Question

Review the Statement of Cash Flows for Jack in the Box (JACK). Answer the following questions which are worth 2 points each.

1. Does JACK use the direct or indirect method?

2. Looking at the adjustment for prepaid expenses and other current assets for 2018, did JACK pre-pay additional expenses or use up expenses previously pre-paid? Why?

3. We are given the gains from the sale of company-operated restaurants and the proceeds from the sale of those restaurants. Given that information for 2018, what was the book value of the company-operated restaurants? Show your computations:

4. For 2018, under financing activities, explain what “repurchases of common stock” is about.

5. For 2018, is JACK borrowing more or paying back more on its revolving line of credit?

JACK IN THE Box INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Fiscal Year 2017 2018 2016 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: $121,371 $135,332 $124,073 17,032 17,600 6,759 104,339 128,573 106,473 Depreciation and amortization Franchise tenant improvement allowance amortization 67,398 72,786 59,422 862 121 3 Deferred finance cost amortization 2,803 3,487 2,736 Excess tax benefits from share-based compensation arrangements (2,031) (4,232) (16,074) 10,637 (7,461) Deferred income taxes 25,352 33,293 Share-based compensation expense 9,146 11,327 2,324 4,215 13,484 Pension and postretirement expense Gains on cash surrender value of company owned life insurance (2,280) (2,424) (5,365) Gains on the sale of company-operated (46,164) (38,034) (1,230) restaurants Losses on the disposition of property and equipment Impairment charges and other Changes in assets and liabilities, excluding acquisitions and dispositions: 1,627 2,891 2,280 2,505 1,815 1,543 24,220 (1,868) (9,723) (181) (13,966) 2,739 Accounts and other receivables Inventories 1,587 1,839 Prepaid expenses and other current assets Accounts payable (9,432) 4,890 12,718 (3,359) (16,654) (5,363) (101,052) Accrued liabilities (38,329) (5,467) 4,877 Pension and postretirement contributions Franchise tenant improvement allowance disbursements (14,893) Other (16,426) (11,997) (8,151)

Answer 1

1	Jack uses the indirect method. If you see instead of showing cash received from revenue or cash paid for inventory, the statement shows Changes in Current Assets and Current Liabilities.
2	Prepaid expenses and other current assets are DECREASING the cash flow. It is negative 9,432. It means it is an outflow. Outflow means payment was made.
3	Book Value = Proceeds - Gains = 26,486 - 46,164. It had a negative book value (Gains are amount received over and above the book value. In order to arrive at the book value we must subtract gains.
4	Repurchases of common stock is when a company buys back its own stock from the investors. This reduced the outstanding common stock of the company. A company usually repurchases its own stock to either increase Earning per share or to get back control.
5	For 2018 Borrowing on revolving credit facilities $ 757,100 Repayment of borrowing                          $ (523,700) Net Borrowing $ 233,400