# JACK IN THE BOX INC (JACK) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from JACK IN THE BOX INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/807882/000080788224000052/jack-20240929.htm
Accession: 0000807882-24-000052
Filing date: 2024-11-21
Report date: 2024-09-29
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/JACK/
All MD&A years: /company/JACK/mda/
Previous year: /company/JACK/mda/fy2023/ (FY 2023)
Next year: /company/JACK/mda/fy2025/ (FY 2025)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

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 periods ended September 29, 2024 and October 1, 2023, respectively. Our MD&A consists of the following sections:

•Overview — a general description of our business.

•Results of Operations — an analysis of our consolidated statements of earnings for fiscal 2024 compared to fiscal 2023.

•Liquidity and Capital Resources — an analysis of our cash flows, including capital expenditures, share repurchase activity, dividends, and known trends that may impact liquidity.

•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”), system restaurant sales, franchised restaurant sales, and average unit volumes (“AUVs”). Same-store sales, restaurant sales, and AUVs are presented for franchised 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 and percentage rent revenues are calculated based on a percentage of franchise sales. 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.

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.

A comparison of our results of operations and cash flows for fiscal 2023 compared to fiscal 2022 can be found under Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended October 1, 2023.

OVERVIEW

Our Business

Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box® quick-service restaurants. As of September 29, 2024, we operated and franchised 2,191 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including two in Mexico and two in Guam.

On March 8, 2022, we completed the acquisition of Del Taco Restaurants, Inc. (“Del Taco”). Founded in 1964, Del Taco offers a unique variety of both Mexican and American favorites such as burritos and fries. Del Taco is the nation’s second largest Mexican quick service restaurant chain by number of restaurants and as of September 29, 2024 has 594 restaurants across 17 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.

Refranchising of Del Taco

In fiscal year 2024, we continued 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 47 Del Taco restaurants in fiscal year 2024, and added 42 new development commitments as a result of the refranchising effort.

28

RESULTS OF OPERATIONS FOR FISCAL 2024 AND 2023

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

[[GREPCENT_TABLE]]
[["Jack in the Box:","","2024","","2023"],["Company","","0.0","%","","8.8","%"],["Franchise","","(1.5)","%","","7.1","%"],["System","","(1.3)","%","","7.3","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Del Taco:","","2024","","2023"],["Company","","(1.3)","%","","2.0","%"],["Franchise","","(1.6)","%","","1.4","%"],["System","","(1.5)","%","","1.7","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","2024","","2023"],["Jack in the Box:","","Company","","Franchise","","Total","","Company","","Franchise","","Total"],["Beginning of year","","142","","","2,044","","","2,186","","","146","","","2,035","","","2,181"],["New (1)","","8","","","22","","","30","","","2","","","18","","","20"],["Refranchised","","\u2014","","","\u2014","","","\u2014","","","(5)","","","5","","","\u2014"],["Closed","","\u2014","","","(25)","","","(25)","","","(1)","","","(14)","","","(15)"],["End of year","","150","","","2,041","","","2,191","","","142","","","2,044","","","2,186"],["% of system","","7","%","","93","%","","100","%","","6","%","","94","%","","100","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","2024","","2023"],["Del Taco:","","Company","","Franchise","","Total","","Company","","Franchise","","Total"],["Beginning of year","","171","","","421","","","592","","","290","","","301","","","591"],["New","","3","","","11","","","14","","","\u2014","","","14","","","14"],["Acquired from franchisees","","10","","","(10)","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Refranchised","","(47)","","","47","","","\u2014","","","(111)","","","111","","","\u2014"],["Closed","","(4)","","","(8)","","","(12)","","","(8)","","","(5)","","","(13)"],["End of year","","133","","","461","","","594","","","171","","","421","","","592"],["% of system","","22","%","","78","%","","100","%","","29","%","","71","%","","100","%"]]
[[/GREPCENT_TABLE]]

________________________

(1)The restaurant count includes 6 cloud kitchens as of the end of fiscal year 2024.

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

[[GREPCENT_TABLE]]
[["Jack in the Box:","2024","","2023"],["Company-operated restaurant sales","$","427,057","","","$","413,748"],["Franchised restaurant sales (1)","3,969,200","","","4,005,985"],["Systemwide sales (1)","$","4,396,257","","","$","4,419,733"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Del Taco:","2024","","2023"],["Company-operated restaurant sales","$","281,978","","","$","432,530"],["Franchised restaurant sales (1)","674,804","","","541,913"],["Systemwide sales (1)","$","956,782","","","$","974,443"]]
[[/GREPCENT_TABLE]]

________________________

(1)Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees. 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 systemwide sales information is useful to investors as they have a direct effect on the Company's profitability.

29

Jack in the Box Brand

Company Restaurant Operations

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

[[GREPCENT_TABLE]]
[["","","2024","","2023"],["Company restaurant sales","","$","427,057","","","","","$","413,748"],["Company restaurant costs:"],["Food and packaging","","$","126,063","","","29.5","%","","$","130,904","","","31.6","%"],["Payroll and employee benefits","","$","134,678","","","31.5","%","","$","127,357","","","30.8","%"],["Occupancy and other","","$","73,735","","","17.3","%","","$","69,215","","","16.7","%"]]
[[/GREPCENT_TABLE]]

Company restaurant sales increased $13.3 million, or 3.2%, in 2024 as compared with the prior year due to an increase in the average number of restaurants, as well as an increase in average check. The following table presents the approximate impact of these items on company restaurant sales in 2024 (in millions):

[[GREPCENT_TABLE]]
[["","","2024 vs. 2023"],["AUV increase","","$","0.9"],["Increase in the average number of restaurants","","12.3"],["Other","","0.1"],["Total change in company restaurant sales","","$","13.3"]]
[[/GREPCENT_TABLE]]

Same-store sales at company-operated restaurants remained the same in 2024 compared to a year ago. The following table summarizes the changes in company-operated same-store sales: 

[[GREPCENT_TABLE]]
[["","","2024 vs. 2023"],["Transactions","","(3.4)","%"],["Average check (1)","","3.4","%"],["Change in same-store sales","","0.0","%"]]
[[/GREPCENT_TABLE]]

________________________

(1)Includes price increases of 7.4% in 2024.

Food and packaging costs, as a percentage of company restaurant sales, decreased to 29.5% in 2024 from 31.6% a year ago, primarily due to a 2.0% impact from pricing leverage and 0.2% from commodity deflation, partially offset by 0.2% unfavorable menu item mix.

Commodity costs decreased in the current fiscal year by approximately 0.7%. The greatest impacts were seen in produce, beef, and poultry.

Payroll and employee benefit costs, as a percentage of company restaurant sales, increased to 31.5% in 2024 compared with 30.8% a year ago primarily due to a 0.7% impact from wage inflation of approximately 6.9%, and an increase in group insurance, which were partially offset by a decrease in incentive compensation. New regulations, such as AB 1228, which went into effect April 2024, have raised labor costs, particularly given our high concentration of restaurants in California.

Occupancy and other costs, as a percentage of company restaurant sales, increased to 17.3% in 2024 from 16.7% a year ago primarily due to higher security costs, credit card fees and other operating costs, partially offset by lower maintenance and repair. costs.

30

Jack in the Box Franchise Operations

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

[[GREPCENT_TABLE]]
[["","","2024","","2023"],["Franchise rental revenues","","$","347,227","","$","351,283"],["Royalties","","198,377","","207,064"],["Franchise fees and other","","7,002","","7,226"],["Franchise royalties and other","","205,379","","214,290"],["Franchise contributions for advertising and other services","","217,757","","215,990"],["Total franchise revenues","","$","770,363","","$","781,563"],["Franchise occupancy expenses","","$","217,430","","$","216,452"],["Franchise support and other costs","","12,731","","10,072"],["Franchise advertising and other services expenses","","225,465","","227,868"],["Total franchise costs","","$","455,626","","$","454,392"],["Franchise costs as a percentage of total franchise revenues","","59.1","%","","58.1","%"],["Average number of franchise restaurants","","2,037","","2,035"],["Franchised restaurant sales","","$","3,969,200","","$","4,005,985"],["Franchise restaurant AUV","","$","1,949","","$","1,968"],["Royalties as a percentage of total franchise restaurant sales (1)","","5.0","%","","5.2","%"]]
[[/GREPCENT_TABLE]]

________________________

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

Franchise rental revenues decreased $4.1 million, or 1.2%, in 2024 compared to the prior year, primarily due to a decrease in percentage rent of $8.5 million, driven by lower sales, partially offset by increases in minimum rent of $3.3 million and an increase of $2.5 million related to franchise lease terminations.

Franchise royalties and other decreased $8.9 million, or 4.2%, mainly in connection with a $7.3 million termination fee paid by a franchise operator who sold his restaurants to a new franchisee in the prior year, as well as lower royalty income driven by lower sales.

Franchise contributions for advertising and other services increased $1.8 million, or 0.8%, primarily due to increases in digital and technology fees of $3.5 million, partially offset by lower marketing contributions of $2.0 million in connection with lower franchise same store sales of 1.5%.

Franchise occupancy expenses, mainly rent, increased $1.0 million, or 0.5% in 2024, primarily due to higher operating lease costs.

Franchise support and other costs increased $2.7 million, or 26.4% in 2024, mainly related to a $2.0 million increase in bad debt expense due to a rollover of a bad debt reversal in the prior year, as well as higher operating costs in connection with digital fees and brand standard audits.

Franchise advertising and other service expenses decreased $2.4 million, or 1.1% in 2024 primarily due to lower marketing contributions resulting from a decrease in franchise sales.

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Del Taco Brand

Company Restaurant Operations

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

[[GREPCENT_TABLE]]
[["","","2024","","2023"],["Company restaurant sales","","$","281,978","","","","","$","432,530"],["Company restaurant costs:"],["Food and packaging","","$","73,207","","","26.0","%","","$","119,931","","","27.7","%"],["Payroll and employee benefits","","$","103,369","","","36.7","%","","$","147,241","","","34.0","%"],["Occupancy and other","","$","65,569","","","23.3","%","","$","94,057","","","21.7","%"]]
[[/GREPCENT_TABLE]]

Company restaurant sales decreased $150.6 million or 34.8%, in 2024 as compared with the prior year primarily due to the refranchising of 47 company-operated restaurants and the closing of 4 company-operated restaurants in fiscal 2024, as well as a decrease in same store sales compared to the prior year.

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

[[GREPCENT_TABLE]]
[["","","2024 vs. 2023"],["AUV decrease","","$","(6.1)"],["Decrease in the average number of restaurants","","(144.1)"],["Other","","(0.4)"],["Total change in company restaurant sales","","$","(150.6)"]]
[[/GREPCENT_TABLE]]

Same-store sales at company-operated restaurants decreased 1.3% in 2024 compared to a year ago. The following table summarizes the increases (decreases) in company-operated same-store sales:

[[GREPCENT_TABLE]]
[["","","2024 vs. 2023"],["Average check (1)","","4.2","%"],["Transactions","","(5.5)","%"],["Change in same-store sales","","(1.3)","%"]]
[[/GREPCENT_TABLE]]

________________________

(1)Includes price increases of approximately 7.3% in 2024.

Food and packaging costs, as a percentage of company restaurant sales, decreased to 26.0% in 2024 from 27.7% a year ago primarily due to a 1.9% benefit from pricing leverage.

Commodity costs inflation was 0.2% in 2024. The largest sources of inflation in the current year were due to dairy and beverages, and was partially offset by favorability in pork, oil, eggs and cheese.

Payroll and employee benefit costs, as a percentage of company restaurant sales, increased to 36.7% in 2024 compared with 34.0% a year ago primarily due to a 2.2% impact from labor inflation. Labor inflation was 9.7% in the current year. Additional regulations, such as AB 1228, which went into effect April 2024, have raised labor costs, particularly given our high concentration of restaurants in California.

Occupancy and other costs, as a percentage of company restaurant sales, increased to 23.3% in 2024 from 21.7% a year ago primarily due to higher rent and operating expenses including utilities and information technology costs, partially offset by a change in the mix of restaurants due to refranchising.

32

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):

[[GREPCENT_TABLE]]
[["","","2024","","2023"],["Franchise rental revenues","","$","28,201","","$","13,308"],["Royalties","","31,714","","25,669"],["Franchise fees and other","","1,077","","556"],["Franchise royalties and other","","32,791","","26,225"],["Franchise contributions for advertising and other services","","30,915","","24,933"],["Total franchise revenues","","$","91,907","","$","64,466"],["Franchise occupancy expenses","","$","27,948","","$","13,150"],["Franchise support and other costs","","4,551","","2,259"],["Franchise advertising and other services expenses","","33,667","","25,666"],["Total franchise costs","","$","66,166","","$","41,075"],["Franchise costs as a percentage of total franchise revenues","","72.0","%","","63.7","%"],["Average number of franchise restaurants","","429","","344"],["Franchised restaurant sales","","$","674,804","","$","541,913"],["Franchised restaurant AUVs","","$","1,573","","$","1,574"],["Royalties as a percentage of total franchised restaurant sales","","4.7","%","","4.7","%"]]
[[/GREPCENT_TABLE]]

Franchise rental revenues increased $14.9 million, or 111.9% in 2024 compared to the prior year, primarily due to higher rental income of $11.0 million resulting from new subleases related to the 142 restaurants refranchised since the second quarter of 2023 and the 11 franchise-operated restaurants opened in fiscal 2024.

Franchise royalties and other increased $6.6 million, or 25.0% in 2024 compared to the prior year, primarily due to higher franchise restaurant sales resulting from the 142 restaurants refranchised since the second quarter of 2023 and the 11 franchise-operated restaurants opened in fiscal 2024.

Franchise contributions for advertising and other services revenues increased $6.0 million, or 24.0% in 2024 compared to the prior year, primarily due to higher marketing contributions related to higher franchise restaurant sales resulting from the 142 restaurants refranchised since the second quarter of 2023 and the 11 franchise-operated restaurants opened in fiscal 2024.

Franchise occupancy expenses, primarily rent, increased $14.8 million, or 112.5% in 2024 compared to the prior year, primarily due to higher rent related to franchise subleases for the 142 restaurants refranchised since the second quarter of 2023 and the 11 franchise-operated restaurants opened in fiscal 2024.

Franchise support and other costs increased $2.3 million, or 101.5% in 2024 compared to the prior year, primarily due to higher franchise development support costs, as well as additional overhead costs.

Franchise advertising and other service expenses increased $8.0 million, or 31.2% in 2024 compared to the prior year, primarily due to higher franchise restaurant sales resulting from the 142 restaurants refranchised since the second quarter of 2023 and the 11 franchise-operated restaurants opened in fiscal 2024.

Company-Wide Results

Depreciation and Amortization

Depreciation and amortization decreased $2.5 million in 2024 as compared with the prior year. The decreases in depreciation are primarily due to the refranchising of Del Taco restaurants since the prior year, as well as certain Jack in the Box franchise assets becoming fully depreciated. These decreases were partially offset by increases for new technology assets and new company restaurant openings.

33

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

The following table presents the amounts for SG&A expenses in each fiscal year (in thousands):

[[GREPCENT_TABLE]]
[["","2024","","2023"],["Advertising","$","34,992","","","$","38,753"],["Share-based compensation","13,471","","","11,205"],["Incentive compensation","9,911","","","20,283"],["Cash surrender value of COLI policies, net","(14,390)","","","(5,953)"],["Litigation matters","1,811","","","7,001"],["Insurance","3,183","","","5,991"],["Other","94,255","","","95,592"],["","$","143,233","","","$","172,872"]]
[[/GREPCENT_TABLE]]

Advertising costs represent company contributions to our marketing funds and are generally determined as a percentage of company-operated restaurant sales. Advertising costs decreased $3.8 million compared to the prior year primarily due to a decrease in company-operated restaurant sales in the current year which was primarily driven by Del Taco refranchising.

Share-based compensation in 2024 increased by $2.3 million compared to the prior year primarily due to a higher number of executive stock awards outstanding compared to the prior year.

Incentive compensation in 2024 decreased by $10.4 million compared to the prior year primarily due to lower achievement levels compared to the prior year for the Company’s annual incentive plan.

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 favorable impact of $8.4 million as compared to the prior year.

Litigation matters in 2024 decreased by $5.2 million as compared to the prior year due to the timing of litigation developments in each fiscal 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 in 2024 decreased $2.8 million as compared to the prior year primarily due to positive development factors related to workers compensation and general liability claims.

Pre-Opening Costs

Pre-opening costs associated with the opening of a new restaurant or the remodeling of an existing restaurant consist primarily of property rent and employee training costs. Pre-opening costs associated with the opening of a restaurant that was closed upon acquisition consist of labor costs, maintenance and repair costs, and property rent.

Goodwill Impairment

During the third quarter of 2024, the Company identified triggering events that indicated the goodwill allocated to the Del Taco reporting unit might be impaired. The triggering events related to i) a recent negative trend in Del Taco same store sales, ii) lower margins due in part to lower sales and wage increases required in California effective April 1, 2024 under AB 1228 and iii) unfavorable changes in the economic environment specifically impacting our industry, including inflation and interest rates. As a result, the Company performed a quantitative test over the Del Taco reporting unit, noting that the fair value of the reporting unit was less than the carrying value, which resulted in an impairment of goodwill of $162.6 million.

34

Other Operating Expense, Net

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

[[GREPCENT_TABLE]]
[["","","2024","","2023"],["Integration and strategic initiatives","","$","15,631","","","$","9,112"],["Costs of closed restaurants and other","","2,975","","","4,786"],["Restaurant impairment charges","","8,008","","","4,569"],["Accelerated depreciation","","699","","","541"],["Gains on acquisition of restaurants","","(2,702)","","","\u2014"],["Losses (gains) on disposition of property and equipment, net","","185","","","(8,171)"],["Other operating expense, net","","$","24,796","","","$","10,837"]]
[[/GREPCENT_TABLE]]

Other operating expense, net increased $14.0 million in 2024 versus the prior year primarily due to the decrease in gains on disposition of property and equipment of $8.4 million due to gains recognized in the prior year from a sale of Jack in the Box restaurant properties to franchisees who were leasing the properties from us prior to the sale. The change was also impacted by the increase in integration and strategic initiatives of $6.5 million in the current year, as well as an increase in restaurant impairment charges of $3.4 million relating to under-performing Jack in the Box and Del Taco restaurants. Refer also to Note 9, Other Operating Expense, Net, of the notes to the consolidated financial statements for additional information.

Gains on the Sale of Company-Operated Restaurants

In 2024, gains on the sale of company-operated restaurants totaled $3.3 million and were related to the refranchising of 47 Del Taco restaurants. In the prior year, 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. Refer to Note 4, Summary of Refranchisings and Franchise Acquisitions, of the notes to the consolidated financial statements for additional information.

Other Pension and Post-Retirement Expenses, Net

Our policy is to fund our pension plans at or above the minimum required by law. As of the date of our last actuarial funding valuation, there was no minimum requirement. We do not anticipate making any contributions to our Qualified Plan in fiscal 2025. For additional information, refer to Note 12, Retirement Plans, of the notes to the consolidated financial statements.

Interest Expense, Net

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

[[GREPCENT_TABLE]]
[["","","2024","","2023"],["Interest expense","","$","82,134","","","$","84,627"],["Interest income","","(2,118)","","","(2,181)"],["Interest expense, net","","$","80,016","","","$","82,446"]]
[[/GREPCENT_TABLE]]

Interest expense, net, decreased $2.4 million in 2024. The interest expense portion decreased by $2.5 million primarily due to lower average borrowings, as well as lower average interest rates.

Income Taxes

For fiscal year 2024, the Company recorded income tax provisions of $32.4 million resulting in effective tax rate of negative 748.9%. The effective tax rate for such period differed from the U.S. statutory tax rate primarily due to the impairment of non-deductible goodwill partially offset by the reversal of state deferred tax liabilities on basis difference of investments in subsidiaries and non-taxable gains from the market performance of insurance products used to fund certain non-qualified retirement plans.

For fiscal year 2023, the Company recorded income tax provisions of $58.5 million resulting in an effective tax rate of 30.9%. The effective tax rate for such period differed from the U.S. statutory tax rate primarily due to the impact of non-deductible goodwill related to the sale of company-operated restaurants partially offset by non-taxable gains from the market performance of insurance products used to fund certain non-qualified retirement plans.

35

LIQUIDITY AND CAPITAL RESOURCES

General

Our primary sources of short-term and long-term liquidity and capital resources are cash flows from operations and borrowings available under our credit facilities. 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 use available cash flows from operations to invest in our business, service our debt obligations, pay dividends and repurchase shares of our common stock.

As of September 29, 2024, the Company had $54.2 million of cash and restricted cash on its consolidated balance sheet and available borrowings of $169.5 million under our $150.0 million Variable Funding Notes and our $75.0 million revolving credit facility. The Company continually assesses the optimal sources and uses of cash for our business. We review our balance sheet for any undervalued assets and pursue opportunities for capital sources, including the sale of our owned Jack in the Box properties and refranchising, primarily for Del Taco in the near term.

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

Cash Flows

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

[[GREPCENT_TABLE]]
[["","","2024","","2023"],["Total cash provided by (used in):"],["Operating activities","","$","68,816","","","$","215,006"],["Investing activities","","(69,371)","","","42,219"],["Financing activities","","(131,185)","","","(207,358)"],["Net cash flows","","$","(131,740)","","","$","49,867"]]
[[/GREPCENT_TABLE]]

Operating Activities. Operating cash flows decreased $146.2 million compared with a year ago. This decrease is primarily due to an unfavorable change in working capital of $156.1 million, partially offset by higher net income, when adjusted for non-cash items, of $9.9 million. The change in working capital is primarily a result of the payment of income taxes liabilities of $111.9 million (of which $50.3 million was a payment deferred from 2023 in connection with the Southern California winter storm disaster area declaration), an increase in bonus payout, an increase in deferred rent accrual and an increase in the advertising accruals.

Pension and Postretirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of the date of our last actuarial funding valuation for our qualified pension plan, there was no minimum contribution funding requirement. In 2024 and 2023, we contributed $5.9 million and $6.2 million, respectively, to our pension and postretirement plans. We do not anticipate making any contributions to our qualified defined benefit pension plan in fiscal 2025. For additional information, refer to Note 12, Retirement Plans, of the notes to the consolidated financial statements.

Investing Activities. Cash flows used in investing activities increased $111.6 million from 2024 compared to 2023. This increase was primarily due to $65.8 million of additional cash received in 2023 from the sale of Del Taco company-owned restaurants to franchisees, and an increase of $40.5 million for amounts used for the purchase of property and equipment.

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

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[[/GREPCENT_TABLE]]

In 2024, capital expenditures increased by $40.5 million compared to a year ago, primarily due to an increase in information technology for both restaurant and corporate of $16.2 million, new restaurant openings of $14.4 million, and an increase in the purchases of Jack in the Box restaurant properties intended for sale and leaseback of $11.5 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 2024, we completed one sales-leaseback transaction involving a restaurant property with proceeds of $1.7 million and completed the sale of properties to franchisees and other third parties during the year with proceeds of $25.0 million.

Financing Activities. Cash flows used in financing activities decreased by $76.2 million compared with a year ago, primarily as a result of a decrease in net borrowings of $56.2 million and a $20.0 million decrease in share repurchases compared with a year ago.

Repurchases of Common Stock — In fiscal 2024, the Company repurchased 1.1 million shares of its common stock for an aggregate cost of $70.6 million, including applicable excise tax. As of September 29, 2024, there was $180.0 million remaining under share repurchase programs authorized by the Board of Directors which do not expire.

Dividends — In fiscal 2024, the Board of Directors declared four quarterly cash dividends of $0.44 per share, totaling $34.2 million. Future dividends are subject to approval by our Board of Directors.

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.

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 September 29, 2024, we had $6.0 million of outstanding borrowings and had available borrowing capacity of $94.5 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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The 2022 Notes were issued in a privately placed securitization transaction pursuant to which certain of the Company’s revenue-generating assets, consisting principally of franchise-related agreements, real estate assets, and intellectual property and license agreements for the use of intellectual property, are held by the Master Issuer and certain other limited-purpose, bankruptcy remote, wholly owned indirect subsidiaries of the Company that act as Guarantors of the Notes and that have pledged substantially all of their assets, excluding certain real estate assets and subject to certain limitations, to secure the Notes. The 2022 Notes are subject to the same covenants and restrictions as the Series 2019-1 Notes.

The quarterly principal payment on the Class A-2 Notes may be suspended when the specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as defined in the Indenture), is less than or equal to 5.0x. Exceeding the leverage ratio of 5.0x does not violate any covenant related to the Class A-2 Notes.

Restricted Cash — In accordance with the terms of the Indenture, certain cash accounts have been established with the Indenture trustee for the benefit of the note holders and are restricted in their use. As of September 29, 2024, the Master Issuer had restricted cash of $29.4 million, which primarily represented cash collections and cash reserves held by the trustee to be used for payments of interest and commitment fees required for the Class A-2 Notes and Variable Funding Notes.

Covenants and Restrictions — The Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Notes are in stated ways defective or ineffective and (iv) covenants relating to recordkeeping, access to information and similar matters. The 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 Class A-2 Notes on the applicable scheduled maturity date. The 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 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. As of September 29, 2024, we were in compliance with all of our debt covenant requirements and were not subject to any rapid amortization events.

Contractual Obligations

Our cash requirements greater than twelve months from contractual obligations and commitments include:

Debt Obligations and Interest Payments — Refer to Note 7, Indebtedness, of the notes to the consolidated financial statements for further information of our obligations and the timing of expected payments.

Operating and Finance Leases — Refer to Note 8, Leases, of the notes to the consolidated financial statements for further information of our obligations and the timing of expected payments.

Purchase Commitments — Purchase obligations includes non-cancelable purchase commitments related to information technology agreements and volume commitments for beverage products. Refer to Note 16, Commitments and Contingencies, for further detail of our obligations and the timing of expected future payments.

Benefit Obligations — Refer to Note 12, Retirement Plans, of the notes to the consolidated financial statements for further information regarding our obligations and the timing of expected payments under our non-qualified defined benefit plan and postretirement healthcare plans.

DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES

We have identified the following as our most critical accounting estimates, which are those that are most important to the portrayal of the Company’s financial condition and results, and that require management’s most subjective and complex judgments. Information regarding our other significant accounting estimates and policies are disclosed in Note 1, Nature of Operations and Summary of Significant Accounting Policies, of the notes to the consolidated financial statements.

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Long-Lived Assets — We review our long-lived assets, such as property and equipment and operating lease right-of-use assets, for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Long-lived assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. The impairment test for long-lived assets requires us to assess the recoverability of long-lived asset groups by comparing their net carrying value to the sum of undiscounted estimated future cash flows expected to be generated through leases and/or subleases or by our individual company-operated restaurants. If the carrying amount of a long-lived asset group exceeds the sum of related undiscounted future cash flows, we recognize an impairment loss by the amount that the carrying value of the assets exceeds fair value. 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 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. Our reporting units are our two restaurant brands, Jack in the Box and Del Taco.

Our impairment analyses first include a qualitative assessment to determine whether events or circumstances indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value. Significant factors considered in this assessment include, but are not limited to, macro-economic conditions, market and industry conditions, cost considerations, the competitive environment, share price fluctuations, overall financial performance, and results of past impairment tests. If the qualitative factors indicate that it is more likely than not that the fair value is less than the carrying value, we perform a quantitative impairment test.

In performing a quantitative test for impairment of goodwill, we primarily use the income approach method of valuation that includes the discounted cash flow method and the market approach that includes the guideline public company method to determine the fair value of the reporting unit. Significant assumptions made by management to estimate fair value under the discounted cash flow method include future cash flow assumptions, which may differ from actual cash flows due to, among other things, economic conditions, or changes in operating performance. The discount rate is our estimate of the required rate of return that a third-party buyer would expect to receive when purchasing a business from us that constitutes a reporting unit. We believe the discount rate is commensurate with the risk and uncertainty inherent in the forecasted cash flows. Significant assumptions used to determine fair value under the guideline public company method include the selection of guideline companies and the valuation multiples applied.

In the process of a quantitative test, if necessary, of the Del Taco trademark intangible asset, we primarily use the relief from royalty method under the income approach method of valuation. Significant assumptions used to determine fair value under the relief from royalty method include future trends in sales, a royalty rate, an estimated income tax rate, and a discount rate to be applied to the forecast revenue stream.

Self-Insurance — We are self-insured for a portion of our losses related to workers’ compensation, general liability and other legal claims, and health benefits. In estimating our self-insurance accruals, we utilize independent actuarial estimates of expected losses and assumptions related to the loss development factors, which are based on statistical analysis of historical data. These assumptions are closely monitored and adjusted when warranted by changing circumstances. Should a greater number of claims occur compared to what was estimated, or should medical costs increase beyond what was expected, accruals might not be sufficient, and additional expense may be recorded.

Legal Accruals — The Company is subject to claims and lawsuits in the ordinary course of its business. A determination of the amount accrued, if any, for these contingencies is made after analysis of each matter. We continually evaluate such accruals and may increase or decrease accrued amounts as we deem appropriate. Because lawsuits are inherently unpredictable, and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgment about future events. As a result, the amount of ultimate loss may differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 1, Nature of Operations and Summary of Significant Accounting Policies, of the notes to the consolidated financial statements for a discussion of the impact of new accounting pronouncements on our consolidated financial statements.