketing fees to 4.0% and postponed the collection of these fees over the course of 24 months. April 2020 marketing fees ranged from 2% to 4% based on annualized sales volumes and these fees were collected over three months beginning October 2020. As of July 4, 2021, postponed marketing fees which remain uncollected were $5.5 million, of which $4.4 million is included within “Accounts and other receivable, net” and $1.1 million is included within “Other assets, net” in our condensed consolidated balance sheet.
Total contributions made by the Company are included in “Selling, general, and administrative expenses” in the accompanying condensed consolidated statements of earnings and for the quarter and year-to-date totaled $4.6 million and $14.8 million, respectively, in 2021 and $3.9 million and $12.8 million, respectively, in 2020.
6
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Effect of new accounting pronouncements — In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted the standard in the first quarter of 2021. The adoption of this standard did not have a material impact to our consolidated financial statements.
In June 2016, the FASB issued guidance replacing the incurred loss impairment methodology with a new methodology that reflects current expected losses on financial assets, including trade accounts receivables. The new methodology requires entities to estimate and recognize credit losses each reporting period. The Company adopted the new guidance in the first quarter of 2021 using the modified retrospective method. The adoption did not have a material impact to our consolidated financial statements.
The Company closely monitors the financial condition of our franchisees and estimates the allowance for credit losses based on the lifetime expected loss on receivables. These estimates are based on historical collection experience with our franchisees as well as other factors, including current market conditions and events. Credit quality is monitored through the timing of payments compared to predefined aging criteria and known facts regarding the financial condition of the franchisee or customer. Account balances are charged off against the allowance after recovery efforts have ceased. The Company’s allowance for receivables have not historically been material.
The following table summarizes the activity in our allowance for doubtful accounts (in thousands):
| Balance as of September 27, 2020 | $ | ( | |||
| Provision for expected credit losses | ( | ||||
| Write-offs charged against the allowance | |||||
| Balance as of July 4, 2021 | $ | ( | |||
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. These arrangements also require franchisees to pay sourcing, technology, and other miscellaneous fees.
Disaggregation of revenue — The following table disaggregates revenue by primary source (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Sources of revenue: | |||||||||||||||||||||||
| Company restaurant sales | $ | $ | $ | $ | |||||||||||||||||||
| Franchise rental revenues | |||||||||||||||||||||||
| Franchise royalties | |||||||||||||||||||||||
| Marketing fees | |||||||||||||||||||||||
| Technology and sourcing fees | |||||||||||||||||||||||
| Franchise fees and other services | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
7
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Contract liabilities — Our contract liabilities consist of deferred revenue resulting from initial fees received from franchisees for new restaurant openings or new franchise terms, which are recognized over the franchise term. We classify these contract liabilities as “Accrued liabilities” and “Other long-term liabilities” in our condensed consolidated balance sheets.
A summary of significant changes in our contract liabilities is presented below (in thousands):
| Year-to-date | |||||||||||
| July 4, 2021 | July 5, 2020 | ||||||||||
| 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 July 4, 2021 (in thousands):
| Remainder of 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 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.
3.SUMMARY OF REFRANCHISINGS AND FRANCHISE ACQUISITIONS
Refranchisings — In 2021 and 2020, no
Franchise acquisitions — In 2021, we acquired four franchise restaurants in connection with exercising our right of first refusal. We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). The acquisition was not material to our condensed consolidated financial statements.
4.LEASES
8
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents rental income (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Operating lease income - franchise | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease income - franchise | |||||||||||||||||||||||
| Franchise rental revenues | $ | $ | $ | $ | |||||||||||||||||||
| Operating lease income - closed restaurants and other (1) | $ | $ | $ | $ | |||||||||||||||||||
____________________________
(1)Primarily relates to closed restaurant properties included in “Impairment and other charges (gains), net” in our condensed consolidated statements of earnings.
5.FAIR VALUE MEASUREMENTS
Financial assets and liabilities — The following table presents our financial assets and liabilities measured at fair value on a recurring basis ( in thousands):
| Total | Quoted Prices in Active Markets for Identical Assets (2) (Level 1) | Significant Other Observable Inputs (2) (Level 2) | Significant Unobservable Inputs (2) (Level 3) | ||||||||||||||||||||
| Fair value measurements as of July 4, 2021: | |||||||||||||||||||||||
| Non-qualified deferred compensation plan (1) | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Fair value measurements as of September 27, 2020: | |||||||||||||||||||||||
| 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 July 4, 2021 and September 27, 2020 (in thousands):
| July 4, 2021 | September 27, 2020 | ||||||||||||||||||||||
| 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.
Non-financial assets and liabilities — Our non-financial instruments, which primarily consist of property and equipment, operating lease right-of-use assets, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on an annual basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial instruments are assessed for impairment. If applicable, the carrying values are written down to fair value.
In connection with our impairment reviews performed during 2021, no material fair value adjustments were required.
9
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6.IMPAIRMENT AND OTHER CHARGES (GAINS), NET
Impairment and other charges (gains), net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Costs of closed restaurants and other (1) | $ | $ | $ | $ | |||||||||||||||||||
| Restructuring costs | |||||||||||||||||||||||
| Losses (gains) on disposition of property and equipment, net (2) | ( | ( | ( | ||||||||||||||||||||
| Accelerated depreciation | |||||||||||||||||||||||
| $ | $ | $ | $ | ( | |||||||||||||||||||
____________________________
(1)Costs of closed restaurants primarily include impairment charges as a result of our decision to close restaurants, ongoing costs associated with closed restaurants, and canceled project costs.
(2)Year-to-date 2021, includes gains on the sale of real estate properties. Year-to-date 2020, includes a $10.8 million gain related to the sale of one of our corporate office buildings.
7.INCOME TAXES
8.RETIREMENT PLANS
Defined benefit pension plans — We sponsor two defined benefit pension plans, a frozen “Qualified Plan” covering substantially all full-time employees hired prior to January 1, 2011, and an unfunded supplemental executive retirement plan (“SERP”) which provides certain employees additional pension benefits and was closed to new participants effective January 1, 2007. Benefits under both plans are based on the employee’s years of service and compensation over defined periods of employment.
In the fourth quarter of 2019, the Company amended its Qualified Plan to add a limited lump sum payment window whereby certain terminated participants with a vested pension benefit could elect to receive either an immediate lump sum or a monthly annuity payment of their accrued benefit. The offering period began September 16, 2019 and ended October 31, 2019. The participants that elected a lump sum benefit under the program were paid in December 2019, which triggered settlement accounting. As a result of the offering, the Company’s Qualified Plan paid $122.3 million from its plan assets to those who accepted the offer, thereby reducing the plan’s pension benefit obligation. The transaction had no cash impact to the Company but did result in a non-cash settlement charge of $38.6 million in the first quarter of fiscal 2020. Routine lump sum payments made in the second and third quarters of fiscal 2020 resulted in non-cash settlement charges of $0.3 million and $0.1 million, respectively.
Post-retirement healthcare plans — We also sponsor two healthcare plans, closed to new participants, that provide post-retirement medical benefits to certain employees who have met minimum age and service requirements. The plans are contributory, with retiree contributions adjusted annually, and they contain other cost-sharing features such as deductibles and coinsurance.
10
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Net periodic benefit cost — The components of net periodic benefit cost in each period were as follows ( in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Defined benefit pension plans: | |||||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Pension settlements (1) | |||||||||||||||||||||||
| Actuarial losses (1) | |||||||||||||||||||||||
| Amortization of unrecognized prior service costs (1) | |||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||
| Post-retirement healthcare plans: | |||||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||
| Actuarial (gains) losses (1) | ( | ( | |||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||
___________________________
Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of January 1, 2020, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for the Qualified Plan. Details regarding 2021 contributions are as follows ( in thousands):
| SERP | Post-Retirement Healthcare Plans | ||||||||||
| Net year-to-date contributions | $ | $ | |||||||||
| Remaining estimated net contributions during fiscal 2021 | $ | $ | |||||||||
We continue to evaluate contributions to our Qualified Plan based on changes in pension assets as a result of asset performance in the current market and the economic environment. We do not anticipate making any contributions to our Qualified Plan in fiscal 2021.
9.STOCKHOLDERS’ DEFICIT
Summary of changes in stockholders’ deficit — A reconciliation of the beginning and ending amounts of stockholders’ deficit is presented below (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| 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, net of taxes | |||||||||||||||||||||||
| Cumulative-effect from a change in accounting principle | ( | ||||||||||||||||||||||
| Balance at end of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Repurchases of common stock — The Company repurchased 1.2 million shares of its common stock in 2021 for an aggregate cost of $130.0 million. As of July 4, 2021, this leaves $70.0 million remaining under share repurchase programs authorized by the Board of Directors that expire in November 2022.
11
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Repurchases of common stock in our condensed consolidated statement of cash flows for 2021 excludes $5.6 million traded in the quarter that settled in the fourth quarter.
Dividends — During the first, second, and third quarter of 2021, the Board of Directors declared cash dividends of $0.40 , $0.40 , and $0.44 , respectively, totaling $28.1 million. Future dividends are subject to approval by our Board of Directors.
10.AVERAGE SHARES OUTSTANDING
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| 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 | |||||||||||||||||||||||
11.COMMITMENTS AND CONTINGENCIES
Legal matters — We assess contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates. As of July 4, 2021 and September 27, 2020, the Company had recorded aggregate liabilities of $7.4 million and $3.8 million, respectively, within “Accrued liabilities” on our condensed consolidated balance sheets, for all matters including those described below, that were probable and reasonably estimable. 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.
Gessele v. Jack in the Box Inc. — In August 2010, five former employees instituted litigation in federal court in Oregon alleging claims under the federal Fair Labor Standards Act and Oregon wage and hour laws. The plaintiffs alleged that the Company failed to pay non-exempt employees for certain meal breaks and improperly made payroll deductions for shoe purchases and for workers’ compensation expenses, and later added additional claims relating to timing of final pay and related wage and hour claims involving employees of a franchisee. In 2016, the court dismissed the federal claims and those relating to franchise employees. In June 2017, the court granted class certification with respect to state law claims of improper deductions and late payment of final wages. In November 2019, the court issued a ruling on various dispositive motions, disallowing a portion of plaintiffs’ claimed damages. The parties participated in a voluntary mediation on March 16, 2020, but the matter did not settle. The plaintiffs recently filed a motion for reconsideration of the court’s prior denial of class certification regarding meal and rest break claims which was denied by the court. The plaintiffs requested permission to seek appellate review of that decision, but that request was rejected by the Ninth Circuit. The trial of this matter was recently reassigned to a new judge and is scheduled for December 2021. The Company continues to dispute liability and the plaintiffs’ damage calculations and will continue to vigorously defend against the lawsuit.
12
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Other legal matters — In addition to the matter described above, we are subject to normal and routine litigation brought by former or current employees, customers, franchisees, vendors, landlords, shareholders or others. We intend to defend ourselves in any such matters. Some of these matters may be covered, at least in part, by insurance or other third party indemnity obligation. We record receivables from third party insurers when recovery has been determined to be probable.
Lease guarantees — We remain contingently liable for certain leases relating to our former Qdoba business which we sold in fiscal 2018. Under the Qdoba Purchase Agreement, the buyer has indemnified the Company of all claims related to these guarantees. As of July 4, 2021, the maximum potential liability of future undiscounted payments under these leases is approximately $27.4 million. The lease terms extend for a maximum of approximately 17 more years and we would remain a guarantor of the leases in the event the leases are extended for any established renewal periods. In the event of default, we believe the exposure is limited due to contractual protections and recourse available in the lease agreements, as well as the Qdoba Purchase Agreement, including a requirement of the landlord to mitigate damages by re-letting the properties in default, and indemnity from the Buyer. The Company has not recorded a liability for these guarantees as we believe the likelihood of making any future payments is remote.
12.DISCONTINUED OPERATIONS
The following table presents results of operations in periods which have been included in discontinued operations related to our former Qdoba business (in thousands):
| Quarter | Year-to-date | ||||||||||
| July 5, 2020 | July 5, 2020 | ||||||||||
| Total revenues | $ | $ | |||||||||
| Total costs and expenses (income) (1) | ( | ( | |||||||||
| Earnings before income taxes | |||||||||||
| Income tax expense | |||||||||||
| Earnings from discontinued operations, net of income taxes | $ | $ | |||||||||
___________________________
(1)Activity primarily consists of resolutions on certain liabilities related to our discontinued operations, including self-insurance reserves and asset retirement obligations.
13.SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)
| Year-to-date | |||||||||||
| July 4, 2021 | July 5, 2020 | ||||||||||
| Non-cash investing and financing transactions: | |||||||||||
| Increase (decrease) in obligations for treasury stock repurchases | $ | $ | ( | ||||||||
| Increase (decrease) in obligations for purchases of property and equipment | $ | $ | ( | ||||||||
| Increase in dividends accrued or converted to common stock equivalents | $ | $ | |||||||||
| Consideration for franchise acquisitions | $ | $ | |||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | $ | |||||||||
| Right-of-use assets obtained in exchange for finance lease obligations | $ | $ | |||||||||
13
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
14.SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)
| July 4, 2021 | September 27, 2020 | ||||||||||
| Accounts and other receivables, net: | |||||||||||
| Trade | $ | $ | |||||||||
| Income tax receivable | |||||||||||
| Notes receivable | |||||||||||
| Other | |||||||||||
| Allowance for doubtful accounts | ( | ( | |||||||||
| $ | $ | ||||||||||
| Other assets, net: | |||||||||||
| Company-owned life insurance policies | $ | $ | |||||||||
| Deferred rent receivable | |||||||||||
| Franchise tenant improvement allowance | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
| Accrued liabilities: | |||||||||||
| Payroll and related taxes | $ | $ | |||||||||
| Insurance | |||||||||||
| Deferred rent income | |||||||||||
| Sales and property taxes | |||||||||||
| Advertising | |||||||||||
| Deferred franchise fees | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
| Other long-term liabilities: | |||||||||||
| Defined benefit pension plans | $ | $ | |||||||||
| Deferred franchise fees | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
15.SUBSEQUENT EVENTS
On July 30, 2021, the Board of Directors declared a cash dividend of $0.44 per common share, to be paid on September 3, 2021, to shareholders of record as of the close of business on August 18, 2021.
Subsequent to the end of the third quarter, we took possession of 16 franchise restaurants in a non-cash transaction. We are currently determining the fair value of the non-cash purchase price allocation using the acquisition method of accounting for business combinations.
14
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All comparisons between 2021 and 2020 refer to the 12-weeks (“quarter”) and 40-weeks (“year-to-date”) ended July 4, 2021 and July 5, 2020, respectively, unless otherwise indicated.
For an understanding of the significant factors that influenced our performance during 2021 and 2020, our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended September 27, 2020.
Our MD&A consists of the following sections:
•Overview — a general description of our business and 2021 highlights.
•Results of operations — an analysis of our condensed consolidated statements of earnings for the periods presented in our condensed consolidated financial statements.
•Liquidity and capital resources — an analysis of our cash flows, including capital expenditures, share repurchase activity, dividends, and known known trends that may impact liquidity.
•Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates.
•New accounting pronouncements — a discussion of new accounting pronouncements, dates of implementation and the impact on our consolidated financial position or results of operations, if any.
•Cautionary statements regarding forward-looking statements — a discussion of the risks and uncertainties that may cause our actual results to differ materially from any forward-looking statements made by management.
We have included in our MD&A certain performance metrics that management uses to assess company performance and which we believe will be useful in analyzing and understanding our results of operations. These metrics include:
•Changes in sales at restaurants open more than one year (“same-store sales”), systemwide sales, franchised restaurant sales, and average unit volumes (“AUVs”). Same-store sales, restaurant sales, and AUVs are presented for franchised restaurants and on a systemwide 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 restaurant sales and systemwide sales, and franchised restaurant sales AUV information are useful to investors as they have a direct effect on the Company’s profitability.
•Adjusted EBITDA represents net earnings on a generally accepted accounting principles (“GAAP”) basis excluding income taxes, interest expense, net, gains on the sale of company-operated restaurants, impairment and other charges (gains), net, depreciation and amortization, amortization of tenant improvement allowances and incentives, 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, systemwide 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.
15
IMPACT OF COVID-19
The COVID-19 pandemic has continued to have varying degrees of disruption on our business. Throughout the pandemic substantially all of our restaurants have remained open, with the majority of our dining rooms closed and locations operating in an off-premise capacity, leveraging our drive-thru, carryout and delivery capability. We have continued to follow the guidance of expert health authorities to ensure precautionary steps are taken to protect the health and safety of our employees and guests.
In fiscal 2020 during the last five weeks of the second quarter, upon the rise in “shelter-in-place” mandates and “social distancing” requirements across the country, system same-store sales decreased by 17.0%; however, starting in the third quarter and carrying into fiscal 2021, we have seen a significant acceleration of system same-store sales. The acceleration of sales has been largely driven by average check growth which has more than offset a decline in traffic. Although we continued to see positive movement in customer traffic compared to last year, it remains uncertain whether we will return to levels achieved prior to the pandemic.
While we do not know the future impact COVID-19 will have on our business, or when our business will fully return to normal operations, we expect to see continued labor and supply chain shortages resulting in higher costs in our results in 2021 and the foreseeable future.
OTHER RECENT DEVELOPMENTS
As previously announced, a franchisee that operated 68 restaurants in the Midwest filed for chapter 11 bankruptcy in February 2021. Of the 68 restaurants, we sublease 50 of the locations to the franchisee and own the land and building for the remaining 18 locations. Through the bankruptcy proceedings, the franchisee may reject the franchise agreements and leases for a number of these locations, resulting in potential impairment costs related to future lease obligations.
On May 5, 2021 the franchisee filed a motion with the court rejecting three of the locations, two of which were permanently closed in fiscal 2020. We have also reached agreement with the debtor regarding the timing for their intended rejection of the franchise agreements and leases for two additional restaurants, which rejection will coincide with the expiration of the master leases for such sites. The franchisee’s remaining 65 restaurants continue to operate with the franchisee remaining current with their obligations to us. The Company does not expect to acquire and operate any restaurants as part of the sale of these restaurants and our current expectation is the remaining restaurants will be transferred to one or more other franchise partners.
STRATEGY
In June 2021, we held a virtual Investor Day during which we provided an overview of our growth strategy, including additional details regarding its plans for unit growth, focus on unit economics, and future investments in digital and new store prototype.
Our strategies are rooted in two foundational principles which include:
•Shape a High-Performance Culture - The first foundational principle is shaping a caring high-performance culture focused on serving our people and franchisees well. If we do this, we are confident they will take care of our guests.
•Leverage Innovation and Technology Platforms - The second foundational principle is accentuating Jack's history of innovation and leveraging technology.
On top of these foundation principles are the following strategic pillars:
•Build Brand Loyalty by transforming our restaurant of the future design, reimaging existing restaurants, and enhancing the digital guest experience.
•Drive Operations Excellence by focusing on training in our restaurants, execution of brand standards and systems, and improving speed consistency.
•Grow Restaurant Profits by developing and implementing financial fundamentals, influencing pricing with a dynamic model, and building our data advantage.
•Expand Jack’s Reach by creating modular, diversified restaurant designs, building company-operated stores and seeding growth, fostering franchise financing and growth capital, and increasing franchise candidate and restaurant site lead generations.
The strategy builds on our historical strengths as a differentiated, challenger brand with a broad menu and operational capabilities, passionate and loyal guests, and committed team members and franchisees, and provides for investments in development and innovation that will deliver long term growth.
16
OVERVIEW
As of July 4, 2021, we operated and franchised 2,219 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam.
The following is a summary of our third quarter financial results compared to a year ago:
•System same-store sales — System same-store sales increased by 10.2% in the quarter and 14.0% year-to-date. Company restaurant same-store sales increased 9.0% in the quarter, reflecting average check growth of 4.8% and a 4.2% increase in transactions. Franchise same-store sales increased 10.3% in the quarter.
•Company restaurant operations — Company restaurant costs, including food and packaging, payroll and employee benefits, and occupancy and other operating costs, as a percentage of sales were flat in the quarter, primarily due to sales leverage offsetting an increase in commodities, labor and third-party delivery fees.
•Franchise operations — Franchised restaurant sales increased by 10.5% in the quarter, driving higher royalty and rent revenues of $5.3 million and $4.6 million, respectively.
•Selling, general and administrative (“SG&A”) expenses — SG&A increased by $8.1 million in the quarter, primarily due to higher costs related to litigation matters, unfavorable mark-to-market adjustments on investments supporting the Company’s non-qualified retirement plans, and higher insurance costs versus the prior year quarter.
•Adjusted EBITDA — Adjusted EBITDA increased in 2021 to $257.1 million from $195.7 million in the prior year.
17
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 | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Company restaurant sales | 34.1 | % | 34.0 | % | 33.8 | % | 34.2 | % | |||||||||||||||
| Franchise rental revenues | 29.9 | % | 31.4 | % | 30.3 | % | 31.6 | % | |||||||||||||||
| Franchise royalties and other | 18.0 | % | 17.8 | % | 18.0 | % | 17.4 | % | |||||||||||||||
| Franchise contributions for advertising and other services | 18.0 | % | 16.7 | % | 18.0 | % | 16.8 | % | |||||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||
| Operating costs and expenses, net: | |||||||||||||||||||||||
| Food and packaging (1) | 29.4 | % | 29.2 | % | 28.5 | % | 29.6 | % | |||||||||||||||
| Payroll and employee benefits (1) | 29.8 | % | 30.4 | % | 30.4 | % | 31.0 | % | |||||||||||||||
| Occupancy and other (1) | 15.3 | % | 15.0 | % | 15.5 | % | 15.6 | % | |||||||||||||||
| Franchise occupancy expenses (2) | 60.6 | % | 63.9 | % | 62.1 | % | 66.7 | % | |||||||||||||||
| Franchise support and other costs (3) | 5.6 | % | 6.2 | % | 6.0 | % | 7.7 | % | |||||||||||||||
| Franchise advertising and other services expenses (4) | 101.6 | % | 104.0 | % | 102.3 | % | 103.6 | % | |||||||||||||||
| Selling, general and administrative expenses | 8.1 | % | 5.6 | % | 7.1 | % | 8.6 | % | |||||||||||||||
| Depreciation and amortization | 3.9 | % | 5.0 | % | 4.1 | % | 5.4 | % | |||||||||||||||
| Impairment and other charges (gains), net | 0.3 | % | 0.3 | % | 0.2 | % | (1.0) | % | |||||||||||||||
| Gains on the sale of company-operated restaurants | (0.1) | % | (0.4) | % | (0.4) | % | (0.3) | % | |||||||||||||||
| Earnings from operations | 25.0 | % | 25.5 | % | 25.6 | % | 21.5 | % | |||||||||||||||
| Income tax rate (5) | 23.1 | % | 27.9 | % | 25.1 | % | 29.0 | % | |||||||||||||||
____________________________
(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.
18
The following table summarizes changes in same-store sales for company-operated, franchised, and system restaurants:
| Quarter | Year-to-date | ||||||||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||||||||
| Company | 9.0 | % | 4.1 | % | 10.0 | % | 1.2 | % | |||||||||||||||||||||
| Franchise | 10.3 | % | 6.9 | % | 14.5 | % | 1.5 | % | |||||||||||||||||||||
| System | 10.2 | % | 6.6 | % | 14.0 | % | 1.5 | % | |||||||||||||||||||||
The following table summarizes changes in the number and mix of company and franchise restaurants:
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||
| Company | Franchise | Total | Company | Franchise | Total | ||||||||||||||||||||||||||||||
| Beginning of year | 144 | 2,097 | 2,241 | 137 | 2,106 | 2,243 | |||||||||||||||||||||||||||||
| New | — | 10 | 10 | — | 20 | 20 | |||||||||||||||||||||||||||||
| Acquired from franchisees | 4 | (4) | — | 8 | (8) | — | |||||||||||||||||||||||||||||
| Closed | — | (32) | (32) | (1) | (18) | (19) | |||||||||||||||||||||||||||||
| End of period | 148 | 2,071 | 2,219 | 144 | 2,100 | 2,244 | |||||||||||||||||||||||||||||
| % of system | 7 | % | 93 | % | 100 | % | 6 | % | 94 | % | 100 | % | |||||||||||||||||||||||
The following table summarizes restaurant sales for company-operated, franchised, and systemwide sales (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Company-operated restaurant sales | $ | 91,892 | $ | 82,444 | $ | 292,132 | $ | 262,188 | |||||||||||||||
| Franchised restaurant sales (1) | 889,558 | 804,791 | 2,852,746 | 2,480,062 | |||||||||||||||||||
| Systemwide sales (1) | $ | 981,450 | $ | 887,235 | $ | 3,144,878 | $ | 2,742,250 | |||||||||||||||
____________________________
(1)Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees. Systemwide 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 systemwide sales information is useful to investors as they have a direct effect on the Company's profitability.
Below is a reconciliation of Non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Net earnings - GAAP | $ | 40,028 | $ | 32,555 | $ | 126,821 | $ | 51,915 | |||||||||||||||
| Earnings from discontinued operations, net of taxes | — | (379) | — | (379) | |||||||||||||||||||
| Income tax expense | 11,991 | 12,432 | 42,576 | 21,023 | |||||||||||||||||||
| Interest expense, net | 15,158 | 15,700 | 51,120 | 51,051 | |||||||||||||||||||
| Pension settlement charges | — | 103 | — | 39,030 | |||||||||||||||||||
| Gains on the sale of company-operated restaurants | (264) | (1,050) | (3,079) | (2,625) | |||||||||||||||||||
| Impairment and other charges (gains), net | 922 | 738 | 1,698 | (7,837) | |||||||||||||||||||
| Depreciation and amortization | 10,389 | 12,141 | 35,656 | 41,151 | |||||||||||||||||||
| Amortization of franchise tenant improvement allowances and incentives | 796 | 618 | 2,330 | 2,383 | |||||||||||||||||||
| Adjusted EBITDA - Non-GAAP | $ | 79,020 | $ | 72,858 | $ | 257,122 | $ | 195,712 | |||||||||||||||
19
Company Restaurant Operations
The following table presents company restaurant sales and costs as a percentage of the related sales (dollars in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Company restaurant sales | $ | 91,892 | $ | 82,444 | $ | 292,132 | $ | 262,188 | |||||||||||||||||||||||||||||||||||||||
| Company restaurant costs: | |||||||||||||||||||||||||||||||||||||||||||||||
| Food and packaging | $ | 27,061 | 29.4 | % | $ | 24,077 | 29.2 | % | $ | 83,376 | 28.5 | % | $ | 77,662 | 29.6 | % | |||||||||||||||||||||||||||||||
| Payroll and employee benefits | $ | 27,356 | 29.8 | % | $ | 25,085 | 30.4 | % | $ | 88,727 | 30.4 | % | $ | 81,236 | 31.0 | % | |||||||||||||||||||||||||||||||
| Occupancy and other | $ | 14,103 | 15.3 | % | $ | 12,334 | 15.0 | % | $ | 45,287 | 15.5 | % | $ | 40,862 | 15.6 | % | |||||||||||||||||||||||||||||||
Company restaurant sales increased $9.4 million, or 11.5% in the quarter and $29.9 million, or 11.4% year-to-date versus a year ago primarily due to average check growth, menu price increases, and an increase in the number of company-operated restaurants. Year-to-date, the increase was partially offset by a decrease in traffic. The following table presents the approximate impact of these items on company restaurant sales in 2021 (in millions):
| Quarter | Year-to-date | |||||||||||||
| AUV increase | $ | 8.4 | $ | 25.5 | ||||||||||
| Increase in the average number of restaurants | 1.0 | 4.4 | ||||||||||||
| Total change in company restaurant sales | $ | 9.4 | $ | 29.9 | ||||||||||
Same-store sales at company-operated restaurants increased 9.0% in the quarter and 10.0% 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 | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Average check (1) | 4.8 | % | 20.2 | % | 16.4 | % | 9.1 | % | |||||||||||||||
| Transactions | 4.2 | % | (16.1) | % | (6.4) | % | (7.9) | % | |||||||||||||||
| Change in same-store sales | 9.0 | % | 4.1 | % | 10.0 | % | 1.2 | % | |||||||||||||||
____________________________
(1)Amounts in 2021 include price increases of approximately 3.7% in the quarter and 3.4% year-to-date. Amounts in 2020 include price increase of approximately 3.0% in the quarter and 2.7% year-to-date.
Food and packaging costs as a percentage of company restaurant sales increased to 29.4% in the quarter and decreased to 28.5% year-to-date in 2021 compared to 29.2% in the quarter and 29.6% year-to-date in 2020. In the quarter, the 0.2% increase is due to a 1.4% increase in costs for commodities, partially offset by menu price increases of 0.9% and favorable sales mix of 0.3%. Year-to-date, the 1.1% decrease is driven by favorable sales mix of 1.1% and menu price increases of 0.8%, partially offset by a 0.8% increase in commodities. Commodity costs increased in the quarter and year-to-date by approximately 5.7% and 2.9%, respectively, primarily due to increases in pork and beverages, partially offset by a decrease in beef. For fiscal 2021, we expect annual commodity cost inflation to be up 4% to 5% compared with fiscal 2020.
Payroll and employee benefit costs as a percentage of company restaurant sales decreased to 29.8% in the quarter and 30.4% year-to-date in 2021 compared to 30.4% in the quarter and 31.0% year-to-date in 2020, primarily due to sales leverage, which more than offset labor inflation and higher incentive compensation costs. Labor inflation was approximately 8% in the quarter and 6% year-to-date. For fiscal 2021, we expect annual wage inflation to be up 7% to 8% compared with fiscal 2020.
Occupancy and other costs, as a percentage of company restaurant sales, increased to 15.3% in the quarter and decreased to 15.5% year-to-date in 2021 compared to 15.0% in the quarter and 15.6% year-to-date in 2020. In the quarter, the increase is primarily due to higher costs for delivery fees as we continue to grow our delivery sales mix, and higher maintenance and repair costs, partially offset by leverage from higher same-store sales. Year-to-date, the decrease is driven by leverage from higher same-store-sales and lower costs for maintenance and repairs, partially offset by higher costs for delivery fees.
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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 | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Franchise rental revenues | $ | 80,598 | $ | 76,021 | $ | 262,248 | $ | 241,990 | |||||||||||||||
| Royalties | 45,950 | 41,537 | 146,913 | 127,829 | |||||||||||||||||||
| Franchise fees and other | 2,632 | 1,702 | 8,548 | 5,640 | |||||||||||||||||||
| Franchise royalties and other | 48,582 | 43,239 | 155,461 | 133,469 | |||||||||||||||||||
| Franchise contributions for advertising and other services | 48,386 | 40,571 | 155,375 | 128,458 | |||||||||||||||||||
| Total franchise revenues | $ | 177,566 | $ | 159,831 | $ | 573,084 | $ | 503,917 | |||||||||||||||
| Franchise occupancy expenses | $ | 48,824 | $ | 48,612 | $ | 162,897 | $ | 161,470 | |||||||||||||||
| Franchise support and other costs | 2,722 | 2,692 | 9,336 | 10,339 | |||||||||||||||||||
| Franchise advertising and other services expenses | 49,168 | 42,176 | 158,967 | 133,134 | |||||||||||||||||||
| Total franchise costs | $ | 100,714 | $ | 93,480 | $ | 331,200 | $ | 304,943 | |||||||||||||||
| Franchise costs as a percentage of total franchise revenues | 56.7% | 58.5% | 57.8% | 60.5% | |||||||||||||||||||
| Average number of franchise restaurants | 2,063 | 2,079 | 2,072 | 2,084 | |||||||||||||||||||
| Franchised restaurant sales | $ | 889,558 | $ | 804,791 | $ | 2,852,746 | $ | 2,480,062 | |||||||||||||||
| Franchised restaurant AUVs | $ | 431 | $ | 387 | $ | 1,377 | $ | 1,190 | |||||||||||||||
| Royalties as a percentage of total franchised restaurant sales | 5.2% | 5.2% | 5.1% | 5.2% | |||||||||||||||||||
Franchise rental revenues increased $4.6 million, or 6.0% in the quarter, and $20.3 million or 8.4% year-to-date compared to the prior year, primarily due to higher percentage rent driven by higher franchised restaurant sales.
Franchise royalties and other increased $5.3 million, or 12.4% in the quarter, and $22.0 million, or 16.5% year-to-date compared to the prior year, due primarily to an increase in franchised restaurant sales driving royalty fees higher by $4.4 million and $19.1 million, respectively. Additionally, fees received in connection with the early termination of franchise agreements increased by $0.7 million in the quarter and $2.8 million year-to-date.
Franchise contributions for advertising and other services revenues increased $7.8 million, or 19.3% in the quarter, and $26.9 million or 21.0% year-to-date compared to the prior year, mainly as a result of higher marketing contributions. In the quarter and year-to-date, marketing contributions increased by $7.5 million and $26.9 million due to higher franchise sales and a reduction in contribution percentages in the prior year for March 2020 and April 2020 marketing fees in response to the pandemic. The decrease in marketing fee contribution percentages in the prior year resulted in lower fees of $2.9 million and $7.9 million in the quarter and year-to-date.
Franchise occupancy expenses, primarily rent, increased $0.2 million in the quarter and $1.4 million year-to-date compared to the prior year, mainly due to annual base rent increases and higher costs for percentage rent expense.
Franchise support and other costs were flat in the quarter and decreased $1.0 million year-to-date, primarily due to a decrease in franchisee bad debt expense from specific franchise situations that occurred in the first quarter of 2020.
Franchise advertising and other service expenses increased $7.0 million in the quarter and $25.8 million year-to-date compared to the prior year, primarily due to an increase in marketing contributions from our franchisees.
Depreciation and Amortization
Depreciation and amortization decreased by $1.8 million in the quarter and $5.5 million year-to-date compared to the prior year, primarily due to certain franchise building assets becoming fully depreciated.
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Selling, General and Administrative (“SG&A”) Expenses
The following table presents the change in SG&A expenses compared with the prior year (in thousands):
| Increase/(Decrease) | |||||||||||
| Quarter | Year-to-date | ||||||||||
| Advertising | $ | 752 | $ | 1,995 | |||||||
| Incentive compensation (including share-based compensation and related payroll taxes) | (1,357) | 1,478 | |||||||||
| Cash surrender value of COLI policies, net | 1,242 | (7,336) | |||||||||
| Litigation matters | 3,359 | (2,464) | |||||||||
| Insurance | 1,276 | (1,080) | |||||||||
| Other | 2,844 | 2,432 | |||||||||
| $ | 8,116 | $ | (4,975) | ||||||||
Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales. Advertising costs increased $0.8 million in the quarter and $2.0 million year-to-date compared to the prior year primarily due to higher company-operated restaurant sales, and a decrease in the contribution percentage in the prior year.
Incentive compensation decreased by $1.4 million in the quarter and increased by $1.5 million year-to-date compared to the prior year. In the quarter, the decrease is primarily due to a $1.2 million decrease in stock-based compensation as a result of turnover at the executive level. Year-to-date, the increase is primarily due to higher achievement levels compared to the prior year for the Company’s annual incentive plan, partially offset by a decrease of $4.3 million in stock-based compensation as a result of turnover at the executive level.
The cash surrender value of our company-owned life insurance (“COLI”) policies, net of changes in our non-qualified deferred compensation obligation supported by these policies, are subject to market fluctuations. In the quarter, the changes in market values had a negative impact of $1.2 million as a result of $2.6 million of gains recognized in the quarter compared to $3.8 million of gains in the prior year quarter. Year-to-date, the changes in market values had a positive impact of $7.3 million as a result of $9.0 million of gains recognized in the year compared to $1.7 million of gains in the prior year.
Litigation matters increased by $3.4 million in the quarter and decreased by $2.5 million year-to-date. In the quarter, the increase is related to ongoing litigation in the normal course of business. Year-to-date, the decrease is primarily due to a California Private Attorney General Act lawsuit settled in the prior year. Refer to Note 11, Commitments and Contingencies, of the notes to the condensed consolidated financial statements for additional information.
Insurance costs increased by $1.3 million in the quarter and decreased by $1.1 million year-to-date. In the quarter, insurance costs increased primarily due to a favorable change in the loss development factors related to our workers’ compensation liabilities a year ago. Year-to-date, the decrease is primarily due to more favorable trends in the current year related to expected losses associated with workers’ compensation claims.
Impairment and Other Charges (Gains), Net
Impairment and other charges (gains), net is comprised of the following (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Costs of closed restaurants and other | $ | 622 | $ | 890 | $ | 2,086 | $ | 1,322 | |||||||||||||||
| Restructuring costs | — | 2 | 4 | 1,165 | |||||||||||||||||||
| Losses (gains) on disposition of property and equipment, net | 177 | (216) | (1,754) | (10,386) | |||||||||||||||||||
| Accelerated depreciation | 123 | 62 | 1,362 | 62 | |||||||||||||||||||
| $ | 922 | $ | 738 | $ | 1,698 | $ | (7,837) | ||||||||||||||||
Impairment and other charges, net increased by $0.2 million in the quarter and $9.5 million year-to-date. Year-to-date, the increase is primarily due to a $10.8 million gain related to the sale of one of our corporate office buildings in 2020.
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Gains on the Sale of Company-Operated Restaurants
In 2021 and 2020, no company-operated restaurants were sold to franchisees. Amounts included in “Gains on the sale of company-operated restaurants” in all periods related to resolutions of certain contingencies from the sale of restaurants in prior years.
Other Pension and Post-Retirement Expenses, Net
Other pension and post-retirement expenses, net decreased $40.3 million year-to-date versus the prior year, primarily due to non-cash settlement charges of $39.0 million in 2020. Refer to Note 8, Retirement Plans, of the notes to the condensed consolidated financial statements for additional information.
Interest Expense, Net
Interest expense, net is comprised of the following (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 4, 2021 | July 5, 2020 | July 4, 2021 | July 5, 2020 | ||||||||||||||||||||
| Interest expense | $ | 15,206 | $ | 15,703 | $ | 51,186 | $ | 51,580 | |||||||||||||||
| Interest income | (48) | (3) | (66) | (529) | |||||||||||||||||||
| Interest expense, net | $ | 15,158 | $ | 15,700 | $ | 51,120 | $ | 51,051 | |||||||||||||||
Interest expense, net decreased by $0.5 million in the quarter and increased $0.1 million year-to-date compared with a year ago. In the quarter, the decrease is due to lower average debt balances as a result of paying down borrowings under our Variable Funding Notes during the second quarter of 2021. Year-to-date, the increase is mainly due to lower interest income versus the prior year.
Income Tax Expense
The effective tax rate was 23.1% in the third quarter and 25.1% year-to-date fiscal year 2021, compared with 27.9% and 29.0%, respectively, in fiscal year 2020. The major components of the year-over-year decrease in tax rates were a decrease in the impact of non-deductible compensation for certain officers, an increase in non-taxable gains from the market performance of insurance products used to fund certain non-qualified retirement plans, a decrease in non-deductible costs resulting from a California Private Attorney General Act lawsuit settled in the prior year, and the release of reserves on state tax credits and losses, partially offset by an adjustment related to state taxes recorded in the second quarter of fiscal year 2021.
LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of liquidity and capital resources are cash flows from operations and borrowings available under our securitized financing facility. Our cash requirements consist principally of working capital, general corporate needs, capital expenditures, income tax payments, debt service requirements, franchise tenant improvement allowance distributions, dividend payments, and obligations related to our benefit plans. We generally reinvest available cash flows from operations to invest in our business, service our debt obligations, pay dividends and repurchase shares of our common stock.
Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available borrowings under our Variable Funding Notes. As of July 4, 2021, the Company had $102.4 million of cash and restricted cash on its balance sheet and $110.5 million of borrowing availability under its Variable Funding Notes.
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with our securitized financing facility including our Variable Funding Notes, will be sufficient to meet our capital expenditure, working capital and debt service requirements for at least the next twelve months and the foreseeable future.
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Cash Flows
The table below summarizes our cash flows from continuing operations (in thousands):
| Year-to-date | |||||||||||
| July 4, 2021 | July 5, 2020 | ||||||||||
| Total cash provided by (used in): | |||||||||||
| Operating activities | $ | 149,881 | $ | 90,168 | |||||||
| Investing activities | (26,040) | 29,543 | |||||||||
| Financing activities | (258,320) | (74,359) | |||||||||
| Net cash flows | $ | (134,479) | $ | 45,352 | |||||||
Operating Activities. Operating cash flows increased $59.7 million compared with a year ago, primarily due to an increase of $61.4 million in Adjusted EBITDA, favorable collections of $36.9 million from the repayment of franchise marketing and rent payment deferrals provided in the prior year, and lower interest payments of $7.7 million. These increases were partially offset by higher rent payments of $20.0 million due to repayment of deferrals we received from our landlords in the prior year, and higher income tax payments of $21.6 million compared to prior year.
Pension and Post-Retirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, 2020, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for our qualified pension plan. In 2021, we contributed $5.0 million to our non-qualified pension plan and post-retirement plans.
Investing Activities. Cash used in investing activities increased by $55.6 million compared with a year ago, primarily due to $19.8 million of proceeds received in the prior year as a result of a sale and partial leaseback of a multi-tenant property,$18.4 million higher capital expenditures, and $17.5 million lower proceeds received on the sale of property and equipment, primarily due to proceeds received on the sale of a corporate office building in the prior year.
Capital Expenditures — The composition of capital expenditures in each period follows (in thousands):
| Year-to-date | |||||||||||
| July 4, 2021 | July 5, 2020 | ||||||||||
| Restaurants: | |||||||||||
| Remodel / refresh programs | $ | 7,877 | $ | 4,256 | |||||||
| Restaurant facility expenditures | 4,984 | 4,129 | |||||||||
| Purchases of assets intended for sale and leaseback | 15,528 | 417 | |||||||||
| Restaurant information technology | 2,482 | 3,775 | |||||||||
| 30,871 | 12,577 | ||||||||||
| Corporate Services: | |||||||||||
| Information technology | 1,250 | 3,370 | |||||||||
| Corporate facilities | 3,036 | 789 | |||||||||
| 4,286 | 4,159 | ||||||||||
| Total capital expenditures | $ | 35,157 | $ | 16,736 | |||||||
In 2021, capital expenditures increased by $18.4 million compared to a year ago primarily due to a $15.1 million increase in purchases of assets intended for sale and leaseback. During 2021, we exercised our right of first refusal related to four leased restaurant properties which we intend to sell and leaseback within the next 12 months.
Financing Activities. Cash flows used in financing activities increased by $184.0 million compared with a year ago, primarily due to our repayment during the second quarter of $107.9 million of 2020 borrowings on our Variable Funding Notes, partially offset by a $31.2 million decrease in cash used for share repurchases.
Repurchases of Common Stock — The Company repurchased 1.2 million shares of its common stock in 2021 for an aggregate cost of $130.0 million. Repurchases of common stock in our condensed consolidated statement of cash flows for 2021 excludes $5.6 million traded in the quarter that settled in the fourth quarter. As of July 4, 2021, this leaves $70.0 million remaining under share repurchase programs authorized by the Board of Directors that expire in November 2022.
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Dividends — During the first, second, and third quarter of 2021, the Board of Directors declared cash dividends of $0.40, $0.40, and $0.44, respectively, totaling $28.1 million. On July 30, 2021, the Board of Directors declared a cash dividend of $0.44 per common share, to be paid on September 3, 2021, to shareholders of record as of the close of business on August 18, 2021. Future dividends are subject to approval by our Board of Directors.
Long-Term Debt — As of July 4, 2021, we had $1.3 billion of outstanding borrowings under our securitized financing facility, comprised of total principal outstanding on the Class A-2 Notes (as defined below). During the second quarter of 2021, the Company fully paid down its outstanding borrowings on its Variable Funding Notes. As of July 4, 2021, borrowing availability under the Variable Funding Notes was $110.5 million.
On July 8, 2019, Jack in the Box Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of the Company, completed its securitization transaction and issued $575.0 million of its Series 2019-1 3.982% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”), $275.0 million of its Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”) and $450.0 million of its Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes”) and together with the Class A-2-I Notes and the Class A-2-II Notes, (the “Class A-2 Notes”), in an offering exempt from registration under the Securities Act of 1933, as amended. In connection with the issuance of the Class A-2 Notes, the Master Issuer also entered into a revolving financing facility of Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Variable Funding Notes”), which allows for the drawing of up to $150.0 million under the Variable Funding Notes and the issuance of letters of credit. The Class A-2 Notes and the Variable Funding Notes are referred to collectively as the “Notes.”
Interest and principal payments on the Class A-2 Notes are payable on a quarterly basis. The quarterly principal payment of $3.25 million on the Class A-2 Notes may be suspended when the specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as defined in the Indenture), is less than or equal to 5.0x. Exceeding the leverage ratio of 5.0x does not violate any covenant related to the Class A-2 Notes. As of September 27, 2020, January 17, 2021, April 11, 2021, and July 4, 2021, the Company’s actual leverage ratio was under 5.0x, and as a result, quarterly principal payments were not required.
The legal final maturity date of the Class A-2 Notes is in August 2049, but it is expected that, unless earlier prepaid to the extent permitted under the Indenture, the anticipated repayment dates of the Class A-2-I Notes, the Class A-2-II Notes and the Class A-2-III Notes will be August 2023, August 2026 and August 2029, respectively (the “Anticipated Repayment Dates”). If the Master Issuer has not repaid or refinanced the Class A-2 Notes prior to the respective anticipated repayment date, additional interest will accrue pursuant to the Indenture.
Restricted Cash — In accordance with the terms of the Indenture, certain cash accounts have been established with the Indenture trustee for the benefit of the note holders and are restricted in their use. As of July 4, 2021, the Master Issuer had restricted cash of $18.2 million, which primarily represented cash collections and cash reserves held by the trustee to be used for payments of interest and commitment fees required for the Class A-1 and A-2 Notes.
Covenants and Restrictions —The Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Notes are in stated ways defective or ineffective and (iv) covenants relating to recordkeeping, access to information and similar matters. The Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of gross sales for specified restaurants being below certain levels on certain measurement dates, certain manager termination events, an event of default, and the failure to repay or refinance the Class A-2 Notes on the applicable scheduled maturity date. The Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments. As of July 4, 2021, we were in compliance with all of our debt covenant requirements and were not subject to any rapid amortization events.
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Off-Balance Sheet Arrangements
We have entered into certain off-balance sheet contractual obligations and commitments in the ordinary course of business, which are recognized in our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles. There has been no material change in these arrangements as disclosed in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September 27, 2020. We are not a party to any other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those that we believe are most important for the portrayal of the Company’s financial condition and results, and that require management’s most subjective and complex judgments. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 2020.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, Basis of Presentation, of the notes to condensed consolidated financial statements.
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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 COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which has affected and could continue to materially affect our operations, financial condition, and results of operations for an extended period of time.
•We face significant competition in the food service industry and our inability to compete may adversely affect our business.
•Changes in demographic trends and in customer tastes and preferences could cause sales and the royalties we receive from franchisees to decline.
•Changes in consumer confidence and declines in general economic conditions could negatively impact our financial results.
•Increases in food and commodity costs could decrease our profit margins or result in a modified menu, which could adversely affect our financial results.
•Failure to receive scheduled deliveries of high-quality food ingredients and other supplies could harm our operations and reputation.
•We have a limited number of suppliers for our major products and rely on a distribution network with a limited number of distribution partners for the majority of our national distribution program. If our suppliers or distributors are unable to fulfill their obligations under their contracts, it could harm our operations.
•Food safety and food-borne illness concerns may have an adverse effect on our business by reducing demand and increasing costs.
•Negative publicity relating to our business or industry could adversely impact our reputation.
•Our business could be adversely affected by increased labor costs.
•Inability to attract, train and retain top-performing personnel could adversely impact our financial results or business.
•We may not have the same resources as our competitors for marketing, advertising and promotion.
•We may be adversely impacted by severe weather conditions, natural disasters, terrorist acts or civil unrest that could result in property damage, injury to employees and staff, and lost restaurant sales.
•We may not achieve our development goals.
•Our highly franchised business model presents a number of risks, and the failure of our franchisees to operate successful and profitable restaurants could negatively impact our business.
•We are subject to financial and regulatory risks associated with our owned and leased properties and real estate development projects.
•Our tax provision may fluctuate due to changes in expected earnings.
•We are subject to the risk of cybersecurity breaches, intrusions, data loss, or other data security incidents.
•We are subject to risks associated with our increasing dependence on digital commerce platforms and technologies to maintain and grow sales, and we cannot predict the impact that these digital commerce platforms and technologies, other new or improved technologies or alternative methods of delivery may have on consumer behavior and our financial results.
•We are dependent on information technology and digital service providers and any material failure, misuse, or interruption of our computer systems, supporting infrastructure, consumer-facing digital capabilities or social media platforms could adversely affect our business.
•If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, the Company’s stockholders could lose confidence in our financial results, which would harm our business and the value of the Company’s common shares.
•We may not be able to adequately protect our intellectual property, which could harm the value of our brands and adversely affect our business.
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•Jack in the Box may be subject to risk associated with disagreements with key stakeholders, such as franchisees.
•The securitized debt instruments issued by certain of our wholly-owned subsidiaries have restrictive terms, and any failure to comply with such terms could result in default, which could harm the value of our brand and adversely affect our business.
•We have a significant amount of debt outstanding. Such indebtedness, along with the other contractual commitments of our Company or its subsidiaries, could adversely affect our business, financial condition and results of operations, as well as the ability of certain of our subsidiaries to meet debt payment obligations.
•The securitization transaction documents impose certain restrictions on our activities or the activities of our subsidiaries, and the failure to comply with such restrictions could adversely affect our business.
•Changes in accounting standards may negatively impact our results of operations.
•We are subject to increasing legal complexity and may be subject to claims or lawsuits that are costly to defend and could result in our payment of substantial damages or settlement costs.
•Unionization activities or labor disputes may disrupt our operations and affect our profitability.
•Increasing regulatory and legal complexity may adversely affect restaurant operations and our financial results.
•Our insurance may not provide adequate levels of coverage against claims.
•Governmental regulation may adversely affect our existing and future operations and results, including by harming our ability to profitably operate our restaurants.
•The proliferation of federal, state, and local regulations increases our compliance risks, which in turn could adversely affect our business.
•Legislation and regulations regarding our products and ingredients, including the nutritional content of our products, could impact customer preferences and negatively impact our financial results.
•Failure to obtain and maintain required licenses and permits or to comply with food control regulations could lead to the loss of our food service licenses and, thereby, harm our business.
•Our quarterly results and, as a result, the price of our common stock, may fluctuate significantly and could fall below the expectations of securities analysts and investors due to various factors.
•Actions of activist stockholders could cause us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business.
These and other factors are identified and described in more detail in our filings with the Securities and Exchange Commission, including, but not limited to: the “Discussion of Critical Accounting Estimates,” and other sections in this Form 10-Q and the “Risk Factors” section of our most recent Annual Report on Form 10-K for the fiscal year ended September 27, 2020 (“Form 10-K”). These documents may be read free of charge on the SEC’s website at www.sec.gov. Potential investors are urged to consider these factors, more fully described in our Form 10-K, carefully in evaluating any forward-looking statements, and are cautioned not to place undue reliance on the forward-looking statements. All forward-looking statements are made only as of the date issued, and we do not undertake any obligation to update any forward-looking statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our quantitative and qualitative market risks set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended September 27, 2020.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s quarter ended July 4, 2021, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) have concluded that the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended July 4, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
There is no information required to be reported for any items under Part II, except as follows:
ITEM 1. LEGAL PROCEEDINGS
See Note 11, Commitments and Contingencies, of the notes to the condensed consolidated financial statements for a discussion of our contingencies and legal matters.
ITEM 1A. RISK FACTORS
When evaluating our business and our prospects, you should consider the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended September 27, 2020, which we filed with the SEC on November 18, 2020, as updated in this Item 1A. You should also consider the risks and uncertainties discussed under the heading “Cautionary Statements Regarding Forward-Looking Statements” in Item 2 of this Quarterly Report on Form 10-Q. You should also refer to the other information set forth in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended September 27, 2020, including our financial statements and the related notes. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the risks or uncertainties actually occurs, our business and financial results could be harmed. In that case, the market price of our common stock could decline.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock Repurchases — In the third quarter of 2021 we repurchased 0.6 million shares of our common stock for an aggregate cost of $65.0 million. As of July 4, 2021, this leaves $70.0 million remaining under share repurchase programs authorized by the Board of Directors that expire in November 2022.
| (a) Total number of shares purchased | (b) Average price paid per share | (c) Total number of shares purchased as part of publicly announced programs | (d) Maximum dollar value that may yet be purchased under these programs | |||||||||||||||||||||||
| $ | 135,000,010 | |||||||||||||||||||||||||
| April 12, 2021 - May 9, 2021 | — | $ | — | — | $ | 135,000,010 | ||||||||||||||||||||
| May 10, 2021 - June 6, 2021 | 191,765 | $ | 114.31 | 191,765 | $ | 113,080,042 | ||||||||||||||||||||
| June 7, 2021 - July 4, 2021 | 367,100 | $ | 117.26 | 367,100 | $ | 70,032,499 | ||||||||||||||||||||
| Total | 558,865 | 558,865 | ||||||||||||||||||||||||
ITEM 3. DEFAULTS OF SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Item 5.03. None.
30
ITEM 6. EXHIBITS
| Number | Description | Form | Filed with SEC | ||||||||
| 10.2.26* | 8-K | May 17, 2021 | |||||||||
| 31.1 | — | Filed herewith | |||||||||
| 31.2 | — | Filed herewith | |||||||||
| 32.1 | — | Filed herewith | |||||||||
| 32.2 | — | Filed herewith | |||||||||
| 101.INS | iXBRL Instance Document | ||||||||||
| 101.SCH | iXBRL Taxonomy Extension Schema Document | ||||||||||
| 101.CAL | iXBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||
| 101.DEF | iXBRL Taxonomy Extension Definition Linkbase Document | ||||||||||
| 101.LAB | iXBRL Taxonomy Extension Label Linkbase Document | ||||||||||
| 101.PRE | iXBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||
| 104 | Cover Page Interactive Data File formatted in iXBRL | ||||||||||
* Management contract or compensatory plan | |||||||||||
31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| JACK IN THE BOX INC. | ||||||||
| By: | /S/ TIM MULLANY | |||||||
| Tim Mullany | ||||||||
| Executive Vice President and Chief Financial Officer (principal financial officer) (Duly Authorized Signatory) | ||||||||
Date: August 4, 2021
32
Exhibit 31.1
CERTIFICATION
I, Darin Harris, 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: | August 4, 2021 | /S/ DARIN HARRIS | ||||||
| Darin Harris | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 31.2
CERTIFICATION
I, Tim Mullany, 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: | August 4, 2021 | /S/ TIM MULLANY | ||||||
| Tim Mullany | ||||||||
| Chief Financial Officer | ||||||||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Darin Harris, 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: | August 4, 2021 | /S/ DARIN HARRIS | ||||||
| Darin Harris | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Tim Mullany, 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: | August 4, 2021 | /S/ TIM MULLANY | ||||||
| Tim Mullany | ||||||||
| Chief Financial Officer | ||||||||