What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-11-22 compared with 2021-11-23 · 129 added, 138 removed, 170 unchanged (61% of the section changed)

1 unchanged sentence

For an understanding of the significant factors that influenced our performance during the fiscal year, we believe our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related notes included in this annual report as indexed on page F-1.

Comparisons under this heading refer to the 53-week period ended October 3, 2021 and 52-week period ended September 27, 2020 for fiscal 2021 and fiscal 2020, respectively.

Comparisons under this heading refer to the 52-week period ended October 2, 2022 for the fiscal year 2022 and 53-week period ended October 3, 2021 for the fiscal year 2021.

A comparison of our results of operations and cash flows for fiscal 2021 compared to fiscal 2020 can be found under Part II, “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended September 27, 2020.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in 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 fiscal 2021 highlights.

• Overview — a general description of our business.

• Results of Operations — an analysis of our consolidated statements of earnings for fiscal 2022 compared to fiscal 2021.

9 unchanged sentences

We believe franchise and system same-store sales, franchised and system-wide 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 gains or losses from discontinued operations, income taxes, interest expense, net, gains on the sale of company-operated restaurants, impairment and other (gains) charges, net, depreciation and amortization, amortization of tenant improvement allowances and other, and pension settlement charges.

• 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 expense (income), net, depreciation and amortization, amortization of favorable and unfavorable leases and subleases, net, and amortization of franchise 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.

2 unchanged sentences

Same-store sales, system restaurant 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.

As of October 3, 2021, we operated and franchised 2,218 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, which are included as a line item within operating costs and expenses, net, in the accompanying consolidated statements of earnings.

Founded in 1951, Jack in the Box Inc.

(the “Company”) operates and franchises Jack in the Box ® quick-service restaurants.

As of October 2, 2022, we operated and franchised 2,181 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including two in Guam.

On March 8, 2022, we completed the acquisition of Del Taco Restaurants, Inc.

(“Del Taco”), the nation’s second largest Mexican quick service restaurant chain by number of restaurants and as of October 2, 2022 has 591 restaurants across 15 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.

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 drive-thru, carryout, and delivery capabilities have positioned us to continue our strong systemwide sales growth in 2021;

however, our business has been challenged by COVID-19 related labor availability and wage inflation.

As a result of labor challenges, we and our franchisees have had to reduce hours of operations and keep dining rooms closed at certain locations.

While we have not had significant disruptions in our supply chain, we have experienced some product shortages and higher costs and inflationary pressures.

The pandemic has affected consumer behavior with increased focus on digital sales.

We have seen significant growth in our digital sales and continue to support enhancements of our digital ordering and off-premise channels, such as delivery.

While we do not know the future impact COVID-19 will have on our business, we expect labor and supply chain challenges and inflation to continue into at least fiscal 2022.

Our business has continued to be challenged by availability and cost of labor resulting in occasional temporarily closed restaurants and reduced operating hours.

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 in fiscal 2023.

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.

On May 5, 2021 the franchisee filed a motion with the court rejecting three of the locations, two of which were permanently closed in fiscal 2020.

On August 26, 2021, in response to a subsequent motion to reject two additional locations, the court authorized such rejections as of the dates previously agreed upon by the parties.

On November 15, 2021, the franchisee filed an additional motion with the court rejected a total of 5 more locations.

The franchisee’s remaining restaurants continue to operate with the franchisee remaining current with their obligations to us.

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 2021

• Systemwide sales for the year increased 13.1% as compared to 2020.

The increase is inclusive of the favorable 53rd week in the fourth quarter of 2021, which resulted in incremental systemwide sales of $77.9 million.

Excluding the 53rd week, systemwide sales in fiscal 2021 increased 11.0%.

• System same-store sales for the year increased 10.3%.

• Total revenues for the year increased 12.0%.

The increase is inclusive of the favorable 53rd week in the fourth quarter of 2021, which resulted in incremental revenue of approximately $21.3 million.

• Earnings from operations for the year increased 25.7%.

• Net earnings and Diluted EPS increased 84.7% and 90.9%, respectively.

• Adjusted EBITDA increased in 2021 to $331.4 million from $274.2 million, or 21%.

The increase is inclusive of the favorable 53rd week in the fourth quarter of 2021, which resulted in incremental Adjusted EBITDA of $5.6 million.

• Net units down 1.0% with 37 closures and 14 store openings during the year.

As previously announced, a franchisee that operated 68 restaurants in Missouri and Illinois filed for chapter 11 bankruptcy in February 2021.

On July 18, 2022, the Court approved the franchisee’s plan of reorganization with the same terms we previously agreed to in May 2022.

The reorganization plan includes a waiver of a portion of damages associated with the rejected locations, reduced royalties following plan confirmation, and the settlement of the remaining cure costs via a secured note upon emergence from bankruptcy, in addition to deferring all amounts owed under the franchise agreements starting in February through the bankruptcy resolution date.

The secured note provides for repayment based on a calculation of net free cash flows generated from the franchisee’s restaurants.

To the extent future net free cash flows are insufficient to satisfy the secured note at a future specified date, then we agreed to waive any remaining balance due to the Company.

Based on the events above, we concluded that the collectability of the deferrals starting in February 2022 were doubtful and therefore no revenue has been recognized.

Furthermore, we increased our bad debt reserve related to this matter to fully reserve the $3.8 million owed to the Company.

RESULTS OF OPERATIONS FOR FISCAL 2022 AND 2021

The following table presents certain income and expense items included in our consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated.

Percentages may not add due to rounding.

Company restaurant sales 33.9 % 34.2 %

Franchise rental revenues 30.3 % 31.4 %

Franchise royalties and other 17.9 % 17.5 %

Franchise contributions for advertising and other services 17.9 % 17.0 %

100.0 % 100.0 %

Operating costs and expenses, net:

Food and packaging (1) 29.1 % 29.4 %

Payroll and employee benefits (1) 30.7 % 30.5 %

Occupancy and other (1) 15.9 % 15.5 %

Franchise occupancy expenses (2) 62.0 % 65.5 %

Franchise support and other costs (3) 6.4 % 7.3 %

Franchise advertising and other services expenses (4) 102.8 % 104.2 %

Selling, general and administrative expenses 7.2 % 7.9 %

Depreciation and amortization 4.1 % 5.2 %

Impairment and other gains, net (0.3) % (0.6) %

Gains on the sale of company-operated restaurants (0.4) % (0.3) %

Earnings from operations 25.4 % 22.6 %

Income tax rate (5) 25.2 % 26.8 %

________________________

(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 continuing operations and before income taxes.

The following table summarizes changes in same-store sales for company-operated, franchised, and system restaurants:

The following table summarizes changes in same-store sales for Jack in the Box company-operated, franchised, and system restaurants:

Jack in the Box:

Company 3.7 % 6.1 %

1 unchanged sentence

System 0.9 % 10.3 %

The following table summarizes the changes in the number and mix of company and franchise restaurants:

The following table summarizes changes in the number and mix of Jack in the Box company and franchise restaurants:

Jack in the Box:

Company Franchise Total Company Franchise Total

2 unchanged sentences

Acquired from franchisees 13 (13) — 20 (20) —

Refranchised (15) 15 — — — —

Closed (15) (39) (54) (1) (36) (37)

1 unchanged sentence

% of system 7 % 93 % 100 % 7 % 93 % 100 %

The following table summarizes the restaurant sales for company-operated, franchised, and total systemwide restaurants (in thousands) :

The following table summarizes restaurant sales for Jack in the Box company-operated, franchised, and systemwide sales ( in thousands ):

Jack in the Box:

Company-operated restaurant sales $ 414,225 $ 387,766

8 unchanged sentences

Below is a reconciliation of Non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands) :

Consolidated:

Net earnings - GAAP $ 115,781 $ 165,755

Earnings from discontinued operations, net of income taxes — (370)

Income taxes 46,111 55,852

Interest expense, net 86,075 67,458

Pension settlement charges — 39,218

Gains on the sale of company-operated restaurants (3,878) (4,203)

Impairment and other gains, net (3,382) (6,493)

Other operating expense (income), net 889 (3,382)

Depreciation and amortization 56,100 46,500

Amortization of favorable and unfavorable leases and subleases, net 1,120 —

Amortization of franchise tenant improvement allowances and other 4,446 3,450

Adjusted EBITDA - Non-GAAP $ 306,644 $ 331,430

Jack in the Box Brand

Company Restaurant Operations

6 unchanged sentences

Company restaurant sales increased $26.5 million, or 6.8%, in 2022 as compared with the prior year.

In 2021, the increase was primarily driven by average check growth, menu price increases, an increase in the average number of restaurants and the impact of the 53rd week, partially offset by a decline in traffic.

In 2022, the increase was primarily menu price increases and an increase in the average number of restaurants, partially offset by the impact of the 53rd week and a decline in traffic and average check.

The following table presents the approximate impact of these items on company restaurant sales in 2022 ( in millions ):

10 unchanged sentences

(1) Includes price increases of 8.4% in 2022.

Food and packaging costs as a percentage of company restaurant sales decreased by 0.3% to 29.1% in 2021 from 29.4% a year ago, primarily due to favorable sales mix of 0.8% and menu price increases of 0.9%, partially offset by a 1.3% increase in commodities.

Commodity costs increased in the current fiscal year by approximately 5.1% primarily due to increases in pork and beverages.

For fiscal 2022, we expect annual commodity cost inflation to be up 6% to 7% compared with fiscal 2021.

Payroll and employee benefit costs as a percentage of company restaurant sales increased to 30.7% in 2021 compared with 30.5% a year ago primarily due to labor inflation, higher incentive compensation costs and a change in the mix of restaurants due to franchisee acquisitions.

Food and packaging costs as a percentage of company restaurant sales increased by 3.2% to 32.3% in 2022 from 29.1% a year ago, primarily due to an increase in commodities of 3.5% and unfavorable sales mix of 2.2%;

partially offset by a 2.5% menu price increase.

Commodity costs increased in the current fiscal year by approximately 14.4%.

The inflation we have experienced is across all categories with the greatest impact seen in proteins, sauces, and oils.

For fiscal 2023, we expect annual commodity cost inflation on a company-wide basis to be up 9% to 11% compared with fiscal 2022.

Payroll and employee benefit costs as a percentage of company restaurant sales increased to 33.3% in 2022 compared with 30.7% a year ago primarily due to labor inflation and a change in the mix of restaurants due to franchisee acquisitions.

Labor inflation was approximately 12.3% in the current fiscal year.

For fiscal 2022, we expect annual wage inflation to be up 8% to 10% compared with fiscal 2021.

Occupancy and other costs as a percentage of company restaurant sales increased to 15.9% in 2021 from 15.5% a year ago due primarily to higher costs for delivery fees as we grow our delivery sales mix, higher costs for utilities and the acquisition of 20 restaurants with lower than average sales volumes;

partially offset by leverage from higher same-store sales.

Franchise Operations

For fiscal 2023, we expect annual wage inflation on a company-wide basis to be up 3% to 6% compared with fiscal 2022.

Occupancy and other costs as a percentage of company restaurant sales increased to 17.9% in 2022 from 15.9% a year ago primarily due to the acquisition of 13 restaurants since a year ago with lower than average sales volumes, and higher costs for maintenance and repair and utilities.

Jack in the Box Franchise Operations

The following table presents franchise revenues and costs in each fiscal year and other information we believe is useful in analyzing the change in franchise operating results ( dollars in thousands ):

15 unchanged sentences

________________________

(1) 2021 AUV is adjusted to exclude the 53rd week for the purpose of comparison to prior year.

Franchise rental revenues increased $26.0 million, or 8.1%, in 2021 compared to the prior year, primarily due to higher AUVs resulting in an increase in revenues from percentage rent.

In 2021, additional rent revenue of approximately $6.5 million from a 53rd week also contributed to the increase.

Franchise royalties and other increased $26.4 million, or 14.8%, primarily due to higher royalties of $22.5 million as a result of higher AUVs and additional royalties of approximately $3.6 million from a 53rd week.

Additionally, fees received in connection with the early termination of franchise agreements increased by $3.3 million.

Franchise contributions for advertising and other services increased $31.0 million, or 17.9%, primarily due to higher marketing contributions of $29.9 million, as a result of higher AUVs, additional contributions of approximately $3.5 million from a 53rd week, and a reduction in contribution percentages for March 2020 and April 2020 marketing fees in response to the pandemic which contributed to lower fees of $7.9 million in the prior year.

Franchise occupancy expenses, primarily rent, increased $4.9 million in 2021, primarily due to additional costs of approximately $4.0 million from a 53rd week.

Franchise support and other costs remained flat in 2021, primarily to lower bad debt expense of $1.7 million related to specific franchise situations that occurred in the prior year, offset by higher costs related to a franchise business conference and brand standard audits.

Franchise advertising and other service expenses increased $29.5 million, or 16.3% in 2021 primarily due to an increase in marketing contributions of $29.9 million.

(1) 2021 AUV is adjusted to exclude the 53rd week for comparison purposes.

Franchise rental revenues decreased $10.7 million, or 3.1%, in 2022 compared to the prior year, primarily due to additional rent revenue of approximately $6.5 million from a 53rd week in the prior year as well as a decrease of $3.3 million in connection with a franchisee in bankruptcy proceedings for which revenue will be recognized upon payment.

Franchise royalties and other decreased $1.5 million, or 0.7%, primarily due to additional royalties in the prior year of approximately $3.6 million from a 53rd week and a deferral of $1.0 million in connection with a franchisee bankruptcy matter;

partially offset by higher termination fees of $3.9 million in the current year.

Franchise contributions for advertising and other services decreased $6.7 million, or 3.3%, primarily due to higher contributions in the prior year of approximately $3.5 million from a 53rd week, a decrease in the number of franchise restaurants and deferrals in connection with the franchisee bankruptcy matter.

Franchise occupancy expenses, primarily rent, decreased $3.7 million, or 1.7% in 2022, primarily due to higher costs of $4.0 million in the prior year from the 53rd week;

partially offset by higher property taxes in the current year.

Franchise support and other costs increased $2.6 million, or 19.7% in 2022, primarily due to an increase in franchise bad debt expense of $4.1 million as a result of two specific franchise matters;

partially offset by lower costs for outside services in the current year.

Franchise advertising and other service expenses decreased $4.1 million, or 2.0% in 2022 primarily due to marketing contributions of $4.0 million from the 53rd week in the prior year.

Del Taco Brand

As of October 2, 2022, there were 290 company-operated and 301 franchise-operated Del Taco restaurants.

For the periods subsequent to the acquisition that are included in our 2022 results, system same-store sales increased 3.7% and total revenues and segment operating profit were $316.9 million and $28.0 million, respectively.

Company-Wide Results

Depreciation and Amortization

Depreciation and amortization decreased $6.3 million in 2021 as compared with the prior year, primarily due to certain of our franchise building assets becoming fully depreciated.

Depreciation and amortization increased $9.6 million in 2022 as compared with the prior year, primarily due to the acquisition of Del Taco, contributing an additional $16.2 million of depreciation in the year;

partially offset by lower Jack in the Box depreciation as a result of certain franchise buildings becoming fully depreciated.

Selling, General and Administrative (“SG&A”) Expenses

6 unchanged sentences

53rd week (1,844)

Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales.

Advertising costs, on a comparable 52-week basis, increased $2.1 million primarily due to higher company-operated restaurant sales and a decrease in the contribution percentage in the prior year.

Incentive compensation increased by $2.6 million in 2021 primarily due to higher achievement levels compared to the prior year for the Company’s annual incentive plan, partially offset by a $0.3 million decrease in stock-based compensation as a result of turnover at the executive level in the prior year.

Advertising costs represent company contributions to our marketing funds and are generally determined as a percentage of company-operated restaurant sales.

Advertising costs, on a comparable 52-week basis, increased $12.4 million primarily due to the acquisition of Del Taco which resulted in higher advertising costs of $11.6 million during the year.

Incentive compensation decreased by $2.0 million in 2022 primarily due to a $5.1 million decrease from lower achievement levels compared to the prior year for the Company’s annual incentive plan;

partially offset by an increase in stock-based compensation of $3.1 million due to a higher number of executive stock awards outstanding 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 positive impact of $6.2 million versus the prior year as a result of $9.1 million of gains recognized in the year compared to $2.9 million of gains in the prior year.

Litigation matters increased by $1.2 million in 2021 primarily due to a $3.8 million favorable settlement received in the prior year from a class action lawsuit related to credit card interchange fees, partially offset by $2.6 million lower costs on certain employee and other litigation matters.

The changes in market values had a negative impact of $19.1 million versus the prior year.

Litigation matters decreased by $4.9 million in 2022 primarily due to a $2.6 million favorable settlement received in the current year as well as lower costs on certain employee and other litigation matters compared to the prior year.

Refer to Note 16, Commitments and Contingencies , of the notes to the consolidated financial statements for additional information.

Insurance costs decreased $1.4 million in 2021 versus the prior year primarily due to more favorable trends in the current year related to expected losses associated with workers’ compensation claims.

Impairment and Other Gains, Net

Impairment and other gains, net is comprised of the following ( in thousands ):

Gains on disposition of property and equipment, net (6,888) (9,768)

Insurance costs increased $2.0 million in 2022 versus the prior year primarily due to more favorable trends in the prior year related to expected losses associated with workers’ compensation claims.

The increase in other is primarily due to the acquisition of Del Taco in the second quarter which resulted in an increase of additional general and administrative costs of $21.4 million in 2022 compared to the prior year.

Other Operating Expense (Income), Net

Other operating expense (income), net is comprised of the following ( in thousands ):

Acquisition, integration, and restructuring costs 20,081 7

Costs of closed restaurants and other 4,290 1,907

Restaurant impairment charges 5,927 —

Accelerated depreciation 1,124 1,592

Restructuring costs 7 1,168

Gains on disposition of property and equipment, net $ (30,533) $ (6,888)

$ 889 $ (3,382)

Impairment and other gains, net decreased $3.1 million in 2021 versus the prior year primarily due to lower gains on the disposition of property and equipment of $2.9 million.

In 2021, gains related to the sale of restaurant properties versus a gain on the sale of one of our corporate office buildings in the prior year.

Refer to Note 9, Impairment and Other (Gains) Charges, Net, of the notes to the consolidated financial statements for additional information.

Other operating expense (income), net increased $4.3 million in 2022 versus the prior year primarily due to $20.1 million of costs incurred during the year relating to the acquisition and integration of Del Taco, higher restaurant impairment charges of $5.9 million primarily due to closures of certain Jack in the Box company and franchise restaurants;

partially offset by higher gains on the disposition of property and equipment of $23.6 million from the sale of Jack in the Box restaurant properties to franchisees.

Refer to Note 9, Other Operating Expense (Income), Net, of the notes to the consolidated financial statements for additional information.

Gains on the Sale of Company-Operated Restaurants

In 2021 and 2020, no company-operated restaurants were sold to franchisees.

Gains on the sale of company-operated restaurants in both periods pertain to meeting certain contingent consideration provisions included in restaurants sold in previous years.

Other Pension and Post-Retirement Expenses, Net

Other pension and post-retirement expenses, net decreased by $40.8 million in 2021 versus the prior year, primarily due to non-cash pension settlement charges of $39.2 million in the prior year.

Refer to Note 12, Retirement Plans , of the notes to the consolidated financial statements for additional information regarding these charges.

In 2022, gains on the sale of company-operated restaurants included additional proceeds of $1.4 million related to Jack in the Box restaurants sold in prior year, in addition to gains of $2.5 million on the sale of 15 Jack in the Box restaurants during the year.

In 2021, gains recognized pertained to Jack in the Box restaurants sold in a prior year.

Refer to Note 4, Summary of Refranchisings and Franchise Acquisitions, of the notes to the consolidated financial statements for additional information.

Interest Expense, Net

3 unchanged sentences

Interest expense, net $ 86,075 $ 67,458

Interest expense, net, increased $0.7 million in 2021 primarily due to interest from the 53rd contributing an additional $1.2 million and lower interest income of $0.4 million;

partially offset by lower average borrowings as a result of paying down our Variable Funding Notes in 2021.

Interest expense, net, increased $18.6 million in 2022 primarily due to a loss on early extinguishment of debt of $7.7 million recognized during the current year as well as higher average borrowings resulting in higher interest expense of $14.1 million;

partially offset by a lower average borrowing rate in the current year resulting in a $3.0 million decrease.

The income tax provisions reflect effective tax rates of 28.5% and 25.2%, in fiscal years 2022 and 2021, respectively.

The major components of the year-over-year change in tax rates were a decrease in the impact of non-deductible compensation for certain officers, a decrease in nondeductible costs resulting from a California Private Attorney General Act lawsuit settled in the prior year, and an increase in non-taxable gains from the market performance of insurance products used to fund certain non-qualified retirement plans, partially offset by an adjustment to state taxes recorded in the second quarter of fiscal year 2021.

The major components of the year-over-year change in tax rates were 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, a decrease in the impact of excess tax benefit on stock compensation, and an increase in non-deductible transaction costs resulting from the Del Taco acquisition, partially offset by an adjustment related to state taxes recorded in the second quarter of fiscal year 2021.

LIQUIDITY AND CAPITAL RESOURCES

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 distributions, dividend payments, and obligations related to our benefit plans.

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 Variable Funding Notes.

As of October 3, 2021, the Company had $73.6 million of cash and restricted cash on its balance sheet and $110.5 million of borrowing availability under its Variable Funding Notes.

Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with our securitized financing facility including our Variable Funding Notes, 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.

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 October 2, 2022, the Company had $136.0 million of cash and restricted cash on its consolidated balance sheet and available borrowings of $117.9 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 to pursue opportunities for capital sources, including sales of Jack in the Box real estate assets identified in its portfolio, and refranchising, primarily for Del Taco in the near term.

The Company intends to use the net proceeds from these transactions to pay down debt, provide additional liquidity and, when market conditions normalize, for other corporate purposes including investments in growth initiatives and potential share repurchases.

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.

The table below summarizes our cash flows from continuing operations activities for each of the last two fiscal years ( in thousands ):

5 unchanged sentences

Operating Activities .

Operating cash flows increased $57.6 million compared with a year ago, primarily due to an increase in net income adjusted for non-cash items of $27.4 million and favorable changes in working capital of $30.2 million, primarily due to a favorable change in accounts receivable of $32.9 million, as a result of the repayment of franchise marketing and rent deferrals provided in the prior year, a favorable change in accrued liabilities of $24.8 million mainly from an increase in deferred rent income driven by collections of October rent in the 53rd week in fiscal 2021;

partially offset by an unfavorable change in operating lease right-of-use assets and lease liabilities of $25.3 million due to payment of October rent in the 53rd week and the repayment of deferrals we received from our landlords in the prior year.

Operating cash flows decreased $38.2 million compared with a year ago, primarily due to lower net income adjusted for non-cash items of $20.7 million and an unfavorable change in working capital of $17.5 million, primarily due to favorable collections in the prior year from the repayment of franchise marketing and rent payment deferrals provided in 2020 in response to the economic burden associated with the COVID-19 pandemic.

Pension and Postretirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law.

4 unchanged sentences

Investing Activities .

Cash flows used in investing activities increased $50.1 million in 2021 compared to 2020, primarily due to $21.5 million higher capital expenditures, $15.9 million lower proceeds on sale and leaseback transactions, and $11.0 million lower proceeds received on the sale of property and equipment, primarily due to proceeds received on the sale of a corporate office building in the prior year.

Cash flows used in investing activities increased $557.7 million in 2022 compared to 2021, primarily due to $580.8 million paid for the acquisition of Del Taco, partially offset by $19.4 million higher proceeds received on the sale of property and equipment, primarily due to the sale of restaurant properties to franchisees in 2022.

Capital Expenditures — The composition of capital expenditures in each fiscal year is summarized in the table below ( in thousands ):

Remodel / refresh programs $ 8,823 $ 9,018

New restaurants 2,887 —

Restaurant facility expenditures 21,469 7,491

6 unchanged sentences

Total capital expenditures $ 46,475 $ 41,008

In 2021, capital expenditures increased by $21.5 million compared to a year ago primarily due to a $15.1 million increase in purchases of assets intended for sale and leaseback.

In 2021 and 2020, we exercised our right of first refusal related to six and one leased restaurant properties, respectively.

We use sale and leaseback financing to lower the initial cash investment in our restaurants to the cost of the equipment, whenever possible.

The following table summarizes the cash flow activity related to these transactions in each fiscal year ( dollars in thousands ):

Number of restaurants sold and leased back 2 2

Proceeds from sale and leaseback of assets $ 3,884 $ 19,828

In 2022, capital expenditures increased by $5.5 million compared to a year ago, primarily due to Del Taco capital expenditures of $14.9 million, partially offset by a decrease in purchases of assets intended for sale and leaseback of $13.6 million.

Sale and Sale-leaseback Transactions — To optimize our balance sheet and capital structure, we use sales and leaseback financing and provide our franchisees the opportunity to purchase the property that we currently lease to them.

In 2022, we completed sales-leaseback transactions involving four restaurant properties with proceeds of $10.8 million and completed the sale of properties to franchisees and other third parties during the year with proceeds of $31.2 million.

Financing Activities .

Cash flows used in financing activities increased by $256.3 million compared with a year ago, primarily due to our repayment during the second quarter of $107.9 million of 2020 borrowings on our Variable Funding Notes and an increase in stock repurchases of $44.4 million.

Cash flows provided by financing activities increased by $821.7 million compared with a year ago, primarily as a result of an increase in net borrowings of $650.0 million, driven by the issuance of the 2022 Notes, and lower share repurchases of $175.0 million compared to prior year.

Repurchases of Common Stock — In fiscal 2022, the Company purchased 0.3 million shares of its common stock for an aggregate cost of $25.0 million.

As of October 3, 2021, there was no remaining amount under share repurchase programs authorized by the Board of Directors.

On November 19, 2021, the Board of Directors authorized an additional $200.0 million stock buy-back program that expires on November 20, 2023.

Dividends — In fiscal 2021, the Board of Directors declared four quarterly cash dividends of $0.40 per share in the first and second quarter and $0.44 per share in the third and fourth quarter, totaling $37.6 million.

As of October 2, 2022, there was $175.0 million remaining under share repurchase programs authorized by the Board of Directors.

Dividends — In fiscal 2022, the Board of Directors declared four quarterly cash dividends of $0.44 per share, totaling $37.2 million.

Future dividends are subject to approval by our Board of Directors.

Long-Term Debt — As of October 3, 2021, our long-term debt consists of $1,290.3 million of total principal outstanding on the Class A-2 Notes (as defined below).

Given the uncertainty arising from COVID-19, we took a precautionary measure and borrowed $107.9 under the Variable Funding Notes during the second quarter of 2020, which was fully repaid in the second quarter of 2021.

As of October 3, 2021, we had no outstanding borrowings and $110.5 million of available borrowing capacity under our Variable Funding Notes, net of letters of credit issued of $39.5 million.

On July 8, 2019, Jack in the Box Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of the Company, completed its securitization transaction and issued $575.0 million of its Series 2019-1 3.982% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”), $275.0 million of its Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”) and $450.0 million of its Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes”) and together with the Class A-2-I Notes and the Class A-2-II Notes, (the “Class A-2 Notes”), in an offering exempt from registration under the Securities Act of 1933, as amended.

In connection with the issuance of the Class A-2 Notes, the Master Issuer also entered into a revolving financing facility of Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Variable Funding Notes”), which allows for the drawing of up to $150.0 million under the Variable Funding Notes and the issuance of letters of credit.

The Class A-2 Notes and the Variable Funding Notes are referred to collectively as the “Notes.”

Interest and principal payments on the Class A-2 Notes are payable on a quarterly basis.

The quarterly principal payment of $3.25 million 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.

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 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.

The Company’s existing revolving financing facility of Series 2019-1 Class A-1 Notes was terminated in connection with the transaction.

As of October 2, 2022, we had outstanding borrowings of $50.0 million and available borrowing capacity of $58.0 million under our 2022 Variable Funding Notes, net of letters of credits issued of $42.0 million.

The net proceeds from the sale of the 2022 Notes were used to repay in full $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 was used to fund a portion of the Company’s acquisition of Del Taco Restaurants, Inc.

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.

In 2021, the Company’s actual leverage ratio was under 5.0x, and as a result, quarterly principal payments were not required.

The legal final maturity date of the Class A-2 Notes is in August 2049, but it is expected that, unless earlier prepaid to the extent permitted under the Indenture, the anticipated repayment dates of the Class A-2-I Notes, the Class A-2-II Notes and the Class A-2-III Notes will be August 2023, August 2026, and August 2029, respectively (the “Anticipated Repayment Dates”).

If the Master Issuer has not repaid or refinanced the Class A-2 Notes prior to the respective anticipated repayment date, additional interest will accrue pursuant to the Indenture.

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 principal 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 October 3, 2021, the Master Issuer had restricted cash of $18.2 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.

As of October 2, 2022, the Master Issuer had restricted cash of $27.2 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-2 Notes and Variable Funding 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.

13 unchanged sentences

Long-lived Assets — We review our long-lived assets, such as property and equipment and operating lease right-of-use assets, for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

Factors that we consider important individually or in combination trigger an impairment review include, but are not limited to, bankruptcy proceedings or other significant financial distress of a lessee, significant underperformance relative to historical or projected operating results, significant changes in our business and/or negative industry or economic trends, or our expectation to dispose of long-lived assets before the end of their estimated useful lives.

Long-lived assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.

2 unchanged sentences

Our estimates of cash flows used to assess impairment are subject to a high degree of judgment and may differ from actual cash flows due to, among other things, changes in our business plans, operating performance, and economic conditions.

Goodwill and Indefinite-Lived Intangible Assets — We evaluate goodwill and indefinite-lived intangibles for impairment in the fourth quarter, or more frequently, if indicators of impairment are present.

Goodwill is evaluated for impairment by determining whether the fair value of our reporting units exceed their carrying values.

Our reporting units are our two restaurant brands, Jack in the Box and Del Taco.

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.

In the fourth quarter of 2022, we performed quantitative tests using the approaches described above.

The fair value of our Jack in the Box reporting unit was substantially in excess of its respective carrying value as of the testing date.

The fair value of our Del Taco reporting unit and indefinite-lived trademarks were in excess of their carrying values by approximately 8% and 7%, respectively, as of the testing date.

Self-Insurance — We are self-insured for a portion of our losses related to workers’ compensation, general liability and other legal claims, and health benefits.

7 unchanged sentences

As a result, the amount of ultimate loss may differ from those estimates.

Business Combinations — The Del Taco acquisition was accounted for using the acquisition method of accounting, or acquisition accounting, in accordance with ASC Topic 805, Business Combinations.

The acquisition method of accounting involved the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed.

This allocation process involves the use of estimates and assumptions made in connection with estimating the fair value of assets acquired and liabilities assumed including cash flows expected to be derived from the use of the asset, the timing of such cash flows, the remaining useful life of assets and applicable discount rates.

In the event that actual results vary from the estimates or assumptions used in the valuation or allocation process, we may be required to record an impairment charge or an increase in depreciation or amortization in future periods, or both.

Refer to Note 3, Business Combination , to the accompanying consolidated financial statements for additional information about accounting for the Del Taco acquisition.

NEW ACCOUNTING PRONOUNCEMENTS

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis