Basis Of Presentation (Policy)

4 Months Ended

Jan. 19, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of operations

Nature of operations — Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box^® quick-service restaurants.

Basis of presentation

Basis of presentation — The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).

These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2019 (“2019 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2019 Form 10-K with the exception of the new lease accounting standard adopted in fiscal 2020, which is described below.

In our opinion, all adjustments considered necessary for a fair presentation of financial condition and results of operations for these interim periods have been included. Operating results for one interim period are not necessarily indicative of the results for any other interim period or for the full year.

Segment reporting

Segment reporting — The Company is comprised of one operating segment.

Fiscal year

Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 2020 and 2019 include 52 weeks. Our first quarter includes 16-weeks and all other quarters include 12-weeks. All comparisons between 2020 and 2019 refer to the 16-weeks (“quarter”) ended January 19, 2020 and January 20, 2019, respectively, unless otherwise indicated.

Use of estimates

Use of estimates — In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates.

Advertising costs

Advertising costs — We administer a marketing fund which includes contractual contributions. In 2020 and 2019, marketing fund contributions from franchise and company-operated restaurants were approximately 5.0% of gross revenues. In 2019, incremental contributions made by the Company were $2.0 million. There have been no incremental contributions made in 2020.

Total contributions made by the Company, including incremental contributions, are included in “Selling, general, and administrative expenses” in the accompanying condensed consolidated statements of earnings and totaled $5.3 million and $7.2 million in 2020 and 2019, respectively.

Effect of new accounting pronouncements adopted in fiscal 2020

Effect of new accounting pronouncements adopted in fiscal 2020 — We adopted ASU 2016-02, Leases (Topic 842) (“ASC 842”) in the first quarter of 2020. The new guidance requires the recognition of lease liabilities, representing future minimum lease payments on a discounted basis, and corresponding right-of-use (“ROU”) assets on the balance sheet for most leases. The Company adopted the new guidance in the first quarter of 2020 using the alternative transition method; therefore, the comparative period has not been restated and continues to reported under the previous lease guidance.

We elected the transition package of three practical expedients, which, among other items, permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also elected the short-term lease recognition exemption for all leases that qualify, permitting us to not apply the recognition requirements of this standard to leases with a term of 12 months or less, and an accounting policy to not separate lease and non-lease components for underlying assets subject to real estate leases. As lessor, we elected for all classes of underlying leased assets to account for lease and non-lease components, primarily property taxes and maintenance, as a single lease component. We did not elect the use-of-hindsight practical expedient, and therefore continued to utilize lease terms determined under the existing lease guidance.

The adoption had a material impact on our consolidated balance sheet. As a result of the adoption, we recognized operating lease assets and liabilities of $881 million and $931 million, respectively, at the date of adoption. The ROU assets were adjusted for certain lease-related assets and liabilities at adoption, primarily comprised of straight-line rent accruals of $29.0 million, incentives and unfavorable lease liabilities of $2.1 million, sublease loss and exit-related lease liabilities of $19.4 million, which were previously reported in “Accrued liabilities” and “Other long-term liabilities”, as well as favorable lease assets of $0.4 million, which were previously reported in “Intangible assets, net” in our condensed consolidated balance sheet. We also recorded a cumulative adjustment to opening retained earnings of $2.9 million, net of tax, as a result of the impairment of certain newly recognized ROU assets and derecognition of deferred gains and losses on sale-leaseback transactions upon transition to the new guidance.

The effects of the changes made to the Company's condensed consolidated balance sheet as of September 29, 2019 for the adoption of the new lease guidance were as follows (in thousands):

	Balance at September 29, 2019		Adjustments due to ASC 842 adoption		Balance at September 30, 2019
Assets
Other assets:
Operating lease ROU assets	$	—	$	880,564	$	880,564
Intangible assets, net	$	425	$	(386)	$	39
Deferred income taxes	$	85,564	$	1,006	$	86,570
Liabilities and Stockholders’ Deficit
Current liabilities:
Current operating lease liabilities	$	—	$	159,821	$	159,821
Accrued liabilities	$	120,083	$	(4,702)	$	115,381
Long-term liabilities:
Long-term operating lease liabilities, net of current portion	$	—	$	770,818	$	770,818
Other long-term liabilities	$	263,770	$	(41,883)	$	221,887
Stockholders’ deficit:
Retained earnings	$	1,577,034	$	(2,870)	$	1,574,164

The accounting guidance for lessors remains largely unchanged from previous guidance, except for the presentation of certain lease costs that the Company passes through to lessees, including but not limited to, property taxes and maintenance. These costs are generally paid by the Company and reimbursed by the lessee. Historically, these costs have been recorded on a net basis in our condensed consolidated statements of earnings but are now presented gross upon adoption of the new guidance. As a result, we expect annual revenues and expenses reported in “Franchise rental revenues” and “Franchise occupancy expenses” to increase by approximately $37 million in fiscal 2020. Refer to Note 4, Leases, for further information on our leases and the impact on the Company’s accounting policies.

Effect of new accounting pronouncements to be adopted in future periods — In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Companies can choose to adopt the new guidance prospectively or retrospectively. We are currently in the process of evaluating the effects of this pronouncement on our consolidated financial statements and do not expect there to be a material impact upon adoption.