# Jack in the Box Inc: Form 10-Q for the period ended Jan 23, 2022

- Company: [Jack in the Box Inc](/companies/jack.md) (CIK 807882)
- Form: 10-Q
- Filed: 2022-02-23
- Accepted by EDGAR: Feb 23, 2022, 13:43 ET
- Period: 2022-01-23
- Accession: 0000807882-22-000006
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/807882/000080788222000006/jack-20220123.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/807882/000080788222000006/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-01-23.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cash and equivalents | at 2022-01-23 | $70.2m | us-gaap:Cash |
| Current assets | at 2022-01-23 | $162.6m | us-gaap:AssetsCurrent |
| Total assets | at 2022-01-23 | $1.76bn | us-gaap:Assets |
| Current liabilities | at 2022-01-23 | $277.9m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2022-01-23 | −$786.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,386 characters.

### GENERAL

All comparisons between 2022 and 2021 refer to the 16 weeks (“quarter”) ended January 23, 2022 and January 17, 2021, respectively, unless otherwise indicated.

For an understanding of the significant factors that influenced our performance during 2022 and 2021, our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended October 3, 2021.

Our MD&A consists of the following sections:

- ***Overview —*** a general description of our business and 2022 highlights.
- ***Results of operations —*** an analysis of our condensed consolidated statements of earnings for the periods presented in our condensed consolidated financial statements.
- ***Liquidity and capital resources —*** an analysis of our cash flows, including capital expenditures, share repurchase activity, dividends, and known known trends that may impact liquidity.
- ***Discussion of critical accounting estimates —*** a discussion of accounting policies that require critical judgments and estimates.
- ***New accounting pronouncements —*** a discussion of new accounting pronouncements, dates of implementation and the impact on our consolidated financial position or results of operations, if any.
- ***Cautionary statements regarding forward-looking statements —*** a discussion of the risks and uncertainties that may cause our actual results to differ materially from any forward-looking statements made by management.

We have included in our MD&A certain performance metrics that management uses to assess company performance and which we believe will be useful in analyzing and understanding our results of operations. These metrics include:

- Changes in sales at restaurants open more than one year (“same-store sales”), systemwide sales, franchised restaurant sales, and average unit volumes (“AUVs”). Same-store sales, restaurant sales, and AUVs are presented for franchised restaurants and on a system-wide basis, which includes company and franchise restaurants. Franchise sales represent sales at franchise restaurants and are revenues of our franchisees. We do not record franchise sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchise sales. We believe franchise and system same-store sales, franchised and system restaurant sales, and AUV information are useful to investors as they have a direct effect on the Company’s profitability.
- Adjusted EBITDA represents net earnings on a generally accepted accounting principles (“GAAP”) basis excluding income taxes, interest expense, net, gains on the sale of company-operated restaurants, other operating expenses (income), net, depreciation and amortization, and amortization of tenant improvement allowances and incentives. We are presenting Adjusted EBITDA because we believe that it provides a meaningful supplement to net earnings of the Company's core business operating results, as well as a comparison to those of other similar companies. Management believes that Adjusted EBITDA, when viewed with the Company's results of operations in accordance with GAAP and the accompanying reconciliations within MD&A, provides useful information about operating performance and period-over-period change, and provides additional information that is useful for evaluating the operating performance of the Company's core business without regard to potential distortions. Additionally, management believes that Adjusted EBITDA permits investors to gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced.

Same-store sales, systemwide sales, franchised restaurant sales, AUVs, and Adjusted EBITDA are not measurements determined in accordance with GAAP and should not be considered in isolation, or as an alternative to earnings from operations, or other similarly titled measures of other companies.

### OVERVIEW

### Our Business

As of January 23, 2022, we operated and franchised 2,208 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam.

We derive revenue from retail sales at Jack in the Box company-operated restaurants and rental revenue, royalties (based upon a percent of sales), franchise fees and contributions for advertising and other services from franchisees. In addition, we recognize gains or losses from the sale of company-operated restaurants to franchisees, and captioned separately within operating costs and expenses, net, in the accompanying consolidated statements of earnings.

### Del Taco Merger Agreement

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

Subject to certain specified exceptions, at the effective time of the Merger, each share of Del Taco common stock issued and outstanding will be converted into the right to receive $12.51 in cash in a transaction valued at approximately $575 million, including existing debt. The transaction, which is expected to close in the first calendar quarter of 2022, is subject to certain customary closing conditions, including Del Taco’s shareholder approval and the receipt of required regulatory approvals. Refer to Note 3, *Del Taco Merger Agreement,* of the notes to the condensed consolidated financial statements for further information about the Merger.

### Impact of COVID-19

The COVID-19 pandemic has continued to have varying degrees of disruption on our business. Throughout the pandemic substantially all of our restaurants have remained open, with the majority of our dining rooms closed and locations operating in an off-premise capacity, leveraging our drive-thru, carryout and delivery capabilities. We have continued to follow the guidance of expert health authorities to ensure precautionary steps are taken to protect the health and safety of our employees and guests.

Our business has continued to be challenged by availability and cost of labor resulting in a number of our restaurants across regions to reduce operating hours during the quarter. We have continued to have limited shortages in our supply chain; however, inflationary pressures have continued to have a significant impact on our business.

We expect these operating margin pressures due to labor and supply chain challenges to continue for the remainder of fiscal 2022.

### Other Developments

As previously announced, a franchisee that operated 68 restaurants in the Midwest filed for chapter 11 bankruptcy in February 2021. Of the 68 restaurants, we sublease 50 of the locations to the franchisee and own the land and building for the remaining 18 locations. Through the bankruptcy proceedings, the franchisee may reject the franchise agreements and leases for a number of these locations, resulting in potential impairment costs related to future lease obligations.

In fiscal 2021, the franchisee filed motions to reject 5 locations which the court authorized. In fiscal 2022, the franchisee filed motions to reject an additional 6 locations which the court authorized. No material impairment costs were recorded in the financial statements in either period as a result of these locations being rejected near the expiration of our master lease agreements. The franchisee’s remaining restaurants continue to operate with the franchisee remaining current with their obligations to us, with the exception of certain amounts owed at the end and subsequent to the first quarter which have been appropriately reserved for in the accompanying condensed consolidated financial statements.

The Company does not expect to acquire and operate any restaurants as part of the sale of these restaurants and our current expectation is the remaining restaurants will be transferred to one or more other franchise partners.

### Financial Highlights for Fiscal Quarter

- ***Systemwide sales*** for the quarter increased 0.6% as compared to prior year quarter.
- ***System same-store sales*** for the quarter increased 1.2%.
- ***Total revenues*** for the quarter increased 1.8%.
- ***Earnings from operations*** for the quarter decreased 17.1%.
- ***Net earnings and diluted EPS*** decreased 22.8% and 16.3%, respectively.
- ***Adjusted EBITDA*** decreased in the quarter from $102.4 million to $91.2 million, or 10.9%.
- ***Net units*** down 1.3% with 12 closures and 2 store openings during the quarter.

### RESULTS OF OPERATIONS

The following table presents certain income and expense items included in our condensed consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.

### CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS DATA

| Revenues: | Sixteen Weeks Ended January 23, 2022 | January 17, 2021 |
| --- | ---: | ---: |
| Company restaurant sales | 34.8% | 33.8% |
| Franchise rental revenues | 29.9% | 30.6% |
| Franchise royalties and other | 17.6% | 17.6% |
| Franchise contributions for advertising and other services | 17.6% | 18.0% |
|  | 100.0% | 100.0% |
| Operating costs and expenses, net: |  |  |
| Food and packaging (1) | 31.3% | 28.3% |
| Payroll and employee benefits (1) | 33.1% | 30.6% |
| Occupancy and other (1) | 17.4% | 15.6% |
| Franchise occupancy expenses (2) | 62.1% | 62.8% |
| Franchise support and other costs (3) | 6.4% | 5.5% |
| Franchise advertising and other services expenses (4) | 104.1% | 103.0% |
| Selling, general and administrative expenses | 7.4% | 6.1% |
| Depreciation and amortization | 3.6% | 4.3% |
| Other operating expenses (income), net | 1.1% | (0.1)% |
| Gains on the sale of company-operated restaurants | —% | (0.4)% |
| Earnings from operations | 21.4% | 26.3% |
| Income tax rate (5) | 26.5% | 25.1% |

(1) As a percentage of company restaurant sales.

(2) As a percentage of franchise rental revenues.

(3) As a percentage of franchise royalties and other.

(4) As a percentage of franchise contributions for advertising and other services.

(5) As a percentage of earnings from operations and before income taxes.

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

|  | Sixteen Weeks Ended January 23, 2022 | January 17, 2021 |
| --- | ---: | ---: |
| Company | (0.3)% | 7.5% |
| Franchise | 1.4% | 13.0% |
| System | 1.2% | 12.5% |

17

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

|  | 2022 Company | Franchise | Total | 2021 Company | Franchise | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Beginning of year | 163 | 2,055 | 2,218 | 144 | 2,097 | 2,241 |
| New | — | 2 | 2 | — | 3 | 3 |
| Acquired from franchisees | 4 | (4) | — | 4 | (4) | — |
| Closed | (2) | (10) | (12) | — | (7) | (7) |
| End of period | 165 | 2,043 | 2,208 | 148 | 2,089 | 2,237 |
| % of system | 7% | 93% | 100% | 7% | 93% | 100% |

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

|  | Sixteen Weeks Ended January 23, 2022 | January 17, 2021 |
| --- | ---: | ---: |
| Company-operated restaurant sales | $120,056 | $114,278 |
| Franchised restaurant sales (1) | 1,117,676 | 1,115,826 |
| Systemwide sales (1) | $1,237,732 | $1,230,104 |

(1) Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees. System sales include company and franchised restaurant sales. We do not record franchised sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchised sales. We believe franchised and system restaurant sales information is useful to investors as they have a direct effect on the Company's profitability.

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

|  | Sixteen Weeks Ended January 23, 2022 | January 17, 2021 |
| --- | ---: | ---: |
| Net earnings - GAAP | $39,270 | $50,859 |
| Income tax expense | 14,190 | 17,061 |
| Interest expense, net | 20,187 | 20,735 |
| Gains on the sale of company-operated restaurants | (48) | (1,283) |
| Other operating expenses (income), net | 3,843 | (452) |
| Depreciation and amortization | 12,496 | 14,571 |
| Amortization of franchise tenant improvement allowances and incentives | 1,234 | 861 |
| Adjusted EBITDA - Non-GAAP | $91,172 | $102,352 |

18

### Company Restaurant Operations

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

|  | Sixteen Weeks Ended January 23, 2022 |  | January 17, 2021 |  |
| --- | ---: | ---: | ---: | ---: |
| Company restaurant sales | $120,056 |  | $114,278 |  |
| Company restaurant costs: |  |  |  |  |
| Food and packaging | $37,537 | 31.3% | $32,377 | 28.3% |
| Payroll and employee benefits | $39,725 | 33.1% | $34,931 | 30.6% |
| Occupancy and other | $20,877 | 17.4% | $17,835 | 15.6% |

Company restaurant sales increased $5.8 million or 5.1% compared to the prior year, primarily due to an increase in the number of company-operated restaurants, average check growth, menu price increases, and partially offset by a decline in traffic. The following table presents the approximate impact of these items on company restaurant sales (*in millions):*

|  | Sixteen Weeks Ended January 23, 2022 |
| --- | ---: |
| Increase in the average number of restaurants | $3.7 |
| AUV increase | 2.1 |
| Total change in company restaurant sales | $5.8 |

Same-store sales at company-operated restaurants decreased 0.3% compared to a year ago. The following table summarizes the change versus a year ago:

|  | Sixteen Weeks Ended January 23, 2022 |
| --- | ---: |
| Average check (1) | 3.5% |
| Transactions | (3.8)% |
| Change in same-store sales | (0.3)% |

(1) Includes price increases of approximately 5.5%.

Food and packaging costs as a percentage of company restaurant sales increased to 31.3% from 28.3% a year ago, primarily due a 2.6% increase in commodities and an unfavorable sales mix of 2.0%, partially offset by menu price increases of 1.6%. Commodity costs increased in the current fiscal year by approximately 10.5% primarily due to increases in beef, pork, sauces and oil.

Payroll and employee benefit costs as a percentage of company restaurant sales increased to 33.1% in 2022 compared with 30.6% a year ago primarily due to labor inflation, a change in the mix of restaurants due to franchisee acquisitions, partially offset by lower incentive compensation. Labor inflation was approximately 10.9% in the current fiscal year.

Occupancy and other costs, as a percentage of company restaurant sales, increased to 17.4% in 2022 compared with 15.6% a year ago due primarily to the acquisition of 20 restaurants with lower than average sales volumes as well as higher costs for maintenance and repair and utilities.

### Franchise Operations

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

|  | Sixteen Weeks Ended January 23, 2022 | January 17, 2021 |
| --- | ---: | ---: |
| Franchise rental revenues | $103,099 | $103,749 |
| Royalties | 57,648 | 57,343 |
| Franchise fees and other | 3,107 | 2,305 |
| Franchise royalties and other | 60,755 | 59,648 |
| Franchise contributions for advertising and other services | 60,801 | 60,866 |
| Total franchise revenues | $224,655 | $224,263 |
| Franchise occupancy expenses | $63,983 | $65,169 |
| Franchise support and other costs | 3,911 | 3,273 |
| Franchise advertising and other services expenses | 63,308 | 62,695 |
| Total franchise costs | $131,202 | $131,137 |
| Franchise costs as a percentage of total franchise revenues | 58.4% | 58.5% |
| Average number of franchise restaurants | 2,039 | 2,078 |
| % decrease | (1.9)% |  |
| Franchised restaurant sales | $1,117,676 | $1,115,826 |
| Franchised restaurant AUVs | $548 | $537 |
| Royalties as a percentage of total franchised restaurant sales | 5.2% | 5.1% |

Franchise rental revenues decreased $0.6 million, or 0.6% in 2022 compared to the prior year, primarily due to lower minimum rent and property tax reimbursements of $1.6 million due to a reduction in the number of franchise subleases compared to prior year, partially offset by higher percentage rent of $1.1 million driven by higher franchise restaurant sales.

Franchise royalties and other increased $1.1 million, or 1.9% in 2022 compared to the prior year, primarily due to an increase of $0.8 million in fees received in connection with the early termination of franchise agreements, as well as higher royalties of $0.3 million driven by higher franchise restaurant sales.

Franchise contributions for advertising and other services revenues decreased $0.1 million, or 0.1% in 2022 compared to the prior year, due to a decrease of $0.1 million in technology and sourcing fees driven by a lower average number of franchise restaurants compared to the prior year.

Franchise occupancy expenses, primarily rent, decreased $1.2 million, or 1.8% in 2022 compared to the prior year, primarily due to a reduction in the average number of franchise restaurants in 2022.

Franchise support and other costs increased $0.6 million in 2022 compared to the prior year, primarily due to an increase in franchisee bad debt expense from specific franchise situations occurring in the year.

Franchise advertising and other service expenses increased $0.6 million, or 1.0% in 2022 compared to the prior year primarily due to higher technology costs in the current year.

### Depreciation and Amortization

Depreciation and amortization decreased by $2.1 million in 2022 compared with the prior year, primarily due to certain franchise building assets becoming fully depreciated in the current fiscal year.

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

The following table presents the change in SG&A expenses compared with the prior year (*in thousands):*

|  | Sixteen Weeks Ended January 23, 2022 |
| --- | ---: |
| Advertising | $294 |
| Incentive compensation (including share-based compensation and related payroll taxes) | (2,807) |
| Cash surrender value of COLI policies, net | 5,239 |
| Other | 2,114 |
|  | $4,840 |

Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales. Advertising costs increased $0.3 million compared to the prior year primarily due to an increase in the number of company-operated restaurants.

Incentive compensation decreased by $2.8 million in 2022 compared to the prior year due to a $2.6 million decrease in the annual incentives mainly as a result of lower achievement levels compared to the prior year, as well as a $0.2 million decrease in stock-based compensation mainly from timing of annual grants compared to the prior year.

The cash surrender value of our company-owned life insurance (“COLI”) policies, net of changes in our non-qualified deferred compensation obligation supported by these policies, are subject to market fluctuations. The changes in market values had a negative impact of $5.2 million versus the prior year as a result of $0.4 million losses recognized in 2022 compared to $4.8 million gains in the prior year.

### Other Operating Expenses (Income), Net

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

|  | Sixteen Weeks Ended January 23, 2022 | January 17, 2021 |
| --- | ---: | ---: |
| Acquisition, integration, and restructuring costs | $3,013 | $6 |
| Costs of closed restaurants and other | 1,072 | 1,023 |
| Accelerated depreciation | 375 | 679 |
| Gains on disposition of property and equipment, net | (617) | (2,160) |
|  | $3,843 | $(452) |

Other operating expenses (income), net increased by $4.3 million, primarily due to $3.0 million of costs incurred during the quarter relating to the Del Taco acquisition and $1.5 million lower gains on the sale of property and equipment compared to prior year.

### Gains on the Sale of Company-Operated Restaurants

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

### Interest Expense, Net

Interest expense, net is comprised of the following (*in thousands):*

|  | Sixteen Weeks Ended January 23, 2022 | January 17, 2021 |
| --- | ---: | ---: |
| Interest expense | $20,273 | $20,739 |
| Interest income | (86) | (4) |
| Interest expense, net | $20,187 | $20,735 |

Interest expense, net decreased by $0.5 million in 2022 compared to the prior year primarily due to lower average borrowings as a result of paying down borrowings under our Variable Funding Notes during the second quarter of 2021.

### Income Tax Expense

The income tax provisions reflect tax rates of 26.5% in 2022 and 25.1% in 2021. The major component of the year-over-year increase in tax rates was the non-deductibles losses in the current year versus non-taxable gains in the prior year from the market performance of insurance products used to fund certain non-qualified retirement plans.

### LIQUIDITY AND CAPITAL RESOURCES

### General

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings available under our securitized financing facility. Our cash requirements consist principally of working capital, general corporate needs, capital expenditures, income tax payments, debt service requirements, franchise tenant improvement allowance and incentive distributions, dividend payments, and obligations related to our benefit plans. We generally reinvest available cash flows from operations to invest in our business, service our debt obligations, pay dividends and repurchase shares of our common stock.

Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available borrowings under our securitized financing facility. As of January 23, 2022, the Company had $88.5 million of cash and restricted cash on its consolidated balance sheet.

On December 5, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Del Taco Restaurants, Inc., for total consideration valued at $575.0 million, including existing debt. To partially fund the acquisition of Del Taco, we completed a debt refinancing transaction on February 11, 2022, as further described below.

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

Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with our securitized financing facility, will be sufficient to meet our capital expenditure, working capital and debt service requirements for at least the next twelve months and the foreseeable future.

### Cash Flows

The table below summarizes our cash flows from continuing operations (*in thousands):*

| Total cash provided by (used in): | Sixteen Weeks Ended January 23, 2022 | January 17, 2021 |
| --- | ---: | ---: |
| Operating activities | $34,051 | $62,251 |
| Investing activities | (6,837) | (637) |
| Financing activities | (12,316) | (9,959) |
| Net cash flows | $14,898 | $51,655 |

**Operating Activities.** Operating cash flows decreased $28.2 million compared with a year ago, which was primarily due to an unfavorable change in working capital of $25.3 million, as a result of lower collections on marketing and rent payment deferrals provided to our franchisees in 2020, higher property tax payments due to timing differences, and higher bonus payments.

***Pension and Post-Retirement Contributions —*** Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, 2021, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for our qualified pension plan. In 2022, we contributed $2.1 million to our non-qualified pension plan and post-retirement plans.

**Investing Activities**. Cash used in investing activities increased by $6.2 million compared with a year ago, primarily due to $2.3 million higher capital expenditures and $3.0 million lower death benefit proceeds of company-owned life insurance policies.

***Capital Expenditures —*** The composition of capital expenditures in each period follows (*in thousands):*

| Restaurants: | Sixteen Weeks Ended January 23, 2022 | January 17, 2021 |
| --- | ---: | ---: |
| Remodel / refresh programs | $921 | $3,903 |
| Restaurant facility expenditures | 4,374 | 1,451 |
| Purchases of assets intended for sale and leaseback | 1,877 | 150 |
| Restaurant information technology | 968 | 288 |
|  | 8,140 | 5,792 |
| **Corporate Services:** |  |  |
| Information technology | 52 | 466 |
| Corporate facilities | 1,209 | 818 |
|  | 1,261 | 1,284 |
| Total capital expenditures | $9,401 | $7,076 |

**Financing Activities**. Cash flows used in financing activities increased by $2.4 million compared with a year ago, primarily due to $2.1 million of deferred financing costs paid during the quarter.

***Repurchases of Common Stock —*** The Company did not repurchase any shares in the first quarter of 2022. On November 19, 2021, the Board of Directors authorized a $200.0 million stock buy-back program that expires on November 20, 2023.

***Dividends —*** During the first quarter of 2022, the Board of Directors declared a cash dividend of $0.44 per common share totaling $9.3 million.

***Securitized Refinancing Transaction —*** On February 11, 2022, the Company completed the sale of $550.0 million of its Series 2022-1 3.445% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes) and $550.0 million of its Series 2022-1 4.136% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II” and, together with the Class A-2-I Notes, the “2022 Notes”). Interest payments on the 2022 Notes are payable on a quarterly basis. The anticipated repayment dates of the Class A-2-I Notes and the Class A-2-II Notes will be February 2027 and February 2032, respectively, unless earlier prepaid to the extent permitted under the indenture that will govern the 2022 Notes. The 2022 Notes were issued in a privately placed transaction.

The net proceeds of the sale of the 2022 Notes have been used to repay in full of $570.7 million in aggregate outstanding principal amount of the Company’s Series 2019-1 Class A-2-I Notes, together with the applicable make-whole premium and unpaid interest, and is expected to be used to fund a portion of the Company’s acquisition of Del Taco Restaurants, Inc.

The Company also entered into a new purchase agreement under which it will issue up to $150.0 million of its Series 2022-1 Variable Funding Senior Secured Notes, Class A-1 (the “Class A-1 Notes”), which will allow the Company to borrow amounts from time to time on a revolving basis. The Class A-I Notes will replace the Company’s existing $150.0 million Series 2019-1 Variable Funding Senior Secured Notes, Class A-1.

Except as described above, there were no material changes to the terms of any debt obligations since October 3, 2021. The Company was in compliance with its debt covenants as of January 23, 2022.

### DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those that we believe are most important for the portrayal of the Company’s financial condition and results, and that require management’s most subjective and complex judgments. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 3, 2021.

### NEW ACCOUNTING PRONOUNCEMENTS

Refer to Note 1, *Basis of Presentation*, of the notes to condensed consolidated financial statements.

### CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the federal securities laws, including further impacts that COVID-19 pandemic may have on our future operations. Any statements contained herein that are not historical facts may be deemed to be forward-looking statements. Forward-looking statements may be identified by words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “will,” “would”, “should” and similar expressions. These statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate. These estimates and assumptions involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause our actual results to differ materially from any forward-looking statements include, but are not limited to:

- The COVID-19 pandemic has disrupted and may continue to disrupt our business, which has affected and could continue to materially affect our operations, financial condition, and results of operations for an extended period of time.
- We face significant competition in the food service industry and our inability to compete may adversely affect our business.
- Changes in demographic trends and in customer tastes and preferences could cause sales and the royalties we receive from franchisees to decline.
- Changes in consumer confidence and declines in general economic conditions could negatively impact our financial results.
- Increases in food and commodity costs could decrease our profit margins or result in a modified menu, which could adversely affect our financial results.
- Failure to receive scheduled deliveries of high-quality food ingredients and other supplies could harm our operations and reputation.
- We have a limited number of suppliers for our major products and rely on a distribution network with a limited number of distribution partners for the majority of our national distribution program. If our suppliers or distributors are unable to fulfill their obligations under their contracts, it could harm our operations.
- Food safety and food-borne illness concerns may have an adverse effect on our business by reducing demand and increasing costs.
- Negative publicity relating to our business or industry could adversely impact our reputation.
- Changes in the availability of and the cost of labor could adversely affect our business.
- Inability to attract, train and retain top-performing personnel could adversely impact our financial results or business.
- We may not have the same resources as our competitors for marketing, advertising and promotion.
- We may be adversely impacted by severe weather conditions, natural disasters, terrorist acts or civil unrest that could result in property damage, injury to employees and staff, and lost restaurant sales.
- We may not achieve our development goals.
- Our highly-franchised business model presents a number of risks, and the failure of our franchisees to operate successful and profitable restaurants could negatively impact our business.
- We are subject to financial and regulatory risks associated with our owned and leased properties and real estate development projects.
- We are subject to the risk of cybersecurity breaches, intrusions, data loss, or other data security incidents.
- We are subject to risks associated with our increasing dependence on digital commerce platforms and technologies to maintain and grow sales, and we cannot predict the impact that these digital commerce platforms and technologies, other new or improved technologies or alternative methods of delivery may have on consumer behavior and our financial results.
- We are dependent on information technology and digital service providers and any material failure, misuse or interruption of our computer systems, supporting infrastructure, consumer-facing digital capabilities or social media platforms could adversely affect our business.
- If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, the Company’s stockholders could lose confidence in our financial results, which would harm our business and the value of the Company’s common shares.
- We may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business.
- Jack in the Box may be subject to risk associated with disagreements with key stakeholders, such as franchisees.
- The securitized debt instruments issued by certain of our wholly-owned subsidiaries have restrictive terms, and any failure to comply with such terms could result in default, which could harm the value of our brand and adversely affect our business.
- We have a significant amount of debt outstanding. Such indebtedness, along with the other contractual commitments of our Company or its subsidiaries, could adversely affect our business, financial condition and results of operations, as well as the ability of certain of our subsidiaries to meet debt payment obligations.
- The securitization transaction documents impose certain restrictions on our activities or the activities of our subsidiaries, and the failure to comply with such restrictions could adversely affect our business.
- We are subject to increasing legal complexity and may be subject to claims or lawsuits that are costly to defend and could result in our payment of substantial damages or settlement costs.
- Unionization activities or labor disputes may disrupt our operations and affect our profitability.
- Increasing regulatory and legal complexity may adversely affect restaurant operations and our financial results.
- Our insurance may not provide adequate levels of coverage against claims.
- Changes in tax laws, interpretations of existing tax law, or adverse determinations by tax authorities could adversely affect our income tax expense and income tax payments.
- Increasing regulatory and legal complexity may adversely affect restaurant operations and our financial results.
- Governmental regulation may adversely affect our existing and future operations and results, including by harming our ability to profitably operate our restaurants.
- The proliferation of federal, state, and local regulations increases our compliance risks, which in turn could adversely affect our business.
- Legislation and regulations regarding our products and ingredients, including the nutritional content of our products, could impact customer preferences and negatively impact our financial results.
- Our quarterly results and, as a result, the price of our common stock, may fluctuate significantly and could fall below the expectations of securities analysts and investors due to various factors.
- Actions of activist stockholders could cause us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business.
- We may not complete the acquisition of Del Taco within the time frame we anticipate or at all; the acquisition may cause our financial results to differ from our expectations or the expectations of the investment community; and we may not be able to achieve anticipated benefits of the acquisition.

These and other factors are identified and described in more detail in our filings with the Securities and Exchange Commission, including, but not limited to: the “Discussion of Critical Accounting Estimates,” and other sections in this Form 10-Q and the “Risk Factors” section of our most recent Annual Report on Form 10-K for the fiscal year ended October 3, 2021 (“Form 10-K”). These documents may be read free of charge on the SEC’s website at www.sec.gov. Potential investors are urged to consider these factors, more fully described in our Form 10-K, carefully in evaluating any forward-looking statements, and are cautioned not to place undue reliance on the forward-looking statements. All forward-looking statements are made only as of the date issued, and we do not undertake any obligation to update any forward-looking statements.

## Market risk

As filed, 252 characters.

There have been no material changes in our quantitative and qualitative market risks set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended October 3, 2021.

## Controls and procedures

As filed, 1,016 characters.

### Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s quarter ended January 23, 2022, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) have concluded that the Company’s disclosure controls and procedures were effective.

### Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended January 23, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

There is no information required to be reported for any items under Part II, except as follows:

## Risk factors

As filed, 10,258 characters.

The risk factors set forth below contain material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended October 3, 2021, which we filed with the SEC on November 23, 2021, as updated in this Item 1A. You should also consider the risks and uncertainties discussed under the heading “Cautionary Statements Regarding Forward-Looking Statements” in Item 2 of this Quarterly Report on Form 10-Q. You should also refer to the other information set forth in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended October 3, 2021, including our financial statements and the related notes. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the risks or uncertainties actually occurs, our business and financial results could be harmed. In that case, the market price of our common stock could decline.

***We may not complete the acquisition of Del Taco within the time frame we anticipate or at all; the acquisition may cause our financial results to differ from our expectations or the expectations of the investment community; and we may not be able to achieve anticipated benefits of the acquisition.***

The completion of the acquisition of Del Taco is subject to a number of conditions. The failure to satisfy all of the required conditions could delay the completion of the acquisition for a significant period of time or prevent it from occurring at all. In addition, the terms and conditions of the required regulatory authorizations and consents for the acquisition that are granted, if any, may impose requirements, limitations or costs or place restrictions on the conduct of our business after the transaction or may materially delay the completion of the acquisition. A delay in completing the acquisition could cause us to realize some or all of the benefits later than we otherwise expect to realize if the acquisition is successfully completed within the anticipated timeframe.

The success of the acquisition will depend, in part, on our ability to successfully combine and integrate the business of Del Taco and realize the anticipated benefits, including synergies, cost savings, and operational efficiencies, from the acquisition. If we are unable to successfully combine and integrate the business of Del Taco within the anticipated time frame, or at all, the anticipated benefits may not be fully realized.

***Similar to our Series 2019-1 Class A-2-I Notes, the new securitized debt instruments issued by certain of our wholly-owned subsidiaries have restrictive terms, and any failure to comply with such terms could result in default, which could harm the value of our brand and adversely affect our business.***

The Series 2022-1 Senior Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Series 2022-1 Senior Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Series 2022-1 Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Series 2022-1 Senior Notes are in stated ways defective or ineffective and (iv) covenants relating to record keeping, access to information and similar matters. The Series 2022-1 Senior Notes are also subject to customary rapid amortization events provided for in the indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of gross sales for specified restaurants being below certain levels on certain measurement dates, certain manager termination events, an event of default, and the failure to repay or refinance the Series 2022-1 Class A-2 Notes on the applicable scheduled maturity date. The Series 2022-1 Senior Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the Series 2022-1 Senior Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments.

In the event that a rapid amortization event occurs under the indenture (including, without limitation, upon an event of default under the indenture or the failure to repay the securitized debt at the end of the applicable term) which would require repayment of the Series 2022-1 Senior Notes, the funds available to us would be reduced or eliminated, which would in turn reduce our ability to operate and/or grow our business. If our subsidiaries are not able to generate sufficient cash flow to service their debt obligations, they may need to refinance or restructure debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If our subsidiaries are unable to implement one or more of these alternatives, they may not be able to meet debt payment and other obligations which could have a material adverse effect on our financial condition.

***We have a significant amount of debt outstanding. Such indebtedness, along with the other contractual commitments of our Company or its subsidiaries, could adversely affect our business, financial condition and results of operations, as well as the ability of certain of our subsidiaries to meet debt payment obligations.***

Upon completion of its refinancing transaction, as of February 11, 2022, the Master Issuer has outstanding debt of $1.82 billion.

This level of debt could have certain material adverse effects on the Company, including but not limited to:

- our available cash flow in the future to fund working capital, capital expenditures, acquisitions, and general corporate or other purposes could be impaired, and our ability to obtain additional financing for such purposes is limited;
- a substantial portion of our cash flows could be required for debt service and, as a result, might not be available for our operations or other purposes;
- any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or could force us to modify our operations or sell assets;
- our ability to operate our business and our ability to repurchase stock or pay cash dividends to our stockholders may be restricted by the financial and other covenants set forth in the indenture;
- our ability to withstand competitive pressures may be decreased; and
- our level of indebtedness may make us more vulnerable to economic downturns and reduce our flexibility in responding to changing business, regulatory, and economic conditions.

In addition, we may incur additional indebtedness in the future. If new debt or other liabilities are added to our current consolidated debt levels, the related risks that it now faces could intensify.

***Similar to the Series 2019-1 Class A-2-I Notes, the securitization transaction documents impose certain restrictions on our activities or the activities of our subsidiaries, and the failure to comply with such restrictions could adversely affect our business.***

The indenture and the management agreement entered into between certain of our subsidiaries and the indenture trustee (the “Management Agreement”) contain various covenants that limit our and our subsidiaries’ ability to engage in specified types of transactions. For example, the indenture and the Management Agreement contain covenants that, among other things, restrict, subject to certain exceptions, the ability of certain subsidiaries to:

- incur or guarantee additional indebtedness;
- sell certain assets;
- alter the business conducted by our subsidiaries;
- create or incur liens on certain assets; or
- consolidate, merge, sell or otherwise dispose of all or substantially all of the assets held within the securitization entities.

As a result of these restrictions, we may not have adequate resources or the flexibility to continue to manage the business and provide for growth of the Jack in the Box system, including product development and marketing for the Jack in the Box brand, which could adversely affect our future growth prospects, financial condition, results of operations and liquidity.

***Changes in the availability of and the cost of labor could adversely affect our business.***

Our business could be adversely impacted by increases in labor costs, including those increases triggered by regulatory actions regarding wages, scheduling and benefits; increased health care and workers’ compensation insurance costs; increased wages and costs of other benefits necessary to attract and retain high quality employees with the right skill sets and increased wages, benefits and costs related to the COVID-19 pandemic and inflationary and other pressure on wages now being experienced. The growth of our business can make it increasingly difficult to locate and hire sufficient numbers of employees, to maintain an effective system of internal controls, and to train employees to deliver a consistently high-quality product and customer experience, which could materially harm our business and results of operations. Furthermore, we have experienced, and could continue to experience, a shortage of labor for restaurant positions, including due to concerns around and illnesses arising from COVID-19 and its various novel variants and other factors, which could decrease the pool of available qualified talent for key functions and require restaurants to operate on reduced hours. Such labor shortages could be further exacerbated by expanded federal, state and local COVID-19 vaccination requirements. In addition, our wages and benefits programs may be insufficient to attract and retain the top performing employees especially in a rising wage market.

Filed Feb 23, 2022.
Source: SEC EDGAR, the filing index for accession 0000807882-22-000006. Last ingested by Listed: Oct 24, 2026, 14:57 ET. No prices; not investment advice.