jack-20220123

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 23, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ________to________.

Commission File Number: 1-9390

____________________________________________________

JACK IN THE BOX INC.

(Exact name of registrant as specified in its charter)

_______________________________________________________________________________________

Delaware

95-2698708

(State of Incorporation)

(I.R.S. Employer Identification No.)

9357 Spectrum Center Blvd.

San Diego, California 92123

(Address of principal executive offices)

Registrant’s telephone number, including area code (858) 571-2121

_______________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	JACK	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	þ	Smaller reporting company	☐
Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No þ

As of the close of business February 17, 2022, 21,043,499 shares of the registrant’s common stock were outstanding.

JACK IN THE BOX INC. AND SUBSIDIARIES

INDEX


		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Earnings	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults of Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
	Signature	32

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	January 23, 2022		October 3, 2021
ASSETS
Current assets:
Cash	$	70,207	$	55,346
Restricted cash	18,259		18,222
Accounts and other receivables, net	55,220		74,335
Inventories	2,686		2,335
Prepaid expenses	10,073		12,682
Current assets held for sale	1,881		1,692
Other current assets	4,230		4,346
Total current assets	162,556		168,958
Property and equipment:
Property and equipment, at cost	1,127,989		1,133,038
Less accumulated depreciation and amortization	(813,346)		(810,124)
Property and equipment, net	314,643		322,914
Other assets:
Operating lease right-of-use assets	956,068		934,066
Intangible assets, net	403		470
Goodwill	48,047		47,774
Deferred tax assets	48,339		51,517
Other assets, net	228,540		224,438
Total other assets	1,281,397		1,258,265
	$	1,758,596	$	1,750,137
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current maturities of long-term debt	$	914	$	894
Current operating lease liabilities	150,089		150,636
Accounts payable	22,461		29,119
Accrued liabilities	104,450		148,417
Total current liabilities	277,914		329,066
Long-term liabilities:
Long-term debt, net of current maturities	1,274,772		1,273,420
Long-term operating lease liabilities, net of current portion	841,957		809,191
Other long-term liabilities	150,017		156,342
Total long-term liabilities	2,266,746		2,238,953
Stockholders’ deficit:
Preferred stock $0.01 par value, 15,000,000 shares authorized, none issued	—		—
Common stock $0.01 par value, 175,000,000 shares authorized, 82,563,579 and 82,536,059 issued, respectively	826		825
Capital in excess of par value	501,570		500,441
Retained earnings	1,794,362		1,764,412
Accumulated other comprehensive loss	(73,516)		(74,254)
Treasury stock, at cost, 61,523,475 shares	(3,009,306)		(3,009,306)
Total stockholders’ deficit	(786,064)		(817,882)
	$	1,758,596	$	1,750,137

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)


	Sixteen Weeks Ended
	January 23, 2022		January 17, 2021
Revenues:
Company restaurant sales	$	120,056	$	114,278
Franchise rental revenues	103,099		103,749
Franchise royalties and other	60,755		59,648
Franchise contributions for advertising and other services	60,801		60,866
	344,711		338,541
Operating costs and expenses, net:
Food and packaging	37,537		32,377
Payroll and employee benefits	39,725		34,931
Occupancy and other	20,877		17,835
Franchise occupancy expenses	63,983		65,169
Franchise support and other costs	3,911		3,273
Franchise advertising and other services expenses	63,308		62,695
Selling, general and administrative expenses	25,339		20,499
Depreciation and amortization	12,496		14,571
Other operating expenses (income), net	3,843		(452)
Gains on the sale of company-operated restaurants	(48)		(1,283)
	270,971		249,615
Earnings from operations	73,740		88,926
Other pension and post-retirement expenses, net	93		271
Interest expense, net	20,187		20,735
Earnings before income taxes	53,460		67,920
Income taxes	14,190		17,061
Net earnings	$	39,270	$	50,859

Earnings per share:
Basic	$	1.85	$	2.21
Diluted	$	1.85	$	2.21

Cash dividends declared per common share	$	0.44	$	0.40

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Sixteen Weeks Ended
	January 23, 2022		January 17, 2021
Net earnings	$	39,270	$	50,859
Other comprehensive income:

Actuarial losses and prior service costs reclassified to earnings	996		1,517
	996		1,517
Tax effect	(258)		(394)
Other comprehensive income, net of taxes	738		1,123

Comprehensive income	$	40,008	$	51,982

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Sixteen Weeks Ended
	January 23, 2022		January 17, 2021
Cash flows from operating activities:
Net earnings	$	39,270	$	50,859
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	12,496		14,571
Amortization of franchise tenant improvement allowances and incentives	1,234		861
Deferred finance cost amortization	1,722		1,722
(Excess tax benefit) tax deficiency from share-based compensation arrangements	38		(58)
Deferred income taxes	2,317		2,452
Share-based compensation expense	1,018		1,231
Pension and post-retirement expense	93		271
Losses (gains) on cash surrender value of company-owned life insurance	579		(7,042)
Gains on the sale of company-operated restaurants	(48)		(1,283)
Gains on the disposition of property and equipment, net	(617)		(2,160)
Impairment charges and other	919		546
Changes in assets and liabilities, excluding acquisitions:
Accounts and other receivables	19,910		24,805
Inventories	(351)		(133)
Prepaid expenses and other current assets	2,720		2,595
Operating lease right-of-use assets and lease liabilities	10,218		(14,441)
Accounts payable	(5,218)		(15,078)
Accrued liabilities	(47,849)		8,791
Pension and post-retirement contributions	(2,075)		(2,061)
Franchise tenant improvement allowance and incentive disbursements	(1,166)		(813)
Other	(1,159)		(3,384)
Cash flows provided by operating activities	34,051		62,251
Cash flows from investing activities:
Purchases of property and equipment	(9,401)		(7,076)
Proceeds from the sale of property and equipment	2,245		3,629
Proceeds from the sale and leaseback of assets	1,576		—
Proceeds from the sale of company-operated restaurants	48		133
Other	(1,305)		2,677
Cash flows used in investing activities	(6,837)		(637)
Cash flows from financing activities:
Principal repayments on debt	(223)		(211)
Debt issuance costs	(2,090)		—
Dividends paid on common stock	(9,257)		(9,089)
Proceeds from issuance of common stock	49		114

Payroll tax payments for equity award issuances	(795)		(773)
Cash flows used in financing activities	(12,316)		(9,959)
Net increase in cash and restricted cash	14,898		51,655
Cash and restricted cash at beginning of period	73,568		236,920
Cash and restricted cash at end of period	$	88,466	$	288,575

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.BASIS OF PRESENTATION

Nature of operations — Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box® quick-service restaurants. The following table summarizes the number of restaurants as of the end of each period:


	January 23, 2022	January 17, 2021
Company-operated	165	148
Franchise	2,043	2,089
Total system	2,208	2,237

References to the Company throughout these notes to condensed consolidated financial statements are made using the first person notations of “we,” “us” and “our.”

Basis of presentation — The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).

Certain prior period information on the consolidated statement of cash flows has been reclassified to conform to the current year presentation.

These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended October 3, 2021 (“2021 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2021 Form 10-K.

In our opinion, all adjustments considered necessary for a fair presentation of financial condition and results of operations for these interim periods have been included. Operating results for one interim period are not necessarily indicative of the results for any other interim period or for the full year.

Segment reporting — The Company is comprised of one operating segment.

Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 2022 and 2021 include 52 and 53 weeks, respectively. Our first quarter includes 16 weeks and all other quarters include 12 weeks, with the exception of the fourth quarter of fiscal 2021, which includes 13 weeks. All comparisons between 2022 and 2021 refer to the 16 weeks (“quarter”) ended January 23, 2022 and January 17, 2021, respectively, unless otherwise indicated.

Use of estimates — In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates.

Advertising costs — We administer a marketing fund that includes contractual contributions. In 2022 and 2021, marketing fund contributions from franchise and company-operated restaurants were approximately 5.0% of gross revenues.

Total contributions made by the Company are included in “Selling, general, and administrative expenses” in the accompanying condensed consolidated statements of earnings and for the quarter totaled $6.1 million and $5.8 million in 2022 and 2021, respectively.

Recent accounting pronouncements — The Company reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our condensed consolidated financial statements.

2.REVENUE

Nature of products and services — We derive revenue from retail sales at Jack in the Box company-operated restaurants and rental revenue, royalties, advertising, and franchise and other fees from franchise-operated restaurants.

Our franchise arrangements generally provide for an initial franchise fee of $50,000 per restaurant and generally require that franchisees pay royalty and marketing fees at 5% of gross sales. The agreement also requires franchisees to pay sourcing, technology and other miscellaneous fees.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Disaggregation of revenue — The following table disaggregates revenue by primary source (in thousands):


	Sixteen Weeks Ended
		January 23, 2022		January 17, 2021
Sources of revenue:
Company restaurant sales		$	120,056	$	114,278
Franchise rental revenues		103,099		103,749
Franchise royalties		57,648		57,343
Marketing fees		55,801		55,776
Technology and sourcing fees		5,000		5,090
Franchise fees and other services		3,107		2,305
Total revenue		$	344,711	$	338,541

Contract liabilities — Our contract liabilities consist of deferred revenue resulting from initial fees received from franchisees for new restaurant openings or new franchise terms, which are recognized over the franchise term. We classify these contract liabilities as “Accrued liabilities” and “Other long-term liabilities” in our condensed consolidated balance sheets.

A summary of significant changes in our contract liabilities is presented below (in thousands):


	Sixteen Weeks Ended
	January 23, 2022		January 17, 2021
Deferred franchise fees at beginning of period	$	40,435	$	43,541
Revenue recognized	(1,742)		(1,779)
Additions	680		428
Deferred franchise fees at end of period	$	39,373	$	42,190

The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied as of January 23, 2022 (in thousands):


Remainder of 2022	$	3,362
2023	4,703
2024	4,512
2025	4,284
2026	3,963
Thereafter	18,549
	$	39,373

We have applied the optional exemption, as provided for under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.

3.DEL TACO MERGER AGREEMENT

Agreement and Plan of Merger — As previously announced, the Company entered into an Agreement and Plan of Merger dated as of December 5, 2021 (the “Merger Agreement”) with Del Taco Restaurants, Inc., a Delaware corporation (“Del Taco”), to acquire Del Taco (the “Merger”). Del Taco is the nation’s second largest Mexican quick service restaurant chain by number of restaurants and has approximately 600 restaurants across 16 states.

Subject to certain specified exceptions, at the effective time of the Merger, each share of Del Taco common stock issued and outstanding will be converted into the right to receive $12.51 in cash in a transaction valued at approximately $575.0 million, including existing debt. The transaction, which is expected to close in the first calendar quarter of 2022, is subject to certain customary closing conditions, including Del Taco’s shareholder approval and the receipt of required regulatory approvals.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In connection with the Merger Agreement, the Company entered into a letter agreement with BofA Securities, Inc. pursuant to which BofA Securities, Inc. has agreed to provide financing for the Merger, in an amount of up to $600.0 million under the Company’s existing securitization facility. No amounts were drawn under the letter agreement, which was terminated as a result of our securitization refinancing transaction disclosed in Note 15, Subsequent Events.

The Merger Agreement provides for certain termination rights for both Jack in the Box and Del Taco and provides that, in connection with a termination of the Merger Agreement under certain specified circumstances, Del Taco will be required to pay Jack in the Box a termination fee of $14.2 million or Jack in the Box will be required to pay Del Taco a termination fee of $28.4 million.

The Company has incurred costs related to the merger of $3.0 million for the quarter, including legal, accounting, and other professional fees and expenses. These costs are included in “Other operating expenses (income), net” in the accompanying condensed consolidated statements of earnings.

4.SUMMARY OF REFRANCHISINGS AND FRANCHISE ACQUISITIONS

Refranchisings — In 2022 and 2021, no company-operated restaurants were sold to franchisees. Amounts included in “Gains on the sale of company-operated restaurants” in both periods related to resolutions of certain contingencies from the sale of restaurants in prior years.

Franchise acquisitions — In 2022 and 2021, we acquired four franchise restaurants in each period. We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). These acquisitions were not material to our condensed consolidated financial statements in either year.

5.LEASES

As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees subsequent to refranchising transactions. Revenues from leasing arrangements with our franchisees are presented in “Franchise rental revenues” in the accompanying condensed consolidated statements of earnings, and the related expenses are presented in “Franchise occupancy expenses.”

The following table presents rental income (in thousands):

Sixteen Weeks Ended

January 23,
2022

January 17,
2021

Operating lease income - franchise

SEC Form 10-Q filed by Jack In The Box Inc.