Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. JACK IN THE BOX INC /NEW/ (807882) 10-Q published on May 16, 2019 at 3:01 pm
Reporting Period: Apr 13, 2019
Effect of new accounting pronouncements to be adopted in future periods — In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (as subsequently amended by ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01) which requires a lessee to recognize assets and liabilities on the balance sheet for those leases classified as operating leases under previous guidance. Based on a preliminary assessment, we expect that most of our operating lease commitments will be subject to the new guidance and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on our consolidated balance sheets. We do not expect the adoption of this guidance to have a material impact on our consolidated statement of earnings and statement of cash flows. We will be required to adopt these standards in the first quarter of fiscal 2020 and plan to utilize the alternative transition method, whereby an entity records a cumulative adjustment to opening retained earnings in the year of adoption without restating prior periods. We are continuing our evaluation, which may identify additional impacts this standard and its amendments will have on our consolidated financial statements and related disclosures.
We also entered into a Transition Services Agreement with the Buyer pursuant to which the Buyer is receiving certain services (the “Services”) to enable it to operate the Qdoba business after the closing of the Qdoba Sale. The Services include information technology, finance and accounting, human resources, supply chain and other corporate support services. Under the Agreement, the Services are being provided at cost for a period of up to 12 months, with two 3-month extensions available for certain services. We are still providing accounting and information technology services under the Agreement and currently estimate these services will be performed up to, but no later than, the end of the fourth quarter of fiscal 2019. In 2019 and 2018, we recorded $1.9 million and $1.1 million in the quarter, respectively, and $5.6 million and $1.1 million year-to-date, respectively, in income related to the Services as a reduction of selling, general and administrative expenses in the condensed consolidated statements of earnings.
Occupancy and other costs decreased $7.0 million in the quarter and $18.8 million year-to-date in 2019 compared to the prior year, primarily due to a decrease in the average number of restaurants, impacting occupancy and other costs by approximately$7.5 million in the quarter and $21.0 million year-to-date, partially offset by higher costs for utilities, information technology, delivery fees, and credit card fees. In the quarter and year-to-date, as a percentage of company restaurant sales, occupancy and other costs decreased to 14.5% and 15.1%, respectively, from 15.9% and 16.2% a year ago due primarily to refranchising.
Restructuring costs decreased by $1.6 million in the quarter and increased by $3.9 million year-to-date, primarily due to timing of initiatives and related employee severance costs. Costs of closed restaurants decreased by $1.3 million and $1.9 million in the quarter and year-to-date, respectively, due to a lower number of restaurant closures compared to the prior year. Gains on disposition of property and equipment, net, increased by $1.0 million and $0.6 million, respectively, primarily due to the resolution of an eminent domain matter in 2019. Refer to Note 7, Impairment and Other Charges, Net of the notes to the condensed consolidated financial statements for additional information regarding these charges.
Operating Activities. Operating cash flows in 2019 increased $31.5 million compared with a year ago due to favorable changes in working capital of $36.0 million, primarily due to the timing of payments and spending for advertising expenses ($30.9 million), lower tax payments ($6.3 million), timing of annual beverage funding ($6.6 million), partially offset by higher annual incentive compensation paid in the current year ($7.7 million). Operating cash flows was also impacted by lower net income adjusted for non-cash items of $4.5 million.