|
| | | | | | | | | | | | | | | |
| Sixteen Weeks Ended | | Twelve Weeks Ended |
| January 22, 2017 | | April 16, 2017 | | July 9, 2017 | | October 1, 2017 |
Company restaurant sales | $ | 128,699 |
| | $ | 98,793 |
| | $ | 107,067 |
| | $ | 102,000 |
|
Franchise revenues | 6,053 |
| | 4,711 |
| | 4,678 |
| | 4,622 |
|
Company restaurant costs (excluding depreciation and amortization) | (105,716 | ) | | (80,713 | ) | | (84,747 | ) | | (86,194 | ) |
Franchise costs (excluding depreciation and amortization) | (1,173 | ) | | (910 | ) | | (879 | ) | | (2,031 | ) |
Selling, general and administrative expenses | (12,429 | ) | | (7,956 | ) | | (8,232 | ) | | (8,089 | ) |
Depreciation and amortization | (6,695 | ) | | (5,057 | ) | | (5,023 | ) | | (4,725 | ) |
Impairment and other charges, net | (3,904 | ) | | (3,811 | ) | | (1,815 | ) | | (5,531 | ) |
Interest expense, net | (2,515 | ) | | (2,044 | ) | | (2,229 | ) | | (2,237 | ) |
(Losses) earnings from discontinued operations before income taxes | 2,320 |
| | 3,013 |
| | 8,820 |
| | (2,185 | ) |
Income taxes | (876 | ) | | (1,181 | ) | | (3,398 | ) | | 937 |
|
(Losses) earnings from discontinued operations, net of income taxes | $ | 1,444 |
| | $ | 1,832 |
| | $ | 5,422 |
| | $ | (1,248 | ) |
| | | | | | | |
Net (losses) earnings per share from discontinued operations: | | | | | | | |
Basic | $ | 0.05 |
| | $ | 0.06 |
| | $ | 0.18 |
| | $ | (0.04 | ) |
Diluted | $ | 0.05 |
| | $ | 0.06 |
| | $ | 0.18 |
| | $ | (0.04 | ) |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Assets being sold and liabilities being assumed by the Buyer in the Qdoba Sale include substantially all assets and liabilities associated with Qdoba, and are classified as held for sale on our condensed consolidated balance sheets. Prior year balances have been recast to conform with the current presentation. Upon classification of the Qdoba assets as held for sale, in accordance with the FASB authoritative guidance on financial statement presentation, the assets are no longer depreciated. The following table summarizes the major categories of assets and liabilities classified as held for salepresents rental income (in thousands):
| | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
| | | | | January 22, 2023 | | January 23, 2022 |
Operating lease income - franchise | | | | | $ | 73,520 | | | $ | 71,357 | |
Variable lease income - franchise | | | | | 35,235 | | | 31,742 | |
Amortization of favorable and unfavorable sublease contracts, net | | | | | 75 | | | — | |
Franchise rental revenues | | | | | $ | 108,830 | | | $ | 103,099 | |
Operating lease income - closed restaurants and other (1) | | | | | $ | 2,240 | | | $ | 1,658 | |
____________________________
(1)Primarily relates to closed restaurant properties included in “Other operating (income) expenses, net” in our condensed consolidated balance sheets asstatements of the end of each period (in thousands):earnings.
7.FAIR VALUE MEASUREMENTS
|
| | | | | | | |
| January 21, 2018 | | October 1, 2017 |
Cash | $ | 3,942 |
| | $ | 3,175 |
|
Accounts receivable, net | 8,529 |
| | 9,086 |
|
Inventories | 3,168 |
| | 3,202 |
|
Prepaid expenses and other current assets | 5,144 |
| | 8,802 |
|
Property and equipment, net | 161,643 |
| | 148,715 |
|
Intangible assets, net | 12,517 |
| | 12,660 |
|
Goodwill | 117,636 |
| | 117,636 |
|
Other assets, net | 1,735 |
| | 1,785 |
|
Total assets classified as held for sale (1) | $ | 314,314 |
| | $ | 305,061 |
|
| | | |
Accounts payable | $ | 5,903 |
| | $ | 8,936 |
|
Accrued liabilities | 24,472 |
| | 25,251 |
|
Current maturities of long-term debt | 175 |
| | 158 |
|
Straight-line rent accrual | 14,319 |
| | 13,347 |
|
Deferred income tax liability (2) | 5,444 |
| | 6,421 |
|
Other long-term liabilities | 11,208 |
| | 12,310 |
|
Total liabilities classified as held for sale | $ | 61,521 |
| | $ | 66,423 |
|
____________________________
| |
(1) | Current assets held for sale on our condensed consolidated balance sheets include Jack in the Box assets held for sale of $18.0 million and $18.5 million as of January 21, 2018 and October 1, 2017, respectively. |
| |
(2) | Prior to held for sale presentation, Qdoba’s deferred income tax liability as of January 22, 2017 was netted against the Jack in the Box deferred income tax assets in other assets, net on our condensed consolidated balance sheet. |
Our liability for Qdoba lease commitments is included in current liabilities held for sale as of January 21, 2018 and is included in current and non-current liabilities held for sale as of October 1, 2017 in the accompanying condensed consolidated balance sheets and has changed as follows in 2018 (in thousands):
|
| | | |
Balance as of October 1, 2017 | $ | 2,473 |
|
Adjustments (1) | 193 |
|
Cash payments | (800 | ) |
Balance as of January 21, 2018 (2) | $ | 1,866 |
|
____________________________
| |
(1) | Adjustments relate to revisions to certain sublease assumptions due to changes in market conditions and includes interest expense. |
| |
(2) | The weighted average remaining lease term related to these commitments is approximately 2 years. |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. SUMMARY OF REFRANCHISINGS AND FRANCHISEE DEVELOPMENT
Refranchisings and franchisee development — The following table summarizes the number of restaurants sold to franchisees, the number of restaurants developed by franchisees, and the related fees and gains recognized in each period (dollars in thousands):
|
| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Restaurants sold to franchisees | 22 |
| | — |
|
New restaurants opened by franchisees | 5 |
| | 7 |
|
| | | |
Initial franchise fees | $ | 995 |
| | $ | 290 |
|
| | | |
Proceeds from the sale of company-operated restaurants: | | | |
Cash (1) | $ | 5,591 |
| | $ | 138 |
|
Short-term notes receivable (2) | 9,084 |
| | — |
|
| 14,675 |
| | 138 |
|
| | | |
Net assets sold (primarily property and equipment) | (3,637 | ) | | — |
|
Goodwill related to the sale of company-operated restaurants | (153 | ) | | (1 | ) |
Other (3) | (1,945 | ) | | — |
|
Gains on the sale of company-operated restaurants | $ | 8,940 |
| | $ | 137 |
|
____________________________
| |
(1) | Amounts in 2018 and 2017 include additional proceeds of $1.2 million and $0.1 million, respectively, related to restaurants sold in prior years. |
| |
(2) | These notes were collected during 2018. |
| |
(3) | Amount primarily relates to $1.5 million of remodel credits. |
As of the end of the first 2018 quarter, we had signed non-binding letters of intent with franchisees to sell an additional 10 company-operated restaurants. Pre-tax gross proceeds related to these sales are estimated at $2.0 million to $3.0 million. Equipment of $0.8 million related to these sales has been classified as assets held for sale on our January 21, 2018 and October 1, 2017 condensed consolidated balance sheets.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4. | 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) |
| Total | | Quoted Prices in Active Markets for Identical Assets (3) (Level 1) | | Significant Other Observable Inputs (3) (Level 2) | | Significant Unobservable Inputs (3) (Level 3) | |
Fair value measurements as of January 21, 2018: | | | | | | | | |
Fair value measurements as of January 22, 2023: | | Fair value measurements as of January 22, 2023: | | | | | | | |
Non-qualified deferred compensation plan (1) | $ | (38,007 | ) | | $ | (38,007 | ) | | $ | — |
| | $ | — |
| Non-qualified deferred compensation plan (1) | $ | 15,992 | | | $ | 15,992 | | | $ | — | | | $ | — | |
Interest rate swaps (Note 5) (2) | (10,962 | ) | | — |
| | (10,962 | ) | | — |
| |
Total liabilities at fair value | $ | (48,969 | ) | | $ | (38,007 | ) | | $ | (10,962 | ) | | $ | — |
| Total liabilities at fair value | $ | 15,992 | | | $ | 15,992 | | | $ | — | | | $ | — | |
Fair value measurements as of October 1, 2017: | | | | | | | | |
Fair value measurements as of October 2, 2022: | | Fair value measurements as of October 2, 2022: | | | | | | | |
Non-qualified deferred compensation plan (1) | $ | (37,575 | ) | | $ | (37,575 | ) | | $ | — |
| | $ | — |
| Non-qualified deferred compensation plan (1) | $ | 13,820 | | | $ | 13,820 | | | $ | — | | | $ | — | |
Interest rate swaps (Note 5) (2) | (22,927 | ) | | — |
| | (22,927 | ) | | — |
| |
Total liabilities at fair value | $ | (60,502 | ) | | $ | (37,575 | ) | | $ | (22,927 | ) | | $ | — |
| Total liabilities at fair value | $ | 13,820 | | | $ | 13,820 | | | $ | — | | | $ | — | |
____________________________
| |
(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 entered into interest rate swaps to reduce our exposure to rising interest rates on our variable rate debt. The fair values of our interest rate swaps are based upon Level 2 inputs which include valuation models as reported by our counterparties. The key inputs for the valuation models are quoted market prices, discount rates and forward yield curves. |
| |
(3) | We did not have any transfers in or out of Level 1, 2 or 3. |
(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 January 22, 2023 and October 2, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| January 22, 2023 | | October 2, 2022 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Series 2019 Class A-2 Notes | $ | 712,313 | | | $ | 652,923 | | | $ | 714,125 | | | $ | 641,851 | |
Series 2022 Class A-2 Notes | $ | 1,083,500 | | | $ | 930,347 | | | $ | 1,089,000 | | | $ | 917,428 | |
The fair valuesvalue of our debt instruments arethe Class A-2 Notes was estimated using Level 2 inputs based on the amountquoted market prices in markets that are not considered active markets. As of future cash flows associated with each instrument discounted usingJanuary 22, 2023, we had $50.0 million of outstanding borrowings under our borrowing rate. At January 21, 2018, theVariable Funding Notes. The fair value of these loans approximates their carrying value due to the variable rate nature of all financial instruments was not materially different from fair value, as the borrowings are prepayable without penalty. The estimated fair values of our capital lease obligations approximated their carrying values as of January 21, 2018.these borrowings.
Non-financial assets and liabilities — Our non-financial instruments, which primarily consist of property and equipment, operating lease right-of-use assets, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on an annual basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial instruments are assessed for impairment. If applicable, the carrying values are written down to fair value.
In connection with our impairment reviews performed during 2018, we recorded $0.5 million of additional impairment charges resulting from changes in market2023, no material fair value from three previously closed restaurants, and $0.2 million in charges related to our landlord’s sale of a restaurant property to a franchisee. Refer to Note 6, Impairment and Other Charges, Net, for additional information regarding impairment charges.adjustments were required.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8.OTHER OPERATING (INCOME) EXPENSES, NET
Objectives and strategies — We are exposed to interest rate volatility with regard to our variable rate debt. In April 2014, to reduce our exposure to rising interest rates, we entered into nine forward-starting interest rate swap agreements that effectively converted $300.0 million of our variable rate borrowings to a fixed-rate basis from October 2014 through October 2018. Additionally, in June 2015, we entered into eleven forward-starting interest rate swap agreements that effectively converted an additional $200.0 million of our variable rate borrowings to a fixed rate from October 2015 through October 2018, and $500.0 million from October 2018 through October 2022.
These agreements have been designated as cash flow hedges under the terms of the FASB authoritative guidance for derivatives and hedging. To the extent that they are effective in offsetting the variability of the hedged cash flows, changes in the fair values of the derivatives are not included in earnings, but are included in other comprehensive income (“OCI”). These changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are made on our variable rate debt.
Financial position — The following derivative instruments were outstanding as of the end of each period (in thousands):
|
| | | | | | | | | |
| Balance Sheet Location | | Fair Value |
| | January 21, 2018 | | October 1, 2017 |
Derivatives designated as cash flow hedging instruments: | | | | | |
Interest rate swaps | Accrued liabilities | | $ | (2,422 | ) | | $ | (4,777 | ) |
Interest rate swaps | Other long-term liabilities | | (8,540 | ) | | (18,150 | ) |
Total derivatives (Note 4) | | | $ | (10,962 | ) | | $ | (22,927 | ) |
Financial performance — The following table summarizes the OCI activity related to our interest rate swap derivative instruments (in thousands):
|
| | | | | | | | | |
| Location in Income | | Sixteen Weeks Ended |
| | January 21, 2018 | | January 22, 2017 |
Gain recognized in OCI | N/A | | $ | 10,291 |
| | $ | 23,086 |
|
Loss reclassified from accumulated OCI into net earnings | Interest expense, net | | $ | 1,674 |
| | $ | 2,066 |
|
Amounts reclassified from accumulated OCI into interest expense represent payments made to the counterparties for the effective portions of the interest rate swaps. During the periods presented, our interest rate swaps had no hedge ineffectiveness.
| |
6. | IMPAIRMENT AND OTHER CHARGES, NET |
Impairment and other charges,Other operating (income) expenses, net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):
| | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
| | | | | January 22, 2023 | | January 23, 2022 |
Acquisition, integration, and restructuring costs (1) | | | | | $ | 1,651 | | | $ | 3,013 | |
Costs of closed restaurants and other (2) | | | | | 2,589 | | | 1,072 | |
| | | | | | | |
Accelerated depreciation | | | | | 268 | | | 375 | |
Gains on disposition of property and equipment, net (3) | | | | | (10,009) | | | (617) | |
| | | | | $ | (5,501) | | | $ | 3,843 | |
________________________
(1)Acquisition, integration, and restructuring costs are related to the acquisition and integration of Del Taco.
(2)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.
(3)In 2023, gains on disposition of property and equipment relate to the sale of Jack in the Box restaurant properties to franchisees who were leasing the properties from us prior to the sale.
9.SEGMENT REPORTING
Our principal business consists of developing, operating and franchising our Jack in the Box and Del Taco restaurant brands, each of which we consider a reportable operating segment. This segment reporting structure reflects our current management structure, internal reporting method and financial information used in deciding how to allocate our resources. Based upon certain quantitative thresholds, each operating segment is considered a reportable segment.
We measure and evaluate our segments based on segment revenues and segment profit. Our measure of segment profit excludes depreciation and amortization, share-based compensation, company-owned life insurance (“COLI”) gains/losses, net of changes in our non-qualified deferred compensation obligation supported by these policies, acquisition, integration, and restructuring costs, gains on the sale of company-operated restaurants, and amortization of favorable and unfavorable leases and subleases, net. The following table provides information related to our operating segments in each period (in thousands):
|
| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Costs of closed restaurants and other | $ | 1,375 |
| | $ | 1,839 |
|
Restructuring costs | 358 |
| | 183 |
|
Operating restaurant impairment charges (1) | 291 |
| | — |
|
Losses on disposition of property and equipment, net | 183 |
| | 530 |
|
Accelerated depreciation | 50 |
| | 102 |
|
| $ | 2,257 |
| | $ | 2,654 |
|
____________________________
| |
(1) | Impairment charges are due primarily to our landlord’s sale of a restaurant property to a franchisee. |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
| | | | | January 22, 2023 | | January 23, 2022 |
Revenues by segment: | | | | | | | |
Jack in the Box | | | | | $ | 366,917 | | | $ | 344,711 | |
Del Taco | | | | | 160,179 | | | — | |
Consolidated revenues | | | | | $ | 527,096 | | | $ | 344,711 | |
Segment operating profit: | | | | | | | |
Jack in the Box | | | | | $ | 104,426 | | | $ | 90,664 | |
Del Taco | | | | | 12,084 | | | — | |
Total segment operating profit | | | | | $ | 116,510 | | | $ | 90,664 | |
Depreciation and amortization | | | | | 19,402 | | | 12,496 | |
Acquisition, integration, and restructuring costs | | | | | 1,651 | | | 3,013 | |
Share-based compensation | | | | | 3,534 | | | 1,018 | |
Net COLI (gains) losses | | | | | (5,724) | | | 445 | |
Gains on the sale of company-operated restaurants | | | | | (3,825) | | | (48) | |
Amortization of favorable and unfavorable leases and subleases, net | | | | | 541 | | | — | |
Earnings from operations | | | | | $ | 100,931 | | | $ | 73,740 | |
Total capital expenditures by segment: | | | | | | | |
Jack in the Box | | | | | $ | 15,256 | | | $ | 9,401 | |
Del Taco | | | | | 8,772 | | | — | |
Total capital expenditures | | | | | $ | 24,028 | | | $ | 9,401 | |
Total depreciation and amortization by segment: | | | | | | | |
Jack in the Box | | | | | $ | 11,029 | | | $ | 12,496 | |
Del Taco | | | | | 8,373 | | | — | |
Total depreciation and amortization | | | | | $ | 19,402 | | | $ | 12,496 | |
CostsWe do not evaluate, manage or measure performance of closed restaurantssegments using asset, interest income and other — Costs of closed restaurants in 2018 and 2017 include future lease commitment charges and expected ancillary cost, net of anticipated sublease rentals. Costs in 2018 also include $0.5 million of additional impairment charges resulting from changes in market value from three previously closed restaurants.
Accrued restaurant closing costs, included in accrued liabilities and other long-term liabilities on our condensed consolidated balance sheets, changed as follows during 2018 (in thousands):
|
| | | | |
Balance as of October 1, 2017 | | $ | 6,175 |
|
Additions | | 135 |
|
Adjustments (1) | | 347 |
|
Interest expense | | 545 |
|
Cash payments | | (1,592 | ) |
Balance as of January 21, 2018 (2) (3) | | $ | 5,610 |
|
___________________________ | |
(1) | Adjustments relate primarily to revisions of certain sublease and cost assumptions. Our estimates related to our future lease obligations, primarily the sublease income we anticipate, are subject to a high degree of judgment and may differ from actual sublease income due to changes in economic conditions, desirability of the sites and other factors. |
| |
(2) | The weighted average remaining lease term related to these commitments is approximately 4 years. |
| |
(3) | This balance excludes $2.8 million of restaurant closing costs that are included in accrued liabilities and other long-term liabilities on our condensed consolidated balance sheets, which were initially recorded as losses on the sale of company-operated restaurants upon sale to Jack in the Box franchisees in prior years.
|
Restructuring costs — Restructuring charges in 2018 and 2017 include costs resulting from a plan that management initiated in fiscal 2016 to reduce our general and administrative costs. This plan includes cost saving initiatives from workforce reductions and refranchising initiatives. Restructuring charges in 2018 also include costs related to the evaluation of potential alternatives with respect to the Qdoba brand (the “Qdoba Evaluation”), which resulted in the Board of Director’s approval to sell Qdoba. Refer to Note 2, Discounted Operations, for additional information regarding the Qdoba Sale.
The following is a summary of our restructuring costs (in thousands):
|
| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Qdoba Evaluation retention bonus | $ | 587 |
| | $ | — |
|
Qdoba Evaluation consulting costs (1) | 226 |
| | — |
|
Employee severance and related costs (2) | (456 | ) | | 92 |
|
Other | 1 |
| | 91 |
|
| $ | 358 |
| | $ | 183 |
|
____________________________
| |
(1) | Qdoba Evaluation consulting costs are primarily related to third party advisory services. |
| |
(2) | 2018 reflects a reduction in severance and related costs due to a change in the number of employees to be terminated in connection with our restructuring activities. |
At this time, we are unable to estimate additional charges to be incurred.
Total accrued severance costs related to our restructuring activities are included in accrued liabilities and changed as follows during 2018 (in thousands):
|
| | | | |
Balance as of October 1, 2017 | | $ | 648 |
|
Adjustments (1) | | (456 | ) |
Cash payments | | (150 | ) |
Balance as of January 21, 2018 | | $ | 42 |
|
____________________________
| |
(1) | Adjustments in accrued severance costs are the result of the change in number of employees to be terminated in connection with our restructuring activities. |
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Accelerated depreciation — When a long-lived asset will be replacedexpense, or otherwise disposed of prior to the end of its estimated useful life, the useful life of the asset is adjusted based on the estimated disposal date and accelerated depreciation is recognized. In 2018, accelerated depreciation was primarily related to exterior enhancements at our company-operated restaurants. In 2017, accelerated depreciation primarily related to the anticipated closure of two restaurants.
Our tax rates for the quarter ended January 21, 2018 was impacted by the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted into law on December 22, 2017. As a fiscal year taxpayer, certain provisions of the Tax Act impacted us in fiscal year 2018, including a reduction in the U.S. federal statutory corporate income tax rate (the “Tax Rate”), while other provisions will be effective starting at the beginning of fiscal year 2019. The Tax Rate reduction was effective as of January 1, 2018, and will be phased in, resulting in a statutory federal tax rate of 24.5% for our fiscal year ending September 30, 2018, and 21.0% for subsequent fiscal years.information; accordingly, this information by segment is not prepared or disclosed.
As of January 21, 2018, we provisionally accounted for the results of the Tax Act. The provision for income taxes is based on a reasonable estimate of the effects on our existing deferred tax balances. A tax expense of $30.6 million, including a $2.3 million benefit related to Qdoba, was recognized and is included as a component of income taxes from continuing operations. This tax expense consists primarily of a $30.7 million re-measurement of our deferred tax assets and liabilities due to the enactment of the Tax Act. The impact of the Tax Act is based upon estimates and interpretations which may be refined as further authoritative guidance is issued and is expected to be completed by the first quarter of fiscal year 2019.
10.INCOME TAXES
The income tax provisions reflect year-to-date effective tax ratesrate of 78.5%26.7%, compared with 26.5% in 2018 and 38.7% in 2017.fiscal year 2022. The major components of the changeincrease in these tax rates were the one-time, non-cash impact of the enactment of the Tax Act, including the revaluation of all deferred tax assets and liabilities at the reduced federal statutory tax rate partiallywere non-deductible goodwill decrements in the current year offset by the decreasenon-taxable gains in the federal statutory tax rate andcurrent year versus non-deductible losses in the excess tax benefit on 2018 stock compensation. The final annual tax rate cannot be determined untilprior year from the endmarket performance of the fiscal year; therefore, the actual annual 2018 rate could differ from our current estimates.insurance products used to fund certain non-qualified retirement plans.
The following is a summary of the components of each tax rate (in thousands):
|
| | | | | | | | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Income tax expense at statutory rate | $ | 17,192 |
| | 28.6 | % | | $ | 21,740 |
| | 38.6 | % |
One-time, non-cash impact of the Tax Act | 30,627 |
| | 51.0 | % | | — |
| | — | % |
Stock compensation excess tax benefit | (802 | ) | | (1.3 | )% | | — |
| | — | % |
Other | 121 |
| | 0.2 | % | | 91 |
| | 0.2 | % |
(1) | $ | 47,138 |
| | 78.5 | % | | $ | 21,831 |
| | 38.7 | % |
____________________________
| |
(1) | Percentages may not add due to rounding. |
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. In fiscal 2011, the Board of Directors approved the sunset of our Qualified Plan whereby participants no longer accrue benefits effective December 31, 2015. Benefits under both plans are based on the employee’s years of service and compensation over defined periods of employment.
PostretirementPost-retirement healthcare plans — We also sponsor two healthcare plans, closed to new participants, that provide postretirementpost-retirement medical benefits to certain employees who have met minimum age and service requirements. The plans are contributory;contributory, with retiree contributions adjusted annually, and they contain other cost-sharing features such as deductibles and coinsurance.
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):
| | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
| | | | | January 22, 2023 | | January 23, 2022 |
Defined benefit pension plans: | | | | | | | |
Interest cost | | | | | $ | 5,913 | | | $ | 4,517 | |
Expected return on plan assets | | | | | (4,648) | | | (5,570) | |
Actuarial losses (1) | | | | | 944 | | | 1,187 | |
Amortization of unrecognized prior service costs (1) | | | | | 6 | | | 6 | |
Net periodic benefit cost | | | | | $ | 2,215 | | | $ | 140 | |
Post-retirement healthcare plans: | | | | | | | |
Interest cost | | | | | $ | 215 | | | $ | 150 | |
Actuarial gains (1) | | | | | (286) | | | (197) | |
Net periodic benefit cost | | | | | $ | (71) | | | $ | (47) | |
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| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Defined benefit pension plans: | | | |
Interest cost | $ | 6,879 |
| | $ | 6,996 |
|
Service cost | 687 |
| | 673 |
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Expected return on plan assets | (8,680 | ) | | (8,659 | ) |
Actuarial loss (1) | 1,498 |
| | 1,881 |
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Amortization of unrecognized prior service costs (1) | 45 |
| | 47 |
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Net periodic benefit cost | $ | 429 |
| | $ | 938 |
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Postretirement healthcare plans: | | | |
Interest cost | $ | 294 |
| | $ | 309 |
|
Actuarial (gain) loss (1) | (8 | ) | | 50 |
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Net periodic benefit cost | $ | 286 |
| | $ | 359 |
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___________________________________________________
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(1) | Amounts were reclassified from accumulated OCI into net earnings as a component of selling, general and administrative expenses. |
(1)Amounts were reclassified from accumulated other comprehensive income into net earnings as a component of “Other pension and post-retirement expenses, net.”
Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of January 1, 2017,2022, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement.requirement for the Qualified Plan. Details regarding 20182023 contributions are as follows (in thousands):
| | | SERP | | Postretirement Healthcare Plans | | SERP | | Post-Retirement Healthcare Plans |
Net year-to-date contributions | $ | 1,100 |
| | $ | 610 |
| Net year-to-date contributions | $ | 1,311 | | | $ | 377 | |
Remaining estimated net contributions during fiscal 2018 | $ | 3,300 |
| | $ | 700 |
| |
Remaining estimated net contributions during fiscal 2023 | | Remaining estimated net contributions during fiscal 2023 | $ | 3,902 | | | $ | 735 | |
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 2018.2023.
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9. | SHARE-BASED COMPENSATION |
We offer share-based compensation plans to attract, retain and motivate key officers, employees and non-employee directors to work towards the financial success12.STOCKHOLDERS’ DEFICIT
Summary of changes in stockholders’ deficit— A reconciliation of the Company. During 2018, we granted the following shares related to our share-based compensation awards:beginning and ending amounts of stockholders’ deficit is presented below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Amount | | Capital in Excess of Par Value | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
Balance at October 2, 2022 | | 82,581 | | | $ | 826 | | | $ | 508,323 | | | $ | 1,842,947 | | | $ | (53,982) | | | $ | (3,034,306) | | | $ | (736,192) | |
Shares issued under stock plans, including tax benefit | | 36 | | | — | | | — | | | — | | | — | | | — | | | — | |
Share-based compensation | | — | | | — | | | 3,534 | | | — | | | — | | | — | | | 3,534 | |
Dividends declared | | — | | | — | | | 67 | | | (9,221) | | | — | | | — | | | (9,154) | |
Purchases of treasury stock | | — | | | — | | | — | | | — | | | — | | | (14,999) | | | (14,999) | |
Net earnings | | — | | | — | | | — | | | 53,254 | | | — | | | — | | | 53,254 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 489 | | | — | | | 489 | |
Balance at January 22, 2023 | | 82,617 | | | $ | 826 | | | $ | 511,924 | | | $ | 1,886,980 | | | $ | (53,493) | | | $ | (3,049,305) | | | $ | (703,068) | |
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Nonvested stock units | 43,459 |
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Performance share awards | 22,040 |
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The components of share-based compensation expense recognized in each period are as follows (in thousands):
|
| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Nonvested stock units | $ | 1,778 |
| | $ | 2,069 |
|
Performance share awards | 663 |
| | 790 |
|
Stock options | 482 |
| | 801 |
|
Nonvested stock awards | 14 |
| | 27 |
|
Total share-based compensation expense | $ | 2,937 |
| | $ | 3,687 |
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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Amount | | Capital in Excess of Par Value | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
Balance at October 3, 2021 | | 82,536 | | | $ | 825 | | | $ | 500,441 | | | $ | 1,764,412 | | | $ | (74,254) | | | $ | (3,009,306) | | | $ | (817,882) | |
Shares issued under stock plans, including tax benefit | | 28 | | | 1 | | | 48 | | | — | | | — | | | — | | | 49 | |
Share-based compensation | | — | | | — | | | 1,018 | | | — | | | — | | | — | | | 1,018 | |
Dividends declared | | — | | | — | | | 63 | | | (9,320) | | | — | | | — | | | (9,257) | |
Net earnings | | — | | | — | | | — | | | 39,270 | | | — | | | — | | | 39,270 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 738 | | | — | | | 738 | |
Balance at January 23, 2022 | | 82,564 | | | $ | 826 | | | $ | 501,570 | | | $ | 1,794,362 | | | $ | (73,516) | | | $ | (3,009,306) | | | $ | (786,064) | |
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Repurchases of common stock— In 2018, we have not The Company repurchased any0.2 million shares of its common shares.stock in the first quarter of fiscal 2023 for an aggregate cost of $15.0 million. As of January 21, 2018,22, 2023, there was approximately $181.0$160.0 million remaining under Board-authorized stock buybackshare repurchase programs authorized by the Board of Directors which expire in November 2018.2023.
Dividends— In 2018,During the first quarter of 2023, the Board of Directors declared onea cash dividend of $0.40$0.44 per common share which was paid on December 15, 2017 to shareholders of record as of the close of business on December 4, 2017 and totaled $11.8totaling $9.2 million. Future dividends are subject to approval by our Board of Directors.
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11. | AVERAGE SHARES OUTSTANDING |
Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive common shares include stock options, nonvested stock awards and units, and non-management director stock equivalents. Performance share awards are included in the average diluted shares outstanding each period if the performance criteria have been met at the end of the respective periods.
13.AVERAGE SHARES OUTSTANDING
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):
| | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
| | | | | January 22, 2023 | | January 23, 2022 |
Weighted-average shares outstanding – basic | | | | | 20,921 | | | 21,205 | |
Effect of potentially dilutive securities: | | | | | | | |
Nonvested stock awards and units | | | | | 79 | | | 40 | |
Stock options | | | | | — | | | 2 | |
Performance share awards | | | | | — | | | — | |
Weighted-average shares outstanding – diluted | | | | | 21,000 | | | 21,247 | |
Excluded from diluted weighted-average shares outstanding: | | | | | | | |
Antidilutive | | | | | 23 | | | 15 | |
Performance conditions not satisfied at the end of the period | | | | | 112 | | | 25 | |
14.COMMITMENTS AND CONTINGENCIES
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| | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Weighted-average shares outstanding – basic | 29,551 |
| | 32,168 |
|
Effect of potentially dilutive securities: | | | |
Nonvested stock awards and units | 229 |
| | 181 |
|
Stock options | 64 |
| | 76 |
|
Performance share awards | 9 |
| | 17 |
|
Weighted-average shares outstanding – diluted | 29,853 |
| | 32,442 |
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Excluded from diluted weighted-average shares outstanding: | | | |
Antidilutive | 90 |
| | 44 |
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Performance conditions not satisfied at the end of the period | 74 |
| | 79 |
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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12. CONTINGENCIES AND LEGAL MATTERS
Legal matters— We assess contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that 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/orand 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. Any estimate is not an indication of expected loss, if any, or of the Company’s maximum possible loss exposure and the ultimate amount of loss may differ materially from these estimates in the near term.
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Gessele v. Jack in the Box Inc.— In August 2010, five former Jack in the Box 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 Jack in the CompanyBox 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. The parties participated in a voluntary mediation on March 16, 2020, but the matter did not settle. On October 24, 2022, a jury awarded plaintiffs approximately $6.4 million in damages and penalties, in addition to interest and attorney fees to be determined by the court at a later date. The Company continues to dispute liability and the damage award and will defend against both through post-trial motions and all other available appellate remedies. As of January 22, 2023, the Company has accrued the settlement amount, and included it within “Accrued liabilities” on our condensed consolidated balance sheet.
Torrez — In fiscal 2012,March 2014, a former Del Taco employee filed a purported Private Attorneys General Act claim and class action alleging various causes of action under California’s labor, wage, and hour laws. The plaintiff generally alleges Del Taco did not appropriately provide meal and rest breaks and failed to pay wages and reimburse business expenses to its California non-exempt employees. On November 12, 2021, the court granted, in part, the plaintiff's motion for class certification. The parties participated in a voluntary mediation on May 24, 2022 and June 3, 2022. On June 4, 2022, we entered into a Settlement Memorandum of Understanding (the “Agreement”) which obligates the Company to pay a gross settlement amount of $50.0 million, for which in exchange we will be released from all claims by the parties. The Agreement contains no admission of wrongdoing and is contingent upon various conditions, including, but not limited to, court approvals. There can be no assurance that the Agreement will be approved by the court nor upheld if challenged on appeal. As of January 22, 2023, the Company has accrued the settlement amount, and included it within “Accrued liabilities” on our condensed consolidated balance sheet.
J&D Restaurant Group — On April 17, 2019, the trustee for a single claimbankrupt former franchisee filed a complaint seeking to recover assets in the form of actual and exemplary damages for which we believethe bankruptcy trust and generally alleging the Company wrongfully terminated the franchise agreements and unreasonably denied two perspective purchasers that the former franchisee presented. The parties participated in a loss is both probablemediation in April 2021, and estimable; this accrued loss contingencyagain in December 2022, but the matter did not havesettle. Trial in this matter commenced on January 9, 2023. On February 8, 2023, the jury returned a material effectverdict finding that the Company had not breached any contracts in terminating the franchise agreements or denying the proposed buyers. While the jury also found that the Company had not violated the California Unfair Practices Act, it found for the plaintiff on the breach of implied covenant of good faith and fair dealing claim, and awarded $8.0 million in damages. The Company continues to dispute liability and the damage award and will defend against both through post-trial motions and all other available appellate remedies. As of January 22, 2023, the Company has accrued the verdict, and included it within “Accrued liabilities” on our results of operations. We continue to believe that no additional losses are probable beyond this accrual and cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond the accrual. We plan to vigorously defend against this lawsuit. Nonetheless, an unfavorable resolution of this matter in excess of our current accrued loss contingencies could have a material adverse effect on our business, results of operations, liquidity or financial condition.consolidated balance sheet.
Other legal matters— In addition to the mattermatters described above, we are subject to normal and routine litigation brought by former current or prospectivecurrent 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. Our 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 January 22, 2023, the maximum potential liability (undiscounted)of future undiscounted payments under these leases is approximately $23.0 million. The lease terms extend for a maximum of approximately 15 more years and reserves are established in part by using independent actuarial estimateswe would remain a guarantor of expected losses for reported claims and for estimating claims incurred but not reported. 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 mattersleases in the condensed consolidated financial statements, willevent 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 haverecorded a material adverse effect on our business, our annual resultsliability for these guarantees as we believe the likelihood of operations, liquidity or financial position; however, itmaking any future payments is possible that our business, results of operations, liquidity, or financial condition could be materially affected in a particular future reporting period by the unfavorable resolution of one or more matters or contingencies during such period.remote.
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13. | SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)
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| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Cash paid during the year for: | | | |
Interest, net of amounts capitalized | $ | 12,632 |
| | $ | 9,691 |
|
Income tax payments | $ | 1,344 |
| | $ | 47 |
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Decrease in obligations for purchases of property and equipment | $ | 4,201 |
| | $ | 2,841 |
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Decrease in obligations for treasury stock repurchases | $ | — |
| | $ | 7,208 |
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Non-cash transactions: | | | |
Increase in notes receivable from the sale of company-operated restaurants | $ | 9,084 |
| | $ | — |
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Increase in franchise tenant improvement allowances | $ | 5,325 |
| | $ | — |
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Increase in dividends accrued or converted to common stock equivalents | $ | 78 |
| | $ | 74 |
|
Decrease in capital lease obligations from the termination of equipment and building leases | $ | 685 |
| | $ | 87 |
|
Equipment capital lease obligations incurred | $ | 39 |
| | $ | 59 |
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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
15.SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)
| | | | | | | | | | | |
| Sixteen Weeks Ended |
| January 22, 2023 | | January 23, 2022 |
Non-cash investing and financing transactions: | | | |
| | | |
Decrease in obligations for purchases of property and equipment | $ | 4,147 | | | $ | 952 | |
Increase in accrued debt issuance costs | $ | — | | | $ | 3,955 | |
Increase in dividends accrued or converted to common stock equivalents | $ | 68 | | | $ | 63 | |
Right-of use assets obtained in exchange for operating lease obligations | $ | 54,246 | | | $ | 69,789 | |
Right-of use assets obtained in exchange for finance lease obligations | $ | — | | | $ | 20 | |
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14. | SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)
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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
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| January 21, 2018 | | October 1, 2017 |
Accounts and other receivables, net: | | | |
Trade | $ | 31,688 |
| | $ | 55,108 |
|
Notes receivable | 766 |
| | 988 |
|
Other | 5,020 |
| | 5,672 |
|
Allowance for doubtful accounts | (1,171 | ) | | (2,159 | ) |
| $ | 36,303 |
| | $ | 59,609 |
|
Prepaid expenses: | | | |
Prepaid rent | $ | 4,761 |
| | $ | — |
|
Prepaid income taxes | 4,190 |
| | 16,928 |
|
Other | 7,472 |
| | 10,604 |
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| $ | 16,423 |
| | $ | 27,532 |
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Other assets, net: | | | |
Company-owned life insurance policies | $ | 109,791 |
| | $ | 110,057 |
|
Deferred tax assets | 67,033 |
| | 105,117 |
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Deferred rent receivable | 47,345 |
| | 46,962 |
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Other | 19,725 |
| | 15,434 |
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| $ | 243,894 |
| | $ | 277,570 |
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Accrued liabilities: | | | |
Insurance | $ | 37,095 |
| | $ | 39,011 |
|
Payroll and related taxes | 24,390 |
| | 23,361 |
|
Advertising | 11,047 |
| | 18,493 |
|
Deferred rent income | 5,681 |
|
| 18,961 |
|
Sales and property taxes | 3,242 |
| | 7,275 |
|
Gift card liability | 2,516 |
| | 2,237 |
|
Deferred franchise fees | 425 |
| | 450 |
|
Other | 18,470 |
| | 25,266 |
|
| $ | 102,866 |
| | $ | 135,054 |
|
Other long-term liabilities: | | | |
Defined benefit pension plans | $ | 104,798 |
| | $ | 107,011 |
|
Straight-line rent accrual | 33,047 |
| | 33,749 |
|
Other | 97,549 |
| | 108,065 |
|
| $ | 235,394 |
| | $ | 248,825 |
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16.SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands) | | | | | | | | | | | |
| January 22, 2023 | | October 2, 2022 |
Accounts and other receivables, net: | | | |
Trade | $ | 51,178 | | | $ | 90,105 | |
Notes receivable, current portion | 1,702 | | | 8,643 | |
Income tax receivable | 871 | | | 878 | |
Other | 7,766 | | | 10,152 | |
Allowance for doubtful accounts | (4,530) | | | (5,975) | |
| $ | 56,987 | | | $ | 103,803 | |
| | | |
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| | | |
| | | |
Property and equipment, net | | | |
Land | $ | 92,860 | | | $ | 86,134 | |
Buildings | 971,935 | | | 960,984 | |
Restaurant and other equipment | 168,865 | | | 163,527 | |
Construction in progress | 17,906 | | | 18,271 | |
| 1,251,566 | | | 1,228,916 | |
Less accumulated depreciation and amortization | (826,928) | | | (810,752) | |
| $ | 424,638 | | | $ | 418,164 | |
Other assets, net: | | | |
Company-owned life insurance policies | $ | 115,556 | | | $ | 108,924 | |
Deferred rent receivable | 43,114 | | | 43,891 | |
Franchise tenant improvement allowance | 35,456 | | | 32,429 | |
Notes receivable, less current portion | 11,099 | | | 11,624 | |
Other | 30,189 | | | 29,701 | |
| $ | 235,414 | | | $ | 226,569 | |
Accrued liabilities: | | | |
Legal accruals | $ | 65,115 | | | $ | 59,165 | |
Payroll and related taxes | 35,032 | | | 43,837 | |
Insurance | 32,580 | | | 32,272 | |
Sales and property taxes | 18,676 | | | 30,947 | |
Deferred rent income | 4,722 | | | 18,525 | |
Advertising | 13,267 | | | 11,028 | |
Deferred franchise and development fees | 5,775 | | | 5,647 | |
Other | 49,573 | | | 52,511 | |
| $ | 224,740 | | | $ | 253,932 | |
Other long-term liabilities: | | | |
Defined benefit pension plans | $ | 51,337 | | | $ | 51,679 | |
Deferred franchise and development fees | 41,275 | | | 40,802 | |
Other | 43,371 | | | 42,213 | |
| $ | 135,983 | | | $ | 134,694 | |
17.SUBSEQUENT EVENTS
Dividends — On February 19, 2018,24, 2023, the Board of Directors declared a cash dividend of $0.40$0.44 per common share, to be paid on March 16, 201828, 2023, to shareholders of record as of the close of business on March 5, 2018.15, 2023.
Subsequent to the end of the first quarter of 2018, we signed non-binding letters of intent with franchisees to sell approximately 50 company-operated restaurants in several markets. Pre-tax gross proceeds related to these sales are estimated at $25.0 million to $27.0 million.
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All comparisons between 20182023 and 20172022 refer to the 16-weeks16 weeks (“quarter”) ended January 21, 201822, 2023 and January 22, 2017,23, 2022, respectively, unless otherwise indicated.
For an understanding of the significant factors that influenced our performance during 20182023 and 2017,2022, 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 October 1, 2017.2, 2022.
Our MD&A consists of the following sections:
•Overview — a general description of our business and 2018 highlights.
business.Financial reporting — a discussion of changes in presentation, if any.
•Results of operations — an analysis of our condensed consolidated statements of earnings for the periods presented in our condensed consolidated financial statements.
•Liquidity and capital resources — an analysis of our cash flows, including pension and postretirement health contributions, capital expenditures, sale of company-operated restaurants, our credit facility, share repurchase activity, dividends, and known trends that may impact liquidity and the impact of inflation, if applicable.
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 system-wide basis, which includes company and franchise restaurants. Franchise sales represent sales at franchise restaurants and are revenues of our franchisees. We do not record franchise sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchise sales. We believe franchise and system same-store sales, franchised and system restaurant sales,and AUV information isare useful to investors as they have a significant indicator ofdirect effect on the overall strength of our business.Company’s profitability.
•Adjusted EBITDA which represents net earnings on a generally accepted accounting principles (“GAAP”) basis excluding gains or losses from discontinued operations, income taxes, interest expense, net, gains on the sale of company-operated restaurants, impairment and other charges,operating expenses, net, depreciation and amortization, amortization of favorable and theunfavorable leases and subleases, net, and amortization of tenant improvement allowances.allowances and incentives.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.
OVERVIEW
Our Business
Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box® and Del Taco quick-service restaurants. As of January 21, 2018,22, 2023, we operated and franchised 2,2502,186 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam, and 738 Qdoba fast-casual592 Del Taco quick-service restaurants operating primarily throughout the United States and Canada, which are currently held for sale.across 16 states, including one in Guam.
Our primary source ofWe derive revenue is from retail sales at Jack in the Box company-operated restaurants. We also derive revenue from Jack in the Box franchise restaurants includingand rental revenue, royalties (based upon a percent of sales) and franchise fees. In addition, we recognize gains or losses from the sale of company-operated restaurants to franchisees, which are included as a line item within operating costs and expenses, net in the accompanying condensed consolidated statements of earnings.
The following summarizes the most significant events occurring year-to-date in fiscal 2018, and certain trends compared to a year ago:
Same-Store Sales — Same-store sales decreased 0.2% at Jack in the Box system restaurants compared with a year ago primarily driven by a decrease in traffic at both company-operated and franchise-operated restaurants, partially offset by increases in menu price and favorable mix.
Company Restaurant Operations — Jack in the Box company restaurant costs as a percentage of company restaurant sales decreased in 2018 to 74.0% from 74.2% a year ago primarily due to the benefit of refranchising, partially offset by an increase in food and packaging costs as a percentage of sales resulting from commodity inflation.
Franchise Operations — Jack in the Box franchise costs as a percentage of franchise revenues increased in 2018 to 39.3%, from 39.0% in the prior year, primarily due to reduced royalties for certain restaurants sold to franchisees in 2017, and a 0.3% decrease in same-store sales at franchised restaurants, which were partially offset by additional franchise fees resulting from our refranchising strategy.
Jack in the Box Franchising Program— Franchisees opened a total of 5 restaurants. As part of our refranchising strategy, we sold 22 company-operated restaurants to franchisees in several different markets during 2018 resulting in proceeds of approximately $14.7 million. In fiscal year 2018, we expect approximately 25 Jack in the Box restaurants to open system-wide, the majority of which will be franchise locations. Our Jack in the Box system was 89% franchised as of January 21, 2018. We plan to increase franchise ownership of the Jack in the Box system to over 90%. Prior and subsequent to the end of the first quarter of 2018, we signed non-binding letters of intent with franchisees to sell approximately 60 company-operated restaurants in several markets. Pre-tax gross proceeds related to these sales are estimated at $27.0 million to $30.0 million, and we have classified $0.8 million of equipment, related to sales under letters executed prior to quarter-end, as assets heldcontributions for sale in our January 21, 2018 condensed consolidated balance sheet.
Restructuring Costs (including costs related to the Qdoba Evaluation) — In 2016, we announced a plan to reduce our general and administrative costs, and in the third quarter of 2017, we began an evaluation of potential alternatives with respect to the Qdoba brand (the “Qdoba Evaluation”), which ultimately resulted in the Board’s approval to sell Qdoba. In connection with these activities, we have recorded $0.4 million of restructuring charges in 2018, which includes $0.8 million related to the Qdoba Evaluation, offset by a $0.4 million adjustment to severance costs. These costs are included in impairmentadvertising and other costs, net in the accompanying condensed consolidated statements of earnings.
services from franchisees.Return of Cash to Shareholders— We returned cash to shareholders in the form of cash dividends. We declared one cash dividend of $0.40 per share totaling $11.8 million. We have not repurchased any shares of our common stock in 2018.
Adjusted EBITDA — Adjusted EBITDA decreased in 2018 to $85.4 million from $90.6 million in 2017 due to the previously mentioned changes in company restaurant operations and franchise operations.
Tax Reform — TheTax Cuts and Jobs Act (the “Tax Act”) was enacted into law on December 22, 2017, resulting in an estimated annual statutory federal tax rate of 24.5% for fiscal 2018, and 21% for subsequent fiscal years. Due to the Tax Act, a tax expense of $30.6 million was recognized and is included as a component of income taxes from continuing operations in 2018.
FINANCIAL REPORTING
During fiscal 2012, we entered into an agreement to outsource our Jack in the Box distribution business. In fiscal 2018, the Board of Directors approved, and we entered into, a Stock Purchase Agreement to sell all issued and outstanding shares of the Qdoba Restaurant Corporation (“Qdoba”) as the result of the Qdoba Evaluation. All results related to our distribution business and Qdoba operations are reported as discontinued operations for all periods presented. Refer to Note 2, Discontinued Operations, in the notes to condensed consolidated financial statements for additional information. Unless otherwise noted, amounts and disclosures throughout our MD&A relate to our continuing operations.
In the first quarter of fiscal 2018, we prospectively adopted an Accounting Standards Update (“ASU”) which is intended to simplify various aspects of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. Upon adoption, we reclassified the excess tax benefits from share-based compensation arrangements of $0.8 million as a discrete item within income tax expense on the condensed consolidated statements of earnings, rather than recognizing such excess income tax benefits in capital in excess of par value on the condensed consolidated balance sheet. This reclassification also impacted the related classification on our condensed consolidated statements of cash flows as excess tax benefits from share-based compensation arrangements is only reported in cash flows from operating activities rather than as previously reported in cash flows from operating activities and cash flows used in investing activities. Upon adoption of the standard, we also began reporting cash paid to a taxing authority on an employee’s behalf when we directly withhold equivalent shares for taxes as cash flows used in financing activities. The standard also impacts the Company’s earnings per share calculation as the estimate of dilutive common share equivalents under the treasury stock method no longer assumes that the estimated tax benefits realized when an award is settled are used to repurchase shares. Lastly, the Company elected to account for forfeitures as they occur. A cumulative-effect adjustment was made in the amount of $0.2 million and recorded in 2018 retained earnings on the condensed consolidated balance sheet. Refer to Note 1, Basis of Presentation, in the notes to condensed consolidated financial statements for more information.
RESULTS OF OPERATIONS
Thefollowing 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
|
| | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Revenues: | | | |
Company restaurant sales | 57.6 | % | | 67.5 | % |
Franchise rental revenues | 26.2 | % | | 20.2 | % |
Franchise royalties and other | 16.2 | % | | 12.2 | % |
Total revenues | 100.0 | % | | 100.0 | % |
Operating costs and expenses, net: | | | |
Company restaurant costs (excluding depreciation and amortization): | | | |
Food and packaging (1) | 28.8 | % | | 28.5 | % |
Payroll and employee benefits (1) | 28.8 | % | | 29.4 | % |
Occupancy and other (1) | 16.4 | % | | 16.3 | % |
Total company restaurant costs (excluding depreciation and amortization) (1) | 74.0 | % | | 74.2 | % |
Franchise occupancy expenses (excluding depreciation and amortization) (2) | 60.2 | % | | 59.1 | % |
Franchise support and other costs (3) | 5.2 | % | | 5.9 | % |
Selling, general and administrative expenses | 11.8 | % | | 11.5 | % |
Depreciation and amortization | 6.5 | % |
| 6.0 | % |
Impairment and other charges, net | 0.8 | % | | 0.8 | % |
Gains on the sale of company-operated restaurants | (3.0 | )% | | — | % |
Earnings from operations | 24.7 | % | | 18.9 | % |
Income tax rate (4) | 78.5 | % | | 38.7 | % |
____________________________
| |
(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 earnings from continuing operations and before income taxes. |
CHANGES IN SAME-STORE SALES
|
| | | | | | | | |
| Sixteen Weeks Ended |
| Fiscal Basis | | Calendar Basis (1) |
| January 21, 2018 | | January 22, 2017 | | January 22, 2017 |
Company | 0.2 | % | | — | % | | 0.6 | % |
Franchise | (0.3 | )% | | 3.3 | % | | 3.9 | % |
System | (0.2 | )% | | 2.5 | % | | 3.1 | % |
____________________________
| |
(1) | Due to the transition from a 53-week year in fiscal 2016 to a 52-week year in fiscal 2017, year-over-year fiscal period comparisons are off by one week. The change in same-store sales presented in the Calendar Basis column uses comparable calendar periods to balance the one-week shift from fiscal 2016 and to provide a clearer year-over-year comparison. |
The following table summarizes the changes in same-store sales for Jack in the Box company-operated, same-store sales:franchised, and system restaurants:
| | | | | | | | | | | | | | | | | | | |
| | | | | Sixteen Weeks Ended |
Jack in the Box: | | | | | | | | | January 22, 2023 | | January 23, 2022 |
Company | | | | | | | | | 12.6 | % | | (0.3) | % |
Franchise | | | | | | | | | 7.4 | % | | 1.4 | % |
System | | | | | | | | | 7.8 | % | | 1.2 | % |
|
| | | | | | | | |
| Sixteen Weeks Ended |
| Fiscal Basis | | Calendar Basis |
| January 21, 2018 | | January 22, 2017 | | January 22, 2017 |
Average check (1) | 2.6 | % | | 4.7 | % | | 4.9 | % |
Transactions | (2.4 | )% | | (4.7 | )% | | (4.3 | )% |
Change in same-store sales | 0.2 | % | | — | % | | 0.6 | % |
____________________________
| |
(1) | Amounts on a fiscal basis in 2018 and 2017 include price increases of approximately 1.6% and 2.9%, respectively. Amount in 2017 on a calendar basis includes a price increase of approximately 2.9%. |
The following table summarizes the changes in the number and mix of Jack in the Box company and franchise restaurants:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
Jack in the Box: | Company | | Franchise | | Total | | Company | | Franchise | | Total |
Beginning of year | 146 | | | 2,035 | | | 2,181 | | | 163 | | | 2,055 | | | 2,218 | |
New | — | | | 6 | | | 6 | | | — | | | 2 | | | 2 | |
Acquired from franchisees | — | | | — | | | — | | | 4 | | | (4) | | | — | |
Refranchised | (5) | | | 5 | | | — | | | — | | | — | | | — | |
Closed | (1) | | | — | | | (1) | | | (2) | | | (10) | | | (12) | |
End of period | 140 | | | 2,046 | | | 2,186 | | | 165 | | | 2,043 | | | 2,208 | |
% of system | 6 | % | | 94 | % | | 100 | % | | 7 | % | | 93 | % | | 100 | % |
The following table summarizes restaurant sales for Jack in the Box company-operated, franchised, and systemwide sales (in thousands):
| | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
Jack in the Box: | | | | | January 22, 2023 | | January 23, 2022 |
Company-operated restaurant sales | | | | | $ | 126,142 | | | $ | 120,056 | |
Franchised restaurant sales (1) | | | | | 1,208,983 | | | 1,117,676 | |
Systemwide sales (1) | | | | | $ | 1,335,125 | | | $ | 1,237,732 | |
________________________
(1)Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees. System sales include company and franchised restaurant sales. We do not record franchised sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchised sales. We believe franchised and system restaurant sales information is useful to investors as they have a direct effect on the Company's profitability.
|
| | | | | | | | | | | | | | | | | |
| 2018 | | 2017 |
| Company | | Franchise | | Total | | Company | | Franchise | | Total |
Beginning of year | 276 |
|
| 1,975 |
|
| 2,251 |
|
| 417 |
|
| 1,838 |
|
| 2,255 |
|
New | 1 |
|
| 5 |
|
| 6 |
|
| 2 |
|
| 7 |
|
| 9 |
|
Refranchised | (22 | ) |
| 22 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Closed | — |
|
| (7 | ) |
| (7 | ) |
| — |
|
| (3 | ) |
| (3 | ) |
End of period | 255 |
|
| 1,995 |
|
| 2,250 |
|
| 419 |
|
| 1,842 |
|
| 2,261 |
|
% of system | 11 | % | | 89 | % | | 100 | % | | 19 | % | | 81 | % | | 100 | % |
Below is a reconciliation of Non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings:earnings (in thousands):
ADJUSTED EBITDA | | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
Consolidated: | | | | | January 22, 2023 | | January 23, 2022 |
Net earnings - GAAP | | | | | $ | 53,254 | | | $ | 39,270 | |
Income tax expense | | | | | 19,385 | | | 14,190 | |
Interest expense, net | | | | | 26,148 | | | 20,187 | |
Gains on the sale of company-operated restaurants | | | | | (3,825) | | | (48) | |
Other operating (income) expenses, net | | | | | (5,501) | | | 3,843 | |
Depreciation and amortization | | | | | 19,402 | | | 12,496 | |
Amortization of favorable and unfavorable leases and subleases, net | | | | | 541 | | | — | |
Amortization of franchise tenant improvement allowances and incentives | | | | | 1,215 | | | 1,234 | |
Adjusted EBITDA - Non-GAAP | | | | | $ | 110,619 | | | $ | 91,172 | |
|
| | | | | | | | |
| | Sixteen Weeks Ended |
| | January 21, 2018 | | January 22, 2017 |
Net earnings - GAAP | | $ | 12,190 |
| | $ | 35,930 |
|
Losses (earnings) from discontinued operations, net of taxes | | 699 |
| | (1,381 | ) |
Income taxes | | 47,138 |
| | 21,831 |
|
Interest expense, net | | 12,780 |
| | 10,409 |
|
Earnings from operations | | $ | 72,807 |
| | $ | 66,789 |
|
Gains on the sale of company-operated restaurants | | (8,940 | ) | | (137 | ) |
Impairment and other charges, net | | 2,257 |
| | 2,654 |
|
Depreciation and amortization | | 19,157 |
| | 21,263 |
|
Amortization of franchise tenant improvement allowances | | 147 |
| | 25 |
|
Adjusted EBITDA - Non-GAAP | | $ | 85,428 |
| | $ | 90,594 |
|
Jack in the Box Brand
Company Restaurant Operations
The following table presents Jack in the Box company restaurant sales and costs, and restaurant costs as a percentage of the related sales. Percentages may not add due to rounding sales (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
| | | | | January 22, 2023 | | January 23, 2022 |
Company restaurant sales | | | | | | | | | $ | 126,142 | | | | | $ | 120,056 | | | |
Company restaurant costs: | | | | | | | | | | | | | | | |
Food and packaging | | | | | | | | | $ | 41,326 | | | 32.8 | % | | $ | 37,537 | | | 31.3 | % |
Payroll and employee benefits | | | | | | | | | $ | 39,438 | | | 31.3 | % | | $ | 39,725 | | | 33.1 | % |
Occupancy and other | | | | | | | | | $ | 20,377 | | | 16.2 | % | | $ | 20,877 | | | 17.4 | % |
|
| | | | | | | | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Company restaurant sales | $ | 169,637 |
| | | | $ | 238,571 |
| | |
Company restaurant costs (excluding depreciation and amortization): | | | | | | | |
Food and packaging | 48,864 |
| | 28.8 | % | | 67,989 |
| | 28.5 | % |
Payroll and employee benefits | 48,940 |
| | 28.8 | % | | 70,183 |
| | 29.4 | % |
Occupancy and other | 27,750 |
| | 16.4 | % | | 38,941 |
| | 16.3 | % |
Total company restaurant costs (excluding depreciation and amortization) | $ | 125,554 |
| | 74.0 | % | | $ | 177,113 |
| | 74.2 | % |
Company restaurant sales decreased $68.9increased $6.1 million in 2018 asor 5.1% compared withto the prior year, primarily drivendue to average check and traffic growth, partially offset by a decreasedecline in the average number of restaurants resulting from the execution of our refranchising strategy and, to a lesser extent, by a decrease in traffic, which was more than offset by menu price increases and favorable product mix.company-operated restaurants. The following table presents the approximate impact of these (decreases) increasesitems on company restaurant sales (in 2018 (in thousandsmillions):
| | | | | | | | | | | |
| | | | | Sixteen Weeks Ended |
| | | | | | | January 22, 2023 |
AUV increase | | | | | | | $ | 14.0 | |
Decrease in the average number of restaurants | | | | | | | (7.9) | |
Total change in company restaurant sales | | | | | | | $ | 6.1 | |
|
| | | |
Decrease in the average number of restaurants | $ | (96.1 | ) |
AUV increase | 27.2 |
|
Total change in company restaurant sales | $ | (68.9 | ) |
Fiscal basis same-storeSame-store sales at company-operated restaurants increased 0.2% as12.6% compared with priorto a year primarily due to menu price increases and favorable mix, partially offset by a decline in transactions.ago. The following table summarizes the change in company-operated same-store sales:versus a year ago:
|
| | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Average check (1) | 2.6 | % | | 4.7 | % |
Transactions | (2.4 | )% | | (4.7 | )% |
Change in same-store sales | 0.2 | % | | — | % |
____________________________
| | | | | | | | | | | | | | | |
(1) | Amounts on a fiscal basis | | | | | | Sixteen Weeks Ended |
| | | | | | | | | | | January 22, 2023 |
Average check (1) | | | | | | | | | | | 7.7 | % |
Transactions | | | | | | | | | | | 4.9 | % |
Change in 2018 and 2017 include price increases of approximately 1.6% and 2.9%, respectively.same-store sales | | | | | | | | | | | 12.6 | % |
________________________
(1)Includes price increases of approximately 10.3% compared to the prior year.
Food and packaging costs as a percentage of company restaurant sales increased 1.5% compared to 28.8% in 2018, compared with 28.5% in 2017. The increase was driven bythe prior year primarily due to higher commodity costs and unfavorable menu item mix, partially offset by favorable product mix andan increase in menu price increases. pricing.
Commodity costs increased 5.2%by approximately 15.5% compared to a year ago.the prior year. The increase was driven by higher costs for beef, pork,inflation we have experienced is across nearly all categories with the greatest impact seen in produce, sauce and beverages. Beef, our most significantpotatoes. For fiscal 2023, we expect annual commodity increased approximately approximatelycost inflation to be up 9% to 11% compared with the prior year. For fiscal 2018, we currently expect commodity costs to be up approximately 3% compared with fiscal 2017.2022.
Payroll and employee benefit costs as a percentage of company restaurant sales decreased to 28.8% in 2018 compared with 29.4% in 2017 due primarily to the benefits of refranchising, partially offset by wage inflation resulting from an increase in the minimum wage in certain markets and a highly competitive labor market.
Occupancy and other costs decreased $11.2 million in 20181.8% compared to the prior year primarily due to higher average restaurant sales as a decreaseresult of a change in restaurant mix and menu price increases, as well as a reduction in workers’ compensation and group insurance. Labor inflation was approximately 9.9% for the average number of restaurants, impacting occupancycurrent fiscal year. For fiscal 2023, we expect annual wage inflation to be up 3% to 6% compared with fiscal 2022.
Occupancy and other costs, by approximately $15.7 million,as a percentage of company restaurant sales, decreased 1.2% compared to the prior year primarily due to higher average restaurant sales as a result of a change in restaurant mix and menu price increases, partially offset by higher utilities costs as well as maintenance and repair expenses.costs compared with fiscal 2022.
Jack in the Box Franchise Operations
The following table presents Jack in the Box 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):
| | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
| | | | | January 22, 2023 | | January 23, 2022 |
Franchise rental revenues | | | | | $ | 106,096 | | $ | 103,099 |
| | | | | | | |
Royalties | | | | | 67,569 | | 57,648 |
Franchise fees and other | | | | | 1,797 | | 3,107 |
Franchise royalties and other | | | | | 69,366 | | 60,755 |
Franchise contributions for advertising and other services | | | | | 65,313 | | 60,801 |
Total franchise revenues | | | | | $ | 240,775 | | $ | 224,655 |
| | | | | | | |
Franchise occupancy expenses | | | | | $ | 64,555 | | $ | 63,983 |
Franchise support and other costs | | | | | 1,416 | | 3,911 |
Franchise advertising and other services expenses | | | | | 67,958 | | 63,308 |
Total franchise costs | | | | | $ | 133,929 | | $ | 131,202 |
Franchise costs as a percentage of total franchise revenues | | | | | 55.6% | | 58.4% |
| | | | | | | |
Average number of franchise restaurants | | | | | 2,033 | | 2,039 |
% decrease | | | | | (0.3)% | | |
Franchised restaurant sales | | | | | $ | 1,208,983 | | $ | 1,117,676 |
Franchised restaurant AUVs | | | | | $ | 595 | | $ | 548 |
Royalties as a percentage of total franchised restaurant sales | | | | | 5.6% | (1) | 5.2% |
|
| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Franchise rental revenues | $ | 77,217 |
| | $ | 71,436 |
|
| | | |
Royalties | 46,293 |
| | 42,588 |
|
Franchise fees and other | 1,316 |
| | 586 |
|
Franchise royalties and other | 47,609 |
| | 43,174 |
|
Total franchise revenues | $ | 124,826 |
| | $ | 114,610 |
|
| | | |
Franchise occupancy expenses (excluding depreciation and amortization) | $ | 46,521 |
| | $ | 42,190 |
|
Franchise support and other costs | 2,482 |
| | 2,537 |
|
Total franchise costs | $ | 49,003 |
| | $ | 44,727 |
|
Franchise costs as a % of total franchise revenues | 39.3 | % | | 39.0 | % |
| | | |
Average number of franchise restaurants | 1,975 |
| | 1,839 |
|
% increase | 7.4 | % | | |
(Decrease) increase in franchise-operated same-store sales | (0.3 | )% | | 3.3 | % |
Franchise restaurant AUVs | $ | 455 |
| | $ | 453 |
|
Royalties as a percentage of total franchise restaurant sales | 5.1 | % | | 5.1 | % |
________________________(1)Excluding the impact of the $7.3 million termination fee discussed below, royalties as a percentage of total franchised restaurant sales would be 5.0% for the sixteen weeks ended January 22, 2023.
Franchise rental revenues increased $5.8$3.0 million, or 8.1%, as2.9% compared with ato the prior year ago. This increase is primarily due to $6.3higher percentage rent of $2.4 million of additional rental revenues in 2018 resulting from the net increase in the average number of restaurants leased or subleased from the Company due to our refranchising strategy, partially offsetdriven by a decline inhigher franchise restaurant same-store sales resulting in a decrease in revenues from percentage rent.sales.
Franchise royalties and other increased $4.4$8.6 million, or 10.3% in 2018 versus14.2% compared to the prior year primarily due to a year ago primarily reflecting$7.3 million termination fee paid by a $4.1 million increase infranchise operator who sold his restaurants to a new franchisee, as well as higher royalties driven by a net increase inhigher franchise restaurant sales. Refer to Note 2, Revenue, of the average number of franchise restaurants primarily resulting from our refranchising strategy, andnotes to the condensed consolidated financial statements for additional franchise fees of $0.8 millioninformation related to the sale of 22 company-operated restaurants to franchisees during 2018. These increases were partially offset by a decrease in royalties related$7.3 million termination fee.
Franchise contributions for advertising and other services revenues increased $4.5 million, or 7.4% compared to the decline in same-storeprior year primarily driven by higher franchise restaurant sales.
Franchise occupancy expenses, principally rents,primarily rent, increased $4.3$0.6 million, in 2018 versus aor 0.9% compared to the prior year agoprimarily due primarily to a net increase in the average number of franchise-operated restaurants resulting from our refranchising strategy, contributing additionalrent increases, partially offset by lower real estate taxes.
Franchise support and other costs of approximately $3.7decreased $2.5 million andcompared to a lesser extent, routine rent increases.
Depreciation and Amortization
Depreciation and amortization decreased by $2.1 million in 2018 as compared with the prior year primarily due to a decrease in equipment depreciationfranchisee bad debt expense.
Franchise advertising and other service expenses increased $4.7 million, or 7.3% compared to the prior year primarily driven by a decreasehigher franchise sales.
Del Taco Brand
As of January 22, 2023, there were 273 company-operated and 319 franchise-operated Del Taco restaurants. System same-store sales increased 3.0% and total revenues and segment operating profit were $160.2 million and $12.1 million, respectively, during the quarter.
Company-Wide Results
Depreciation and Amortization
Depreciation and amortization increased $6.9 million compared to the prior year primarily due to the acquisition of Del Taco, contributing an additional $8.4 million of depreciation; more than offsetting lower Jack in the average numberBox depreciation as a result of company-operated restaurants resulting from our refranchising activities in 2017 and 2018. To a lesser extent, a decline in depreciation resulting from ourcertain franchise building assetsbuildings becoming fully depreciated also contributed to the decrease.
depreciated.
Selling, General and Administrative (“SG&A”) Expenses
The following table presents the change in 2018 SG&A expenses compared with the prior year (in thousands):
|
| | | |
| (Decrease) / Increase |
Advertising | $ | (3,109 | ) |
Cash surrender value of COLI policies, net | (1,248 | ) |
Region administration | (892 | ) |
Pension and postretirement benefits | (582 | ) |
Incentive compensation (including share-based compensation and related payroll taxes) | (203 | ) |
Other (including savings related to our restructuring plan) | (113 | ) |
| $ | (6,147 | ) |
| | | | | | | |
| | | Increase/(Decrease) |
| | | Sixteen Weeks Ended |
| | | January 22, 2023 |
Advertising | | | $ | 6,086 | |
Incentive compensation (including share-based compensation and related payroll taxes) | | | 5,381 | |
Cash surrender value of COLI policies, net | | | (6,168) | |
Litigation matters | | | 5,987 | |
Other | | | 13,827 | |
| | | $ | 25,113 | |
Advertising costs at our Jack in the Box brand are primarilyrepresent company contributions to our marketing fundfunds and are generally determined as a percentage of grosscompany-operated restaurant sales. Advertising costs decreased $3.1increased $6.1 million compared to the prior year primarily due to the acquisition of Del Taco which resulted in 2018higher advertising costs of $5.8 million.
Incentive compensation increased $5.4 million compared with ato the prior year agoprimarily due to a decrease$2.9 million increase in the numberannual incentives mainly as a result of company-operated restaurants resultinghigher achievement levels compared to the prior year, as well as a $2.5 million increase in share-based compensation mainly from our refranchising efforts.the timing of annual grants compared to the prior year.
The cash surrender value of our Company-ownedcompany-owned life insurance (“COLI”) policies, net of changes in our non-qualified deferred compensation obligation supported by these policies, are subject to market fluctuations. The changes in market values had a positive impact of $0.3$6.2 million in 2018 and a negative impact of $0.9 million in 2017.
Region administration costs decreased in 2018 as compared to 2017 due primarily to workforce reductions related to our refranchising efforts.
Pension and postretirement benefit costs decreased primarily due to an increase in the discount rates and higher than expected return on assets (“ROA”) inversus the prior year, partially offset by a decrease in the ROA assumption from 6.5% to 6.2% in 2018.year.
Incentive compensation decreasedLitigation matters increased $6.0 million primarily due to a decrease in share-based compensation related to the timing of award grants and a decrease in payroll taxes, partially offset by higher levels of performance in the current year versus the prior year as compared to target bonus levels.
Impairment and Other Charges, Net
Impairment and other charges, net is comprised of the following (in thousands):
|
| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Costs of closed restaurants and other | $ | 1,375 |
| | $ | 1,839 |
|
Restructuring costs | 358 |
| | 183 |
|
Restaurant impairment charges | 291 |
| | — |
|
Losses on disposition of property and equipment, net | 183 |
| | 530 |
|
Accelerated depreciation | 50 |
| | 102 |
|
| $ | 2,257 |
| | $ | 2,654 |
|
Impairment and other charges, net decreased $0.4 million in 2018 compared with a year ago. The decrease was primarily driven by a $0.9 million reduction in costs associated with closed restaurant properties related to revisions of certain sublease assumptions for our lease obligations and a $0.4 million gain on sale of a closed restaurant property in 2018. These decreases were partially offset by $0.5 million of impairment charges in 2018 related to a reduction in the value of three previously closed properties.J&D Restaurant Group litigation. Refer to Note 6, Impairment14, Commitments and Other Charges, NetContingencies, of the notes to the condensed consolidated financial statements for additional information regarding these costs.information.
The increase in other is primarily due to the acquisition of Del Taco in the prior year which resulted in an increase of additional general and administrative costs of $12.0 million.
Other Operating Expenses, Net
Other operating expenses, net is comprised of the following (in thousands):
| | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
| | | | | January 22, 2023 | | January 23, 2022 |
Acquisition, integration, and restructuring costs | | | | | $ | 1,651 | | | $ | 3,013 | |
Costs of closed restaurants and other | | | | | 2,589 | | | 1,072 | |
Accelerated depreciation | | | | | 268 | | | 375 | |
Gains on disposition of property and equipment, net | | | | | (10,009) | | | (617) | |
| | | | | $ | (5,501) | | | $ | 3,843 | |
Other operating expenses, net decreased $9.3 million compared to the prior year, primarily due to $9.5 million of gains recognized in the current year from the sale of Jack in the Box restaurant properties to franchisees who were leasing the properties from us prior to the sale.
Gains on the Sale of Company-Operated Restaurants (dollars
In fiscal 2023, the Company sold five Jack in thousands)
Gains on the sale ofBox company-operated restaurants and 16 Del Taco company-operated restaurants to franchisees and recognized a net are detailed in the following table (dollars in thousands):
|
| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Number of restaurants sold to Jack in the Box franchisees | 22 |
| | — |
|
| | | |
Gains on the sale of company-operated restaurants | $ | 8,940 |
| | $ | 137 |
|
Gains are impacted by the numbergain of restaurants sold and changes in average gains or losses recognized, which primarily relate to the specific sales and cash flows of those restaurants. Gains in 2018 and 2017 include additional proceeds of $1.2 million and $0.1 million, respectively, related to restaurants sold in a prior year.$3.8 million. Refer to Note 3, 4, Summary of Refranchisings and Franchisee DevelopmentFranchise Acquisitions, of the notes to the condensed consolidated financial statements for additional information regarding these gains.transactions. In fiscal 2022, no company-operated restaurants were sold to franchisees. Amounts included in “Gains on the sale of company-operated restaurants” in 2022 related to additional proceeds received in connection with the extension of franchise and lease agreements form the sale of restaurants in prior years.
Interest Expense, Net
Interest expense, net is comprised of the following (in thousands):
| | | Sixteen Weeks Ended | | | Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 | | | January 22, 2023 | | January 23, 2022 |
Interest expense | $ | 12,811 |
| | $ | 10,436 |
| Interest expense | | $ | 26,537 | | | $ | 20,273 | |
Interest income | (31 | ) | | (27 | ) | Interest income | | (389) | | | (86) | |
Interest expense, net | $ | 12,780 |
| | $ | 10,409 |
| Interest expense, net | | $ | 26,148 | | | $ | 20,187 | |
Interest expense, net increased $2.4$6.0 million in 2018 compared with ato the prior year ago primarily due to higher average interest rates and average borrowings which contributed additionalresulting in higher interest expense of approximately $1.6$7.3 million, and $1.3 million, respectively.partially offset by lower average borrowing rates.
Income TaxesTax Expense
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law on December 22, 2017. The Tax Act included a reduction in the U.S. federal statutory corporate income tax rate (the “Tax Rate”) from 35% to 21% and introduced new limitations on certain business deductions. As a result, we recognized a one-time, non-cash $30.6 million tax provision expense impact primarily related to the re-measurement of our deferred tax assets and liabilities due to the reduced Tax Rate.
Theprovisions reflect year-to-date effective tax rate in 2018 is 78.5%of 26.7%, compared with 38.7%26.5% in 2017.fiscal year 2022. The major components of the changeincrease in tax ratesrate were non-deductible goodwill decrements in the one-time, non-cash impact of the enactment of the Tax Cuts and Jobs Act, including the revaluation of all deferred tax assets and liabilities at the reduced federal statutory rate, partiallycurrent year offset by the decreasenon-taxable gains in the federal statutory tax rate and the excess tax benefit on year-to-date stock compensation expense. We expect the fiscalcurrent year tax rate to be approximately 41.0%. As discussed in Note 1, Basis of Presentation, upon the adoption of ASU 2016-09, Compensation-Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting, we are including the excess tax benefit of our stock based compensation as a discrete item within income tax expense on the condensed consolidated statements of earnings, which may cause volatility in our quarterly tax rate. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2018 rate could differ from our current estimates. Refer to Note 7, Income Taxes, of the notes to the condensed consolidated financial statements for additional information regarding income taxes.
(Losses) Earnings from Discontinued Operations, Net
As described in Note 2, Discontinued Operations,versus non-deductible losses in the notesprior year from the market performance of insurance products used to condensed consolidated financial statements, the results of operations from our distribution business and Qdoba have been reported as discontinued operations for all periods presented. Refer to Note 2 for additional information regarding discontinued operations.fund certain non-qualified retirement plans.
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 and incentive 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 credit facilities. As of January 22, 2023, the Company had $181.6 million of cash and restricted cash on its consolidated balance sheet and available borrowings of $122.0 million under our $150.0 million Variable Funding Notes and our $75.0 million revolving bank credit facility.
We generally reinvest available The Company continually assesses the optimal sources and uses of cash flows from operationsfor our business. Since closing the Del Taco acquisition, we have undertaken a process to develop new restaurants or enhance existing restaurants, to reduce debt, to repurchase sharesreview our balance sheet for any undervalued assets, and pursue opportunities for capital sources, including the sale of our common stock,owned Jack in the Box properties, and to pay cash dividends. Our cash requirements consist principally of:
working capital;
capital expendituresrefranchising, primarily for new restaurant construction and restaurant renovations;
income tax payments;
debt service requirements; and
obligations related to our benefit plans.Del Taco in the near term.
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with otherour securitized financing alternatives in place or available,facility and revolving credit facility, 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.
As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories, and our vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. As a result, we may at times maintain current liabilities in excess of current assets, which results in a working capital deficit.
Cash Flows
The table below summarizes our cash flows from continuing operations (in thousands): | | | | | | | | | | | |
| Sixteen Weeks Ended |
| January 22, 2023 | | January 23, 2022 |
Total cash provided by (used in): | | | |
Operating activities | $ | 62,472 | | | $ | 34,051 | |
Investing activities | 15,684 | | | (6,837) | |
Financing activities | (32,578) | | | (12,316) | |
Net cash flows | $ | 45,578 | | | $ | 14,898 | |
|
| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Total cash provided by (used in): | | | |
Operating activities | $ | 53,730 |
| | $ | 69,798 |
|
Investing activities | (1,818 | ) | | (13,183 | ) |
Financing activities | (54,917 | ) | | (67,880 | ) |
Net cash flows | $ | (3,005 | ) | | $ | (11,265 | ) |
Operating Activities.Activities. Operating cash flows in 2018 decreased $16.1increased $28.4 million compared with a year ago, primarily due to a favorable change in working capital of $22.7 million as a result of the timing of Octoberminimum rent collections, lower bonus payments and timing of $15.4 million, and a decrease in earnings from continuing operations in 2018.media payments, partially offset by timing of minimum rent payments.
Pension and Postretirement Contributions post-retirement contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, 2017,2022, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for our qualified pension plan. We continue to evaluate contributions to our Qualified Plan based on changes in pension assets as a result of asset performance in the current market and the economic environment. We do not anticipate making any contributions to our Qualified Plan in fiscal 2018. Year-to-date 2018,In 2023, we contributed $1.7 million to our non-qualified pension plan and postretirementpost-retirement plans.
Investing Activities. Cash used inflows from investing activities decreased $11.4increased by $22.5 million compared with a year ago, primarily due to $14.7 million inhigher proceeds from the sale of 22 company-operatedproperty and equipment of $19.9 million, which resulted from the sale of Jack in the Box restaurantsrestaurant properties to franchisees and $10.0 million received in 2018, which includes $9.1 million in collections of notes receivable issued in connection with the 2018 sales, and an additional $2.5 million incurrent year related to a prior year transaction, as well as higher proceeds from the sale and leaseback of assets in 2018. These increases in cash werecompany-operated restaurants of $17.6 million, partially offset by a $7.3 million increase in Qdoba inter-company transfers in 2018.higher purchases of property and equipment of $14.6 million.
Capital Expenditures— The composition of capital expenditures in each period follows (in thousands):
| | | | | | | | | | | |
| Sixteen Weeks Ended |
| January 22, 2023 | | January 23, 2022 |
Restaurants: | | | |
Remodel / refresh programs | $ | 3,473 | | | $ | 921 | |
Restaurant facility expenditures | 9,046 | | | 4,374 | |
Purchases of assets intended for sale and leaseback | 3,497 | | | 1,877 | |
Restaurant information technology | 5,906 | | | 968 | |
| 21,922 | | | 8,140 | |
Corporate Services: | | | |
Information technology | 1,877 | | | 52 | |
Corporate facilities | 229 | | | 1,209 | |
| 2,106 | | | 1,261 | |
| | | |
Total capital expenditures | $ | 24,028 | | | $ | 9,401 | |
|
| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Jack in the Box: | | | |
Restaurant facility expenditures | $ | 8,554 |
| | $ | 5,128 |
|
New restaurants | 555 |
| | 2,000 |
|
Other, including information technology | 657 |
| | 410 |
|
| 9,766 |
| | 7,538 |
|
Corporate Services: | | | |
Information technology | 1,017 |
| | 1,037 |
|
Other, including facility improvements | 10 |
| | 6 |
|
| 1,027 |
| | 1,043 |
|
| | | |
Total capital expenditures | $ | 10,793 |
| | $ | 8,581 |
|
Our capital expenditure program includes, among other things, investments in new locations and equipment, restaurant remodeling, and information technology enhancements. Capital expenditures increased $2.2 million compared to a year ago primarily resulting from a $3.4 million increase in spending related to Jack in the Box facility expenditures, primarily capital maintenance and restaurant innovation, partially offset by a $1.4 million decrease in spending related to building new Jack in the Box restaurants primarily resulting from our refranchising initiative. We expect fiscal 2018 capital expenditures to be approximately $30.0 million to $35.0 million.
Assets Held for Sale and Leaseback— We use sale and leaseback financing to limit the initial cash investment in our restaurants to the cost of the equipment, whenever possible. In 2018, we did not exercise our right of first refusal for any leased properties. During 2017, we exercised our right of first refusal related to one leased property, which we intend to sell and leaseback within 12 months of the balance sheet date. The following table summarizes the cash flow activity related to sale and leaseback transactions in each period (dollars in thousands):
|
| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Number of restaurants sold and leased back | 2 |
| | 1 |
|
| | | |
Purchases of assets intended for sale and leaseback | $ | (1,411 | ) | | $ | (1,717 | ) |
Proceeds from the sale and leaseback of assets | $ | 4,949 |
| | $ | 2,466 |
|
As of January 21, 2018, we had investments of $10.1 million relating to four restaurant properties that we expect to sell and leaseback during the next 12 months.
Sale of Company-Operated Restaurants— We continuehave continued to expand franchise ownership in the Jack in the Box system primarily through the sale of company-operated restaurants to franchisees. The following table details proceeds received in connection with our refranchising activities in each period (dollars in thousands):
| | | | | | | | | | | |
| Sixteen Weeks Ended |
| January 22, 2023 | | January 23, 2022 |
Number of Jack in the Box restaurants sold to franchisees | 5 | | | — | |
Number of Del Taco restaurants sold to franchisees | 16 | | | — | |
Total proceeds | $ | 17,609 | | | $ | 48 | |
|
| | | | | | | |
| Sixteen Weeks Ended |
| January 21, 2018 | | January 22, 2017 |
Number of restaurants sold to franchisees | 22 |
| | — |
|
| | | |
Proceeds from the sale of company-operated restaurants | $ | 14,675 |
| | $ | 138 |
|
In the first quarter of fiscal 2023, proceeds include $0.2 million related to prior year refranchising transactions. Proceeds in 2018the first quarter of fiscal 2022 were received in connection with the extension of franchise and 2017 include additional gainslease agreements from the sale of $1.2 million and $0.1 million, respectively, related to restaurants sold in previousprior years. For additional information, refer to Note 3, Summary of Refranchisings, Franchisee Development and Acquisitions, of the notes to condensed consolidated financial statements.
Financing Activities. Cash flows used in financing activities decreased $13.0increased by $20.3 million in 2018 compared with a year ago, primarily due toas a decrease in cash used to repurchaseresult of share repurchases of $15.0 million.
Repurchases of common stock— The Company repurchased 0.2 million shares of its common stock and proceeds from the issuance of our common stock, partially offset by a net increase in payments under our credit facility.
Credit Facility — Our credit facility consists of (i) a $900.0 million revolving credit agreement and (ii) a $700.0 million term loan. Both the revolving credit agreement and the term loan have maturity dates of March 19, 2019. As part of the credit agreement, we may also request the issuance of up to $75.0 million in letters of credit, the outstanding amount of which reduces our net borrowing capacity under the agreement. As of January 21, 2018, we had $625.7 million outstanding under the term loan, borrowings under the revolving credit agreement of $472.4 million, and letters of credit outstanding of $31.4 million.
The interest rate on our credit facility is based on our leverage ratio and can range from the London Interbank Offered Rate (“LIBOR”) plus 1.25% to 2.25% with a 0% floor on LIBOR. The current interest rate is LIBOR plus 2.00%.
We are subject to a number of customary covenants under our credit facility, including limitations on additional borrowings, acquisitions, loans to franchisees, lease commitments, stock repurchases and dividend payments, and requirements to maintain certain financial ratios as defined in the credit agreement. We were in compliance with all covenants asfirst quarter of January 21, 2018.
Interest Rate Swaps— To reduce our exposure to fluctuating interest rates under our credit facility, we consider interest rate swaps. In April 2014, we entered into nine forward-starting interest rate swap agreements that effectively converted $300.0 million of our variable rate borrowings to a fixed-rate basis from October 2014 through October 2018. In June 2015, we entered into eleven forward-starting interest rate swap agreements that effectively converted an additional $200.0 million of our variable rate borrowings to a fixed-rate from October 2015 through October 2018, and $500.0 million from October 2018 through October 2022. For additional information, refer to Note 5, Derivative Instruments, of the notes to our condensed consolidated financial statements and Item 3, Quantitative and Qualitative Disclosures About Market Risk, of this report.
Repurchases of Common Stock— We have not repurchased any common shares during 2018. In 2017 we repurchased 1.0 million common shares atfiscal 2023 for an aggregate cost of $108.1$15.0 million. As of January 21, 2018,22, 2023, there was approximately $181.0$160.0 million remaining under Board-authorized stock-buybackshare repurchase programs authorized by the Board of Directors which expire in November 2018. In our condensed consolidated statement of cash flows for 2017, repurchases of common stock includes $7.2 million related to repurchase transactions traded in the prior fiscal year that settled in 2017.2023.
Dividends — During 2018,the first quarter of 2023, the Board of Directors declared a cash dividend of $0.40$0.44 per common share totaling $11.8$9.2 million. Future dividendsOn February 24, 2023, the Board of Directors declared a cash dividend of $0.44 per common share, to be paid on March 28, 2023, to shareholders of record as of the close of business on March 15, 2023.
Securitized Refinancing Transaction —On February 11, 2022, the Company completed the sale of $550.0 million of its Series 2022-1 3.445% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”) and $550.0 million of its Series 2022-1 4.136% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes” and, together with the Class A-2-I Notes, the “2022 Notes”). Interest payments on the 2022 Notes are payable on a quarterly basis. The anticipated repayment dates of the 2022 Class A-2-I Notes and the Class A-2-II Notes will be February 2027 and February 2032, respectively, unless earlier prepaid to the extent permitted under the indenture that governs the 2022 Notes. The anticipated repayment dates of the existing 2019-1 Class A-2-II Notes and the Class A-2-III Notes are August 2026 and August 2029, respectively.
The Company also entered into a revolving financing facility of Series 2022-1 Variable Funding Senior Secured Notes (the “Variable Funding Notes”), which permits borrowings up to a maximum of $150.0 million, subject to certain borrowing conditions, a portion of which may be used to issue letters of credit. As of January 22, 2023, we had outstanding borrowings of $50.0 million and available borrowing capacity of $60.0 million under our Variable Funding Notes, net of letters of credits issued of $40.0 million.
The 2022 Notes were issued in a privately placed securitization transaction pursuant to which certain of the Company’s revenue-generating assets, consisting principally of franchise-related agreements, real estate assets, and intellectual property and license agreements for the use of intellectual property, are held by the Master Issuer and certain other limited-purpose, bankruptcy remote, wholly owned indirect subsidiaries of the Company that act as Guarantors of the Notes and that have pledged substantially all of their assets, excluding certain real estate assets and subject to certain limitations, to secure the Notes. The 2022 Notes are subject to approvalthe same covenants and restrictions as the Series 2019-1 Notes.
The quarterly principal payment 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. Subsequent to closing the issuance of the 2022 Notes, the Company has had a leverage ratio of greater than 5.0x and, accordingly, the Company resumed making the scheduled amortization payments on its 2022 Notes and Series 2019-1 Notes beginning in the second quarter of 2022.
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 January 22, 2023, the Company had restricted cash of $27.8 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 January 22, 2023, we were in compliance with all of our Boarddebt covenant requirements and were not subject to any rapid amortization events.
Revolving credit facility — In connection with the Del Taco acquisition, Del Taco’s existing debt of Directors.
Off-Balance Sheet Arrangements
We have$115.2 million related to a Syndicated Credit Facility dated August 5, 2015, was repaid and extinguished on the Closing Date. On the Closing Date, Del Taco entered into certain off-balance sheet contractual obligationsa new syndicated credit facility with an aggregate principal amount of up to $75.0 million, maturing on March 7, 2023. The revolving credit facility, as amended, includes a limit of $20.0 million for letters of credit. As of January 22, 2023, we had no outstanding borrowings and commitments inavailable borrowing capacity of $61.9 million under the ordinary coursefacility, net 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 Analysisletters of Financial Condition and Resultscredit of Operations included in our Annual Report on Form 10-K for the fiscal year ended October 1, 2017. We are not a party to any other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.$13.1 million.
DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies and 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 policies and estimates previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 1, 2017.2, 2022.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, Basis of Presentation, of the notes to condensed consolidated financial statements.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the federal securities laws.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 may 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.
•Changes in the availability of and the cost of labor could adversely affect our business.
•Changes in consumer confidence and declines in general economic conditions could negatively impact our financial results.
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 to decline.
•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 qualityhigh-quality food ingredients and other supplies could harm our operations.operations and reputation.
•Inability to attract, train and retain top-performing personnel could adversely impact our financial results or business.
•Our business could be adversely affected by increased labor costs.
•Unionization activities or labor disputes may disrupt our operations and affect our profitability.
•Our insurance may not provide adequate levels of coverage against claims.
•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.
•Negative publicity relating to our business or industry could adversely impact our reputation.
•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.
•Food safety and food-borne illness concerns may have an adverse effect on our business by reducing demand and increasing costs.
•We may not achieve our development goals.
•Our business and Del Taco’s business may not be integrated successfully, or such integration may be more difficult, time consuming, or costly than expected. Operating costs, customer loss, and business disruptions, including difficulties maintaining relationships with employees, customers, suppliers or vendors, may be greater than expected.
•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.
•We have a limited number of suppliers for our major products and rely on a distribution network with a limited number of distribution partners for the majority of our national distribution program in the United States.program. If our suppliers or distributors are unable to fulfill their obligations under their contracts, it could harm our operations.
Food safety•Increasing regulatory 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 or difficulties in finding and retaining top-performing personnel.
We may not have the same resources as our competitors for 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.
Our business is subject to seasonal fluctuations.
We may not achieve our development goals.
The failure of our franchisees to operate successful and profitable restaurants could negatively impact our business.
We are subject to land risks and regulations with respect to our owned and leased properties and real estate development projects.
Estimated values of our property, fixtures, and equipment or operating results that are lower than our current estimates at certain restaurant locations may cause us to incur impairment charges on certain long-lived assets; such chargeslegal complexity may adversely affect our results of operations.
Our tax provision may fluctuate due to changes in expected earnings.
We may incur costs as a result of certain restructuring activities which may negatively impactrestaurant operations and our financial results.
We may experience cyber security breaches or other similar incidents.
We may not be able to adequately protect our intellectual property, which could harm the value of our brands and adversely affect our business.
We adjust our capital structure from time to time and we may increase our debt leverage which would make us more sensitive to the effects of economic downturns.
The trading volatility and price of our common stock may be affected by many factors.
Changes in accounting standards may negatively impact our results of operations.
We may be subject to claims or litigation that are costly 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.
Our insurance may not provide adequate levels of coverage against claims.
Our bylaws contain an exclusive forum provision that may discourage lawsuits against us and our directors and officers.
•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.
Changes to healthcare laws in the United States or the repeal of existing healthcare laws may negatively impact our financial results in future periods.
•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.
•We may not be able to obtainadequately protect our intellectual property, which could harm the value of our brand and adversely affect our business.
•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.
•If we fail to maintain required licensesan 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 permitsthe value of the Company’s common shares.
•Changes in tax laws, interpretations of existing tax law, or adverse determinations by tax authorities could adversely affect our income tax expense and income tax payments.
•We may be subject to risk associated with disagreements with key stakeholders, such as franchisees.
•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.
•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.
•The securitized debt instruments issued by certain of our wholly-owned subsidiaries have restrictive terms, and any failure to comply with food control regulationssuch terms could lead toresult in default, which could harm the lossvalue of our food service licensesbrand and thereby, harmadversely affect our business.
Delay•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 in closing the pending sale of Qdoba.to comply with such restrictions could adversely affect 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 October 1, 20172, 2022 (“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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary exposure to risks relating to our financial instruments isThere have been no material changes in interest rates. Our credit facility is comprised of a revolving credit facilityour quantitative and a term loan, bearing interest at a rate equal to the prime rate or LIBOR plus an applicable margin basedqualitative market risks set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on a financial leverage ratio. As of January 21, 2018, the applicable marginForm 10-K for the LIBOR-based revolving loans and term loan was set at 2.00%.fiscal year ended October 2, 2022.
We use interest rate swap agreements to reduce exposure to interest rate fluctuations. In April 2014, we entered into nine forward-starting interest rate swap agreements that effectively converted $300.0 million of our variable rate borrowings to a fixed-rate basis from October 2014 through October 2018. Additionally, in June 2015, we entered into eleven forward-starting interest rate swap agreements that effectively converted an additional $200.0 million of our variable rate borrowings to a fixed-rate from October 2015 through October 2018, and $500.0 million from October 2018 through October 2022. Based on the applicable margin in effect as of January 21, 2018, these twenty interest rate swaps would yield average fixed rates of 4.41%, 4.62%, 4.89%, 5.07%, 5.17% in years 2018 through 2022, respectively. For additional information related to our interest rate swaps, refer to Note 5, Derivative Instruments, of the notes to condensed consolidated financial statements.
We are also exposed to the impact of commodity and utility price fluctuations. Many of the ingredients we use are commodities or ingredients that are affected by the price of other commodities, weather, seasonality, production, availability and various other factors outside our control. In order to minimize the impact of fluctuations in price and availability, we monitor the primary commodities we purchase and may enter into purchasing contracts and pricing arrangements when considered to be advantageous. However, certain commodities remain subject to price fluctuations. We are exposed to the impact of utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs for commodities and utilities through higher prices is limited by the competitive environment in which we operate.
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 January 21, 2018,22, 2023, 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 January 21, 201822, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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 12, Contingencies14, Commitments and Legal MattersContingencies, 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 October 1, 2017,2, 2022, which we filed with the SEC on November 29, 2017.22, 2022, 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 October 1, 2017,2, 2022, including our financial statements and the related notes. There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended October 1, 2017. 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,occur, 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
Our credit agreement provides for the potential payment of cash dividends and stock repurchases, subject to certain limitations based on our leverage ratio as defined in our credit agreement.
Stock Repurchases— We have notIn the first quarter of 2023, we repurchased any0.2 million shares of our common stock in 2018.for an aggregate cost of $15.0 million. As of January 21, 2018, there was approximately $181.022, 2023, this leaves $160.0 million remaining under stock-buybackshare repurchase programs whichauthorized by the Board of Directors that expire in November 2018.2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (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 (in thousands) |
| | | | | | | | $ | 175,000 | |
October 3, 2022 - October 30, 2022 | | — | | | $ | — | | | — | | | $ | 175,000 | |
October 31, 2022 - November 27, 2022 | | — | | | $ | — | | | — | | | $ | 175,000 | |
November 28, 2022 - December 25, 2022 | | 220,650 | | | $ | 67.98 | | | 220,650 | | | $ | 160,000 | |
December 26, 2023 - January 22, 2023 | | — | | | $ | — | | | — | | | $ | 160,000 | |
Total | | 220,650 | | | | | 220,650 | | | |
ITEM 3. DEFAULTS UPONOF SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Item 5.03. None.
ITEM 6. EXHIBITS
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| | | | | | | | | | |
Number | Description | Form | Filed with SEC |
3.110.2.28* | | 8-K10-Q | 9/24/2007Filed herewith |
3.231.1 | | 10-Q | Filed herewith |
3.3 | | 8-K | 12/20/2017 |
10.2.6 |
| 8-K | 1/16/2018 |
10.2.7 | | 8-K | 1/26/2018 |
31.1 | | — | Filed herewith |
31.2 | | — | Filed herewith |
32.1 | | — | Filed herewith |
32.2 | | — | Filed herewith |
101.INS | XBRLiXBRL Instance Document | | |
101.SCH | XBRLiXBRL Taxonomy Extension Schema Document | | |
101.CAL | XBRLiXBRL Taxonomy Extension Calculation Linkbase Document | | |
101.DEF | XBRLiXBRL Taxonomy Extension Definition Linkbase Document | | |
101.LAB | XBRLiXBRL Taxonomy Extension Label Linkbase Document | | |
101.PRE | XBRLiXBRL Taxonomy Extension Presentation Linkbase Document | | |
104 | Cover Page Interactive Data File formatted in iXBRL | | |
*Management contract or compensatory plan.plan
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. |
| | |
| JACK IN THE BOX INC. |
| | |
| By: | /S/ JERRY P. REBEL DAWN HOOPER |
| | Jerry P. RebelDawn Hooper |
| | ExecutiveSenior Vice President, and Chief Financial OfficerController (principal financial officer)
(Duly Authorized Signatory)
|
Date: February 22, 2018
March 1, 2023