Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
JACK
NASDAQ Global Select Market
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.
Yesþ No ¨
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).
Yesþ No ¨
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.
Large accelerated filer
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 February 17, 2022, 21,043,499 shares of the registrant’s common stock were outstanding.
Long-term operating lease liabilities, net of current portion
841,957
809,191
Other long-term liabilities
150,017
156,342
Total long-term liabilities
2,266,746
2,238,953
Stockholders’ deficit:
Preferred stock $0.01 par value, 15,000,000 shares authorized, none issued
—
—
Common stock $0.01 par value, 175,000,000 shares authorized, 82,563,579 and 82,536,059 issued, respectively
826
825
Capital in excess of par value
501,570
500,441
Retained earnings
1,794,362
1,764,412
Accumulated other comprehensive loss
(73,516)
(74,254)
Treasury stock, at cost, 61,523,475 shares
(3,009,306)
(3,009,306)
Total stockholders’ deficit
(786,064)
(817,882)
$
1,758,596
$
1,750,137
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)
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Revenues:
Company restaurant sales
$
120,056
$
114,278
Franchise rental revenues
103,099
103,749
Franchise royalties and other
60,755
59,648
Franchise contributions for advertising and other services
60,801
60,866
344,711
338,541
Operating costs and expenses, net:
Food and packaging
37,537
32,377
Payroll and employee benefits
39,725
34,931
Occupancy and other
20,877
17,835
Franchise occupancy expenses
63,983
65,169
Franchise support and other costs
3,911
3,273
Franchise advertising and other services expenses
63,308
62,695
Selling, general and administrative expenses
25,339
20,499
Depreciation and amortization
12,496
14,571
Other operating expenses (income), net
3,843
(452)
Gains on the sale of company-operated restaurants
(48)
(1,283)
270,971
249,615
Earnings from operations
73,740
88,926
Other pension and post-retirement expenses, net
93
271
Interest expense, net
20,187
20,735
Earnings before income taxes
53,460
67,920
Income taxes
14,190
17,061
Net earnings
$
39,270
$
50,859
Earnings per share:
Basic
$
1.85
$
2.21
Diluted
$
1.85
$
2.21
Cash dividends declared per common share
$
0.44
$
0.40
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)
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Net earnings
$
39,270
$
50,859
Other comprehensive income:
Actuarial losses and prior service costs reclassified to earnings
996
1,517
996
1,517
Tax effect
(258)
(394)
Other comprehensive income, net of taxes
738
1,123
Comprehensive income
$
40,008
$
51,982
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)
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Cash flows from operating activities:
Net earnings
$
39,270
$
50,859
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
12,496
14,571
Amortization of franchise tenant improvement allowances and incentives
1,234
861
Deferred finance cost amortization
1,722
1,722
(Excess tax benefit) tax deficiency from share-based compensation arrangements
38
(58)
Deferred income taxes
2,317
2,452
Share-based compensation expense
1,018
1,231
Pension and post-retirement expense
93
271
Losses (gains) on cash surrender value of company-owned life insurance
579
(7,042)
Gains on the sale of company-operated restaurants
(48)
(1,283)
Gains on the disposition of property and equipment, net
(617)
(2,160)
Impairment charges and other
919
546
Changes in assets and liabilities, excluding acquisitions:
Accounts and other receivables
19,910
24,805
Inventories
(351)
(133)
Prepaid expenses and other current assets
2,720
2,595
Operating lease right-of-use assets and lease liabilities
10,218
(14,441)
Accounts payable
(5,218)
(15,078)
Accrued liabilities
(47,849)
8,791
Pension and post-retirement contributions
(2,075)
(2,061)
Franchise tenant improvement allowance and incentive disbursements
(1,166)
(813)
Other
(1,159)
(3,384)
Cash flows provided by operating activities
34,051
62,251
Cash flows from investing activities:
Purchases of property and equipment
(9,401)
(7,076)
Proceeds from the sale of property and equipment
2,245
3,629
Proceeds from the sale and leaseback of assets
1,576
—
Proceeds from the sale of company-operated restaurants
48
133
Other
(1,305)
2,677
Cash flows used in investing activities
(6,837)
(637)
Cash flows from financing activities:
Principal repayments on debt
(223)
(211)
Debt issuance costs
(2,090)
—
Dividends paid on common stock
(9,257)
(9,089)
Proceeds from issuance of common stock
49
114
Payroll tax payments for equity award issuances
(795)
(773)
Cash flows used in financing activities
(12,316)
(9,959)
Net increase in cash and restricted cash
14,898
51,655
Cash and restricted cash at beginning of period
73,568
236,920
Cash and restricted cash at end of period
$
88,466
$
288,575
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
Nature of operations — Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box® quick-service restaurants.The following table summarizes the number of restaurants as of the end of each period:
January 23, 2022
January 17, 2021
Company-operated
165
148
Franchise
2,043
2,089
Total system
2,208
2,237
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”).
Certain prior period information on the consolidated statement of cash flows has been reclassified to conform to the current year presentation.
These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended October 3, 2021 (“2021 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2021 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.
Segment reporting — The Company is comprised of one operating segment.
Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 2022 and 2021 include 52 and 53 weeks, respectively. Our first quarter includes 16 weeks and all other quarters include 12 weeks, with the exception of the fourth quarter of fiscal 2021, which includes 13 weeks. All comparisons between 2022 and 2021 refer to the 16 weeks (“quarter”) ended January 23, 2022 and January 17, 2021, respectively, unless otherwise indicated.
Use of estimates — In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates.
Advertising costs — We administer a marketing fund that includes contractual contributions. In 2022 and 2021, marketing fund contributions from franchise and company-operated restaurants were approximately 5.0% of gross revenues.
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 totaled $6.1 million and $5.8 million in 2022 and 2021, respectively.
Recent accounting pronouncements — The Company reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our condensed consolidated financial statements.
2.REVENUE
Nature of products and services — We derive revenue from retail sales at Jack in the Box 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 of $50,000 per restaurant and generally require that franchisees pay royalty and marketing fees at 5% of gross sales. The agreement also requires franchisees to pay sourcing, technology and other miscellaneous fees.
6
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Disaggregation of revenue — The following table disaggregates revenue by primary source (in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Sources of revenue:
Company restaurant sales
$
120,056
$
114,278
Franchise rental revenues
103,099
103,749
Franchise royalties
57,648
57,343
Marketing fees
55,801
55,776
Technology and sourcing fees
5,000
5,090
Franchise fees and other services
3,107
2,305
Total revenue
$
344,711
$
338,541
Contract liabilities — Our contract liabilities consist of deferred revenue resulting from initial fees received from franchisees for new restaurant openings or new franchise terms, which are recognized over the franchise term. We classify these contract liabilities as “Accrued liabilities” and “Other long-term liabilities” in our condensed consolidated balance sheets.
A summary of significant changes in our contract liabilities is presented below (in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Deferred franchise fees at beginning of period
$
40,435
$
43,541
Revenue recognized
(1,742)
(1,779)
Additions
680
428
Deferred franchise fees at end of period
$
39,373
$
42,190
The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied as of January 23, 2022 (in thousands):
Remainder of 2022
$
3,362
2023
4,703
2024
4,512
2025
4,284
2026
3,963
Thereafter
18,549
$
39,373
We have applied the optional exemption, as provided for under Accounting Standards Codification 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.DEL TACO MERGER AGREEMENT
Agreement and Plan of Merger — As previously announced, the Company entered into an Agreement and Plan of Merger dated as of December 5, 2021 (the “Merger Agreement”) with Del Taco Restaurants, Inc., a Delaware corporation (“Del Taco”), to acquire Del Taco (the “Merger”). Del Taco is the nation’s second largest Mexican quick service restaurant chain by number of restaurants and has approximately 600 restaurants across 16 states.
Subject to certain specified exceptions, at the effective time of the Merger, each share of Del Taco common stock issued and outstanding will be converted into the right to receive $12.51 in cash in a transaction valued at approximately $575.0 million, including existing debt. The transaction, which is expected to close in the first calendar quarter of 2022, is subject to certain customary closing conditions, including Del Taco’s shareholder approval and the receipt of required regulatory approvals.
7
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In connection with the Merger Agreement, the Company entered into a letter agreement with BofA Securities, Inc. pursuant to which BofA Securities, Inc. has agreed to provide financing for the Merger, in an amount of up to $600.0 million under the Company’s existing securitization facility. No amounts were drawn under the letter agreement, which was terminated as a result of our securitization refinancing transaction disclosed in Note 15, Subsequent Events.
The Merger Agreement provides for certain termination rights for both Jack in the Box and Del Taco and provides that, in connection with a termination of the Merger Agreement under certain specified circumstances, Del Taco will be required to pay Jack in the Box a termination fee of $14.2 million or Jack in the Box will be required to pay Del Taco a termination fee of $28.4 million.
The Company has incurred costs related to the merger of $3.0 million for the quarter, including legal, accounting, and other professional fees and expenses. These costs are included in “Other operating expenses (income), net” in the accompanying condensed consolidated statements of earnings.
4.SUMMARY OF REFRANCHISINGS AND FRANCHISE ACQUISITIONS
Refranchisings — In 2022 and 2021, no company-operated restaurants were sold to franchisees. Amounts included in “Gains on the sale of company-operated restaurants” in both periods related to resolutions of certain contingencies from the sale of restaurants in prior years.
Franchise acquisitions — In 2022 and 2021, we acquired four franchise restaurants in each period. 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 in either year.
5.LEASES
As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees subsequent to 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.”
The following table presents rental income (in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Operating lease income - franchise
$
71,357
$
72,242
Variable lease income - franchise
31,742
31,507
Franchise rental revenues
$
103,099
$
103,749
Operating lease income - closed restaurants and other (1)
$
1,658
$
1,865
____________________________
(1)Primarily relates to closed restaurant properties included in “Other operating expenses (income), net” in our condensed consolidated statements of earnings.
8
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6.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 January 23, 2022:
Non-qualified deferred compensation plan (1)
$
16,366
$
16,366
$
—
$
—
Total liabilities at fair value
$
16,366
$
16,366
$
—
$
—
Fair value measurements as of October 3, 2021:
Non-qualified deferred compensation plan (1)
$
18,555
$
18,555
$
—
$
—
Total liabilities at fair value
$
18,555
$
18,555
$
—
$
—
____________________________
(1)We maintain an unfunded defined contribution plan for key executives and other members of management. The fair value of this obligation is based on the closing market prices of the participants’ elected investments. The obligation is included in “Accrued liabilities” and “Other long-term liabilities” on our condensed consolidated balance sheets.
(2)We did not have any transfers in or out of Level 1, 2 or 3.
The following table presents the carrying value and estimated fair value of our Class A-2 Notes as of January 23, 2022 and October 3, 2021 (in thousands):
January 23, 2022
October 3, 2021
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Class A-2 Notes
$
1,290,251
$
1,324,810
$
1,290,251
$
1,351,057
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 — Our non-financial instruments, which primarily consist of property and equipment, operating lease right-of-use assets, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on an annual basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial instruments are assessed for impairment. If applicable, the carrying values are written down to fair value.
In connection with our impairment reviews performed during 2022, no material fair value adjustments were required.
7.OTHER OPERATING EXPENSE (INCOME), NET
Other operating expenses (income), net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Acquisition, integration, and restructuring costs (1)
$
3,013
$
6
Costs of closed restaurants and other (2)
1,072
1,023
Accelerated depreciation
375
679
Gains on disposition of property and equipment, net (3)
(617)
(2,160)
$
3,843
$
(452)
____________________________
(1)Acquisition and integration costs in connection with the Del Taco transaction. Refer to Note 3 for further information.
(2)Costs of closed restaurants primarily include impairment charges as a result of our decision to close restaurants, ongoing costs associated with closed restaurants, and canceled project costs.
(3)Gains on disposition of property and equipment, net, in both periods primarily relate to the sale of restaurant properties.
9
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8.INCOME TAXES
The income tax provisions reflect tax rates of 26.5% in 2022 and 25.1% in 2021. The major component of the year-over-year increase in tax rates was the non-deductibles losses in the current year versus non-taxable gains in the prior year from the market performance of insurance products used to fund certain non-qualified retirement plans.
9.RETIREMENT PLANS
Defined benefit pension plans — We sponsor two defined benefit pension plans, a frozen “Qualified Plan” covering substantially all full-time employees hired prior to January 1, 2011, and an unfunded supplemental executive retirement plan (“SERP”) which provides certain employees additional pension benefits and was closed to new participants effective January 1, 2007. Benefits under both plans are based on the employee’s years of service and compensation over defined periods of employment.
Post-retirement healthcare plans — We also sponsor 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 — The components of net periodic benefit cost in each period were as follows (in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Defined benefit pension plans:
Interest cost
$
4,517
$
4,532
Expected return on plan assets
(5,570)
(5,951)
Actuarial losses (1)
1,187
1,616
Amortization of unrecognized prior service costs (1)
6
6
Net periodic benefit cost
$
140
$
203
Post-retirement healthcare plans:
Interest cost
$
150
$
173
Actuarial gains (1)
(197)
(105)
Net periodic benefit cost
$
(47)
$
68
___________________________
(1)Amounts were reclassified from accumulated OCI into net earnings as a component of “Other pension and post-retirement expenses, net.”
Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of January 1, 2021, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for the Qualified Plan. Details regarding 2022 contributions are as follows (in thousands):
SERP
Post-Retirement Healthcare Plans
Net year-to-date contributions
$
1,746
$
329
Remaining estimated net contributions during fiscal 2022
$
3,470
$
803
We continue to evaluate contributions to our Qualified Plan based on changes in pension assets as a result of asset performance in the current market and the economic environment. We do not anticipate making any contributions to our Qualified Plan in fiscal 2022.
10
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10.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 3, 2021
82,536
$
825
$
500,441
$
1,764,412
$
(74,254)
$
(3,009,306)
$
(817,882)
Shares issued under stock plans, including tax benefit
28
1
48
—
—
—
49
Share-based compensation
—
—
1,018
—
—
—
1,018
Dividends declared
—
—
63
(9,320)
—
—
(9,257)
Net earnings
—
—
—
39,270
—
—
39,270
Other comprehensive income
—
—
—
—
738
—
738
Balance at January 23, 2022
82,564
$
826
$
501,570
$
1,794,362
$
(73,516)
$
(3,009,306)
$
(786,064)
Number of Shares
Amount
Capital in Excess of Par Value
Retained Earnings
Accumulated Other Comprehensive Loss
Treasury Stock
Total
Balance at September 27, 2020
82,370
$
824
$
489,515
$
1,636,211
$
(110,605)
$
(2,809,306)
$
(793,361)
Shares issued under stock plans, including tax benefit
24
—
114
—
—
—
114
Share-based compensation
—
—
1,231
—
—
—
1,231
Dividends declared
—
—
53
(9,142)
—
—
(9,089)
Net earnings
—
—
—
50,859
—
—
50,859
Other comprehensive income
—
—
—
—
1,123
—
1,123
Balance at January 17, 2021
82,394
$
824
$
490,913
$
1,677,928
$
(109,482)
$
(2,809,306)
$
(749,123)
Repurchases of common stock— There were no repurchases of common stock in the first quarter of fiscal 2022. As of January 23, 2022, there was $200.0 million remaining under share repurchase programs authorized by the Board of Directors which expires in November 2023.
Dividends— During 2022, the Board of Directors declared a cash dividend of $0.44 per common totaling $9.3 million. Future dividends are subject to approval by our Board of Directors.
11.AVERAGE SHARES OUTSTANDING
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Weighted-average shares outstanding – basic
21,205
22,968
Effect of potentially dilutive securities:
Nonvested stock awards and units
40
54
Stock options
2
5
Performance share awards
—
2
Weighted-average shares outstanding – diluted
21,247
23,029
Excluded from diluted weighted-average shares outstanding:
Antidilutive
15
99
Performance conditions not satisfied at the end of the period
25
29
11
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12.COMMITMENTS AND CONTINGENCIES
Legal matters— We assess contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates. As of January 23, 2022 and October 3, 2021, the Company had recorded aggregate liabilities of $6.8 million and $7.5 million, respectively, within “Accrued liabilities” on our condensed consolidated balance sheets, for all matters including those described below, that were probable and reasonably estimable. We believe that the ultimate determination of liability in connection with legal claims pending against us, if any, in excess of amounts already provided for such matters in the consolidated financial statements, will not have a material adverse effect on our business, our annual results of operations, liquidity or financial position.
Gessele v. Jack in the Box Inc.— In August 2010, five former 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 the Company failed to pay non-exempt employees for certain meal breaks and improperly made payroll deductions for shoe purchases and for workers’ compensation expenses, and later added additional claims relating to timing of final pay and related wage and hour claims involving employees of a franchisee. In 2016, the court dismissed the federal claims and those relating to franchise employees. In June 2017, the court granted class certification with respect to state law claims of improper deductions and late payment of final wages. The parties participated in a voluntary mediation on March 16, 2020, but the matter did not settle. The plaintiffs recently filed a motion for reconsideration of the court’s prior denial of class certification regarding meal and rest break claims, which remains pending before the court. The Company continues to dispute liability and the plaintiffs’ damages calculations and will continue to vigorously defend against the lawsuit.
Other legal matters — In addition to the matter described above, we are subject to normal and routine litigation brought by former or current employees, customers, franchisees, vendors, landlords, shareholders or others. We intend to defend ourselves in any such matters. Some of these matters may be covered, at least in part, by insurance or other third party indemnity obligation. We record receivables from third party insurers when recovery has been determined to be probable.
Lease guarantees — We remain contingently liable for certain leases relating to our former Qdoba business which we sold in fiscal 2018. Under the Qdoba Purchase Agreement, the buyer has indemnified the Company of all claims related to these guarantees. As of January 23, 2022, the maximum potential liability of future undiscounted payments under these leases is approximately $26.7 million. The lease terms extend for a maximum of approximately 16 more years and we would remain a guarantor of the leases in the event the leases are extended for any established renewal periods. In the event of default, we believe the exposure is limited due to contractual protections and recourse available in the lease agreements, as well as the Qdoba Purchase Agreement, including a requirement of the landlord to mitigate damages by re-letting the properties in default, and indemnity from the Buyer. The Company has not recorded a liability for these guarantees as we believe the likelihood of making any future payments is remote.
13.SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Non-cash investing and financing transactions:
Decrease in obligations for purchases of property and equipment
$
952
$
74
Increase in accrued debt issuance costs
$
3,955
$
—
Increase in dividends accrued or converted to common stock equivalents
$
63
$
53
Right-of use assets obtained in exchange for operating lease obligations
$
69,789
$
40,266
Right-of use assets obtained in exchange for finance lease obligations
$
20
$
65
12
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
14.SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)
January 23, 2022
October 3, 2021
Accounts and other receivables, net:
Trade
$
57,250
$
75,273
Notes receivable, current portion
1,472
1,467
Income tax receivable
1,043
1,157
Other
2,783
2,730
Allowance for doubtful accounts
(7,328)
(6,292)
$
55,220
$
74,335
Other assets, net:
Company-owned life insurance policies
$
122,987
$
123,566
Deferred rent receivable
45,519
46,234
Franchise tenant improvement allowance
33,340
34,124
Notes receivable, less current portion
4,741
4,544
Other
21,953
15,970
$
228,540
$
224,438
Accrued liabilities:
Payroll and related taxes
$
25,186
$
34,649
Insurance
21,353
21,218
Sales and property taxes
10,225
23,174
Deferred rent income
4,023
17,892
Advertising
7,952
13,097
Deferred franchise fees
4,800
4,824
Other
30,911
33,563
$
104,450
$
148,417
Other long-term liabilities:
Defined benefit pension plans
$
68,931
$
70,354
Deferred franchise fees
34,573
35,608
Other
46,513
50,380
$
150,017
$
156,342
15.SUBSEQUENT EVENTS
Securitization Refinancing Transaction — On February 11, 2022, the Company completed the sale of $550.0 million of its Series 2022-1 3.445% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”) and $550.0 million of its Series 2022-1 4.136% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II” 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 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 will govern the 2022 Notes. The 2022 Notes were issued in a privately placed transaction.
The net proceeds of the sale of the 2022 Notes have been used to repay in full of $570.7 million in aggregate outstanding principal amount of the Company’s Series 2019-1 Class A-2-I Notes, together with the applicable make-whole premium and unpaid interest, and is expected to be used to fund a portion of the Company’s acquisition of Del Taco Restaurants, Inc.
The Company also entered into a new purchase agreement under which it will issue up to $150.0 million of its Series 2022-1 Variable Funding Senior Secured Notes, Class A-1 (the “Class A-1 Notes”), which will allow the Company to borrow amounts from time to time on a revolving basis. The Class A-I Notes will replace the Company’s existing $150.0 million Series 2019-1 Variable Funding Senior Secured Notes, Class A-1.
13
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dividends - On February 18, 2022, the Board of Directors declared a cash dividend of $0.44 per common share, to be paid on March 22, 2022, to shareholders of record as of the close of business on March 9, 2022.
Franchise Acquisitions -Subsequent to the end of the first quarter, we took possession of 9 franchise restaurants in a non-cash transaction. We are currently determining the fair value of the non-cash purchase price allocation using the acquisition method of accounting for business combinations.
14
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All comparisons between 2022 and 2021 refer to the 16 weeks (“quarter”) ended January 23, 2022 and January 17, 2021, respectively, unless otherwise indicated.
For an understanding of the significant factors that influenced our performance during 2022 and 2021, 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 3, 2021.
Our MD&A consists of the following sections:
•Overview — a general description of our business and 2022 highlights.
•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 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 (income), net, depreciation and amortization, 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.
15
OVERVIEW
Our Business
As of January 23, 2022, we operated and franchised 2,208 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam.
We derive revenue from retail sales at Jack in the Box company-operated restaurants and rental revenue, royalties (based upon a percent of sales), franchise fees and contributions for advertising and other services from franchisees. In addition, we recognize gains or losses from the sale of company-operated restaurants to franchisees, and captioned separately within operating costs and expenses, net, in the accompanying consolidated statements of earnings.
Del Taco Merger Agreement
As previously announced, the Company entered into an Agreement and Plan of Merger dated as of December 5, 2021 (the “Merger Agreement”) with Del Taco Restaurants, Inc., a Delaware corporation (“Del Taco”), to acquire Del Taco (the “Merger”). Del Taco is the nation’s second largest Mexican quick service restaurant chain by number of restaurants and has approximately 600 restaurants across 16 states.
Subject to certain specified exceptions, at the effective time of the Merger, each share of Del Taco common stock issued and outstanding will be converted into the right to receive $12.51 in cash in a transaction valued at approximately $575 million, including existing debt. The transaction, which is expected to close in the first calendar quarter of 2022, is subject to certain customary closing conditions, including Del Taco’s shareholder approval and the receipt of required regulatory approvals. Refer to Note 3, Del Taco Merger Agreement, of the notes to the condensed consolidated financial statements for further information about the Merger.
Impact of COVID-19
The COVID-19 pandemic has continued to have varying degrees of disruption on our business. Throughout the pandemic substantially all of our restaurants have remained open, with the majority of our dining rooms closed and locations operating in an off-premise capacity, leveraging our drive-thru, carryout and delivery capabilities. We have continued to follow the guidance of expert health authorities to ensure precautionary steps are taken to protect the health and safety of our employees and guests.
Our business has continued to be challenged by availability and cost of labor resulting in a number of our restaurants across regions to reduce operating hours during the quarter. We have continued to have limited shortages in our supply chain; however, inflationary pressures have continued to have a significant impact on our business.
We expect these operating margin pressures due to labor and supply chain challenges to continue for the remainder of fiscal 2022.
Other Developments
As previously announced, a franchisee that operated 68 restaurants in the Midwest filed for chapter 11 bankruptcy in February 2021. Of the 68 restaurants, we sublease 50 of the locations to the franchisee and own the land and building for the remaining 18 locations. Through the bankruptcy proceedings, the franchisee may reject the franchise agreements and leases for a number of these locations, resulting in potential impairment costs related to future lease obligations.
In fiscal 2021, the franchisee filed motions to reject 5 locations which the court authorized. In fiscal 2022, the franchisee filed motions to reject an additional 6 locations which the court authorized. No material impairment costs were recorded in the financial statements in either period as a result of these locations being rejected near the expiration of our master lease agreements. The franchisee’s remaining restaurants continue to operate with the franchisee remaining current with their obligations to us, with the exception of certain amounts owed at the end and subsequent to the first quarter which have been appropriately reserved for in the accompanying condensed consolidated financial statements.
The Company does not expect to acquire and operate any restaurants as part of the sale of these restaurants and our current expectation is the remaining restaurants will be transferred to one or more other franchise partners.
Financial Highlights for Fiscal Quarter
•Systemwide sales for the quarter increased 0.6% as compared to prior year quarter.
•System same-store sales for the quarter increased 1.2%.
•Total revenues for the quarter increased 1.8%.
•Earnings from operations for the quarter decreased 17.1%.
•Net earningsand diluted EPS decreased 22.8% and 16.3%, respectively.
•Adjusted EBITDA decreased in the quarter from $102.4 million to $91.2 million, or 10.9%.
16
•Net units down 1.3% with 12 closures and 2 store openings during the quarter.
RESULTS OF OPERATIONS
Thefollowing table presents certain income and expense items included in our condensed consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS DATA
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Revenues:
Company restaurant sales
34.8
%
33.8
%
Franchise rental revenues
29.9
%
30.6
%
Franchise royalties and other
17.6
%
17.6
%
Franchise contributions for advertising and other services
17.6
%
18.0
%
100.0
%
100.0
%
Operating costs and expenses, net:
Food and packaging (1)
31.3
%
28.3
%
Payroll and employee benefits (1)
33.1
%
30.6
%
Occupancy and other (1)
17.4
%
15.6
%
Franchise occupancy expenses (2)
62.1
%
62.8
%
Franchise support and other costs (3)
6.4
%
5.5
%
Franchise advertising and other services expenses (4)
104.1
%
103.0
%
Selling, general and administrative expenses
7.4
%
6.1
%
Depreciation and amortization
3.6
%
4.3
%
Other operating expenses (income), net
1.1
%
(0.1)
%
Gains on the sale of company-operated restaurants
—
%
(0.4)
%
Earnings from operations
21.4
%
26.3
%
Income tax rate (5)
26.5
%
25.1
%
____________________________
(1)As a percentage of company restaurant sales.
(2)As a percentage of franchise rental revenues.
(3)As a percentage of franchise royalties and other.
(4)As a percentage of franchise contributions for advertising and other services.
(5)As a percentage of earnings from operations and before income taxes.
The following table summarizes changes in same-store sales for company-operated, franchised, and system restaurants:
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Company
(0.3)
%
7.5
%
Franchise
1.4
%
13.0
%
System
1.2
%
12.5
%
17
The following table summarizes changes in the number and mix of company and franchise restaurants:
2022
2021
Company
Franchise
Total
Company
Franchise
Total
Beginning of year
163
2,055
2,218
144
2,097
2,241
New
—
2
2
—
3
3
Acquired from franchisees
4
(4)
—
4
(4)
—
Closed
(2)
(10)
(12)
—
(7)
(7)
End of period
165
2,043
2,208
148
2,089
2,237
% of system
7
%
93
%
100
%
7
%
93
%
100
%
The following table summarizes restaurant sales for company-operated, franchised, and systemwide sales (in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Company-operated restaurant sales
$
120,056
$
114,278
Franchised restaurant sales (1)
1,117,676
1,115,826
Systemwide sales (1)
$
1,237,732
$
1,230,104
____________________________
(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.
Below is a reconciliation of Non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Net earnings - GAAP
$
39,270
$
50,859
Income tax expense
14,190
17,061
Interest expense, net
20,187
20,735
Gains on the sale of company-operated restaurants
(48)
(1,283)
Other operating expenses (income), net
3,843
(452)
Depreciation and amortization
12,496
14,571
Amortization of franchise tenant improvement allowances and incentives
1,234
861
Adjusted EBITDA - Non-GAAP
$
91,172
$
102,352
18
Company Restaurant Operations
The following table presents company restaurant sales and costs as a percentage of the related sales (dollars in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Company restaurant sales
$
120,056
$
114,278
Company restaurant costs:
Food and packaging
$
37,537
31.3
%
$
32,377
28.3
%
Payroll and employee benefits
$
39,725
33.1
%
$
34,931
30.6
%
Occupancy and other
$
20,877
17.4
%
$
17,835
15.6
%
Company restaurant sales increased $5.8 million or 5.1% compared to the prior year, primarily due to an increase in the number of company-operated restaurants, average check growth, menu price increases, and partially offset by a decline in traffic. The following table presents the approximate impact of these items on company restaurant sales (in millions):
Sixteen Weeks Ended
January 23, 2022
Increase in the average number of restaurants
$
3.7
AUV increase
2.1
Total change in company restaurant sales
$
5.8
Same-store sales at company-operated restaurants decreased 0.3% compared to a year ago. The following table summarizes the change versus a year ago:
Sixteen Weeks Ended
January 23, 2022
Average check (1)
3.5
%
Transactions
(3.8)
%
Change in same-store sales
(0.3)
%
____________________________
(1)Includes price increases of approximately 5.5%.
Food and packaging costs as a percentage of company restaurant sales increased to 31.3% from 28.3% a year ago, primarily due a 2.6% increase in commodities and an unfavorable sales mix of 2.0%, partially offset by menu price increases of 1.6%. Commodity costs increased in the current fiscal year by approximately 10.5% primarily due to increases in beef, pork, sauces and oil.
Payroll and employee benefit costs as a percentage of company restaurant sales increased to 33.1% in 2022 compared with 30.6% a year ago primarily due to labor inflation, a change in the mix of restaurants due to franchisee acquisitions, partially offset by lower incentive compensation. Labor inflation was approximately 10.9% in the current fiscal year.
Occupancy and other costs, as a percentage of company restaurant sales, increased to 17.4% in 2022 compared with 15.6% a year ago due primarily to the acquisition of 20 restaurants with lower than average sales volumes as well as higher costs for maintenance and repair and utilities.
19
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):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Franchise rental revenues
$
103,099
$
103,749
Royalties
57,648
57,343
Franchise fees and other
3,107
2,305
Franchise royalties and other
60,755
59,648
Franchise contributions for advertising and other services
60,801
60,866
Total franchise revenues
$
224,655
$
224,263
Franchise occupancy expenses
$
63,983
$
65,169
Franchise support and other costs
3,911
3,273
Franchise advertising and other services expenses
63,308
62,695
Total franchise costs
$
131,202
$
131,137
Franchise costs as a percentage of total franchise revenues
58.4%
58.5%
Average number of franchise restaurants
2,039
2,078
% decrease
(1.9)%
Franchised restaurant sales
$
1,117,676
$
1,115,826
Franchised restaurant AUVs
$
548
$
537
Royalties as a percentage of total franchised restaurant sales
5.2%
5.1%
Franchise rental revenues decreased $0.6 million, or 0.6% in 2022 compared to the prior year, primarily due to lower minimum rent and property tax reimbursements of $1.6 million due to a reduction in the number of franchise subleases compared to prior year, partially offset by higher percentage rent of $1.1 million driven by higher franchise restaurant sales.
Franchise royalties and other increased $1.1 million, or 1.9% in 2022 compared to the prior year, primarily due to an increase of $0.8 million in fees received in connection with the early termination of franchise agreements, as well as higher royalties of $0.3 million driven by higher franchise restaurant sales.
Franchise contributions for advertising and other services revenues decreased $0.1 million, or 0.1% in 2022 compared to the prior year, due to a decrease of $0.1 million in technology and sourcing fees driven by a lower average number of franchise restaurants compared to the prior year.
Franchise occupancy expenses, primarily rent, decreased $1.2 million, or 1.8% in 2022 compared to the prior year, primarily due to a reduction in the average number of franchise restaurants in 2022.
Franchise support and other costs increased $0.6 million in 2022 compared to the prior year, primarily due to an increase in franchisee bad debt expense from specific franchise situations occurring in the year.
Franchise advertising and other service expenses increased $0.6 million, or 1.0% in 2022 compared to the prior year primarily due to higher technology costs in the current year.
Depreciation and Amortization
Depreciation and amortization decreased by $2.1 million in 2022 compared with the prior year, primarily due to certain franchise building assets becoming fully depreciated in the current fiscal year.
20
Selling, General and Administrative (“SG&A”) Expenses
The following table presents the change in SG&A expenses compared with the prior year (in thousands):
Sixteen Weeks Ended
January 23, 2022
Advertising
$
294
Incentive compensation (including share-based compensation and related payroll taxes)
(2,807)
Cash surrender value of COLI policies, net
5,239
Other
2,114
$
4,840
Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales. Advertising costs increased $0.3 million compared to the prior year primarily due to an increase in the number of company-operated restaurants.
Incentive compensation decreased by $2.8 million in 2022 compared to the prior year due to a $2.6 million decrease in the annual incentives mainly as a result of lower achievement levels compared to the prior year, as well as a $0.2 million decrease in stock-based compensation mainly from timing of annual grants compared to the prior year.
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 negative impact of $5.2 million versus the prior year as a result of $0.4 million losses recognized in 2022 compared to $4.8 million gains in the prior year.
Other Operating Expenses (Income), Net
Other operating expenses (income), net is comprised of the following (in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Acquisition, integration, and restructuring costs
$
3,013
$
6
Costs of closed restaurants and other
1,072
1,023
Accelerated depreciation
375
679
Gains on disposition of property and equipment, net
(617)
(2,160)
$
3,843
$
(452)
Other operating expenses (income), net increased by $4.3 million, primarily due to $3.0 million of costs incurred during the quarter relating to the Del Taco acquisition and $1.5 million lower gains on the sale of property and equipment compared to prior year.
Gains on the Sale of Company-Operated Restaurants
In 2022 and 2021, no company-operated restaurants were sold to franchisees. Amounts included in “Gains on the sale of company-operated restaurants” in both periods related to resolutions of certain contingencies from the sale of restaurants in prior years.
21
Interest Expense, Net
Interest expense, net is comprised of the following (in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Interest expense
$
20,273
$
20,739
Interest income
(86)
(4)
Interest expense, net
$
20,187
$
20,735
Interest expense, net decreased by $0.5 million in 2022 compared to the prior year primarily due to lower average borrowings as a result of paying down borrowings under our Variable Funding Notes during the second quarter of 2021.
Income Tax Expense
The income tax provisions reflect tax rates of 26.5% in 2022 and 25.1% in 2021. The major component of the year-over-year increase in tax rates was the non-deductibles losses in the current year versus non-taxable gains in the prior year from the market performance of insurance products used to fund certain non-qualified retirement plans.
22
LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of liquidity and capital resources are cash flows from operations and borrowings available under our securitized financing facility. Our cash requirements consist principally of working capital, general corporate needs, capital expenditures, income tax payments, debt service requirements, franchise tenant improvement allowance and incentive distributions, dividend payments, and obligations related to our benefit plans. We generally reinvest available cash flows from operations to invest in our business, service our debt obligations, pay dividends and repurchase shares of our common stock.
Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available borrowings under our securitized financing facility. As of January 23, 2022, the Company had $88.5 million of cash and restricted cash on its consolidated balance sheet.
On December 5, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Del Taco Restaurants, Inc., for total consideration valued at $575.0 million, including existing debt. To partially fund the acquisition of Del Taco, we completed a debt refinancing transaction on February 11, 2022, as further described below.
The Merger Agreement provides for certain termination rights for both Jack in the Box and Del Taco and provides that, in connection with a termination of the Merger Agreement under certain specified circumstances as described in the Merger Agreement, Del Taco will be required to pay Jack in the Box a termination fee of $14.2 million or Jack in the Box will be required to pay Del Taco a termination fee of $28.4 million.
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with our securitized financing 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):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Total cash provided by (used in):
Operating activities
$
34,051
$
62,251
Investing activities
(6,837)
(637)
Financing activities
(12,316)
(9,959)
Net cash flows
$
14,898
$
51,655
Operating Activities. Operating cash flows decreased $28.2 million compared with a year ago, which was primarily due to an unfavorable change in working capital of $25.3 million, as a result of lower collections on marketing and rent payment deferrals provided to our franchisees in 2020, higher property tax payments due to timing differences, and higher bonus payments.
Pension and Post-Retirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, 2021, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for our qualified pension plan. In 2022, we contributed $2.1 million to our non-qualified pension plan and post-retirement plans.
Investing Activities. Cash used in investing activities increased by $6.2 million compared with a year ago, primarily due to $2.3 million higher capital expenditures and $3.0 million lower death benefit proceeds of company-owned life insurance policies.
23
Capital Expenditures— The composition of capital expenditures in each period follows (in thousands):
Sixteen Weeks Ended
January 23, 2022
January 17, 2021
Restaurants:
Remodel / refresh programs
$
921
$
3,903
Restaurant facility expenditures
4,374
1,451
Purchases of assets intended for sale and leaseback
1,877
150
Restaurant information technology
968
288
8,140
5,792
Corporate Services:
Information technology
52
466
Corporate facilities
1,209
818
1,261
1,284
Total capital expenditures
$
9,401
$
7,076
Financing Activities. Cash flows used in financing activities increased by $2.4 million compared with a year ago, primarily due to $2.1 million of deferred financing costs paid during the quarter.
Repurchases of Common Stock— The Company did not repurchase any shares in the first quarter of 2022. On November 19, 2021, the Board of Directors authorized a $200.0 million stock buy-back program that expires on November 20, 2023.
Dividends — During the first quarter of 2022, the Board of Directors declared a cash dividend of $0.44 per common share totaling $9.3 million.
Securitized Refinancing Transaction —On February 11, 2022, the Company completed the sale of $550.0 million of its Series 2022-1 3.445% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes) and $550.0 million of its Series 2022-1 4.136% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II” 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 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 will govern the 2022 Notes. The 2022 Notes were issued in a privately placed transaction.
The net proceeds of the sale of the 2022 Notes have been used to repay in full of $570.7 million in aggregate outstanding principal amount of the Company’s Series 2019-1 Class A-2-I Notes, together with the applicable make-whole premium and unpaid interest, and is expected to be used to fund a portion of the Company’s acquisition of Del Taco Restaurants, Inc.
The Company also entered into a new purchase agreement under which it will issue up to $150.0 million of its Series 2022-1 Variable Funding Senior Secured Notes, Class A-1 (the “Class A-1 Notes”), which will allow the Company to borrow amounts from time to time on a revolving basis. The Class A-I Notes will replace the Company’s existing $150.0 million Series 2019-1 Variable Funding Senior Secured Notes, Class A-1.
Except as described above, there were no material changes to the terms of any debt obligations since October 3, 2021. The Company was in compliance with its debt covenants as of January 23, 2022.
DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES
Critical accounting 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 estimates previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 3, 2021.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, Basis of Presentation, of the notes to condensed consolidated financial 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.
•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.
•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.
•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.
•Food safety and food-borne illness concerns may have an adverse effect on our business by reducing demand and increasing costs.
•Negative publicity relating to our business or industry could adversely impact our reputation.
•Changes in the availability of and the cost of labor could adversely affect our business.
•Inability to attract, train and retain top-performing personnel could adversely impact our financial results or business.
•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.
•We may not achieve our development goals.
•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 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.
•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.
•We may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business.
•Jack in the Box may be subject to risk associated with disagreements with key stakeholders, such as franchisees.
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•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.
•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.
•Unionization activities or labor disputes may disrupt our operations and affect our profitability.
•Increasing regulatory and legal complexity may adversely affect restaurant operations and our financial results.
•Our insurance may not provide adequate levels of coverage against claims.
•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.
•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.
•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.
•Our quarterly results and, as a result, the price of our common stock, may fluctuate significantly and could fall below the expectations of securities analysts and investors due to various factors.
•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 may not complete the acquisition of Del Taco within the time frame we anticipate or at all; the acquisition may cause our financial results to differ from our expectations or the expectations of the investment community; and we may not be able to achieve anticipated benefits of the acquisition.
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 3, 2021 (“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 3, 2021.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s quarter ended January 23, 2022, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) have concluded that the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended January 23, 2022 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 12, 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
The risk factors set forth below contain material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended October 3, 2021, which we filed with the SEC on November 23, 2021, 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 3, 2021, 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 occurs, our business and financial results could be harmed. In that case, the market price of our common stock could decline.
We may not complete the acquisition of Del Taco within the time frame we anticipate or at all; the acquisition may cause our financial results to differ from our expectations or the expectations of the investment community; and we may not be able to achieve anticipated benefits of the acquisition.
The completion of the acquisition of Del Taco is subject to a number of conditions. The failure to satisfy all of the required conditions could delay the completion of the acquisition for a significant period of time or prevent it from occurring at all. In addition, the terms and conditions of the required regulatory authorizations and consents for the acquisition that are granted, if any, may impose requirements, limitations or costs or place restrictions on the conduct of our business after the transaction or may materially delay the completion of the acquisition. A delay in completing the acquisition could cause us to realize some or all of the benefits later than we otherwise expect to realize if the acquisition is successfully completed within the anticipated timeframe.
The success of the acquisition will depend, in part, on our ability to successfully combine and integrate the business of Del Taco and realize the anticipated benefits, including synergies, cost savings, and operational efficiencies, from the acquisition. If we are unable to successfully combine and integrate the business of Del Taco within the anticipated time frame, or at all, the anticipated benefits may not be fully realized.
Similar to our Series 2019-1 Class A-2-I Notes, the new 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.
The Series 2022-1 Senior 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 Series 2022-1 Senior 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 Series 2022-1 Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Series 2022-1 Senior Notes are in stated ways defective or ineffective and (iv) covenants relating to record keeping, access to information and similar matters. The Series 2022-1 Senior 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 Series 2022-1 Class A-2 Notes on the applicable scheduled maturity date. The Series 2022-1 Senior 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 Series 2022-1 Senior 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.
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In the event that a rapid amortization event occurs under the indenture (including, without limitation, upon an event of default under the indenture or the failure to repay the securitized debt at the end of the applicable term) which would require repayment of the Series 2022-1 Senior Notes, the funds available to us would be reduced or eliminated, which would in turn reduce our ability to operate and/or grow our business. If our subsidiaries are not able to generate sufficient cash flow to service their debt obligations, they may need to refinance or restructure debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If our subsidiaries are unable to implement one or more of these alternatives, they may not be able to meet debt payment and other obligations which could have a material adverse effect on our financial condition.
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.
Upon completion of its refinancing transaction, as of February 11, 2022, the Master Issuer has outstanding debt of $1.82 billion.
This level of debt could have certain material adverse effects on the Company, including but not limited to:
•our available cash flow in the future to fund working capital, capital expenditures, acquisitions, and general corporate or other purposes could be impaired, and our ability to obtain additional financing for such purposes is limited;
•a substantial portion of our cash flows could be required for debt service and, as a result, might not be available for our operations or other purposes;
•any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or could force us to modify our operations or sell assets;
•our ability to operate our business and our ability to repurchase stock or pay cash dividends to our stockholders may be restricted by the financial and other covenants set forth in the indenture;
•our ability to withstand competitive pressures may be decreased; and
•our level of indebtedness may make us more vulnerable to economic downturns and reduce our flexibility in responding to changing business, regulatory, and economic conditions.
In addition, we may incur additional indebtedness in the future. If new debt or other liabilities are added to our current consolidated debt levels, the related risks that it now faces could intensify.
Similar to the Series 2019-1 Class A-2-I Notes, 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.
The indenture and the management agreement entered into between certain of our subsidiaries and the indenture trustee (the “Management Agreement”) contain various covenants that limit our and our subsidiaries’ ability to engage in specified types of transactions. For example, the indenture and the Management Agreement contain covenants that, among other things, restrict, subject to certain exceptions, the ability of certain subsidiaries to:
•incur or guarantee additional indebtedness;
•sell certain assets;
•alter the business conducted by our subsidiaries;
•create or incur liens on certain assets; or
•consolidate, merge, sell or otherwise dispose of all or substantially all of the assets held within the securitization entities.
As a result of these restrictions, we may not have adequate resources or the flexibility to continue to manage the business and provide for growth of the Jack in the Box system, including product development and marketing for the Jack in the Box brand, which could adversely affect our future growth prospects, financial condition, results of operations and liquidity.
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Changes in the availability of and the cost of labor could adversely affect our business.
Our business could be adversely impacted by increases in labor costs, including those increases triggered by regulatory actions regarding wages, scheduling and benefits; increased health care and workers’ compensation insurance costs; increased wages and costs of other benefits necessary to attract and retain high quality employees with the right skill sets and increased wages, benefits and costs related to the COVID-19 pandemic and inflationary and other pressure on wages now being experienced. The growth of our business can make it increasingly difficult to locate and hire sufficient numbers of employees, to maintain an effective system of internal controls, and to train employees to deliver a consistently high-quality product and customer experience, which could materially harm our business and results of operations. Furthermore, we have experienced, and could continue to experience, a shortage of labor for restaurant positions, including due to concerns around and illnesses arising from COVID-19 and its various novel variants and other factors, which could decrease the pool of available qualified talent for key functions and require restaurants to operate on reduced hours. Such labor shortages could be further exacerbated by expanded federal, state and local COVID-19 vaccination requirements. In addition, our wages and benefits programs may be insufficient to attract and retain the top performing employees especially in a rising wage market.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock Repurchases — We did not repurchase any shares of our common stock in the first quarter of 2022. As of January 23, 2022, there was $200.0 million remaining under the Board-authorized stock buyback program which expires in November 2023.
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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/ TIM MULLANY
Tim Mullany
Executive Vice President and Chief Financial Officer (principal financial officer) (Duly Authorized Signatory)
