Jack In The Box Inc 10-Q for FY2023 Q3
Jack In The Box Inc (JACK)
10-Q
2023-08-09
For: 2023-07-09
View Original
Added on
April 06, 2026
About this 10-Q
Jack In The Box Inc filed this 10-Q on August 9, 2023, covering the quarter ended July 9, 2023 (FY2023 Q3).
Headline figures
Quarter ended July 9, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $396.94M
- down 0.3% from $398.31M a year earlier
- Net income
- $29.17M
- up 27.6% from net income of $22.86M a year earlier
- Diluted EPS
- $1.41
- up 30.6% from $1.08 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended July 9, 2023
or
for the transition period from ________to________.
Commission File Number: 1-9390
____________________________________________________
(Exact name of registrant as specified in its charter)
_______________________________________________________________________________________
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |||||||||||||
(Address of principal executive offices)
Registrant’s telephone number, including area code (858 ) 571-2121
_______________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| þ | Smaller reporting company | ||||||||||
| Accelerated filer | ☐ | Emerging growth company | |||||||||
| Non-accelerated filer | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No þ
As of the close of business August 3, 2023, 20,107,964 shares of the registrant’s common stock were outstanding.
JACK IN THE BOX INC. AND SUBSIDIARIES
INDEX
| Page | ||||||||
| PART I – FINANCIAL INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II – OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
1
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
| July 9, 2023 | October 2, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Accounts and other receivables, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses | |||||||||||
| Current assets held for sale | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment: | |||||||||||
| Property and equipment, at cost | |||||||||||
| Less accumulated depreciation and amortization | ( | ( | |||||||||
| Property and equipment, net | |||||||||||
| Other assets: | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Intangible assets, net | |||||||||||
| Trademarks | |||||||||||
| Goodwill | |||||||||||
| Other assets, net | |||||||||||
| Total other assets | |||||||||||
| $ | $ | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||||||
| Current liabilities: | |||||||||||
| Current maturities of long-term debt | $ | $ | |||||||||
| Current operating lease liabilities | |||||||||||
| Accounts payable | |||||||||||
| Accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities: | |||||||||||
| Long-term debt, net of current maturities | |||||||||||
| Long-term operating lease liabilities, net of current portion | |||||||||||
| Deferred tax liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total long-term liabilities | |||||||||||
| Stockholders’ deficit: | |||||||||||
Preferred stock $ | |||||||||||
Common stock $ | |||||||||||
| Capital in excess of par value | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Total stockholders’ deficit | ( | ( | |||||||||
| $ | $ | ||||||||||
See accompanying notes to condensed consolidated financial statements.
2
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Company restaurant sales | $ | $ | $ | $ | |||||||||||||||||||
| Franchise rental revenues | |||||||||||||||||||||||
| Franchise royalties and other | |||||||||||||||||||||||
| Franchise contributions for advertising and other services | |||||||||||||||||||||||
| Operating costs and expenses, net: | |||||||||||||||||||||||
| Food and packaging | |||||||||||||||||||||||
| Payroll and employee benefits | |||||||||||||||||||||||
| Occupancy and other | |||||||||||||||||||||||
| Franchise occupancy expenses | |||||||||||||||||||||||
| Franchise support and other costs | |||||||||||||||||||||||
| Franchise advertising and other services expenses | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Pre-opening costs | |||||||||||||||||||||||
| Other operating expenses, net | |||||||||||||||||||||||
| Gains on the sale of company-operated restaurants | ( | ( | ( | ( | |||||||||||||||||||
| Earnings from operations | |||||||||||||||||||||||
| Other pension and post-retirement expenses, net | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Earnings before income taxes | |||||||||||||||||||||||
| Income taxes | |||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
Cash dividends declared per common share | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Actuarial losses and prior service costs reclassified to earnings | |||||||||||||||||||||||
| Tax effect | ( | ( | ( | ( | |||||||||||||||||||
| Other comprehensive income, net of taxes | |||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Year-to-date | |||||||||||
| July 9, 2023 | July 10, 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | $ | |||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of franchise tenant improvement allowances and incentives | |||||||||||
| Deferred finance cost amortization | |||||||||||
| Loss on extinguishment of debt | |||||||||||
| Tax deficiency from share-based compensation arrangements | |||||||||||
| Deferred income taxes | |||||||||||
| Share-based compensation expense | |||||||||||
| Pension and post-retirement expense | |||||||||||
| (Gains) losses on cash surrender value of company-owned life insurance | ( | ||||||||||
| Gains on the sale of company-operated restaurants | ( | ( | |||||||||
| Gains on the disposition of property and equipment, net | ( | ( | |||||||||
| Impairment charges and other | |||||||||||
| Changes in assets and liabilities, excluding acquisitions: | |||||||||||
| Accounts and other receivables | |||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Operating lease right-of-use assets and lease liabilities | |||||||||||
| Accounts payable | ( | ||||||||||
| Accrued liabilities | ( | ||||||||||
| Pension and post-retirement contributions | ( | ( | |||||||||
| Franchise tenant improvement allowance and incentive disbursements | ( | ( | |||||||||
| Other | ( | ||||||||||
| Cash flows provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Acquisition of Del Taco, net of cash acquired | ( | ||||||||||
| Proceeds from the sale of property and equipment | |||||||||||
| Proceeds from the sale and leaseback of assets | |||||||||||
| Proceeds from the sale of company-operated restaurants | |||||||||||
| Other | ( | ||||||||||
| Cash flows provided by (used in) investing activities | ( | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings on revolving credit facilities | |||||||||||
| Repayments of borrowings on revolving credit facilities | ( | ( | |||||||||
| Proceeds from the issuance of debt | |||||||||||
| Principal repayments on debt | ( | ( | |||||||||
| Payment of debt issuance and extinguishment costs | ( | ||||||||||
| Dividends paid on common stock | ( | ( | |||||||||
| Proceeds from issuance of common stock | |||||||||||
| Repurchases of common stock | ( | ||||||||||
| Payroll tax payments for equity award issuances | ( | ( | |||||||||
| Cash flows (used in) provided by financing activities | ( | ||||||||||
| Net increase in cash and restricted cash | |||||||||||
| Cash and restricted cash at beginning of period | |||||||||||
| Cash and restricted cash at end of period | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
5
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.BASIS OF PRESENTATION
On March 8, 2022, the Company acquired Del Taco Restaurants, Inc. (“Del Taco”) for cash according to the terms and conditions of the Agreement and Plan of Merger, dated as of December 5, 2021. Del Taco is a nationwide operator and franchisor of restaurants featuring fresh and fast Mexican and American inspired cuisines.
As of July 9, 2023, there were 140 company-operated and 2,051 franchise-operated Jack in the Box restaurants and 221 company-operated and 373 franchise-operated Del Taco restaurants.
References to the Company throughout these notes to condensed consolidated financial statements are made using the first person notations of “we,” “us” and “our.”
Basis of presentation — The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 2, 2022 (“2022 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2022 Form 10-K.
In our opinion, all adjustments considered necessary for a fair presentation of financial condition and results of operations for these interim periods have been included. Operating results for one interim period are not necessarily indicative of the results for any other interim period or for the full year.
Advertising costs — The Company administers marketing funds at each of its restaurant brands that include contractual contributions. In 2023 and 2022, marketing fund contributions from Jack in the Box franchise and company-operated restaurants were approximately 5.0 4.0 % of sales. Year-to-date incremental contributions made by the Company for Jack in the Box brand were less than $0.1 million in 2023. No incremental contributions were made in 2022.
Total contributions made by the Company are included in “Selling, general, and administrative expenses” in the accompanying condensed consolidated statements of earnings and for the quarter and year-to-date totaled $9.0 million and $30.3 million, respectively, in 2023 and $9.8 million and $22.9 million, respectively, in 2022.
6
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the activity in the allowance for doubtful accounts (in thousands):
| Year-to-date | |||||||||||
| July 9, 2023 | July 10, 2022 | ||||||||||
| Balance as of beginning of period | $ | ( | $ | ( | |||||||
| Reversal (provision) for expected credit losses | ( | ||||||||||
| Write-offs charged against the allowance | |||||||||||
| Balance as of end of period | $ | ( | $ | ( | |||||||
Goodwill and trademarks — Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired, if any. We generally record goodwill in connection with the acquisition of restaurants from franchisees or the acquisition of another business. Likewise, upon the sale of restaurants to franchisees, goodwill is decremented. The amount of goodwill written-off is determined as the fair value of the business disposed of as a percentage of the fair value of the reporting unit prior to the disposal. If the business disposed of was never fully integrated into the reporting unit after its acquisition, and thus the benefits of the acquired goodwill were never realized, the current carrying amount of the acquired goodwill is written off.
Goodwill is not amortized and has been assigned to reporting units for purposes of impairment testing. The Company’s two restaurant brands, Jack in the Box and Del Taco, are both operating segments and reporting units. Goodwill is evaluated for impairment by determining whether the fair value of our reporting units exceed their carrying values.
The Company tests goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if events and circumstances warrant. Historically, this testing has been performed as of at the end of the fourth quarter of each fiscal year; however, the Company determined that the testing date should be moved up to be performed during the third quarter of each fiscal year. The Company does not consider this change to be material and believes the timing of assessment is preferable as it better aligns with its planning and forecasting process and also provides additional time to complete the annual assessment in advance of quarterly reporting deadlines. The change in assessment date did not delay, accelerate, or cause avoidance of a potential impairment charge.
Our impairment analyses first include a qualitative assessment to determine whether events or circumstances indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value. Significant factors considered in this assessment include, but are not limited to, macro-economic conditions, market and industry conditions, cost considerations, the competitive environment, share price fluctuations, overall financial performance, and results of past impairment tests. If the qualitative factors indicate that it is more likely than not that the fair value is less than the carrying value, we perform a quantitative impairment test.
In performing a quantitative test for impairment of goodwill, we primarily use the income approach method of valuation that includes the discounted cash flow method and the market approach that includes the guideline public company method to determine the fair value of the reporting unit. Significant assumptions made by management to estimate fair value under the discounted cash flow method include future cash flow assumptions, which may differ from actual cash flows due to, among other things, economic conditions, or changes in operating performance. The discount rate is our estimate of the required rate of return that a third-party buyer would expect to receive when purchasing a business from us that constitutes a reporting unit. We believe the discount rate is commensurate with the risk and uncertainty inherent in the forecasted cash flows. Significant assumptions used to determine fair value under the guideline public company method include the selection of guideline companies and the valuation multiples applied.
In the process of a quantitative test, if necessary, of the Del Taco trademark intangible asset, we primarily use the relief from royalty method under the income approach method of valuation. Significant assumptions used to determine fair value under the relief from royalty method include future trends in sales, a royalty rate, an estimated income tax rate, and a discount rate to be applied to the forecast revenue stream.
During the third quarter of 2023, we performed a qualitative test for the fair value of the Jack in the Box reporting unit, noting that the fair value was substantially in excess of its respective carrying value. We performed quantitative tests over the Del Taco reporting unit using the approaches described above. The fair value of the Del Taco reporting unit and of the Del Taco indefinite-lived trademarks were in excess of their carrying values by approximately 9 % and 13 %, respectively, as of the testing date.
7
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2.REVENUE
Nature of products and services — The Company derives revenue from retail sales at Jack in the Box and Del Taco company-operated restaurants and rental revenue, royalties, advertising, and franchise and other fees from franchise-operated restaurants.
Our franchise arrangements generally provide for an initial franchise fee per restaurant for a 20-year term, and generally require that franchisees pay royalty and marketing fees based upon a percentage of gross sales. The agreements also require franchisees to pay technology fees, as well as sourcing fees for Jack in the Box franchise agreements.
Disaggregation of revenue — The following table disaggregates revenue by segment and primary source for the quarter ended July 9, 2023 (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| Jack in the Box | Del Taco | Total | Jack in the Box | Del Taco | Total | ||||||||||||||||||||||||||||||
| Company restaurant sales | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Franchise rental revenues | |||||||||||||||||||||||||||||||||||
| Franchise royalties | |||||||||||||||||||||||||||||||||||
| Marketing fees | |||||||||||||||||||||||||||||||||||
| Technology and sourcing fees | |||||||||||||||||||||||||||||||||||
| Franchise fees and other services | |||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The following table disaggregates revenue by segment and primary source for the quarter ended July 10, 2022 (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||
| Jack in the Box | Del Taco | Total | Jack in the Box | Del Taco | Total | ||||||||||||||||||||||||||||||
| Company restaurant sales | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Franchise rental revenues | |||||||||||||||||||||||||||||||||||
| Franchise royalties | |||||||||||||||||||||||||||||||||||
| Marketing fees | |||||||||||||||||||||||||||||||||||
| Technology and sourcing fees | |||||||||||||||||||||||||||||||||||
| Franchise fees and other services | |||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
In October 2022, a Jack in the Box franchise operator paid the Company $7.3 million in order to sell his restaurants to a new franchisee at the current standard royalty rate, which is lower than the royalty rate in the existing franchise agreements. The payment represented the difference between the existing royalty rate and the new royalty rate based on projected future sales for the remaining term of the existing agreements. The payment is non-refundable and not subject to any adjustments based on actual future sales. The Company determined the transaction represented the termination of the existing agreement rather than the transfer of an agreement between franchisees. As such, the $7.3 million was recognized in franchise royalty revenue during the first quarter of 2023.
Contract liabilities — Contract liabilities consist of deferred revenue resulting from initial franchise and development fees received from franchisees for new restaurant openings or new franchise terms, which are recognized over the franchise term. The Company classifies these contract liabilities as “Accrued liabilities” and “Other long-term liabilities” in our condensed consolidated balance sheets.
8
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A summary of significant changes in contract liabilities is presented below (in thousands):
| Year-to-date | |||||||||||
| July 9, 2023 | July 10, 2022 | ||||||||||
| Deferred franchise and development fees at beginning of period | $ | $ | |||||||||
| Changes due to business combinations | |||||||||||
| Revenue recognized | ( | ( | |||||||||
| Additions | |||||||||||
| Deferred franchise and development fees at end of period | $ | $ | |||||||||
As of July 9, 2023, approximately $7.4 million of development fees related to unopened restaurants are included in deferred revenue. Timing of revenue recognition for development fees related to unopened restaurants is dependent upon the timing of restaurant openings and are recognized over the franchise term at the date of opening.
The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied as of July 9, 2023 (in thousands):
Remainder of 2023 | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| $ | ||||||||
The Company has applied the optional exemption, as provided for under ASC Topic 606, Revenue from Contracts with Customers, which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.
3.BUSINESS COMBINATION
On March 8, 2022, the Company acquired 100 % of the outstanding equity interest of Del Taco for cash according to the terms and conditions of the Agreement and Plan of Merger, dated as of December 5, 2021. Jack in the Box acquired Del Taco as a part of the Company’s goal to gain greater scale and accelerate growth. Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended October 2, 2022 for further discussion regarding the acquisition, including the purchase consideration, purchase price allocation, goodwill and identifiable intangible assets.
Unaudited pro forma results — The following unaudited pro forma combined financial information presents the Company’s results as though Del Taco and the Company had been combined as of the beginning of fiscal year 2021 (in thousands):
| Year-to-date | |||||||||||
| July 10, 2022 | |||||||||||
Total revenue | $ | ||||||||||
Net earnings | $ | ||||||||||
9
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The unaudited pro forma financial information for the period presented includes the business combination accounting effects resulting from the acquisition, mainly including adjustments to reflect additional amortization expense from acquired intangibles, incremental depreciation expense from the fair value property and equipment, elimination of historical interest expense associated with both Del Taco’s and the Company’s historical indebtedness, additional interest expense associated with the new Del Taco revolving credit facility and the Company’s new borrowings as part of the refinancing to fund the acquisition, adjusted rent expense reflecting the acquired right-of-use assets and liabilities to their estimated acquisition-date values based upon valuation of related lease intangibles and remaining payments, as well as the fair value adjustments made to leasehold improvements, certain material non-recurring adjustments and the tax-related effects as though Del Taco was combined as of the beginning of fiscal 2021. The unaudited pro forma financial information as presented above is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2021, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses.
For the periods subsequent to the acquisition that are included in the year-to-date period in 2022, Del Taco had total revenues of $189.3 million and net earnings of $5.2 million.
4.SUMMARY OF REFRANCHISINGS AND FRANCHISE ACQUISITIONS
Refranchisings — The following table summarizes the number of restaurants sold to franchisees and gains recognized (dollars in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 (1) | July 9, 2023 | July 10, 2022 (1) | ||||||||||||||||||||
| Restaurants sold to Jack in the Box franchisees | |||||||||||||||||||||||
| Restaurants sold to Del Taco franchisees | |||||||||||||||||||||||
| Proceeds from the sale of company-operated restaurants | $ | $ | $ | $ | |||||||||||||||||||
| Broker commissions | ( | ( | |||||||||||||||||||||
| Net assets sold (primarily property and equipment) | ( | ( | |||||||||||||||||||||
| Goodwill related to the sale of company-operated restaurants | ( | ( | |||||||||||||||||||||
| Franchise fees | ( | ( | |||||||||||||||||||||
| Sublease liabilities, net | ( | ( | |||||||||||||||||||||
| Lease termination | ( | ||||||||||||||||||||||
Other (2) | ( | ( | |||||||||||||||||||||
| Gains on the sale of company-operated restaurants | $ | $ | $ | $ | |||||||||||||||||||
____________________________
(1)Amounts in periods presented for 2022 primarily relate to additional proceeds received in connection with the extension of franchise and lease agreements from the sale of restaurants in prior years.
(2)The quarter and year-to-date amounts include $0.3 two
Franchise acquisitions — In 2023, the Company did not acquire any franchise restaurants. In 2022, the Company acquired thirteen Jack in the Box franchise restaurants in two markets. We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). These acquisitions were not material to our condensed consolidated financial statements.
Assets held for sale — Assets classified as held for sale on our condensed consolidated balance sheets as of July 9, 2023 and October 2, 2022 have carrying amounts of $10.0 million and $17.0 million, respectively. These amounts relate to i) company-owned restaurants to be refranchised, ii) operating restaurant properties which we intend to sell to franchisees and/or sell and leaseback with a third party and iii) closed restaurant properties which we are marketing for sale.
10
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5.GOODWILL AND INTANGIBLE ASSETS, NET
The changes in the carrying amount of goodwill during fiscal 2023 and 2022 were as follows (in thousands):
| Jack in the Box | Del Taco | Total | |||||||||||||||
Balance at October 2, 2022 | $ | $ | $ | ||||||||||||||
| Sale of Del Taco company-operated restaurants to franchisees | ( | ( | |||||||||||||||
| Sale of Jack in the Box company-operated restaurants to franchisees | ( | ( | |||||||||||||||
| Reclassified to assets held for sale | ( | ( | |||||||||||||||
Balance at July 9, 2023 | $ | $ | $ | ||||||||||||||
The net carrying amounts of intangible assets other than goodwill with definite lives are as follows (in thousands):
| July 9, 2023 | October 2, 2022 | ||||||||||||||||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Net Amount | Gross Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||||||||||||||
| Definite-lived intangible assets: | |||||||||||||||||||||||||||||||||||
| Sublease assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Franchise contracts | ( | ( | |||||||||||||||||||||||||||||||||
| Reacquired franchise rights | ( | ( | |||||||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||||||||||||||
| Del Taco trademark | $ | $ | — | $ | $ | $ | — | $ | |||||||||||||||||||||||||||
| $ | $ | — | $ | $ | $ | — | $ | ||||||||||||||||||||||||||||
The following table summarizes, as of July 9, 2023, the estimated amortization expense for each of the next five fiscal years (in thousands):
| Remainder of 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| $ | |||||
6.LEASES
Nature of leases — The Company owns restaurant sites and also leases restaurant sites from third parties. Some of these owned or leased sites are leased and/or subleased to franchisees. Initial terms of our real estate leases are generally 20 years, exclusive of options to renew, which are generally exercisable at our sole discretion for 1 to 20 years. In some instances, our leases have provisions for contingent rentals based upon a percentage of defined revenues. Many of our restaurants also have rent escalation clauses and require the payment of property taxes, insurance, and maintenance costs. Variable lease costs include contingent rent, cost-of-living index adjustments, and payments for additional rent such as real estate taxes, insurance, and common area maintenance, which are excluded from the measurement of the lease liability.
As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees in connection with refranchising transactions. Revenues from leasing arrangements with our franchisees are presented in “Franchise rental revenues” in the accompanying condensed consolidated statements of earnings, and the related expenses are presented in “Franchise occupancy expenses.”
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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents rental income (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Operating lease income - franchise | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease income - franchise | |||||||||||||||||||||||
| Amortization of favorable and unfavorable sublease contracts, net | |||||||||||||||||||||||
| Franchise rental revenues | $ | $ | $ | $ | |||||||||||||||||||
| Operating lease income - closed restaurants and other (1) | $ | $ | $ | $ | |||||||||||||||||||
____________________________
(1)Primarily relates to closed restaurant properties included in “Other operating expenses, net” in our condensed consolidated statements of earnings.
7.FAIR VALUE MEASUREMENTS
Financial assets and liabilities — The following table presents our financial assets and liabilities measured at fair value on a recurring basis ( in thousands):
| Total | Quoted Prices in Active Markets for Identical Assets (2) (Level 1) | Significant Other Observable Inputs (2) (Level 2) | Significant Unobservable Inputs (2) (Level 3) | ||||||||||||||||||||
Fair value measurements as of July 9, 2023: | |||||||||||||||||||||||
| Non-qualified deferred compensation plan (1) | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
Fair value measurements as of October 2, 2022: | |||||||||||||||||||||||
| Non-qualified deferred compensation plan (1) | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
____________________________
(1)The Company maintains 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)The Company did not have any transfers in or out of Level 1, 2 or 3.
The following table presents the carrying value and estimated fair value of our Class A-2 Notes as of July 9, 2023 and October 2, 2022 (in thousands):
| July 9, 2023 | October 2, 2022 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Series 2019 Class A-2 Notes | $ | $ | $ | $ | |||||||||||||||||||
| Series 2022 Class A-2 Notes | $ | $ | $ | $ | |||||||||||||||||||
The fair value of the Class A-2 Notes was estimated using Level 2 inputs based on quoted market prices in markets that are not considered active markets.
Non-financial assets and liabilities — The Company’s 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 2023, the Company impaired certain under-performing Del Taco restaurants. For further information, see Note 8, Other operating expenses, net, below in the notes to the condensed consolidated financial statements.
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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8.OTHER OPERATING EXPENSES, NET
Other operating expenses, net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Acquisition, integration, and restructuring costs (1) | $ | $ | $ | $ | |||||||||||||||||||
| Costs of closed restaurants and other (2) | |||||||||||||||||||||||
| Operating restaurant impairment charges (3) | |||||||||||||||||||||||
| Accelerated depreciation | |||||||||||||||||||||||
| Gains on disposition of property and equipment, net (4) | ( | ( | ( | ( | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
____________________________
(1)Acquisition, integration, and restructuring costs are related to the acquisition and integration of Del Taco.
(2)Costs of closed restaurants and other 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, restaurant impairment charges related to the impairment of under-performing Del Taco restaurants currently held for use, whereas in 2022, the charges related to the impairment of under-performing Jack in the Box company-operated restaurants currently held for use.
(4)The 2023 year-to-date gains on disposition of property and equipment primarily 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
The Company’s principal business consists of developing, operating and franchising our Jack in the Box and Del Taco restaurant brands, each of which is considered 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.
The Company measures and evaluates 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.
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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table provides information related to our operating segments in each period (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Revenues by segment: | |||||||||||||||||||||||
| Jack in the Box | $ | $ | $ | $ | |||||||||||||||||||
| Del Taco | |||||||||||||||||||||||
| Consolidated revenues | $ | $ | $ | $ | |||||||||||||||||||
| Segment operating profit: | |||||||||||||||||||||||
| Jack in the Box | $ | $ | $ | $ | |||||||||||||||||||
| Del Taco | |||||||||||||||||||||||
| Total segment operating profit | $ | $ | $ | $ | |||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Acquisition, integration, and restructuring costs | |||||||||||||||||||||||
| Share-based compensation | |||||||||||||||||||||||
| Net COLI (gains) losses | ( | ( | |||||||||||||||||||||
| Gains on the sale of company-operated restaurants | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of favorable and unfavorable leases and subleases, net | |||||||||||||||||||||||
| Earnings from operations | $ | $ | $ | $ | |||||||||||||||||||
| Total capital expenditures by segment: | |||||||||||||||||||||||
| Jack in the Box | $ | $ | $ | $ | |||||||||||||||||||
| Del Taco | |||||||||||||||||||||||
| Total capital expenditures | $ | $ | $ | $ | |||||||||||||||||||
| Total depreciation and amortization by segment: | |||||||||||||||||||||||
| Jack in the Box | $ | $ | $ | $ | |||||||||||||||||||
| Del Taco | |||||||||||||||||||||||
| Total depreciation and amortization | $ | $ | $ | $ | |||||||||||||||||||
The Company does not evaluate, manage or measure performance of segments using asset, interest income and expense, or income tax information; accordingly, this information by segment is not prepared or disclosed.
10.INCOME TAXES
11.RETIREMENT PLANS
14
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Post-retirement healthcare plans — The Company also sponsors two healthcare plans, closed to new participants, that provide post-retirement medical benefits to certain employees who have met minimum age and service requirements. The plans are contributory, with retiree contributions adjusted annually, and they contain other cost-sharing features such as deductibles and coinsurance.
Net periodic benefit cost (credit) — The components of net periodic benefit cost in each period were as follows ( in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Defined benefit pension plans: | |||||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Actuarial losses (1) | |||||||||||||||||||||||
| Amortization of unrecognized prior service costs (1) | |||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||
| Post-retirement healthcare plans: | |||||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||
| Actuarial gains (1) | ( | ( | ( | ( | |||||||||||||||||||
| Net periodic benefit credit | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
____________________________
(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 — The Company’s policy is to fund our plans at or above the minimum required by law. As of January 1, 2022, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for the Qualified Plan. Details regarding 2023 contributions are as follows ( in thousands):
| SERP | Post-Retirement Healthcare Plans | ||||||||||
| Net year-to-date contributions | $ | $ | |||||||||
| Remaining estimated net contributions during fiscal 2023 | $ | $ | |||||||||
The Company continues 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. The Company does not anticipate making any contributions to our Qualified Plan in fiscal 2023.
15
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12.STOCKHOLDERS’ DEFICIT
Summary of changes in stockholders’ deficit — A reconciliation of the 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 | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||
| Shares issued under stock plans, including tax benefit | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance at January 22, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||
| Shares issued under stock plans, including tax benefit | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance at April 16, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||
| Shares issued under stock plans, including tax benefit | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance at July 9, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||
16
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 | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||
| Shares issued under stock plans, including tax benefit | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance at January 23, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||
| Shares issued under stock plans, including tax benefit | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Fair value of assumed Del Taco RSAs attributable to pre-combination service | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance at April 17, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||
| Shares issued under stock plans, including tax benefit | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance at July 10, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||
Repurchases of common stock — The Company repurchased 0.7 million shares of its common stock in fiscal 2023 for an aggregate cost of $60.4 million, including applicable excise tax. As of July 9, 2023, there was $115.0 million remaining under share repurchase programs authorized by the Board of Directors which expire in November 2023.
Dividends — Through July 9, 2023, the Board of Directors declared three cash dividends of $0.44 27.4 million. Future dividends are subject to approval by our Board of Directors.
13.AVERAGE SHARES OUTSTANDING
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Weighted-average shares outstanding – basic | |||||||||||||||||||||||
| Effect of potentially dilutive securities: | |||||||||||||||||||||||
| Nonvested stock awards and units | |||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Performance share awards | |||||||||||||||||||||||
| Weighted-average shares outstanding – diluted | |||||||||||||||||||||||
| Excluded from diluted weighted-average shares outstanding: | |||||||||||||||||||||||
| Antidilutive | |||||||||||||||||||||||
| Performance conditions not satisfied at the end of the period | |||||||||||||||||||||||
17
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
14.COMMITMENTS AND CONTINGENCIES
Legal matters — The Company assesses contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. The Company regularly reviews 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.
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 Box 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. On October 24, 2022, a jury awarded the plaintiffs approximately $6.4 million in damages and penalties. 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 July 9, 2023, the Company has accrued the verdict amount as well as estimated pre-judgment and post-judgment interest of $6.6 million, and included it within “Accrued liabilities” on our condensed consolidated balance sheet. The Company will continue to accrue for post-judgment interest until the matter is settled.
Torrez — In 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 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 July 9, 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 bankrupt former franchisee filed a complaint generally alleging the Company wrongfully terminated the franchise agreements and unreasonably denied two perspective purchasers the former franchisee presented. The parties participated in a mediation in April 2021, and again in December 2022, but the matter did not settle. Trial commenced on January 9, 2023. On February 8, 2023, the jury returned a verdict finding the Company had not breached any contracts in terminating the franchise agreements or denying the proposed buyers. While the jury also found the Company had not violated the California Unfair Practices Act, it found for the plaintiff on the claim for breach of implied covenant of good faith and fair dealing, and awarded $8.0 million in damages. On May 9, 2023, the court granted the Company’s post-trial motion, overturning the jury verdict and ordering the plaintiff take nothing on its claims. As a result, the Company reversed the prior $8.0 million accrual, and as of July 9, 2023, the Company has no amounts accrued for this case on its condensed consolidated balance sheet.
Other legal matters — In addition to the matters described above, we are subject to normal and routine litigation brought by former or current employees, customers, franchisees, vendors, landlords, shareholders, or others. The Company intends to defend ourselves in any such matters. Some of these matters may be covered, at least in part, by insurance or other third-party indemnity obligation. The Company records receivables from third party insurers when recovery has been determined to be probable.
18
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
15.SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)
| Year-to-date | |||||||||||
| July 9, 2023 | July 10, 2022 | ||||||||||
| Non-cash investing and financing transactions: | |||||||||||
| Decrease in obligations for purchases of property and equipment | $ | $ | |||||||||
| Increase in dividends accrued or converted to common stock equivalents | $ | $ | |||||||||
| Right-of use assets obtained in exchange for operating lease obligations | $ | $ | |||||||||
| Right-of use assets obtained in exchange for finance lease obligations | $ | $ | |||||||||
19
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
16.SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)
| July 9, 2023 | October 2, 2022 | ||||||||||
| Accounts and other receivables, net: | |||||||||||
| Trade | $ | $ | |||||||||
| Notes receivable, current portion | |||||||||||
| Income tax receivable | |||||||||||
| Other | |||||||||||
| Allowance for doubtful accounts | ( | ( | |||||||||
| $ | $ | ||||||||||
| Property and equipment, net | |||||||||||
| Land | $ | $ | |||||||||
| Buildings | |||||||||||
| Restaurant and other equipment | |||||||||||
| Construction in progress | |||||||||||
| Less accumulated depreciation and amortization | ( | ( | |||||||||
| $ | $ | ||||||||||
| Other assets, net: | |||||||||||
| Company-owned life insurance policies | $ | $ | |||||||||
| Deferred rent receivable | |||||||||||
| Franchise tenant improvement allowance | |||||||||||
| Notes receivable, less current portion | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
| Accrued liabilities: | |||||||||||
| Legal accruals | $ | $ | |||||||||
| Payroll and related taxes | |||||||||||
| Insurance | |||||||||||
| Sales and property taxes | |||||||||||
| Deferred rent income | |||||||||||
| Advertising | |||||||||||
| Deferred franchise and development fees | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
| Other long-term liabilities: | |||||||||||
| Defined benefit pension plans | $ | $ | |||||||||
| Deferred franchise and development fees | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
17.SUBSEQUENT EVENTS
Refranchising — Subsequent to the end of the third quarter of 2023, the Company closed on the sale of 23 Del Taco company-operated restaurants to two franchisees for $13.8 million.
Dividends — On August 4, 2023, the Board of Directors declared a cash dividend of $0.44 per common share, to be paid on September 18, 2023, to shareholders of record as of the close of business on September 6, 2023.
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All comparisons between 2023 and 2022 refer to the 12 weeks (“quarter”) and 40 weeks (“year-to-date”) ended July 9, 2023 and July 10, 2022, respectively, unless otherwise indicated.
For an understanding of the significant factors that influenced our performance during 2023 and 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 2, 2022.
Our MD&A consists of the following sections:
•Overview — a general description of our business.
•Results of operations — an analysis of our condensed consolidated statements of earnings for the periods presented in our condensed consolidated financial statements.
•Liquidity and capital resources — an analysis of our cash flows, including capital expenditures, share repurchase activity, dividends, and known trends that may impact liquidity.
•Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates.
•New accounting pronouncements — a discussion of new accounting pronouncements, dates of implementation and the impact on our consolidated financial position or results of operations, if any.
•Cautionary statements regarding forward-looking statements — a discussion of the risks and uncertainties that may cause our actual results to differ materially from any forward-looking statements made by management.
We have included in our MD&A certain performance metrics that management uses to assess company performance and which we believe will be useful in analyzing and understanding our results of operations. These metrics include:
•Changes in sales at restaurants open more than one year (“same-store sales”), systemwide sales, franchised restaurant sales, and average unit volumes (“AUVs”). Same-store sales, restaurant sales, and AUVs are presented for franchised restaurants and on a 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 are useful to investors as they have a direct effect on the Company’s profitability.
•Adjusted EBITDA represents net earnings on a generally accepted accounting principles (“GAAP”) basis excluding income taxes, interest expense, net, gains on the sale of company-operated restaurants, other operating expenses, net, depreciation and amortization, amortization of favorable and unfavorable leases and subleases, net, and amortization of tenant improvement 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.
21
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 July 9, 2023, we operated and franchised 2,191 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam, and 594 Del Taco quick-service restaurants across 16 states, including one in Guam.
We derive revenue from retail sales at company-operated restaurants and rental revenue, royalties (based upon a percent of sales), franchise fees and contributions for advertising and other services from franchisees.
RESULTS OF OPERATIONS
The following tables summarize changes in same-store sales for Jack in the Box and Del Taco company-operated, franchised, and system restaurants:
| Quarter | Year-to-date | ||||||||||||||||||||||
| Jack in the Box: | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||
| Company | 6.9 | % | 3.5 | % | 10.3 | % | 1.5 | % | |||||||||||||||
| Franchise | 8.0 | % | (1.0) | % | 8.2 | % | (0.1) | % | |||||||||||||||
| System | 7.9 | % | (0.6) | % | 8.4 | % | 0.0 | % | |||||||||||||||
| Quarter | Year-to-date | ||||||||||||||||||||||
| Del Taco: | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 (1) | |||||||||||||||||||
| Company | 1.7 | % | 2.3 | % | 2.8 | % | 2.5 | % | |||||||||||||||
| Franchise | 1.8 | % | 4.8 | % | 2.5 | % | 4.6 | % | |||||||||||||||
| System | 1.7 | % | 3.5 | % | 2.6 | % | 3.5 | % | |||||||||||||||
(1)Fiscal 2022 full year-to-date same store sales figures are shown for information purposes only.
The following tables summarize year-to-date changes in the number and mix of company and franchise restaurants for our two brands:
| 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 | — | 14 | 14 | — | 10 | 10 | |||||||||||||||||||||||||||||
| Acquired from franchisees | — | — | — | 13 | (13) | — | |||||||||||||||||||||||||||||
| Refranchised | (5) | 5 | — | — | — | — | |||||||||||||||||||||||||||||
| Closed | (1) | (3) | (4) | (5) | (16) | (21) | |||||||||||||||||||||||||||||
| End of period | 140 | 2,051 | 2,191 | 171 | 2,036 | 2,207 | |||||||||||||||||||||||||||||
| % of system | 6 | % | 94 | % | 100 | % | 8 | % | 92 | % | 100 | % | |||||||||||||||||||||||
| 2023 | 2022 (1) | ||||||||||||||||||||||||||||||||||
| Del Taco: | Company | Franchise | Total | Company | Franchise | Total | |||||||||||||||||||||||||||||
| Beginning of year | 290 | 301 | 591 | 296 | 306 | 602 | |||||||||||||||||||||||||||||
| New | — | 7 | 7 | 1 | 2 | 3 | |||||||||||||||||||||||||||||
| Refranchised | (66) | 66 | — | — | — | — | |||||||||||||||||||||||||||||
| Closed | (3) | (1) | (4) | (6) | (5) | (11) | |||||||||||||||||||||||||||||
| End of period | 221 | 373 | 594 | 291 | 303 | 594 | |||||||||||||||||||||||||||||
| % of system | 37 | % | 63 | % | 100 | % | 49 | % | 51 | % | 100 | % | |||||||||||||||||||||||
(1)Fiscal 2022 full year-to-date restaurant activity figures are shown for information purposes only.
22
The following tables summarize restaurant sales for company-operated, franchised, and systemwide sales for our two brands (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| Jack in the Box: | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||
| Company-operated restaurant sales | $ | 96,820 | $ | 100,899 | $ | 318,451 | $ | 315,205 | |||||||||||||||
| Franchised restaurant sales (1) | 948,457 | 867,210 | 3,088,697 | 2,825,353 | |||||||||||||||||||
| Systemwide sales (1) | $ | 1,045,277 | $ | 968,109 | $ | 3,407,148 | $ | 3,140,558 | |||||||||||||||
| Quarter | Year-to-date | ||||||||||||||||||||||
| Del Taco: | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 (2) | |||||||||||||||||||
| Company-operated restaurant sales | $ | 101,696 | $ | 114,333 | $ | 352,860 | $ | 368,893 | |||||||||||||||
| Franchised restaurant sales (1) | 129,112 | 112,774 | 394,105 | 359,243 | |||||||||||||||||||
| Systemwide sales (1) | $ | 230,808 | $ | 227,107 | $ | 746,965 | $ | 728,136 | |||||||||||||||
____________________________
(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.
(2)Fiscal 2022 full year-to-date systemwide sales figures are shown for information purposes only.
Jack in the Box Brand
Company Restaurant Operations
The following table presents company restaurant sales and costs as a percentage of the related sales (dollars in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Company restaurant sales | $ | 96,820 | $ | 100,899 | $ | 318,451 | $ | 315,205 | |||||||||||||||||||||||||||||||||||||||
| Company restaurant costs: | |||||||||||||||||||||||||||||||||||||||||||||||
| Food and packaging | $ | 30,384 | 31.4 | % | $ | 33,319 | 33.0 | % | $ | 101,551 | 31.9 | % | $ | 101,543 | 32.2 | % | |||||||||||||||||||||||||||||||
| Payroll and employee benefits | $ | 29,292 | 30.3 | % | $ | 33,699 | 33.4 | % | $ | 97,930 | 30.8 | % | $ | 105,431 | 33.4 | % | |||||||||||||||||||||||||||||||
| Occupancy and other | $ | 16,021 | 16.5 | % | $ | 17,959 | 17.8 | % | $ | 52,397 | 16.5 | % | $ | 56,220 | 17.8 | % | |||||||||||||||||||||||||||||||
Company restaurant sales decreased $4.1 million or 4.0% in the quarter and increased $3.2 million or 1.0% year-to-date compared to the prior year. In the quarter, the decrease is primarily due to a decline in the number of company-operated restaurants, partially offset by average check and traffic growth. Year-to-date, the increase is primarily due to higher same-store sales driven by average check and traffic growth, partially offset by a decrease in the number of company-operated restaurants. The following table presents the approximate impact of these items on company restaurant sales (in millions):
| Quarter | Year-to-date | |||||||||||||
| AUV increase | $ | 5.6 | $ | 29.5 | ||||||||||
| Decrease in the average number of restaurants | (9.7) | (26.3) | ||||||||||||
| Total change in company restaurant sales | $ | (4.1) | $ | 3.2 | ||||||||||
Same-store sales at company-operated restaurants increased 6.9% in the quarter and 10.3% year-to-date compared to a year ago. The following table summarizes the change versus a year ago:
23
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Average check (1) | 5.8 | % | 5.6 | % | 7.1 | % | 4.2 | % | |||||||||||||||
| Transactions | 1.1 | % | (2.1) | % | 3.2 | % | (2.7) | % | |||||||||||||||
| Change in same-store sales | 6.9 | % | 3.5 | % | 10.3 | % | 1.5 | % | |||||||||||||||
____________________________
(1)Includes price increases of approximately 7.3% in the quarter and 9.0% year-to-date.
Food and packaging costs as a percentage of company restaurant sales decreased 1.6% in the quarter and decreased 0.3% year-to-date compared to the prior year primarily due to increased menu pricing and favorable menu item mix, partially offset by higher commodity costs.
Commodity costs increased in the quarter and year-to-date by approximately 5.2% and 10.0%, respectively, compared to the prior year. The inflation we have experienced is across nearly all categories with the greatest impact on a year-to-date basis seen in produce, sauces, potatoes and beverages. For fiscal 2023, we expect annual commodity cost inflation to be up 8% to 10% compared with fiscal 2022.
Payroll and employee benefit costs as a percentage of company restaurant sales decreased 3.1% in the quarter and decreased 2.6% year-to-date compared to the prior year primarily due to sales leverage and a change in the mix of restaurants in connection with refranchising transactions, partially offset by higher incentive compensation. Labor inflation in the quarter and year-to-date was approximately 4.2% and 6.5%, respectively. For fiscal 2023, we expect annual wage inflation to be up 3% to 6% compared with fiscal 2022.
Occupancy and other costs, as a percentage of company restaurant sales, decreased 1.3% in both the quarter and year-to-date compared to the prior year primarily due to sales leverage and a change in the mix of restaurants in connection with refranchising transactions, partially offset by higher other operating costs including utilities, delivery fees and security as compared with fiscal 2022.
24
Jack in the Box Franchise Operations
The following table presents franchise revenues and costs in each period and other information we believe is useful in analyzing the change in franchise operating results (dollars in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Franchise rental revenues | $ | 83,271 | $ | 78,278 | $ | 270,277 | $ | 257,069 | |||||||||||||||
| Royalties | 47,373 | 44,291 | 161,343 | 144,872 | |||||||||||||||||||
| Franchise fees and other | 1,387 | 2,340 | 4,855 | 6,944 | |||||||||||||||||||
| Franchise royalties and other | 48,760 | 46,631 | 166,198 | 151,816 | |||||||||||||||||||
| Franchise contributions for advertising and other services | 51,360 | 46,168 | 167,034 | 151,934 | |||||||||||||||||||
| Total franchise revenues | $ | 183,391 | $ | 171,077 | $ | 603,509 | $ | 560,819 | |||||||||||||||
| Franchise occupancy expenses | $ | 51,012 | $ | 49,216 | $ | 165,575 | $ | 161,602 | |||||||||||||||
| Franchise support and other costs | 3,528 | 3,422 | 7,086 | 12,161 | |||||||||||||||||||
| Franchise advertising and other services expenses | 53,519 | 47,622 | 174,730 | 157,779 | |||||||||||||||||||
| Total franchise costs | $ | 108,059 | $ | 100,260 | $ | 347,391 | $ | 331,542 | |||||||||||||||
| Franchise costs as a percentage of total franchise revenues | 58.9% | 58.6% | 57.6% | 59.1% | |||||||||||||||||||
| Average number of franchise restaurants | 2,035 | 2,028 | 2,035 | 2,032 | |||||||||||||||||||
| % increase | 0.3% | 0.1% | |||||||||||||||||||||
| Franchised restaurant sales | $ | 948,457 | $ | 867,210 | $ | 3,088,697 | $ | 2,825,353 | |||||||||||||||
| Franchised restaurant AUVs | $ | 466 | $ | 428 | $ | 1,518 | $ | 1,391 | |||||||||||||||
| Royalties as a percentage of total franchised restaurant sales (1) | 5.0% | 5.1% | 5.2% | 5.1% | |||||||||||||||||||
____________________________
(1)Excluding the impact of the $7.3 million termination fee in the first quarter of the current year, royalties as a percentage of total franchised restaurant sales would be 5.0% year-to-date for the period ended July 9, 2023.
Franchise rental revenues increased $5.0 million, or 6.4% in the quarter, and $13.2 million, or 5.1% year-to-date, as compared to the prior year, primarily due to higher percentage rent of $2.9 million in the quarter and $10.1 million year-to-date driven by higher franchise restaurant sales as well as higher minimum rent of $1.8 million and $3.5 million, respectively.
Franchise royalties and other increased $2.1 million, or 4.6% in the quarter, and increased $14.4 million, or 9.5% year-to-date, as compared to the prior year. Higher franchise restaurant sales drove royalties higher in both the quarter and year-to-date periods. Additionally, in the year-to-date period, a $7.3 million termination fee paid by a franchise operator who sold his restaurants to a new franchisee, also contributed to the increase versus a year ago. Refer to Note 2, Revenue, of the notes to the condensed consolidated financial statements for additional information related to the $7.3 million termination fee.
Franchise contributions for advertising and other services revenues increased $5.2 million, or 11.2% in the quarter, and increased $15.1 million, or 9.9% year-to-date, compared to the prior year primarily driven by higher marketing contribution in connection with higher franchise restaurant sales.
Franchise occupancy expenses, primarily rent, increased $1.8 million, or 3.6% in the quarter, and increased $4.0 million, or 2.5% year-to-date, compared to the prior year primarily due to ongoing rent increases and to a lesser extent, higher property tax assessments in the current year.
Franchise support and other costs increased $0.1 million in the quarter, and decreased $5.1 million year-to-date, compared to the prior year. In the quarter, the increase is primarily due to higher costs for technology fees, overhead relating to new and remodeled restaurants and franchise business conferences, partially offset by lower bad debt expense. Year-to-date the decrease is primarily due to a decrease in bad debt expense of $6.0 million, partially offset with higher technology fees.
Franchise advertising and other service expenses increased $5.9 million, or 12.4% in the quarter, and increased $17.0 million, or 10.7% year-to-date, compared to the prior year primarily driven by higher franchise sales.
25
Del Taco Brand
Jack in the Box Inc. acquired Del Taco on March 8, 2022. Fiscal 2022 results include 12 and approximately 18 weeks of operating results, compared with 12 and 40 weeks in the current year quarter and year-to-date periods, respectively.
Company Restaurant Operations
The following table presents company restaurant sales and costs as a percentage of the related sales (dollars in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||||||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Company restaurant sales | $ | 101,696 | $ | 114,332 | $ | 352,860 | $ | 171,391 | |||||||||||||||||||||||||||||||||||||||
| Company restaurant costs: | |||||||||||||||||||||||||||||||||||||||||||||||
| Food and packaging | $ | 28,171 | 27.7 | % | $ | 32,435 | 28.4 | % | $ | 98,247 | 27.8 | % | $ | 48,619 | 28.4 | % | |||||||||||||||||||||||||||||||
| Payroll and employee benefits | $ | 34,579 | 34.0 | % | $ | 37,666 | 32.9 | % | $ | 119,617 | 33.9 | % | $ | 56,570 | 33.0 | % | |||||||||||||||||||||||||||||||
| Occupancy and other | $ | 21,254 | 20.9 | % | $ | 24,094 | 21.1 | % | $ | 75,523 | 21.4 | % | $ | 35,882 | 20.9 | % | |||||||||||||||||||||||||||||||
Company restaurant sales decreased $12.6 million or 11.1% in the quarter compared to the prior year. The year-to-date period for 2022 only includes 18 weeks of operating results versus the full 40 weeks due to the timing of the Del Taco acquisition. As a result, the comments below are focused on the quarter-over-quarter comparisons.
The following table presents the approximate impact of these items on company restaurant sales (in millions):
| Quarter | ||||||||
| AUV increase | $ | 1.4 | ||||||
| Decrease in the average number of restaurants | (14.0) | |||||||
| Total change in company restaurant sales | $ | (12.6) | ||||||
Same-store sales at company-operated restaurants increased 1.7% in the quarter and 2.8% year-to-date compared to a year ago. The following table summarizes the change for the current quarter versus a year ago:
| Quarter | |||||||||||
| July 9, 2023 | July 10, 2022 | ||||||||||
| Average check (1) | 4.1 | % | 8.9 | % | |||||||
| Transactions | (2.4) | % | (6.6) | % | |||||||
| Change in same-store sales | 1.7 | % | 2.3 | % | |||||||
________________________
(1)Includes price increases of approximately 8.1% in the third quarter of 2023.
Food and packaging costs as a percentage of company restaurant sales, decreased 0.7% in the quarter as compared to the prior year. This decrease as a percentage was primarily due to menu price increases, partially offset by commodity inflation.
Commodity costs inflation was 2.1% in the third quarter of 2023 and was 20.1% in the third quarter of 2022. The largest sources of inflation in the current quarter were due to tortillas, shells and potatoes, and partially offset by favorability in chicken, cheese and produce. For fiscal 2023, we expect annual commodity cost inflation to be up 8% to 10% compared with fiscal 2022.
Payroll and employee benefit costs as a percentage of company restaurant sales, increased 1.1% in the quarter as compared to the prior year. This increase was primarily due to labor inflation, which was 4.8% in the third quarter of 2023 and was 9.7% in the third quarter of 2022.
Occupancy and other costs, as a percentage of company restaurant sales, decreased 0.2% in the quarter as compared to the prior year. The decrease in the quarter was primarily due to lower common area maintenance costs, partially offset by higher maintenance and repair costs.
26
Del Taco Franchise Operations
The following table presents franchise revenues and costs in each period and other information we believe is useful in analyzing the change in franchise operating results (dollars in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Franchise rental revenues | $ | 2,977 | $ | 1,790 | $ | 8,321 | $ | 2,654 | |||||||||||||||
| Royalties | 6,129 | 5,361 | 18,721 | 8,006 | |||||||||||||||||||
| Franchise fees and other | 79 | 65 | 422 | 93 | |||||||||||||||||||
| Franchise royalties and other | 6,208 | 5,426 | 19,143 | 8,099 | |||||||||||||||||||
| Franchise contributions for advertising and other services | 5,849 | 4,781 | 17,497 | 7,142 | |||||||||||||||||||
| Total franchise revenues | $ | 15,034 | $ | 11,997 | $ | 44,961 | $ | 17,895 | |||||||||||||||
| Franchise occupancy expenses | $ | 2,918 | $ | 1,755 | $ | 8,228 | $ | 2,596 | |||||||||||||||
| Franchise support and other costs | 553 | 346 | 1,540 | 532 | |||||||||||||||||||
| Franchise advertising and other services expenses | 6,050 | 4,776 | 18,145 | 7,185 | |||||||||||||||||||
| Total franchise costs | $ | 9,521 | $ | 6,877 | $ | 27,913 | $ | 10,313 | |||||||||||||||
| Franchise costs as a percentage of total franchise revenues | 63.3% | 57.3% | 62.1% | 57.6% | |||||||||||||||||||
| Number of franchise restaurants at end of period | 373 | 303 | 373 | 303 | |||||||||||||||||||
| % increase | 23.1% | 23.1% | |||||||||||||||||||||
| Franchised restaurant sales | $ | 129,112 | $ | 112,774 | $ | 394,105 | $ | 168,494 | |||||||||||||||
| Franchised restaurant AUVs | $ | 346 | $ | 372 | $ | 1,057 | $ | 556 | |||||||||||||||
| Royalties as a percentage of total franchised restaurant sales | 4.7% | 4.8% | 4.8% | 4.8% | |||||||||||||||||||
Franchise rental revenues increased $1.2 million, or 66.3% in the quarter as compared to the prior year, primarily due to higher rental income resulting from new subleases related to the 66 restaurants refranchised in 2023.
Franchise royalties and other increased $0.8 million, or 14.4% in the quarter as compared to the prior year, primarily due to higher franchise restaurant sales resulting from the 66 restaurants refranchised in 2023.
Franchise contributions for advertising and other services revenues increased $1.1 million, or 22.3% in the quarter as compared to the prior year, primarily driven by higher marketing contribution related to higher franchise restaurant sales resulting from the 66 restaurants refranchised in 2023.
Franchise occupancy expenses, primarily rent, increased $1.2 million, or 66.3% in the quarter as compared to the prior year, primarily due to higher rent related to franchise subleases for the 66 restaurants refranchised in 2023.
Franchise support and other costs increased $0.2 million, or 59.8% in the quarter as compared to the prior year, primarily due to higher franchise development support costs.
Franchise advertising and other service expenses increased $1.3 million, or 26.7% in the quarter as compared to the prior year, primarily driven by higher franchise sales resulting from the 66 restaurants refranchised in 2023.
Company-Wide Results
Depreciation and Amortization
Depreciation and amortization decreased $2.3 million in the quarter and increased $7.7 million year-to-date compared to the prior year. Certain franchise buildings becoming fully depreciated in the current year resulted in the decrease in the quarter and was more than offset year-to-date by the acquisition of Del Taco in the second quarter of 2022.
27
Selling, General and Administrative (“SG&A”) Expenses
The following table presents the change in SG&A expenses compared with the prior year (in thousands):
| Increase/(Decrease) | |||||||||||
| Quarter | Year-to-date | ||||||||||
| Advertising | $ | (773) | $ | 7,411 | |||||||
| Incentive compensation (including share-based compensation and related payroll taxes) | 2,761 | 15,312 | |||||||||
| Cash surrender value of COLI policies, net | (5,166) | (14,313) | |||||||||
| Litigation matters | (1,138) | 3,746 | |||||||||
| Insurance | 1,085 | 3,913 | |||||||||
| Other | 2,816 | 19,821 | |||||||||
| $ | (415) | $ | 35,890 | ||||||||
Advertising costs represent company contributions to our marketing funds and are generally determined as a percentage of company-operated restaurant sales. Advertising costs decreased $0.8 million in the quarter compared to the prior year, and increased $7.4 million year-to-date compared to the prior year. In the quarter, the decrease is primarily due to a decrease in the number of company-operated restaurants, partially offset with higher company-operated restaurant sales. Year-to-date, the increase is primarily due to the acquisition of Del Taco in the second quarter of 2022 and therefore only includes 18 weeks of Del Taco operating results in 2022, versus 40 weeks of Del Taco operations in 2023.
Incentive compensation increased $2.8 million in the quarter compared to the prior year, and $15.3 million year-to-date compared to the prior year. In the quarter, the increase is primarily due to a $2.3 million increase in the annual incentives as a result of higher achievement levels compared to the prior year as well as a $0.5 million increase in share-based compensation. Year-to-date, the increase is primarily due to a $12.4 million increase in the annual incentives as a result of higher achievement levels compared to the prior year, a $2.5 million increase in share-based compensation due to the likelihood of achieving certain performance targets on awards, and other minor increases in payroll taxes.
The cash surrender value of our company-owned life insurance (“COLI”) policies, net of changes in our non-qualified deferred compensation obligation supported by these policies, are subject to market fluctuations. The changes in market values had a positive impact of $5.2 million in the quarter compared to the prior year and $14.3 million year-to-date versus the prior year.
Litigation matters decreased $1.1 million in the quarter compared to the prior year, due to the timing of when we accrued for the J&D Restaurant Group legal matter in the third quarter of 2022. Litigation matters increased by $3.7 million year-to-date compared to the prior year due to the timing of litigation developments in the current year. In 2023, we recorded a litigation charge of $6.6 million for Gessele vs. Jack in the Box Inc, which was partially offset by a $1.6 million net reversal of litigation charges in connection with the J&D Restaurant Group legal matter based on the Court’s final ruling. Refer also to Note 14, Commitments and Contingencies, in the condensed consolidated financial statements for additional information related to the legal matters.
Insurance increased $1.1 million in the quarter and $3.9 million year-to-date compared to a year ago due to specific claim reserves, as well as a prior year benefit from a favorable change in the loss development factors related to our worker’s compensation liabilities.
The increase in the other balance within SG&A of $2.8 million for the quarter as compared to the prior year is primarily due to additional consulting costs in the period. The year-to-date increase is mainly due to the timing of the acquisition of Del Taco in the second quarter of 2022 and therefore only includes 18 weeks of Del Taco operating results in 2022, versus 40 weeks of Del Taco operations in 2023.
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Other Operating Expenses, Net
Other operating expenses, net is comprised of the following (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Acquisition, integration, and restructuring costs | $ | 2,463 | $ | 2,753 | $ | 5,359 | $ | 18,864 | |||||||||||||||
| Costs of closed restaurants and other | 1,272 | 837 | 4,017 | 2,559 | |||||||||||||||||||
| Operating restaurant impairment charges | 4,395 | 1,653 | 4,395 | 1,653 | |||||||||||||||||||
| Accelerated depreciation | 66 | 346 | 519 | 1,009 | |||||||||||||||||||
| (Gains) losses on disposition of property and equipment, net | (540) | (1,460) | (9,155) | (1,746) | |||||||||||||||||||
| $ | 7,656 | $ | 4,129 | $ | 5,135 | $ | 22,339 | ||||||||||||||||
Other operating expenses, net increased $3.5 million in the quarter and decreased $17.2 million year-to-date compared to the prior year. In the quarter, the increase is primarily due to the impairment of certain underperforming Del Taco restaurants currently held for use. Year-to-date, the decrease is primarily due to the acquisition of Del Taco in the prior year resulting in acquisition, integration and restructuring costs of $18.9 million as well as $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
For the year-to-date period 2023, the Company sold five Jack in the Box company-operated restaurants and 66 Del Taco company-operated restaurants to franchisees and recognized a net gain of $10.3 million. Refer to Note 4, Summary of Refranchisings and Franchise Acquisitions, of the notes to the condensed consolidated financial statements for additional information regarding these 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):
| Quarter | Year-to-date | ||||||||||||||||||||||
| July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | ||||||||||||||||||||
| Interest expense | $ | 19,201 | $ | 19,792 | $ | 65,462 | $ | 66,627 | |||||||||||||||
| Interest income | (539) | (89) | (1,295) | (256) | |||||||||||||||||||
| Interest expense, net | $ | 18,662 | $ | 19,703 | $ | 64,167 | $ | 66,371 | |||||||||||||||
Interest expense, net decreased $1.0 million in the quarter and $2.2 million year-to-date compared to a year ago. In the quarter, the decrease is primarily due to lower average borrowings, partially offset by higher average borrowing rates. Year-to-date, the decrease is primarily due to a loss on early extinguishment of debt of $7.7 million in the prior year and lower average borrowing rates, partially offset by higher average borrowings.
Income Tax Expense
The income tax provisions reflect effective tax rate of 32.6% in the third quarter of 2023 as compared to 28.8% in the third quarter of 2022, as well as 30.4% for the year-to-date period in 2023, compared with 28.1% in the same period in fiscal year 2022. The major components of the year-over-year increase in tax rates were the annual impact of both actual and estimated disposals of non-deductible goodwill attributable to refranchising transactions, partially offset by non-taxable gains in the current year as opposed to non-deductible losses in the prior year from the market performance of insurance products used to fund certain non-qualified retirement plans and non-deductible transaction costs resulting from the Del Taco acquisition recorded in the prior year.
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Non-GAAP Adjusted EBITDA
Below is a consolidated reconciliation of Non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands):
| Quarter | Year-to-date | ||||||||||||||||||||||
| Consolidated: | July 9, 2023 | July 10, 2022 | July 9, 2023 | July 10, 2022 | |||||||||||||||||||
| Net earnings - GAAP | $ | 29,168 | $ | 22,857 | $ | 108,929 | $ | 69,923 | |||||||||||||||
| Income tax expense | 14,104 | 9,237 | 47,657 | 27,324 | |||||||||||||||||||
| Interest expense, net | 18,662 | 19,703 | 64,167 | 66,371 | |||||||||||||||||||
| Gains on the sale of company-operated restaurants | (5,794) | (802) | (10,323) | (1,660) | |||||||||||||||||||
| Other operating expenses, net | 7,656 | 4,129 | 5,135 | 22,339 | |||||||||||||||||||
| Depreciation and amortization | 14,460 | 16,713 | 48,460 | 40,754 | |||||||||||||||||||
| Amortization of favorable and unfavorable leases and subleases, net | 83 | 437 | 1,458 | 685 | |||||||||||||||||||
| Amortization of franchise tenant improvement allowances and incentives | 1,057 | 919 | 3,295 | 3,046 | |||||||||||||||||||
| Adjusted EBITDA - Non-GAAP | $ | 79,396 | $ | 73,193 | $ | 268,778 | $ | 228,782 | |||||||||||||||
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 use 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 July 9, 2023, the Company had $182.0 million of cash and restricted cash on its consolidated balance sheet and available borrowings of $172.0 million under our $150.0 million Variable Funding Notes and our $75.0 million revolving credit facility. The Company continually assesses the optimal sources and uses of cash for our business. Since closing the Del Taco acquisition, we have undertaken a process to review our balance sheet for any undervalued assets, and pursue opportunities for capital sources, including the sale of our owned Jack in the Box properties, and refranchising, primarily for Del Taco in the near term.
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with our securitized financing 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.
Cash Flows
The table below summarizes our cash flows from continuing operations (in thousands):
| Year-to-date | |||||||||||
| July 9, 2023 | July 10, 2022 | ||||||||||
| Total cash provided by (used in): | |||||||||||
| Operating activities | $ | 182,071 | $ | 103,812 | |||||||
| Investing activities | 25,488 | (604,395) | |||||||||
| Financing activities | (161,579) | 519,930 | |||||||||
| Net cash flows | $ | 45,980 | $ | 19,347 | |||||||
Operating Activities. Operating cash flows increased $78.3 million compared with a year ago. This is primarily due to higher net income, when adjusted for non-cash items, of $9.0 million, as well as a favorable change in working capital of $69.3 million. The change in working capital is primarily a result of higher income tax accruals of $28.2 million due to timing of tax payments, higher advertising accruals of $21.3 million due to the timing of media payments, higher bonus accrual of $15.2 million, a decrease in receivables of $12.3 million which included the timing of minimum rent collected, partially offset by a decrease in accounts payable of $30.7 million which included the timing the rent payments.
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Investing Activities. Cash flows from investing activities increased by $629.9 million compared with a year ago due to the Del Taco acquisition in the prior year of $580.8 million, and higher proceeds in the current year from the sale of Jack in the Box restaurant properties to franchisees of $20.5 million and higher proceeds from the sale of company-operated restaurants of $50.4 million. These increases are partially offset by higher purchases of property and equipment of $22.3 million.
Capital Expenditures — The composition of capital expenditures in each period follows (in thousands):
| Year-to-date | |||||||||||
| July 9, 2023 | July 10, 2022 | ||||||||||
| Restaurants: | |||||||||||
| Remodel / refresh programs | $ | 6,222 | $ | 7,406 | |||||||
| Restaurant facility expenditures | 21,924 | 14,962 | |||||||||
| Purchases of assets intended for sale and leaseback | 13,241 | 1,877 | |||||||||
| Restaurant information technology | 10,463 | 6,016 | |||||||||
| 51,850 | 30,261 | ||||||||||
| Corporate Services: | |||||||||||
| Information technology | 4,559 | 2,863 | |||||||||
| Corporate facilities | 260 | 1,225 | |||||||||
| 4,819 | 4,088 | ||||||||||
| Total capital expenditures | $ | 56,669 | $ | 34,349 | |||||||
The increase in restaurant facility expenditures includes amounts spent on capital maintenance, our digital menu board efforts and other operational initiatives. The increase for the purchases of assets intended for sale and leaseback includes amounts spent on exercising our right of first refusal to purchase land and building during 2023 which we intend to sell and leaseback. The increase for information technology includes amounts capitalized for our enterprise resource planning system and digital workflow platform.
Sale of Company-Operated Restaurants — The following table details proceeds received in connection with our refranchising activities in each period (dollars in thousands).
| Year-to-date | |||||||||||
| July 9, 2023 | July 10, 2022 | ||||||||||
| Number of Jack in the Box restaurants sold to franchisees | 5 | — | |||||||||
| Number of Del Taco restaurants sold to franchisees | 66 | — | |||||||||
Total proceeds (1) | $ | 51,845 | $ | 1,402 | |||||||
(1) The proceeds in fiscal 2022 were received in connection with the extension of franchise and lease agreements from the sale of restaurants in prior years.
For further information, see Note 4, Summary of refranchisings and franchise acquisitions, in the notes to the condensed consolidated financial statements.
Financing Activities. Cash flows used in financing activities increased by $681.5 million compared with a year ago. The primary change is due an increase in net borrowings in the prior year driven by the issuance of the 2022 Notes as further detailed below. The repayment of $50.0 million of borrowings outstanding under our Variable Funding Notes and $60.4 million of stock repurchases in the current year also contributed to the increase in cash flows used in financing activities versus the prior year.
Repurchases of common stock — The Company repurchased 0.7 million shares of its common stock in fiscal 2023 for an aggregate cost of $60.4 million. As of July 9, 2023, there was $115.0 million remaining under share repurchase programs authorized by the Board of Directors which expire in November 2023.
Dividends — Up through July 9, 2023, the Board of Directors declared three cash dividends of $0.44 per common share totaling $27.4 million. On August 4, 2023, the Board of Directors declared a cash dividend of $0.44 per common share, to be paid on September 18, 2023, to shareholders of record as of the close of business on September 6, 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
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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 July 9, 2023, we did not have any outstanding borrowings and had available borrowing capacity of $109.8 million under our Variable Funding Notes, net of letters of credits issued of $40.2 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 the 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 July 9, 2023, the Company had restricted cash of $27.9 million, which primarily represented cash collections and cash reserves held by the trustee to be used for payments of interest and commitment fees required for the Class A-1 and A-2 Notes.
Covenants and restrictions — The Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Notes are in stated ways defective or ineffective and (iv) covenants relating to recordkeeping, access to information and similar matters. The Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of gross sales for specified restaurants being below certain levels on certain measurement dates, certain manager termination events, an event of default, and the failure to repay or refinance the Class A-2 Notes on the applicable scheduled maturity date. The Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments. As of July 9, 2023, we were in compliance with all of our debt 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 $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 a new syndicated credit facility with an aggregate principal amount of up to $75.0 million, which matures on March 1, 2024. The revolving credit facility, as amended, includes a limit of $20.0 million for letters of credit. As of July 9, 2023, we had no outstanding borrowings and available borrowing capacity of $62.2 million under the facility, net of letters of credit of $12.8 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 2, 2022.
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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, 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.
•Increases in food and commodity costs could decrease our profit margins or result in a modified menu, which could adversely affect our financial results.
•Failure to receive scheduled deliveries of high-quality food ingredients and other supplies could harm our operations and reputation.
•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. If our suppliers or distributors are unable to fulfill their obligations under their contracts, it could harm our operations.
•Increasing regulatory and legal complexity may adversely affect restaurant operations and our financial results.
•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.
33
•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 adequately 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 an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, the Company’s stockholders could lose confidence in our financial results, which would harm our business and the value of the Company’s common shares.
•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 such terms could result in default, which could harm the value of our brand and adversely affect our business.
•We have a significant amount of debt outstanding. Such indebtedness, along with the other contractual commitments of our Company or its subsidiaries, could adversely affect our business, financial condition and results of operations, as well as the ability of certain of our subsidiaries to meet debt payment obligations.
•The securitization transaction documents impose certain restrictions on our activities or the activities of our subsidiaries, and the failure to comply with such restrictions could adversely affect our business.
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 2, 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our quantitative and qualitative market risks set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended October 2, 2022.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s quarter ended July 9, 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 July 9, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
There is no information required to be reported for any items under Part II, except as follows:
ITEM 1. LEGAL PROCEEDINGS
See Note 14, Commitments and Contingencies, of the notes to the condensed consolidated financial statements for a discussion of our contingencies and legal matters.
ITEM 1A. RISK FACTORS
When evaluating our business and our prospects, you should consider the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended October 2, 2022, which we filed with the SEC on November 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 2, 2022, including our financial statements and the related notes. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the risks or uncertainties actually 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
Stock Repurchases — In the third quarter of 2023, we repurchased 0.3 million shares of our common stock for an aggregate cost of $26.9 million, including the applicable excise tax. As of July 9, 2023, this leaves $115.0 million remaining under share repurchase programs authorized by the Board of Directors that expire in November 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) | |||||||||||||||||||||||
| $ | 141,571 | |||||||||||||||||||||||||
| April 17, 2023 - May 14, 2023 | — | $ | — | — | $ | 141,571 | ||||||||||||||||||||
| May 15, 2023 - June 11, 2023 | 258,045 | $ | 89.02 | 258,045 | $ | 118,601 | ||||||||||||||||||||
| June 12, 2023 - July 9, 2023 | 39,932 | $ | 90.91 | 39,932 | $ | 114,971 | ||||||||||||||||||||
| Total | 297,977 | 297,977 | ||||||||||||||||||||||||
ITEM 3. DEFAULTS OF SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the three months ended July 9, 2023, no director or officer of the Company adopted terminated
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ITEM 6. EXHIBITS
| Number | Description | Form | Filed with SEC | ||||||||
| 3.3 | 8-K | 8/8/2023 | |||||||||
| 10.8.21* | 10-Q | Filed herewith | |||||||||
| 31.1 | — | Filed herewith | |||||||||
| 31.2 | — | Filed herewith | |||||||||
| 32.1 | — | Filed herewith | |||||||||
| 32.2 | — | Filed herewith | |||||||||
| 101.INS | iXBRL Instance Document | ||||||||||
| 101.SCH | iXBRL Taxonomy Extension Schema Document | ||||||||||
| 101.CAL | iXBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||
| 101.DEF | iXBRL Taxonomy Extension Definition Linkbase Document | ||||||||||
| 101.LAB | iXBRL Taxonomy Extension Label Linkbase Document | ||||||||||
| 101.PRE | iXBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||
| 104 | Cover Page Interactive Data File formatted in iXBRL | ||||||||||
*Management contract or compensatory plan
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| JACK IN THE BOX INC. | ||||||||
| By: | /S/ DAWN HOOPER | |||||||
| Dawn Hooper | ||||||||
| Senior Vice President, Controller (principal financial officer) (Duly Authorized Signatory) | ||||||||
Date: August 9, 2023
38
Exhibit 10.8.21
Jack in the Box Inc.
2023 Omnibus Incentive Plan
Option Grant Notice
Jack in the Box Inc. (the “Company”) hereby grants to Participant an Option (the “Option”) under the Jack in the Box Inc. 2023 Omnibus Incentive Plan (the “Plan”) to purchase the number of shares of Common Stock (the “Shares”) set forth below at the exercise price set forth below. This Option is subject to all of the terms and conditions set forth in this Option Grant Notice (the “Grant Notice”), in the Option Agreement attached hereto (the “Agreement”) and the Plan, which is available to Participant by logging into Participant’s E*TRADE brokerage account. Both the Agreement and the Plan are incorporated herein in their entirety. Capitalized terms not explicitly defined in this Grant Notice but defined in the Plan or the Agreement will have the same definitions as in the Plan or the Agreement.
| Participant: | |||||
| Date of Grant: | |||||
| Number of Shares Subject to Option: | |||||
| Exercise Price (Per Share): | |||||
| Total Exercise Price: | |||||
| Expiration Date: | |||||
Type of Grant: ý Nonstatutory Stock Option
Exercise Schedule: Same as Vesting Schedule
Vesting Schedule: Subject to Section 1 of the Agreement, this Option will vest on each date as follows:
Vesting Date Option Vesting
[First Vest Date] [# shares]
[Second Vest Date] [# shares]
[Third Vest Date] [# shares]
Payment: By cashless exercise, sell-to-cover or same-day-sale (as described in the Agreement).
Additional Terms/Acknowledgements: By Participant’s electronic acceptance of this Option via Participant’s E*TRADE brokerage account, Participant acknowledges Participant’s understanding and agreement to the following:
· This Option is governed by this Grant Notice, the Agreement and the Plan, all of which are made part of this document. Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Agreement and the Plan. Participant further acknowledges that as of the Date of Grant, this Grant Notice, the Agreement and the Plan set forth the entire understanding between Participant and the Company regarding this
Option and supersede all prior oral and written agreements, promises and/or representations regarding this Option, with the exception of (i) any written employment, offer letter or severance agreement, or any written severance plan or policy, in each case that specifies the terms that should govern this Option and (ii) the Jack in the Box Inc. Clawback Policy Statement, any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law, and any other clawback policy that the Company adopts, to the extent applicable and permissible under Applicable Law.
· To the fullest extent permitted under the Plan and applicable law, withholding taxes applicable to the Option will be satisfied through the sale of a number of the shares issuable in settlement of the Option as determined in accordance with Section 11 of the Agreement and the remittance of the cash proceeds to the Company. Under the Agreement, the Company or, if different, Participant’s employer, shall make payment from the cash proceeds of this sale directly to the appropriate tax or social security authorities in an amount equal to the taxes required to be remitted. The mandatory sale of shares to cover withholding taxes is imposed by the Company on Participant in connection with Participant’s receipt of this Award.
· Participant consents to receive this Grant Notice, the Agreement, the Plan, the prospectus for the Plan and any other Plan-related documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. Participant’s acceptance of this Option, and Participant’s acknowledgement and agreement with the terms set forth in this paragraph, will be evidenced by Participant’s signature below or by electronic acceptance or authentication in a form authorized by the Company.
· Participant understands that Participant is not required to accept this Option; provided, that if the Participant does not accept this Option prior to the first date on which the Option is scheduled to vest under the “Vesting Schedule” set forth above (or on such earlier date as required by the Company and communicated in writing to Participant), this Option and shares granted hereunder will be null and void and Participant will have no rights thereto.
Instruction: To accept the Option, you must login to your E*Trade participant account (the Company’s designated broker for stock plan awards) and accept the terms and provisions of the Grant Notice with the attached Option Agreement (the “Option Grant Notice”), in addition to the Plan and the Prospectus. Upon logging into your account, you can find the Action Items link on the homepage which will take you to the Option Grant Notice pending review and acceptance. Before accepting the Option Grant Notice, you will need to open and review the Plan and Prospectus.
Attachments: Option Agreement
2.
Attachment I
Jack in the Box Inc. 2023
Omnibus Incentive Plan
Option Agreement
(Nonstatutory Stock Option)
Pursuant to the accompanying Option Grant Notice (the “Grant Notice”) and this Option Agreement (the “Agreement”), Jack in the Box Inc. (the “Company”) has granted you an Option under the Jack in the Box Inc. 2023 Omnibus Incentive Plan (the “Plan”) to purchase the number of shares of Common Stock set forth in the Grant Notice at the exercise price set forth in the Grant Notice. This Option is granted to you effective as of the date of grant set forth in the Grant Notice (the “Date of Grant”). Capitalized terms not explicitly defined in this Agreement but defined in the Plan or the Grant Notice will have the same definitions as in the Plan or the Grant Notice.
1. Vesting.
(a) General. Subject to the limitations contained herein, this Option will vest, if at all, in accordance with the vesting schedule set forth in the Grant Notice, provided that vesting will cease upon the termination of your Continuous Service, except as provided in Section (b) or (c) below.
(b) Death. If prior to the date the Option vests in full, your Continuous Service ceases due to your death, then (i) all then-outstanding and unvested Options will remain outstanding and eligible to vest for the earlier of (1) 30 days following your death and (2) such date on which the Option would otherwise terminate pursuant to the Plan (e.g., upon a Change in Control) and (ii) all then-outstanding and vested Options will remain outstanding as set forth in Section 7(d) below.
(c) Retirement. If prior to the date that the Option vests in full, your Continuous Service ceases due to your Retirement, then all then-outstanding and unvested Options shall become 100% vested and exercisable on the date of such termination of Continuous Service. For purposes of this Agreement: “Retirement” means your termination of employment for any reason, other than “for cause” (as determined by the Board in its sole discretion), on or after age 62 with five or more full years of Continuous Service. Accelerated vesting in accordance with the foregoing will only occur if your termination of Continuous Service is also a “separation from service” within the meaning of Treasury Regulations Section 1.409A-1(h), without regard to any alternative definition thereunder (a “Separation from Service”).
(d) Change in Control. Upon a Change in Control, the Options shall be treated as described in Section 9(c) of the Plan. If the Options are assumed, continued or substituted for in such Change in Control pursuant to Section 9(c)(i) of the Plan, the Options, to
3.
the extent not vested, shall become 100% vested and exercisable upon your Qualifying Termination.
(i) For purposes of this Agreement, a “Qualifying Termination” means your Separation from Service as a result of the occurrence of any of the following events during the twenty-four (24)-month period following a Change in Control: (1) the Company’s involuntary termination of your employment without Cause; or (2) your voluntary termination of employment for Good Reason. A Qualifying Termination shall not include a termination of your employment by reason of your death or Disability.
(ii) For purposes of this Agreement, “Good Reason” shall have the meaning ascribed to such term in any written agreement between you and the Company defining such term and, in the absence of such agreement, such term means, without your express written consent, your resignation of employment with the Company upon the occurrence of any one or more of the following conditions, provided that you first provide the Company with written notice of the existence of the applicable condition described in clauses (1) through (5) below no later than ninety (90) days after the initial existence of such condition is known by you and the Company fails to remedy such condition within 30 days of the date of such written notice:
(1) a material diminution in your authorities, duties or responsibilities, which shall include a material reduction or alteration in the nature or status of your authorities, duties or responsibilities from those in effect as of ninety (90) calendar days prior to the Change in Control, other than an insubstantial and inadvertent act that is remedied by the Company promptly after receipt of your notice given thereof;
(2) a requirement by the Company that you be based at a location in excess of fifty (50) miles from the location of your principal job location or office immediately prior to the Change in Control; except for required travel on the Company’s business to an extent consistent with your then present business travel obligations;
(3) a material reduction by the Company to your base salary, excluding amounts (i) designated by the Company as payment toward reimbursement of expenses; or (ii) received under incentive or other bonus plans, regardless of whether or not the amounts are deferred;
(4) a material reduction in the Company’s compensation, health and welfare benefits, retirement benefits, or perquisite programs under which you receive value, as such programs exist immediately prior to the Change in Control (however, the replacement of an existing program with a new program will be permissible (and not grounds for a Good Reason termination) if there is not a material reduction in the value to you under the new program); or
(5) any material breach by the Company of its obligations under this Agreement or under any other written agreement under which you provide services to the Company or the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company), as applicable.
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2. Number of Shares and Exercise Price. The number of shares of Common Stock subject to this Option and the exercise price per share of this Option, each as set forth in the Grant Notice, will be adjusted for Capitalization Adjustments, if any, as provided in the Plan.
3. Exercise Restriction for Non-Exempt Employees. In the event that you are an Employee eligible for overtime compensation under the Fair Labor Standards Act of 1938, as amended (i.e., a “Non-Exempt Employee”), then except as otherwise provided in the Plan, you may not exercise this Option until you have completed at least six (6) months of Continuous Service following the Date of Grant, even if you have already been an Employee for more than six months.
4. Method of Payment. You must pay the full amount of the exercise price for the shares of Common Stock you wish to purchase. You may pay the exercise price through a cashless exercise, sell-to-cover or same-day-sale as permitted by the Grant Notice.
5. Whole Shares. You may exercise this Option only for whole shares of Common Stock.
6. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, you may not exercise this Option unless either (i) the shares of Common Stock issuable upon such exercise are registered under the Securities Act or (ii) the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. This Option also must comply with all other applicable laws and regulations governing this Option, and you may not exercise this Option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
7. Term. You may not exercise this Option before the Date of Grant or after the expiration of its term. The term of this Option expires, subject to the provisions of Section 5(k) of the Plan, upon the earliest of the following:
(a) immediately upon the termination of your Continuous Service if such termination is for Cause;
(b) three (3) months after the termination of your Continuous Service if such termination is for any reason other than Cause, your Disability, Retirement or your death (except as otherwise provided in Section 7(d) below); provided, however, that if (i) you are a Non-Exempt Employee, (ii) your Continuous Service terminates within six (6) months after the Date of Grant, and (iii) you have vested in a portion of this Option as of the time of your termination of Continuous Service, then this Option will not expire until the earlier of (x) the later of (A) the date that is seven (7) months after the Date of Grant or (B) the date that is three (3) months after the termination of your Continuous Service, or (y) the Expiration Date set forth in the Grant Notice;
(c) twelve (12) months after the termination of your Continuous Service if such termination is due to your Disability or Retirement (except as otherwise provided in Section 7(d) below);
5.
(d) eighteen (18) months after your death if either your Continuous Service terminates due to your death or you die within three (3) months after your Continuous Service terminates for any reason other than Cause;
(e) the Expiration Date set forth in the Grant Notice; or
(f) the day before the seventh (7th) anniversary of the Date of Grant.
8. Exercise.
(a) You may exercise the vested portion of this Option during its term by (i) (A) delivering a Notice of Exercise (in a form designated by the Company), or (B) taking such other action as the Company may require, and (ii) paying the exercise price and any applicable withholding taxes to the Company’s stock plan administrator, or to such other person as the Company may designate, together with such additional documents as the Company may then require.
(b) By exercising this Option, you agree that, as a condition to any exercise of this Option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (i) the exercise of this Option, (ii) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (iii) the disposition of shares of Common Stock acquired upon such exercise.
9. Transferability. Except as otherwise provided in this Section 9 or by the Plan, this Option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you.
10. Option Not a Service Contract. This Option is not an employment or service contract, and nothing in this Option will be deemed to create in any way whatsoever any obligation on your part to continue in the service of the Company or any Affiliate, or on the part of the Company or any Affiliate to continue such service. In addition, nothing in this Option will obligate the Company or any Affiliate, their respective stockholders, boards of directors, Officers or Employees to continue any relationship that you might have as an Employee, Director or consultant for the Company or any Affiliate.
11. Tax Withholding Obligations.
(a) At the time you exercise this Option, in whole or in part, and at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a “cashless exercise” pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or any Affiliate which arise in connection with this Option.
(b) You may not exercise this Option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise
6.
this Option when desired even though this Option is vested, and the Company will have no obligation to issue a certificate for any shares of Common Stock unless such obligations are satisfied.
12. Tax Consequences. The Company has no duty or obligation to minimize the tax consequences to you of this Option and will not be liable to you for any adverse tax consequences to you arising in connection with this Option. You acknowledge that this Option is exempt from Section 409A of the Code only if the exercise price per share set forth in the Grant Notice is at least equal to the “fair market value” per share of the Common Stock on the Date of Grant and there is no other impermissible deferral of compensation associated with the Option. You are hereby advised to consult with your own personal tax, financial and/or legal advisors regarding the tax consequences of this Option and by accepting this Option, you have agreed that you have done so or knowingly and voluntarily declined to do so.
13. Other Documents. You hereby acknowledge receipt of or the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you acknowledge receipt of the Company’s policy permitting certain individuals to sell shares of Common Stock only during certain “window” periods in effect from time to time and the Company’s insider trading policy.
14. Notices. Any notices provided for in this Agreement or the Plan will be given in writing (including electronically) and will be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. The Company may, in its sole discretion, decide to deliver any documents related to this Option or participation in the Plan by electronic means or to request your consent to participate in the Plan by electronic means. By accepting this Option, you consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
15. Governing Plan Document. This Option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of this Option, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. Except as otherwise expressly provided in the Grant Notice or this Agreement, in the event of any conflict between the terms in the Grant Notice or this Agreement and the terms of the Plan, the terms of the Plan will control.
16. Stockholder Rights. You will not have voting or any other rights as a stockholder of the Company with respect to the shares of Common Stock to be issued pursuant to this Option until such shares are issued to you. Upon such issuance, you will obtain full voting and other rights as a stockholder of the Company. Nothing contained in this Agreement, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person.
17. Severability. If any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any
7.
Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid will, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
18. Effect on Other Employee Benefit Plans. The value of this Option will not be included as compensation, earnings, salaries, or other similar terms used when calculating your benefits under any employee benefit plan sponsored by the Company or any Affiliate, except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or terminate any of the Company’s or any Affiliate’s employee benefit plans.
19. Choice of Law. The interpretation, performance and enforcement of this Agreement will be governed by the law of the state of Delaware without regard to such state’s conflicts of laws rules.
20. Amendment. Any amendment to this Agreement must be in writing, signed by a duly authorized representative of the Company. Notwithstanding anything in the Plan to the contrary, the Board reserves the right to amend this Agreement in any way it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable laws or regulations or any future law, regulation, interpretation, ruling, or judicial decision.
21. 280G Parachute Payments.
(a) Notwithstanding anything in this Agreement or any other agreement with the Company or any affiliate to the contrary, in the event it shall be determined that (A) any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for your benefit (whether pursuant to the terms of this Agreement or otherwise) (each a “Payment” and together the “Payments”) would constitute a “parachute payment” within the meaning of Section 280G of the Code and would be subject to the excise tax imposed by Section 4999 of the Code or any successor provision (the “Excise Tax”), and (B) the reduction of the Payments to the maximum amount that could be paid to you without giving rise to the Excise Tax (the “Safe Harbor Cap”) would provide you with a greater after-tax amount (taking into account the Excise Tax as well as applicable federal, state and local income and employment taxes) than if such Payments were not reduced, then the Payments shall be reduced to the Safe Harbor Cap. If the reduction of the Payments would not result in a greater after-tax result to you (taking into account the Excise Tax as well as applicable federal, state and local income and employment taxes), then no Payments shall be reduced pursuant to this provision. You shall be solely responsible for payment of the Excise Tax and such other applicable federal, state, and local income and employment taxes.
(b) The reduction of the Payments, if applicable, shall be made by applying any reduction in the following order: (A) first, any cash amounts payable to you as a severance benefit (excluding the accelerated vesting set forth in Section 1(d) of this Agreement) or otherwise; (B) second, any amounts payable on your behalf for continued health insurance coverage; (C) third, any other cash amounts payable to or on your behalf, such as for outplacement benefits, or otherwise; (D) fourth, any payments or benefits under any nonqualified
8.
deferred compensation plan; (E) fifth, outstanding performance-based equity grants; and (F) finally, any time-vesting equity grants. In each case, Payments will be reduced beginning with Payments that would be made last in time.
(c) All determinations required to be made under this Section 21 shall be made by the public accounting firm that is retained by the Company or such other nationally recognized public accounting firm appointed by the Company (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations both to you and the Company within fifteen (15) business days of the receipt of notice from you or the Company that there has been a Payment, or such earlier time as is requested by the Company. All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Firm shall be borne by the Company. The determination by the Accounting Firm shall be binding upon you and the Company.
22. Miscellaneous.
(a) The rights and obligations of the Company under this Option will be transferable to any one or more persons or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by, the Company’s successors and assigns.
(b) You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of this Option.
(c) You acknowledge and agree that you have reviewed this Option in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting this Option, and fully understand all provisions of this Option.
(d) This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
(e) All obligations of the Company under the Plan and this Agreement will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
* * *
This Option Agreement will be deemed to be accepted by you upon your acceptance of the Option Grant Notice to which it is attached.
9.
Exhibit 31.1
CERTIFICATION
I, Darin Harris, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Jack in the Box Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Dated: | August 9, 2023 | /S/ DARIN HARRIS | ||||||
| Darin Harris | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 31.2
CERTIFICATION
I, Dawn Hooper, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Jack in the Box Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions)
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Dated: | August 9, 2023 | /S/ DAWN HOOPER | ||||||
| Dawn Hooper | ||||||||
| Senior Vice President, Controller | ||||||||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Darin Harris, Chief Executive Officer of Jack in the Box Inc. (the “Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)the quarterly report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| Dated: | August 9, 2023 | /S/ DARIN HARRIS | ||||||
| Darin Harris | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Dawn Hooper, Senior Vice President, Controller of Jack in the Box Inc. (the “Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)the quarterly report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| Dated: | August 9, 2023 | /S/ DAWN HOOPER | ||||||
| Dawn Hooper | ||||||||
| Senior Vice President, Controller | ||||||||