What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-11-21 compared with 2022-11-22 · 154 added, 104 removed, 195 unchanged (57% of the section changed)

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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 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.

Comparisons under this heading refer to the 52-week periods ended October 1, 2023 and October 2, 2022, respectively.

A comparison of our results of operations and cash flows for fiscal 2022 compared to fiscal 2021 can be found under Part II, “Item 7.

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• 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.

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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 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.

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, 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.

Same-store sales, system restaurant sales, franchised restaurant sales and AUVs 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.

Founded in 1951, Jack in the Box Inc.

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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.

(“Del Taco”), the nation’s second largest Mexican quick service restaurant chain by number of restaurants and as of October 1, 2023 has 592 restaurants across 16 states.

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.

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 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.

Refranchising of Del Taco

In fiscal year 2023, we embarked on our refranchising strategy with three main intentions.

First, to create a company-wide asset-light model that will benefit from mitigating exposure to macroeconomic pressures;

second, to generate incremental development agreements throughout the refranchising process that provide a more robust unit growth pipeline than otherwise achievable;

and third, to provide a more efficient capital structure.

Our objective is to be asset-light as we navigate market forces.

We refranchised 111 Del Taco restaurants in fiscal year 2023, and added 109 new development commitments as a result of the refranchising effort.

RESULTS OF OPERATIONS FOR FISCAL 2023 AND 2022

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

The following tables summarize changes in same-store sales for Jack in the Box and Del Taco company-operated, franchised, and system restaurants:

Jack in the Box:

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System 7.3 % 0.9 %

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

2023 2022 (1)

Company 2.0 % 2.9 %

Franchise 1.4 % 5.0 %

System 1.7 % 3.9 %

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(1) Fiscal 2022 full year same store sales figures are shown for information purposes only.

The following tables summarize changes in the number and mix of company and franchise restaurants for our two brands:

Jack in the Box:

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% of system 6 % 94 % 100 % 7 % 93 % 100 %

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

2023 2022 (1)

Company Franchise Total Company Franchise Total

Beginning of year 290 301 591 296 306 602

New — 14 14 1 2 3

Refranchised (111) 111 — — — —

Closed (8) (5) (13) (7) (7) (14)

End of year 171 421 592 290 301 591

% of system 29 % 71 % 100 % 49 % 51 % 100 %

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(1) Fiscal 2022 full year restaurant activity figures are shown for information purposes only.

The following tables summarize restaurant sales for company-operated, franchised, and systemwide sales for our two brands ( in thousands ):

Jack in the Box:

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2023 2022 (2)

Company-operated restaurant sales $ 432,530 $ 484,347

Franchised restaurant sales (1) 541,913 472,682

Systemwide sales (1) $ 974,443 $ 957,029

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(1) Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees.

System sales include company and franchised restaurant sales.

Systemwide 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) :

Consolidated:

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

Income taxes 46,111 55,852

Interest expense, net 86,075 67,458

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

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

We believe franchised and systemwide sales information is useful to investors as they have a direct effect on the Company's profitability.

(2) Fiscal 2022 full year systemwide sales figures are shown for information purposes only.

Jack in the Box Brand

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Occupancy and other $ 69,215 16.7 % $ 74,337 17.9 %

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

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.

Company restaurant sales decreased $0.5 million, or 0.1%, in 2023 as compared with the prior year due to a decrease in the average number of restaurants, partially offset by an increase in traffic and average check.

The following table presents the approximate impact of these items on company restaurant sales in 2023 ( in millions ):

AUV increase $ 32.4

Increase in the average number of restaurants 11.1

53rd week (7.3)

Decrease in the average number of restaurants (32.9)

Total change in company restaurant sales $ (0.5)

Same-store sales at company-operated restaurants increased 8.8% in 2023 compared to a year ago.

The following table summarizes the increases (decreases) in company-operated same-store sales:

The following table summarizes the changes in company-operated same-store sales:

Transactions 2.5 %

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(1) Includes price increases of 8.5% in 2023.

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.

Food and packaging costs, as a percentage of company restaurant sales, decreased to 31.6% in 2023 from 32.3% a year ago, primarily due to a 2.4% impact from pricing leverage and 0.6% from favorable menu item mix, partially offset by 2.3% from commodity inflation.

Commodity costs increased in the current fiscal year by approximately 8.4%.

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 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.

The inflation we have experienced is across all categories with the greatest impact seen in potatoes, produce, sauces, and beverages.

Payroll and employee benefit costs, as a percentage of company restaurant sales, decreased to 30.8% in 2023 compared with 33.3% a year ago primarily due to a change in the mix of restaurants and sales leverage, partially offset by labor inflation of approximately 5.8% in the current fiscal year.

For fiscal 2024, we expect annual wage inflation to be approximately 10% to 12% compared with fiscal 2023.

New regulations, such as AB 1228, which goes into effect April 2024, are expected to increase labor costs, especially considering our concentration of restaurants in California.

Occupancy and other costs, as a percentage of company restaurant sales, decreased to 16.7% in 2023 from 17.9% a year ago primarily due to sales leverage and a change in the mix of restaurants, partially offset by higher other operating costs including utilities, delivery fees and security.

Jack in the Box Franchise Operations

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(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.

(1) Excluding the impact of the $7.3 million termination fee in the first quarter of the current year, royalties as a percentage of total franchised restaurant sales would be 5.0% year-to-date for the period ended October 1, 2023.

Franchise rental revenues increased $15.3 million, or 4.6%, in 2023 compared to the prior year, primarily due to an increase in percentage rent of $10.6 million, driven by higher sales, and higher minimum rent of $4.8 million.

Franchise royalties and other increased $11.1 million, or 5.5%, mainly in connection with higher franchise restaurant sales driving royalties higher by approximately $10.7 million.

Additionally, a $7.3 million termination fee paid by a franchise operator who sold his restaurants to a new franchisee in the current year also contributed to the increase.

These increases were partially offset by a decrease in early termination fees of $6.5 million as compared to the prior year.

Franchise contributions for advertising and other services increased $18.2 million, or 9.2%, primarily due to higher marketing contributions of $16.8 million in connection with higher franchise same store sales of 7.1%.

Franchise occupancy expenses, primarily rent, increased $5.2 million, or 2.5% in 2023, primarily due to higher operating lease costs.

Franchise support and other costs decreased $5.6 million, or 35.5% in 2023, mainly in connection with lower bad debt expense of $6.6 million as a result of rolling over bad debt expense associated with two specific franchise matters last year.

Franchise advertising and other service expenses increased $21.7 million, or 10.5% in 2023 primarily due to higher marketing contributions resulting from an increase in franchise sales.

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.

Jack in the Box Inc.

acquired Del Taco on March 8, 2022.

Fiscal 2022 results include approximately 30 weeks of operating results compared with 52 weeks in fiscal 2023.

Company Restaurant Operations

The following table presents company restaurant sales and costs as a percentage of the related sales (dollars in thousands) :

Company restaurant sales $ 432,530 $ 286,845

Company restaurant costs:

Food and packaging $ 119,931 27.7 % $ 82,531 28.8 %

Payroll and employee benefits $ 147,241 34.0 % $ 94,212 32.8 %

Occupancy and other $ 94,057 21.7 % $ 61,465 21.4 %

Company restaurant sales increased $145.7 million or 50.8%, in 2023 as compared with the prior year primarily due to 52 weeks of operating results in 2023 versus 30 weeks last year and an increase in average check, partially offset by a decrease in sales in connection with current year refranchising activity and a decline in transactions.

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

Increase in number of operating weeks $ 158.9

AUV increase 0.4

Decrease in the average number of restaurants (13.6)

Total change in company restaurant sales $ 145.7

Same-store sales at company-operated restaurants increased 2.0% in 2023 compared to a year ago.

The following table summarizes the increases (decreases) in company-operated same-store sales:

Average check (1) 6.0 %

Transactions (4.0) %

Change in same-store sales 2.0 %

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(1) Includes price increases of approximately 9.6% in 2023.

Food and packaging costs, as a percentage of company restaurant sales, decreased to 27.7% in 2023 from 28.8% a year ago primarily due to a 2.5% benefit from pricing leverage, partially offset by 1.6% from commodity inflation.

Commodity costs inflation was 5.9% in 2023.

The largest sources of inflation in the current year were due to tortillas, shells and potatoes, and was partially offset by favorability in chicken, cheese and produce.

Payroll and employee benefit costs, as a percentage of company restaurant sales, increased to 34.0% in 2023 compared with 32.8% a year ago primarily due to labor inflation.

Labor inflation was 3.8% in the current year.

For fiscal 2024, we expect annual wage inflation to be approximately 10% to 12% compared with fiscal 2023.

Additional regulations, such as AB 1228, which will go into effect April 2024, are expected to increase labor costs for employees, especially considering our concentration of restaurants in California.

Occupancy and other costs, as a percentage of company restaurant sales, increased to 21.7% in 2023 from 21.4% a year ago primarily due to higher operating expenses including utilities, rent, insurance, and delivery fees, partially offset by pricing leverage.

Del Taco Franchise Operations

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

Franchise rental revenues $ 13,308 $ 4,455

Royalties 25,669 13,414

Franchise fees and other 556 196

Franchise royalties and other 26,225 13,610

Franchise contributions for advertising and other services 24,933 11,985

Total franchise revenues $ 64,466 $ 30,050

Franchise occupancy expenses $ 13,150 $ 4,349

Franchise support and other costs 2,259 868

Franchise advertising and other services expenses 25,666 12,081

Total franchise costs $ 41,075 $ 17,298

Franchise costs as a percentage of total franchise revenues 63.7 % 57.6 %

Number of franchise restaurants at end of period 421 301

Franchised restaurant sales $ 541,913 $ 281,933

Franchised restaurant AUVs $ 1,287 $ 937

Royalties as a percentage of total franchised restaurant sales 4.7 % 4.8 %

Franchise rental revenues increased $8.9 million, or 198.7% in 2023 compared to the prior year, primarily due to higher rental income of $5.1 million resulting from new subleases in connection with the 111 restaurants refranchised in 2023, as well as prior year only including 30 weeks of operating results versus 52 weeks in 2023.

Franchise royalties and other increased $12.6 million, or 92.7% in 2023 compared to the prior year, primarily due to the increase in operating weeks, as well as $2.9 million related to the increase in the number of franchise restaurants due to our refranchising strategy.

Franchise contributions for advertising and other services revenues increased $12.9 million, or 108.0% in 2023 compared to the prior year, primarily due to the increase in operating weeks, as well as $2.6 million related to the increase in the number of franchise restaurants due to our refranchising strategy.

Franchise occupancy expenses, primarily rent, increased $8.8 million, or 202.4% in 2023 compared to the prior year, primarily due higher franchise rent expense of $5.1 million related to the restaurants refranchised in 2023, as well as the increase in operating weeks.

Franchise support and other costs increased $1.4 million, or 160.3% in 2023 compared to the prior year, primarily due to the increase in operating weeks.

Franchise advertising and other service expenses increased $13.6 million, or 112.4% in 2023 compared to the prior year, primarily due to the increase in operating weeks, as well as higher marketing contributions of $2.4 million related to the increase in the number of franchise restaurants due to our refranchising strategy.

Company-Wide Results

Depreciation and Amortization

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.

Depreciation and amortization increased $6.2 million in 2023 as compared with the prior year, primarily due to the timing of the acquisition of Del Taco in the second quarter of 2022 resulting in an increase of $10.1 million, partially offset by a decrease in Jack in the Box franchise assets depreciation of $3.9 million as these assets become fully depreciated.

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

The following table presents the increase (decrease) in SG&A expenses in 2022 compared with the prior year ( in thousands ):

Advertising (excluding 53rd week) $ 12,443

The following table presents the amounts for each fiscal period as well as the increase (decrease) in SG&A expenses in 2023 compared with the prior year ( in thousands ):

Advertising $ 38,753 $ 32,557

Incentive compensation (including share-based compensation and related payroll taxes) 31,756 14,014

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Insurance 5,991 2,049

53rd week (1,844)

Other 95,324 73,287

$ 172,872 $ 130,823

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.

Advertising costs increased $6.2 million compared to the prior year primarily due to the increase in Del Taco operating weeks from 30 to 52 in the current year.

Incentive compensation increased by $17.7 million in 2023 primarily due to a $13.7 million increase from higher achievement levels compared to the prior year for the Company’s annual incentive plan, as well as an increase in stock-based compensation of $4.1 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 negative impact of $15.9 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.

Litigation matters increased by $8.0 million in 2023 primarily due to litigation developments mainly in connection with one litigation matter in the current year, and rolling over a $2.6 million favorable settlement received in the prior year.

In fiscal 2023, we recorded litigation charges of $8.3 million for Gessele vs.

Jack in the Box Inc., partially offset by a $1.6 million reversal in connection with the J&D Restaurant Group legal matter based on the Court’s final ruling.

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

Insurance costs increased $3.9 million in 2023 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.

The increase in other is primarily due to the timing of the Del Taco acquisition in the second quarter of 2022 and therefore prior year only included 30 weeks of operating results versus 52 weeks in 2023.

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

Acquisition, integration and strategic initiatives 9,112 20,081

Costs of closed restaurants and other 4,786 4,290

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Gains on disposition of property and equipment, net $ (8,171) $ (30,533)

Other operating expense (income), net

$ 10,837 $ 889

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.

Other operating expense (income), net increased $9.9 million in 2023 versus the prior year primarily due to the lower gains on disposition of property and equipment of $22.4 million in connection with the sale of restaurant properties to franchisees, partially offset by a decrease in Del Taco acquisition and integration costs.

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 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.

In 2023, gains on the sale of company-operated restaurants totaled $18.0 million and were related to the refranchising of 111 Del Taco restaurants and five Jack in the Box restaurants.

In the prior year, gains on the sale of company-operated restaurants totaled $3.9 million and were related to the refranchising of 15 Jack in the Box restaurants.

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

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Interest expense, net $ 82,446 $ 86,075

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.

Interest expense, net, decreased $3.6 million in 2023.

Interest expense decreased $1.9 million due in part to the prior year $7.7 million loss on early extinguishment of debt not recurring in the current year, partially offset by increased expense of $6.2 million due to higher average debt levels year-over-year.

Additionally, interest income increased in the current year primarily due to the higher cash balances throughout the year.

The income tax provisions reflect effective tax rates of 30.9% and 28.5%, in fiscal years 2023 and 2022, respectively.

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.

The major components of the year-over-year increase in tax rates were the impact of non-deductible goodwill related to the sale of company-operated restaurants, partially offset by non-taxable gains in the current year as opposed to non-deductible losses in the prior year from the market performance of insurance products used to fund certain non-qualified retirement plans.

LIQUIDITY AND CAPITAL RESOURCES

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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.

As of October 1, 2023, the Company had $185.9 million of cash and restricted cash on its consolidated balance sheet and available borrowings of $175.5 million under both the $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 ):

Since 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 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, borrowings available under our Variable Funding Notes and revolving credit facility, will be sufficient to meet our capital expenditure, working capital and debt service requirements for at least the next twelve months and the foreseeable future.

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

Total cash provided by (used in):

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Operating Activities .

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.

Cash flows provided by operating activities increased $52.1 million compared with a year ago, primarily due to favorable change in working capital of $61.8 million.

The favorable change in working capital primarily relates to the deferral of 2023 income taxes in connection with the southern California winter storm disaster area declaration of $50.3 million, lower payments for incentive compensation of $17.1 million, timing of collections of $14.0 million primarily due to the Jack segment rent billings for October, and lower marketing payments of $11.4 million.

These benefits were partially offset by a $25.5 million payment made in the fourth quarter connection with our Torrez litigation as well as $17.8 million due to the timing of accounts payable, including the Jack segment October rent payments.

Cash flows provided by operating activities was also impacted by a lower net income, after adjusting for non-cash items, of $9.6 million.

In addition to continuing operations, other known uses of cash flow in the first quarter of fiscal year 2024 include the $50.3 million for fiscal 2023 deferred income tax payments, as well as $25.5 million for Torrez, a previously announced litigation settlement.

For additional information related to Torrez, refer to Note 16, Commitments and Contingencies , of the notes to the consolidated financial statements.

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

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Investing Activities .

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.

Cash flows provided by investing activities increased $620.8 million from 2023 compared to 2022.

This increase was primarily due to $580.8 million of cash that was used in the prior year for the acquisition of Del Taco, coupled with $78.8 million of additional cash received in 2023 from the sale of Del Taco company-owned restaurants to franchisees.

These increases in cash were partially offset by an increase of $28.5 million for amounts used for the purchase of property and equipment as well as a $7.1 million decrease in proceeds from the sale and leaseback of assets.

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

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Total capital expenditures $ 74,954 $ 46,475

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.

In 2023, capital expenditures increased by $28.5 million compared to a year ago, primarily due to an increase in the purchases of Jack in the Box restaurant properties intended for sale and leaseback of $13.0 million, an increase in information technology for both restaurant and corporate of $9.9 million, as well as new restaurant openings of $5.3 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.

In 2023, we completed one sales-leaseback transaction involving a restaurant property with proceeds of $3.7 million and completed the sale of properties to franchisees and other third parties during the year with proceeds of $25.2 million.

Financing Activities .

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

Cash flows used in financing activities increased by $685.5 million compared with a year ago, primarily as a result of a decrease in net borrowings of $621.4 million and a $65.0 million increase in share repurchases compared with a year ago.

Repurchases of Common Stock — In fiscal 2023, the Company repurchased 1.1 million shares of its common stock for an aggregate cost of $90.7 million, including the applicable excise tax.

As of October 1, 2023, there was $85.0 million remaining under share repurchase programs authorized by the Board of Directors which expired on November 20, 2023.

Dividends — In fiscal 2023, the Board of Directors declared four quarterly cash dividends of $0.44 per share, totaling $36.2 million.

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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 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.

In 2022, the Company also entered into a revolving financing facility of Series 2022-1 Variable Funding Senior Secured Notes (the “Variable Funding Notes”), which permits borrowings up to a maximum of $150.0 million, subject to certain borrowing conditions, a portion of which may be used to issue letters of credit.

As of October 1, 2023, we did not have any outstanding borrowings and had available borrowing capacity of $100.5 million under our 2022 Variable Funding Notes, net of letters of credits issued of $49.5 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.

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Exceeding the leverage ratio of 5.0x does not violate any covenant related to the Class A-2 Notes.

Subsequent to closing the issuance of the 2022 Notes, the Company has had a leverage ratio of greater than 5.0x and, accordingly, the Company resumed making the scheduled 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.

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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 and Indefinite-Lived Intangible Assets — We evaluate goodwill and indefinite-lived intangibles for impairment in the third quarter of each year, 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.

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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.

In the third quarter of 2023, 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.

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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

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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