SEC Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ____________________________________________________
FORM 10-Q
 _______________________________________________________________________________________ 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 10, 2016
Commission File Number: 1-9390
DELAWARE
 
95-2698708
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
9330 BALBOA AVENUE, SAN DIEGO, CA
 
92123
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (858) 571-2121
   _______________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  þ    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
þ
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨    No  þ
As of the close of business May 6, 2016, 32,540,996 shares of the registrant’s common stock were outstanding.



JACK IN THE BOX INC. AND SUBSIDIARIES
INDEX
 
 
 
Page
 
PART I – FINANCIAL INFORMATION
 
Item 1.
 
 
 
Condensed Consolidated Statements of Earnings
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Item 4.
 
PART II – OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Defaults of Senior Securities
Item 4.
Item 5.
Item 6.
 

1


PART I. FINANCIAL INFORMATION
 
ITEM 1.        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
 
April 10,
2016
 
September 27,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
8,799

 
$
17,743

Accounts and other receivables, net
71,948

 
47,975

Inventories
7,873

 
7,376

Prepaid expenses
24,786

 
16,240

Assets held for sale
19,682

 
15,516

Other current assets
2,616

 
3,106

Total current assets
135,704

 
107,956

Property and equipment, at cost
1,576,974

 
1,563,377

Less accumulated depreciation and amortization
(862,552
)
 
(835,114
)
Property and equipment, net
714,422

 
728,263

Intangible assets, net
14,364

 
14,765

Goodwill
149,012

 
149,027

Other assets, net
287,962

 
303,968

 
$
1,301,464

 
$
1,303,979

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
26,272

 
$
26,677

Accounts payable
28,095

 
32,137

Accrued liabilities
165,091

 
170,575

Total current liabilities
219,458

 
229,389

Long-term debt, net of current maturities
909,388

 
688,579

Other long-term liabilities
363,235

 
370,058

Stockholders’ (deficit) equity:
 
 
 
Preferred stock $0.01 par value, 15,000,000 shares authorized, none issued

 

Common stock $0.01 par value, 175,000,000 shares authorized, 81,306,567 and 81,096,156 issued, respectively
813

 
811

Capital in excess of par value
414,816

 
402,986

Retained earnings
1,357,178

 
1,316,119

Accumulated other comprehensive loss
(141,991
)
 
(132,530
)
Treasury stock, at cost, 48,765,738 and 45,314,529 shares, respectively
(1,821,433
)
 
(1,571,433
)
Total stockholders’ (deficit) equity
(190,617
)
 
15,953

 
$
1,301,464

 
$
1,303,979

See accompanying notes to condensed consolidated financial statements.

2


JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
 
Quarter
 
Year-to-date
 
April 10,
2016
 
April 12,
2015
 
April 10,
2016
 
April 12,
2015
Revenues:
 
 
 
 
 
 
 
Company restaurant sales
$
271,792

 
$
268,904

 
$
625,013

 
$
620,800

Franchise rental revenues
52,602

 
52,215

 
122,340

 
121,661

Franchise royalties and other
36,757

 
37,003

 
84,621

 
84,282

 
361,151

 
358,122

 
831,974

 
826,743

Operating costs and expenses, net:
 
 
 
 
 
 
 
Company restaurant costs:
 
 
 
 
 
 
 
Food and packaging
82,066

 
84,032

 
190,977

 
197,141

Payroll and employee benefits
76,137

 
73,073

 
174,044

 
168,752

Occupancy and other
59,527

 
56,468

 
137,226

 
131,499

Total company restaurant costs
217,730

 
213,573

 
502,247

 
497,392

Franchise occupancy expenses
37,408

 
39,316

 
89,627

 
91,734

Franchise support and other costs
3,907

 
3,743

 
8,769

 
8,466

Selling, general and administrative expenses
46,895

 
52,472

 
112,767

 
115,567

Impairment and other charges, net
2,422

 
2,130

 
4,079

 
4,310

Losses (gains) on the sale of company-operated restaurants
3

 
5,020

 
(815
)
 
4,170

 
308,365

 
316,254

 
716,674

 
721,639

Earnings from operations
52,786

 
41,868

 
115,300

 
105,104

Interest expense, net
6,911

 
4,220

 
15,086

 
9,433

Earnings from continuing operations and before income taxes
45,875

 
37,648

 
100,214

 
95,671

Income taxes
16,847

 
14,286

 
37,289

 
35,211

Earnings from continuing operations
29,028

 
23,362

 
62,925

 
60,460

Losses from discontinued operations, net of income tax benefit
(346
)
 
(357
)
 
(1,022
)
 
(1,620
)
Net earnings
$
28,682

 
$
23,005

 
$
61,903

 
$
58,840

 
 
 
 
 
 
 
 
Net earnings per share - basic:
 
 
 
 
 
 
 
Earnings from continuing operations
$
0.86

 
$
0.62

 
$
1.81

 
$
1.58

Losses from discontinued operations
(0.01
)
 
(0.01
)
 
(0.03
)
 
(0.04
)
Net earnings per share (1)
$
0.85

 
$
0.61

 
$
1.78

 
$
1.53

Net earnings per share - diluted:
 
 
 
 
 
 
 
Earnings from continuing operations
$
0.85

 
$
0.61

 
$
1.78

 
$
1.55

Losses from discontinued operations
(0.01
)
 
(0.01
)
 
(0.03
)
 
(0.04
)
Net earnings per share (1)
$
0.84

 
$
0.60

 
$
1.76

 
$
1.51

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
33,656

 
37,970

 
34,686

 
38,353

Diluted
34,177

 
38,566

 
35,256

 
39,039

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.30

 
$
0.20

 
$
0.60

 
$
0.40

____________________________
(1)
Earnings per share may not add due to rounding.
See accompanying notes to condensed consolidated financial statements.

3


JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Quarter
 
Year-to-date
 
April 10,
2016
 
April 12,
2015
 
April 10,
2016
 
April 12,
2015
Net earnings
$
28,682

 
$
23,005

 
$
61,903

 
$
58,840

Cash flow hedges:
 
 
 
 
 
 
 
Net change in fair value of derivatives
(8,746
)
 
86

 
(20,183
)
 
(6,672
)
Net loss reclassified to earnings
876

 
468

 
2,320

 
1,095

 
(7,870
)
 
554

 
(17,863
)
 
(5,577
)
Tax effect
3,046

 
(212
)
 
6,914

 
2,135

 
(4,824
)
 
342

 
(10,949
)
 
(3,442
)
Unrecognized periodic benefit costs:
 
 
 
 
 
 
 
Actuarial losses and prior service costs reclassified to earnings
1,050

 
2,276

 
2,448

 
5,311

Tax effect
(406
)
 
(871
)
 
(947
)
 
(2,033
)
 
644

 
1,405

 
1,501

 
3,278

Other:
 
 
 
 
 
 
 
Foreign currency translation adjustments
31

 
10

 
(21
)
 
16

Tax effect
(12
)
 
(2
)
 
8

 
(5
)
 
19

 
8

 
(13
)
 
11

 
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax
(4,161
)
 
1,755

 
(9,461
)
 
(153
)
 
 
 
 
 
 
 
 
Comprehensive income
$
24,521

 
$
24,760

 
$
52,442

 
$
58,687

See accompanying notes to condensed consolidated financial statements.


4


JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Year-to-date
 
April 10,
2016
 
April 12,
2015
Cash flows from operating activities:
 
 
 
Net earnings
$
61,903

 
$
58,840

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
49,331

 
47,875

Deferred finance cost amortization
1,437

 
1,155

Excess tax benefits from share-based compensation arrangements
(2,451
)
 
(17,073
)
Deferred income taxes
(1,303
)
 
(2,785
)
Share-based compensation expense
7,901

 
7,367

Pension and postretirement expense
7,261

 
10,096

Gains on cash surrender value of company-owned life insurance
(2,446
)
 
(3,635
)
(Gains) losses on the sale of company-operated restaurants
(815
)
 
4,170

Losses on the disposition of property and equipment
1,646

 
466

Impairment charges and other
858

 
2,180

Changes in assets and liabilities:
 
 
 
Accounts and other receivables
(25,875
)
 
(21,841
)
Inventories
(497
)
 
146

Prepaid expenses and other current assets
(2,149
)
 
27,181

Accounts payable
(1,847
)
 
(1,459
)
Accrued liabilities
(3,464
)
 
(8,991
)
Pension and postretirement contributions
(8,255
)
 
(8,113
)
Other
(782
)
 
(4,659
)
Cash flows provided by operating activities
80,453

 
90,920

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(51,298
)
 
(32,959
)
Purchases of assets intended for sale and leaseback
(5,581
)
 
(5,355
)
Proceeds from the sale and leaseback of assets
7,748

 

Proceeds from the sale of company-operated restaurants
1,021

 
2,630

Collections on notes receivable
2,614

 
5,314

Acquisition of franchise-operated restaurants
324

 

Other
14

 
1,786

Cash flows used in investing activities
(45,158
)
 
(28,584
)
Cash flows from financing activities:
 
 
 
Borrowings on revolving credit facilities
497,000

 
264,000

Repayments of borrowings on revolving credit facilities
(264,000
)
 
(160,000
)
Principal repayments on debt
(13,065
)
 
(7,996
)
Dividends paid on common stock
(20,765
)
 
(15,395
)
Proceeds from issuance of common stock
1,432

 
13,894

Repurchases of common stock
(250,000
)
 
(174,115
)
Excess tax benefits from share-based compensation arrangements
2,451

 
17,073

Change in book overdraft
2,695

 

Cash flows used in financing activities
(44,252
)
 
(62,539
)
Effect of exchange rate changes on cash and cash equivalents
13

 
11

Net decrease in cash and cash equivalents
(8,944
)
 
(192
)
Cash and cash equivalents at beginning of period
17,743

 
10,578

Cash and cash equivalents at end of period
$
8,799

 
$
10,386


See accompanying notes to condensed consolidated financial statements.

5

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




1.    BASIS OF PRESENTATION
Nature of operations — Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box® quick-service restaurants and Qdoba Mexican Eats® (“Qdoba”) fast-casual restaurants. The following table summarizes the number of restaurants as of the end of each period:
 
April 10,
2016
 
April 12,
2015
Jack in the Box:
 
 
 
Company-operated
413

 
412

Franchise
1,838

 
1,836

Total system
2,251

 
2,248

Qdoba:
 
 
 
Company-operated
338

 
310

Franchise
345

 
334

Total system
683

 
644

References to the Company throughout these Notes to Condensed Consolidated Financial Statements are made using the first person notations of “we,” “us” and “our.”
Basis of presentation — The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission (“SEC”). During fiscal 2012, we entered into an agreement to outsource our Jack in the Box distribution business. In the third quarter of fiscal 2013, we closed 62 Qdoba restaurants (the “2013 Qdoba Closures”) as part of a comprehensive Qdoba market performance review. The results of operations for our distribution business and for the 2013 Qdoba Closures are reported as discontinued operations for all periods presented. Refer to Note 2, Discontinued Operations, for additional information. Unless otherwise noted, amounts and disclosures throughout these Notes to Condensed Consolidated Financial Statements relate to our continuing operations. In our opinion, all adjustments considered necessary for a fair presentation of financial condition and results of operations for these interim periods have been included. Operating results for one interim period are not necessarily indicative of the results for any other interim period or for the full year.
These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended September 27, 2015 (“2015 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2015 Form 10-K with the exception of a new accounting pronouncement adopted in fiscal 2016 which is described below.
Principles of consolidation — The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the accounts of any variable interest entities (“VIEs”) where we are deemed the primary beneficiary. All significant intercompany accounts and transactions are eliminated. The financial results and position of our VIE are immaterial to our condensed consolidated financial statements.
Reclassifications and adjustments — Certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform to the fiscal 2016 presentation.
In our 2015 Form 10-K, on our consolidated statements of earnings, we began to separately state our franchise revenues derived from rentals and those derived from royalties and other. To provide clarity, we additionally have separately stated the associated rental expense, and depreciation and amortization related to the rental income received from franchisees. For comparison purposes, we have reclassified prior year franchise revenue and franchise costs line items to reflect the new method of presentation in our accompanying condensed consolidated statements of earnings.
Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal year 2016 includes 53 weeks, while fiscal year 2015 includes 52 weeks. Our first quarter includes 16 weeks and all other quarters include 12 weeks, with the exception of the fourth quarter of fiscal 2016, which includes 13 weeks. All comparisons between 2016 and 2015 refer to the 12-weeks (“quarter”) and 28-weeks (“year-to-date”) ended April 10, 2016 and April 12, 2015, respectively, unless otherwise indicated.

6

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




Use of estimates — In preparing the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates.
Effect of new accounting pronouncements — In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue Recognition - Revenue from Contracts with Customers (Topic 606), which provides a comprehensive new revenue recognition model that requires an entity to recognize revenue in an amount that reflects the consideration the entity expects to receive for the transfer of promised goods or services to its customers. The standard also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Further, in March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the guidance in ASU No. 2014-09 when evaluating when another party, along with the entity, is involved in providing a good or service to a customer. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the guidance in ASU No. 2014-09 regarding assessing whether promises to transfer goods or services are distinct, and whether an entity's promise to grant a license provides a customer with a right to use, or right to access the entity's intellectual property. All standards are effective for annual periods beginning after December 15, 2017, and interim periods within that reporting period. As such, we will be required to adopt these standards in the first quarter of fiscal 2019. These standards are to be applied retrospectively or using a cumulative effect transition method, and early adoption is not permitted. We are currently evaluating which transition method to use and the effect that these standards will have on our consolidated financial statements and related disclosures.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes. This standard requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. This standard is effective prospectively or retrospectively for all periods presented for annual and interim periods beginning after December 15, 2017, with early adoption permitted. We early adopted this standard in the first quarter of 2016 and the prior period was retrospectively adjusted, resulting in a $40.0 million reclassification of current deferred income taxes to other assets, net on our September 27, 2015 condensed consolidated balance sheet.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize assets and liabilities on the balance sheet for those leases classified as operating leases under previous guidance. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This standard requires adoption based upon a modified retrospective transition approach, with early adoption permitted. We are currently evaluating the impact this standard will have on our consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-04, Liabilities-Extinguishment of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products, which is designed to provide guidance and eliminate diversity in the accounting for the derecognition of financial liabilities related to certain prepaid stored-value products using a revenue-like breakage model. This standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. This standard is to be applied retrospectively or using a cumulative effect transition method as of the date of adoption. We are currently evaluating which transition method to use, but believe the impact this standard will have on our consolidated financial statements and related disclosures will be immaterial upon adoption.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard is intended to simplify various aspects of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. This standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period, with early adoption permitted. We are currently evaluating the impact of the standard on our consolidated financial statements and related disclosures.


7

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



2.
DISCONTINUED OPERATIONS
Distribution business — During fiscal 2012, we entered into an agreement with a third party distribution service provider pursuant to a plan approved by our Board of Directors to sell our Jack in the Box distribution business. During the first quarter of fiscal 2013, we completed the transition of our distribution centers. The operations and cash flows of the business have been eliminated and in accordance with the provisions of the FASB authoritative guidance on the presentation of financial statements, the results are reported as discontinued operations for all periods presented.
In 2016 and 2015, results of discontinued operations were immaterial for both periods. Our liability for lease commitments related to our distribution centers is included in accrued liabilities and other long-term liabilities, and was $0.2 million as of April 10, 2016 and September 27, 2015. The lease commitment balances relate to one distribution center subleased at a loss.
2013 Qdoba Closures — During the third quarter of fiscal 2013, we closed 62 Qdoba restaurants. The decision to close these restaurants was based on a comprehensive analysis that took into consideration levels of return on investment and other key operating performance metrics. Since the closed locations were not predominantly located near those remaining in operation, we did not expect the majority of cash flows and sales lost from these closures to be recovered. In addition, we did not anticipate any ongoing involvement or significant direct cash flows from the closed stores. Therefore, in accordance with the provisions of the FASB authoritative guidance on the presentation of financial statements, the results of operations for these restaurants are reported as discontinued operations for all periods presented.
The following table summarizes the results related to the 2013 Qdoba Closures for each period (in thousands):
 
Quarter
 
Year-to-date
 
April 10,
2016
 
April 12,
2015
 
April 10,
2016
 
April 12,
2015
Unfavorable lease commitment adjustments
$
(462
)
 
$
(397
)
 
$
(1,468
)
 
$
(2,196
)
Bad debt expense related to a subtenant

 

 
(124
)
 

Ongoing facility related costs
(32
)
 
(66
)
 
(70
)
 
(127
)
Brokers commissions
(21
)
 
(30
)
 
(21
)
 
(142
)
Loss before income tax benefit
$
(515
)
 
$
(493
)
 
$
(1,683
)
 
$
(2,465
)
We do not expect the remaining costs to be incurred related to these closures to be material; however, our estimates related to our future lease obligations, primarily the sublease income we anticipate, are subject to a high degree of judgment and may differ from actual sublease income due to changes in economic conditions, desirability of the sites and other factors.
Our liability for lease commitments related to the 2013 Qdoba Closures is included in accrued liabilities and other long-term liabilities, and changed as follows in 2016 (in thousands):
Balance as of September 27, 2015
$
4,256

Adjustments (1)
1,468

Cash payments
(2,156
)
Balance as of April 10, 2016
$
3,568

____________________________
(1)
Adjustments relate to revisions to certain sublease and cost assumptions due to changes in market conditions, as well as a charge to terminate one lease agreement, and includes interest expense.

8

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



3.
SUMMARY OF REFRANCHISINGS, FRANCHISEE DEVELOPMENT AND ACQUISITIONS
Refranchisings and franchisee development — The following is a summary of the number of restaurants sold to franchisees, the number of restaurants developed by franchisees, and the related gains and fees recognized (dollars in thousands):
 
Quarter
 
Year-to-date
 
April 10,
2016
 
April 12,
2015
 
April 10,
2016
 
April 12,
2015
Restaurants sold to Jack in the Box franchisees

 
20

 
1

 
21

New restaurants opened by franchisees:
 
 
 
 
 
 
 
Jack in the Box

 
5

 
5

 
11

Qdoba
4

 
5

 
10

 
11

 
 
 
 
 
 
 
 
Initial franchise fees
$
120

 
$
608

 
$
505

 
$
983

 
 
 
 
 
 
 
 
Proceeds from the sale of company-operated restaurants (1)
$

 
$
1,456

 
$
1,021

 
$
2,630

Net assets sold (primarily property and equipment)
(3
)
 
(1,945
)
 
(196
)
 
(2,434
)
Goodwill related to the sale of company-operated restaurants

 
(16
)
 
(10
)
 
(32
)
Other (2)

 
(4,515
)
 

 
(4,334
)
(Losses) gains on the sale of company-operated restaurants
$
(3
)
 
$
(5,020
)
 
$
815

 
$
(4,170
)
____________________________
(1)
Amounts in 2016 and 2015 include additional proceeds recognized upon the extension of the underlying franchise and lease agreements related to restaurants sold in a prior year of $1.0 million and $0.1 million, respectively, year-to-date. No additional proceeds were recognized during the quarter in either year.
(2)
Amounts in 2015 include lease commitment charges related to restaurants closed in connection with the sale of the related market, and charges for operating restaurant leases with lease commitments in excess of our sublease rental income.
Franchise acquisitions — During year-to-date 2016 and 2015, we acquired one and six Jack in the Box franchise restaurants, respectively. We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). In all periods presented, acquisitions were not material to our condensed consolidated financial statements.


9

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



4.
FAIR VALUE MEASUREMENTS
Financial assets and liabilities — The following table presents our financial assets and liabilities measured at fair value on a recurring basis (in thousands):
 
Total      
 
Quoted Prices
in Active
Markets for
Identical
Assets (3)
(Level 1)
 
Significant
Other
Observable
Inputs (3)
(Level 2)
 
Significant
Unobservable
Inputs (3)
(Level 3)
Fair value measurements as of April 10, 2016:
 
 
 
 
 
 
 
Non-qualified deferred compensation plan (1)
$
(36,404
)
 
$
(36,404
)
 
$

 
$

Interest rate swaps (Note 5) (2) 
(44,237
)
 

 
(44,237
)
 

Total liabilities at fair value
$
(80,641
)
 
$
(36,404
)
 
$
(44,237
)
 
$

Fair value measurements as of September 27, 2015:
 
 
 
 
 
 
 
Non-qualified deferred compensation plan (1)
$
(35,003
)
 
$
(35,003
)
 
$

 
$

Interest rate swaps (Note 5) (2) 
(26,374
)
 

 
(26,374
)
 

Total liabilities at fair value
$
(61,377
)
 
$
(35,003
)
 
$
(26,374
)
 
$

 
____________________________
(1)
We maintain an unfunded defined contribution plan for key executives and other members of management. The fair value of this obligation is based on the closing market prices of the participants’ elected investments.
(2)
We entered into interest rate swaps to reduce our exposure to rising interest rates on our variable rate debt. The fair values of our interest rate swaps are based upon Level 2 inputs which include valuation models as reported by our counterparties. The key inputs for the valuation models are quoted market prices, discount rates and forward yield curves.
(3)
We did not have any transfers in or out of Level 1, 2 or 3.
The fair values of our debt instruments are based on the amount of future cash flows associated with each instrument discounted using our borrowing rate. At April 10, 2016, the carrying value of all financial instruments was not materially different from fair value, as the borrowings are prepayable without penalty. The estimated fair values of our capital lease obligations approximated their carrying values as of April 10, 2016.
Non-financial assets and liabilities — Our non-financial instruments, which primarily consist of property and equipment, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial instruments are assessed for impairment. If applicable, the carrying values are written down to fair value.
In connection with our impairment reviews performed during 2016, no fair value adjustments were required. Refer to Note 6, Impairment and Other Charges, Net for additional information regarding impairment charges.


10

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



5.
DERIVATIVE INSTRUMENTS
Objectives and strategies — We are exposed to interest rate volatility with regard to our variable rate debt. In April 2014, to reduce our exposure to rising interest rates, we entered into nine forward-starting interest rate swap agreements that effectively convert $300.0 million of our variable rate borrowings to a fixed rate basis from October 2014 through October 2018. In June 2015, we entered into 11 forward-starting interest rate swap agreements that effectively convert an additional $200.0 million of our variable rate borrowings, and future expected variable rate borrowings, to a fixed rate from October 2015 through October 2018, and $500.0 million from October 2018 through October 2022. These agreements have been designated as cash flow hedges in accordance with the provisions of the FASB authoritative guidance for derivatives and hedging. To the extent that they are effective in offsetting the variability of the hedged cash flows, changes in the fair values of the derivatives are not included in earnings, but are included in other comprehensive income (“OCI”). These changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are made on our variable rate debt.
Financial position — The following derivative instruments were outstanding as of the end of each period (in thousands):
 
Balance
Sheet
Location
 
Fair Value
 
 
April 10,
2016
 
September 27, 2015
Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
Interest rate swaps (Note 4)
Accrued liabilities
 
$
(3,922
)
 
$
(3,379
)
Interest rate swaps (Note 4)
Other long-term liabilities
 
(40,315
)
 
(22,995
)
Total derivatives
 
 
$
(44,237
)
 
$
(26,374
)
Financial performance — The following is a summary of the OCI activity related to our interest rate swap derivative instruments (in thousands):
 
Location of Loss in Income
 
Quarter
 
Year-to-date
 
 
April 10,
2016
 
April 12,
2015
 
April 10,
2016
 
April 12,
2015
(Loss) gain recognized in OCI
N/A
 
$
(8,746
)
 
$
86

 
$
(20,183
)
 
$
(6,672
)
Loss reclassified from accumulated OCI into net earnings
Interest expense, net
 
$
876

 
$
468

 
$
2,320

 
$
1,095

Amounts reclassified from accumulated OCI into interest expense represent payments made to the counterparties for the effective portions of the interest rate swaps. During the periods presented, our interest rate swaps had no hedge ineffectiveness.

6.
IMPAIRMENT AND OTHER CHARGES, NET
Impairment and other charges, net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):
 
Quarter
 
Year-to-date
 
April 10,
2016
 
April 12,
2015
 
April 10,
2016
 
April 12,
2015
Losses (gains) on the disposition of property and equipment, net
$
995

 
$
(269
)
 
$
1,646

 
$
352

Costs of closed restaurants (primarily lease obligations) and other
1,015

 
973

 
1,575

 
1,759

Accelerated depreciation
412

 
1,387

 
858

 
2,139

Restaurant impairment charges

 
27

 

 
41

Restructuring costs

 
12

 

 
19

 
$
2,422

 
$
2,130

 
$
4,079

 
$
4,310


11

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



Disposition of property and equipment — Disposal costs primarily relate to gains or losses recognized upon the sale of closed restaurant properties. In the second quarter of 2015, losses on the disposition of property and equipment included a gain of $0.9 million from the resolution of one eminent domain matter involving a Jack in the Box restaurant.
Restaurant closing costs — Costs of closed restaurants primarily consist of future lease commitments and expected ancillary costs, net of anticipated sublease rentals. Accrued restaurant closing costs, included in accrued liabilities and other long-term liabilities, changed as follows during 2016 (in thousands):
Balance as of September 27, 2015
 
$
9,707

Additions
 
208

Adjustments (1)
 
635

Interest expense
 
750

Cash payments
 
(2,768
)
Balance as of April 10, 2016
 
$
8,532

___________________________
(1)
Adjustments relate primarily to revisions of certain sublease and cost assumptions. Our estimates related to our future lease obligations, primarily the sublease income we anticipate, are subject to a high degree of judgment and may differ from actual sublease income due to changes in economic conditions, desirability of the sites and other factors.
Accelerated depreciation — When a long-lived asset will be replaced or otherwise disposed of prior to the end of its estimated useful life, the useful life of the asset is adjusted based on the estimated disposal date and accelerated depreciation is recognized. In 2016 and 2015, accelerated depreciation primarily relates to expenses at our Jack in the Box company-operated restaurants for exterior facility enhancements and the replacement of technology equipment, and in 2015, the replacement of beverage equipment.
Restaurant impairment charges — When events and circumstances indicate that our long-lived assets might be impaired and their carrying amount is greater than the undiscounted cash flows we expect to generate from such assets, we recognize an impairment loss as the amount by which the carrying value exceeds the fair value of the assets. Impairment charges in 2015 were not material to our condensed consolidated financial statements.
7.
INCOME TAXES
The 2016 income tax provisions reflect tax rates of 36.7% in the quarter and 37.2% year-to-date, compared with 37.9% and 36.8%, respectively, in 2015. The major components of the year-over-year change in tax rates were an increase in the Company’s state tax rate and the timing and amounts of gains or losses on insurance products used to fund certain non-qualified retirement plans which are excluded from taxable income. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2016 rate could differ from our current estimates.
We file income tax returns in the United States and all state and local jurisdictions in which we operate that impose an income tax. The federal statute of limitations has not expired for fiscal years 2012 and forward. The statutes of limitations for California and Texas, which constitute the Company’s major state tax jurisdictions, have not expired for fiscal years 2011 and forward.
 
8.
RETIREMENT PLANS
Defined benefit pension plans — We sponsor two defined benefit pension plans: a qualified plan covering substantially all full-time Jack in the Box employees hired prior to January 1, 2011, and an unfunded supplemental executive plan which provides certain employees additional pension benefits and was closed to new participants effective January 1, 2007. In fiscal 2011, the Board of Directors approved the sunset of our qualified plan whereby participants no longer accrue benefits effective December 31, 2015. Benefits under both plans are based on the employees’ years of service and compensation over defined periods of employment.
Postretirement healthcare plans — We also sponsor two healthcare plans, closed to new participants, that provide postretirement medical benefits to certain employees who have met minimum age and service requirements. The plans are contributory, with retiree contributions adjusted annually, and contain other cost-sharing features such as deductibles and coinsurance.

12

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



Net periodic benefit cost — The components of net periodic benefit cost in each period were as follows (in thousands): 
  
Quarter
 
Year-to-date
  
April 10,
2016
 
April 12,
2015
 
April 10,
2016
 
April 12,
2015
Defined benefit pension plans:
 
 
 
 
 
 
 
Service cost
$
1,212

 
$
1,908

 
$
2,828

 
$
4,452

Interest cost
5,580

 
5,237

 
13,020

 
12,220

Expected return on plan assets
(5,021
)
 
(5,370
)
 
(11,715
)
 
(12,531
)
Actuarial loss (1)
944

 
2,172

 
2,201

 
5,068

Amortization of unrecognized prior service costs (1)
55

 
62

 
129

 
145

Net periodic benefit cost
$
2,770

 
$
4,009

 
$
6,463

 
$
9,354

Postretirement healthcare plans:
 
 
 
 
 
 
 
Interest cost
$
291

 
$
276

 
$
680

 
$
644

Actuarial loss (1)
51

 
42

 
118

 
98

Net periodic benefit cost
$
342

 
$
318

 
$
798

 
$
742

___________________________
(1)    Amounts were reclassified from accumulated OCI into net earnings as a component of selling, general and administrative expenses.
Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of January 1, 2015, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement. Details regarding 2016 contributions are as follows (in thousands):
 
Defined Benefit
Pension Plans
 
Postretirement
Healthcare Plans
Net year-to-date contributions
$
7,617

 
$
638

Remaining estimated net contributions during fiscal 2016
$
16,900

 
$
700

We will continue to evaluate contributions to our qualified defined benefit pension plan based on changes in pension assets as a result of asset performance in the current market and economic environment.
 
9.
SHARE-BASED COMPENSATION
We offer share-based compensation plans to attract, retain and motivate key officers, employees and non-employee directors. During year-to-date 2016, we granted the following shares related to our share-based compensation awards:
Stock options
99,923

Performance share awards
32,970

Nonvested stock units
140,794

The components of share-based compensation expense recognized in each period are as follows (in thousands):
 
Quarter
 
Year-to-date
 
April 10,
2016
 
April 12,
2015
 
April 10,
2016
 
April 12,
2015
Stock options
$
748

 
$
555

 
$
1,723

 
$
1,554

Performance share awards
863

 
991

 
2,134

 
2,072

Nonvested stock awards
20

 
35

 
47

 
96

Nonvested stock units
1,912

 
1,638

 
3,727

 
3,382

Deferred compensation for non-management directors
270

 
263

 
270

 
263

Total share-based compensation expense
$
3,813

 
$
3,482

 
$
7,901

 
$
7,367


13

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




10.
STOCKHOLDERS’ EQUITY
Repurchases of common stock During year-to-date 2016, we repurchased 3.5 million common shares at an aggregate cost of $250.0 million. As of April 10, 2016, there was $50.0 million remaining under a stock-buyback program which expires in November 2017.
Dividends During year-to-date 2016, the Board of Directors declared two cash dividends of $0.30 per common share which were paid on March 14, 2016 and December 22, 2015 to shareholders of record as of the close of business on March 1, 2016 and December 9, 2015, respectively, and totaled $20.8 million. Future dividends are subject to approval by our Board of Directors.

11.
AVERAGE SHARES OUTSTANDING
Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive common shares include stock options, nonvested stock awards and units and non-management director stock equivalents. Performance share awards are included in the average diluted shares outstanding each period if the performance criteria have been met at the end of the respective periods.

The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):
 
Quarter
 
Year-to-date
 
April 10,
2016
 
April 12,
2015
 
April 10,
2016
 
April 12,
2015
Weighted-average shares outstanding – basic
33,656

 
37,970

 
34,686

 
38,353

Effect of potentially dilutive securities:
 
 
 
 
 
 
 
Stock options
156

 
246

 
166

 
337

Nonvested stock awards and units
242

 
190

 
280

 
195

Performance share awards
123

 
160

 
124

 
154

Weighted-average shares outstanding – diluted
34,177

 
38,566

 
35,256

 
39,039

Excluded from diluted weighted-average shares outstanding:
 
 
 
 
 
 
 
Antidilutive
223

 

 
194

 
78

Performance conditions not satisfied at the end of the period
2

 
6

 
2

 
14



14

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



12.
CONTINGENCIES AND LEGAL MATTERS 
Legal matters — The Company assesses contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in its financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates. 
Gessele v. Jack in the Box Inc. — In August 2010, five former employees instituted litigation in federal court in Oregon alleging claims under the federal Fair Labor Standards Act and Oregon wage and hour laws. The plaintiffs alleged that the Company failed to pay non-exempt employees for certain meal breaks and improperly made payroll deductions for shoe purchases and for workers’ compensation expenses, and later added additional claims relating to timing of final pay and related wage and hour claims involving employees of a franchisee. The most recent complaint seeks damages of $45.0 million but does not provide a basis for that amount. In fiscal 2012, we accrued for a single claim for which we believe a loss is both probable and estimable; this accrued loss contingency did not have a material effect on our results of operations. We have not established a loss contingency accrual for those claims as to which we believe liability is not probable or estimable, and we plan to vigorously defend against this lawsuit. Nonetheless, an unfavorable resolution of this matter in excess of our current accrued loss contingencies could have a material adverse effect on our business, results of operations, liquidity or financial condition.
Other legal matters — In addition to the matter described above, we are subject to normal and routine litigation brought by former, current or prospective employees, customers, franchisees, vendors, landlords, shareholders or others. We intend to defend ourselves in any such matters. Some of these matters may be covered, at least in part, by insurance. Our insurance liability (undiscounted) and reserves are established in part by using independent actuarial estimates of expected losses for reported claims and for estimating claims incurred but not reported. Our estimated liability for general liability and workers’ compensation claims, which exceeded our self-insurance retention limits by $25.8 million as of September 27, 2015, was reduced by $21.7 million in 2016 due to a judgment paid by our insurance providers. We expect to be fully covered by our insurance providers for the remaining $4.1 million that exceed our self-insurance retention limits as of April 10, 2016. We believe that the ultimate determination of liability in connection with legal claims pending against us, if any, in excess of amounts already provided for such matters in the condensed consolidated financial statements, will not have a material adverse effect on our business, our annual results of operations, liquidity or financial position; however, it is possible that our results of operations, liquidity, or financial condition could be materially affected in a particular future reporting period by the unfavorable resolution of one or more matters or contingencies during such period.

13.
SEGMENT REPORTING
Our principal business consists of developing, operating and franchising our Jack in the Box and Qdoba restaurant concepts, each of which we consider reportable operating segments. This segment reporting structure reflects our current management structure, internal reporting method and financial information used in deciding how to allocate our resources. Based upon certain quantitative thresholds, each operating segment is considered a reportable segment.

15

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



We measure and evaluate our segments based on segment revenues and earnings from operations. The reportable segments do not include an allocation of the costs related to shared service functions, such as accounting/finance, human resources, audit services, legal, tax and treasury; nor do they include unallocated costs such as pension expense and share-based compensation. These costs are reflected in the caption “Shared services and unallocated costs.” The following table provides information related to our operating segments in each period (in thousands):
 
Quarter
 
Year-to-date
 
April 10,
2016
 
April 12,
2015
 
April 10,
2016
 
April 12,
2015
Revenues by segment:
 
 
 
 
 
 
 
Jack in the Box restaurant operations
$
264,062

 
$
269,444

 
$
611,645

 
$
621,395

Qdoba restaurant operations
97,089

 
88,678

 
220,329

 
205,348

Consolidated revenues
$
361,151

 
$
358,122

 
$
831,974

 
$
826,743

Earnings from operations by segment:
 
 
 
 
 
 
 
Jack in the Box restaurant operations
$
63,146

 
$
64,313

 
$
148,836

 
$
145,168

Qdoba restaurant operations
10,623

 
8,778

 
19,360

 
23,460

Shared services and unallocated costs
(20,980
)
 
(26,203
)
 
(53,711
)
 
(59,354
)
(Losses) gains on the sale of company-operated restaurants
(3
)
 
(5,020
)
 
815

 
(4,170
)
Consolidated earnings from operations
52,786

 
41,868

 
115,300

 
105,104

Interest expense, net
6,911

 
4,220

 
15,086

 
9,433

Consolidated earnings from continuing operations and before income taxes
$
45,875

 
$
37,648

 
$
100,214

 
$
95,671

Total depreciation expense by segment:
 
 
 
 
 
 
 
Jack in the Box restaurant operations
$
15,059

 
$
14,699

 
$
35,532

 
$
34,314

Qdoba restaurant operations
4,279

 
4,035

 
9,867

 
9,315

Shared services and unallocated costs
1,310

 
1,612

 
3,535

 
3,872

Consolidated depreciation expense
$
20,648

 
$
20,346

 
$
48,934

 
$
47,501

We do not evaluate, manage or measure performance of segments using asset, interest income and expense, or income tax information; accordingly, this information by segment is not prepared or disclosed.
The following table provides detail of the change in the balance of goodwill for each of our reportable segments (in thousands):
 
Jack in the Box
 
Qdoba
 
Total
Balance at September 27, 2015
$
48,430

 
$
100,597

 
$
149,027

Disposals
(15
)
 

 
(15
)
Balance at April 10, 2016
$
48,415

 
$
100,597

 
$
149,012

Refer to Note 3, Summary of Refranchisings, Franchisee Development and Acquisitions, for information regarding the transactions resulting in the changes in goodwill.


16

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



14.
SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)
 
Year-to-date
 
April 10,
2016
 
April 12,
2015
Cash paid during the year for:
 
 
 
Interest, net of amounts capitalized
$
(15,210
)
 
$
(9,166
)
Income tax payments
$
(33,184
)
 
$
(1,087
)
Non-cash transactions:
 
 
 
Equipment capital lease obligations incurred
$
507

 
$

Increase in accrued treasury stock repurchases
$

 
$
2,442

Increase in dividends accrued or converted to common stock equivalents
$
55

 
$
70

(Decrease) increase in obligations for purchases of property and equipment
$
(7,512
)
 
$
5,395



17

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



15.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)

 
April 10,
2016
 
September 27,
2015
Accounts and other receivables, net:
 
 
 
Trade
$
61,336

 
$
36,990

Notes receivable
1,706

 
1,726

Other
11,276

 
10,814

Allowance for doubtful accounts
(2,370
)
 
(1,555
)
 
$
71,948

 
$
47,975

Prepaid expenses:
 
 
 
Prepaid rent
$
9,928

 
$
318

Prepaid income taxes
8,495

 
7,645

Other
6,363

 
8,277

 
$
24,786

 
$
16,240

Other assets, net:
 
 
 
Deferred tax assets
$
122,331

 
$
118,184

Company-owned life insurance policies
101,446

 
99,513

Deferred rent receivable
46,683

 
45,330

Other
17,502

 
40,941

 
$
287,962

 
$
303,968

Accrued liabilities:
 
 
 
Payroll and related taxes
$
41,853

 
$
56,223

Insurance
36,477

 
35,370

Advertising
18,233

 
20,692

Deferred beverage funding
14,322

 
5,176

Accrued rent
11,909

 
3,179

Sales and property taxes
8,985

 
11,574

Gift card liability
5,439

 
4,608

Deferred franchise fees
1,200

 
1,198

Other
26,673

 
32,555

 
$
165,091

 
$
170,575

Other long-term liabilities:
 
 
 
Pension plans
$
176,992

 
$
180,476

Straight-line rent accrual
46,818

 
46,807

Other
139,425

 
142,775

 
$
363,235

 
$
370,058


16.
SUBSEQUENT EVENTS

On May 5, 2016, the Board of Directors declared a cash dividend of $0.30 per common share, to be paid on June 7, 2016 to shareholders of record as of the close of business on May 24, 2016.

On May 5, 2016, the Board of Directors approved an additional $100.0 million stock buy-back program that expires in November 2017.

18


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All comparisons between 2016 and 2015 refer to the 12-weeks (“quarter”) and 28-weeks (“year-to-date”) ended April 10, 2016 and April 12, 2015, respectively, unless otherwise indicated.
For an understanding of the significant factors that influenced our performance during the quarterly and year-to-date periods ended April 10, 2016 and April 12, 2015, 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 September 27, 2015.
Our MD&A consists of the following sections:
Overview — a general description of our business and 2016 highlights.
Financial reporting — a discussion of changes in presentation, if any.
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, known trends that may impact liquidity and the impact of inflation, if applicable.
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 the following:
Changes in sales at restaurants open more than one year (“same-store sales”) and average unit volumes (“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 and percentage rent revenues are calculated based on a percentage of franchise sales. We believe franchise and system same-store sales and AUV information is useful to investors as a significant indicator of the overall strength of our business.
Company restaurant margin (“restaurant margin”) is defined as Company restaurant sales less expenses incurred directly by our restaurants in generating those sales (food and packaging costs, payroll and employee benefits, and occupancy and other costs). We also present restaurant margin as a percentage of Company restaurant sales.
Franchise margin is defined as franchise rental revenues and franchise royalties and other, less franchise occupancy expenses, and franchise support and other costs, and is presented as a percentage of franchise revenues.
Same-store-sales, AUVs, restaurant margin, and franchise margin are not measurements determined in accordance with generally accepted accounting principles (“GAAP”) and should not be considered in isolation, or as an alternative, to income from operations, or other similarly titled measures of other companies.

19


OVERVIEW
As of April 10, 2016, we operated and franchised 2,251 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam, and 683 Qdoba fast-casual restaurants operating primarily throughout the United States as well as the District of Columbia and Canada.
Our primary source of revenue is from retail sales at Jack in the Box and Qdoba company-operated restaurants. We also derive revenue from Jack in the Box and Qdoba franchise restaurants, including rental revenue, royalties (based upon a percent of sales) and franchise fees. In addition, we recognize gains or losses from the sale of company-operated restaurants to franchisees, which are included as a line item within operating costs and expenses, net in the accompanying Condensed Consolidated Statements of Earnings.
The following summarizes the most significant events occurring in 2016, and certain trends compared to a year ago:
Same-Store Sales Same-store sales declined 0.2% year-to-date at company-operated Jack in the Box restaurants compared with a year ago primarily driven by a decrease in traffic. Qdoba’s year-to-date same-store sales increase of 2.2% at company-operated restaurants compared with a year ago, was driven primarily by an increase in transactions and double-digit catering growth.
Commodity Costs Commodity costs decreased approximately 2.2% and 5.1% year-to-date at our Jack in the Box and Qdoba restaurants, respectively, in 2016 compared with a year ago. We expect our overall commodity costs in fiscal 2016 to decrease approximately 2-3% and 5% at our Jack in the Box and Qdoba restaurants, respectively. Beef represents the largest portion, or approximately 20%, of the Company’s overall commodity spend. We typically do not enter into fixed price contracts for our beef needs. For the full year, we currently expect beef costs to decrease approximately 15-20%.
Restaurant Margins Our year-to-date consolidated company-operated restaurant margin decreased in 2016 to 19.6% from 19.9% a year ago. Jack in the Box’s company-operated restaurant margin improved to 20.8% in 2016 from 20.3% in the prior year due primarily to lower costs for food and packaging and benefits of refranchising, partially offset by minimum wage increases in California that went into effect in January 2016. Company-operated restaurant margins at our Qdoba restaurants decreased to 17.3% in 2016 from 19.1% a year ago primarily reflecting higher staffing levels and an increase in new restaurant activity.
Jack in the Box Franchising Program Year-to-date, franchisees opened a total of five restaurants. In fiscal 2016, we expect franchisees to open approximately 16 Jack in the Box restaurants. Our Jack in the Box system was 82% franchised at the end of the second quarter. We plan to increase franchise ownership of the Jack in the Box system to at least 90% within the next two years.
Qdoba New Unit Growth Year-to-date, we opened 19 company-operated restaurants, and franchisees opened ten restaurants. In fiscal 2016, we plan for the opening of 50 to 60 Qdoba restaurants, of which approximately half are expected to be company-operated restaurants.
Return of Cash to Shareholders Year-to-date, we returned cash to shareholders in the form of share repurchases and cash dividends. We repurchased 3.5 million shares of our common stock at an average price of $72.44 per share, totaling $250.0 million, including the costs of brokerage fees. We also declared dividends of $0.60 per common share totaling $20.8 million.
FINANCIAL REPORTING
The Condensed Consolidated Statements of Earnings for all periods presented reflect the results of operations for the 62 Qdoba restaurants we closed in the third quarter of fiscal 2013 (the “2013 Qdoba Closures”) and charges incurred as a result of closing these restaurants as discontinued operations. During fiscal 2012, we entered into an agreement to outsource our Jack in the Box distribution business, and the results of operations and costs incurred to outsource our distribution business are also reflected as discontinued operations for all periods presented. Refer to Note 2, Discontinued Operations, in the Notes to Condensed Consolidated Financial Statements for more information.
In 2016, we adopted an updated accounting standard which simplifies the presentation of deferred income taxes and requires deferred tax liabilities and assets to be classified as non-current in a classified statement of financial position. Upon adoption, we retrospectively applied the new standard which resulted in a $40.0 million reclassification of current deferred income taxes to other assets, net on our September 27, 2015 Condensed Consolidated Balance Sheet. Refer to Note 1, Basis of Presentation, in the Notes to Condensed Consolidated Financial Statements for more information.


20


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
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Revenues:
 
 
 
 
 
 
 
Company restaurant sales
75.3
%
 
75.1
%
 
75.1
 %
 
75.1
%
Franchise rental revenues
14.6
%
 
14.6
%
 
14.7
 %
 
14.7
%
Franchise royalties and other
10.2
%
 
10.3
%
 
10.2
 %
 
10.2
%
Total revenues
100.0
%
 
100.0
%
 
100.0
 %
 
100.0
%
Operating costs and expenses, net:
 
 
 
 
 
 
 
Company restaurant costs:
 
 
 
 
 
 
 
Food and packaging (1)
30.2
%
 
31.2
%
 
30.6
 %
 
31.8
%
Payroll and employee benefits (1)
28.0
%
 
27.2
%
 
27.8
 %
 
27.2
%
Occupancy and other (1)
21.9
%
 
21.0
%
 
22.0
 %
 
21.2
%
Total company restaurant costs (1)
80.1
%
 
79.4
%
 
80.4
 %
 
80.1
%
Franchise occupancy expenses (2)
71.1
%
 
75.3
%
 
73.3
 %
 
75.4
%
Franchise support and other costs (3)
10.6
%
 
10.1
%
 
10.4
 %
 
10.0
%
Selling, general and administrative expenses
13.0
%
 
14.7
%
 
13.6
 %
 
14.0
%
Impairment and other charges, net
0.7
%
 
0.6
%
 
0.5
 %
 
0.5
%
Losses (gains) on the sale of company-operated restaurants
%
 
1.4
%
 
(0.1
)%
 
0.5
%
Earnings from operations
14.6
%
 
11.7
%
 
13.9
 %
 
12.7
%
Income tax rate (4) 
36.7
%
 
37.9
%
 
37.2
 %
 
36.8
%
____________________________
(1)
As a percentage of company restaurant sales.
(2)
As a percentage of franchise rental revenues.
(3)
As a percentage of franchise royalties and other.
(4)
As a percentage of earnings from continuing operations and before income taxes.


CHANGES IN SAME-STORE SALES
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Jack in the Box:
 
 
 
 
 
 
 
Company
(1.0)%
 
7.4%
 
(0.2)%
 
5.3%
Franchise
0.3%
 
9.4%
 
1.1%
 
6.7%
System
—%
 
8.9%
 
0.8%
 
6.3%
Qdoba:
 
 
 
 
 
 
 
Company
3.1%
 
7.0%
 
2.2%
 
10.2%
Franchise
1.2%
 
9.6%
 
1.8%
 
12.6%
System
2.1%
 
8.3%
 
2.0%
 
11.4%


21


The following table summarizes the changes in the number and mix of Jack in the Box (“JIB”) and Qdoba company and franchise restaurants:
 
April 10, 2016
 
April 12, 2015
 
Company
 
Franchise
 
Total
 
Company
 
Franchise
 
Total
Jack in the Box:
 
 
 
 
 
 
 
 
 
 
 
Beginning of year
413

 
1,836

 
2,249

 
431

 
1,819

 
2,250

New

 
5

 
5

 
2

 
11

 
13

Refranchised
(1
)
 
1

 

 
(21
)
 
21

 

Acquired from franchisees
1

 
(1
)
 

 
6

 
(6
)
 

Closed

 
(3
)
 
(3
)
 
(6
)
 
(9
)
 
(15
)
End of period
413

 
1,838

 
2,251

 
412

 
1,836

 
2,248

% of JIB system
18
%
 
82
%
 
100
%
 
18
%
 
82
%
 
100
%
Qdoba:
 
 
 
 
 
 
 
 
 
 
 
Beginning of year
322

 
339

 
661

 
310

 
328

 
638

New
19

 
10

 
29

 
3

 
11

 
14

Closed
(3
)
 
(4
)
 
(7
)
 
(3
)
 
(5
)
 
(8
)
End of period
338

 
345

 
683

 
310

 
334

 
644

% of Qdoba system
49
%
 
51
%
 
100
%
 
48
%
 
52
%
 
100
%
Consolidated:
 
 
 
 
 
 
 
 
 
 
 
Total system
751

 
2,183

 
2,934

 
722

 
2,170

 
2,892

% of consolidated system
26
%
 
74
%
 
100
%
 
25
%
 
75
%
 
100
%
Jack in the Box Brand
Company Restaurant Operations
The following table presents Jack in the Box company restaurant sales, costs and margin, and restaurant costs and margin as a percentage of the related sales. Percentages may not add due to rounding (dollars in thousands):
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Company restaurant sales
$
179,664

 
 
 
$
184,992

 
 
 
$
415,943

 
 
 
$
426,335

 
 
Company restaurant costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Food and packaging
54,116

 
30.1
%
 
58,495

 
31.6
%
 
127,249

 
30.6
%
 
137,688

 
32.3
%
Payroll and employee benefits
51,401

 
28.6
%
 
50,885

 
27.5
%
 
117,090

 
28.2
%
 
117,628

 
27.6
%
Occupancy and other
36,905

 
20.5
%
 
36,051

 
19.5
%
 
85,076

 
20.5
%
 
84,682

 
19.9
%
Total company restaurant costs
142,422

 
79.3
%
 
145,431

 
78.6
%
 
329,415

 
79.2
%
 
339,998

 
79.7
%
Restaurant margin
$
37,242

 
20.7
%
 
$
39,561

 
21.4
%
 
$
86,528

 
20.8
%
 
$
86,337

 
20.3
%

Jack in the Box company restaurant sales decreased $5.3 million in the quarter, and $10.4 million year-to-date as compared with the prior year due to a reduction in the average number of company-operated restaurants resulting from the execution of our refranchising strategy which includes the sale of restaurants to franchisees. Higher AUV growth in 2016 versus a year ago partially offset the sales decrease attributable to refranchising in the quarter and year-to-date. The following table presents the approximate impact of these (decreases) increases on company restaurant sales (in thousands):

 
Quarter
 
Year-to-date
Decrease in the average number of Jack in the Box company restaurants
$
(5,800
)
 
$
(16,600
)
Jack in the Box AUV increase
500

 
6,200

Total decrease in company restaurant sales
$
(5,300
)
 
$
(10,400
)


22


Same-store sales at Jack in the Box company-operated restaurants decreased 1.0% in the quarter, and 0.2% year-to-date, versus a year ago due to a decline in transactions and, to a lesser extent, to unfavorable product mix, which were partially offset by price increases. The following table summarizes the change in company-operated same-store sales:
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Average check (1)
1.4
 %
 
5.0
%
 
2.5
 %
 
3.9
%
Transactions
(2.4
)%
 
2.4
%
 
(2.7
)%
 
1.4
%
Change in same-store sales
(1.0
)%
 
7.4
%
 
(0.2
)%
 
5.3
%
____________________________
(1)
Amounts in 2016 and 2015 include price increases of approximately 3.2% and 2.1%, respectively, in the quarter, and 3.0% and 2.1%, respectively, year-to-date.
Food and packaging costs as a percentage of company restaurant sales decreased to 30.1% in the quarter and 30.6% year-to-date in 2016, compared with 31.6% and 32.3%, respectively, in 2015, due to lower commodity costs, favorable product mix changes, and menu price increases. Commodity costs decreased 2.9% in the quarter, and 2.2% year-to-date primarily reflecting lower costs for beef which were partially offset by higher costs for eggs and produce. Beef, our most significant commodity, decreased 21% in both periods of 2016 versus last year while eggs increased most significantly by approximately 28% in the quarter, and 44% year-to-date. For fiscal 2016, we currently expect commodity costs to decrease approximately 2-3% at our Jack in the Box restaurants compared with fiscal 2015.
Payroll and employee benefit costs as a percentage of company restaurant sales increased to 28.6% in the quarter and 28.2% year-to-date in 2016 from 27.5% and 27.6%, respectively, in 2015. In 2016, higher wages from minimum wage increases and higher costs for workers’ compensation insurance were partially offset by lower levels of incentive compensation driven by operating results, and the benefits of refranchising.
As a percentage of company restaurant sales, occupancy and other costs increased to 20.5% in both periods of 2016, compared with 19.5% in the quarter, and 19.9% year-to-date last year due to higher costs for equipment upgrades and maintenance and repair expenses, partially offset by lower costs for utilities and the benefits of refranchising.


23


Franchise Operations
The following table presents Jack in the Box franchise revenues, costs and margin in each period and other information we believe is useful in analyzing the change in franchise operating results (dollars in thousands):
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Franchise rental revenues
$
52,577

 
$
52,167

 
$
122,277

 
$
121,549

 
 
 
 
 
 
 
 
Royalties
31,550

 
31,529

 
72,420

 
71,781

Franchise fees and other
271

 
756

 
1,005

 
1,730

Franchise royalties and other
31,821

 
32,285

 
73,425

 
73,511

Total franchise revenues
84,398

 
84,452

 
195,702

 
195,060

 
 
 
 
 
 
 
 
Rental expense
29,993

 
31,659

 
72,137

 
73,799

Depreciation and amortization
7,392

 
7,609

 
17,439

 
17,829

Franchise occupancy expenses
37,385

 
39,268

 
89,576

 
91,628

Franchise support and other costs
2,761

 
2,776

 
6,099

 
6,404

Total franchise costs
40,146

 
42,044

 
95,675

 
98,032

Franchise margin
$
44,252

 
$
42,408

 
$
100,027

 
$
97,028

Franchise margin as a % of franchise revenues
52.4
%
 
50.2
%
 
51.1
%
 
49.7
%
 
 
 
 
 
 
 
 
Average number of franchise restaurants
1,839

 
1,823

 
1,838

 
1,822

% increase
0.9
%
 
 
 
0.9
%
 
 
Franchise restaurant AUVs
$
337

 
$
336

 
$
775

 
$
765

Increase in franchise-operated same-store sales
0.3
%
 
9.4
%
 
1.1
%
 
6.7
%
Royalties as a percentage of franchise restaurant sales
5.1
%
 
5.1
%
 
5.1
%
 
5.2
%
Total franchise revenues, which principally includes franchise rental revenues and franchise royalties, decreased $0.1 million or 0.1% in the quarter, and increased $0.6 million or 0.3% year-to-date in 2016 as compared with a year ago, primarily reflecting increased rent income due to routine rent increases, and higher AUVs resulting in an increase in revenues from royalties and percentage rent, which were more than offset in the quarter, and partially offset year-to-date, by a reduction in initial franchise fees.
Franchise occupancy expenses decreased $1.9 million in the quarter, and $2.1 million year-to-date in 2016 versus a year ago, due primarily to favorable lease commitment adjustments of $1.9 million recognized in the second quarter of 2016 related to previously refranchised markets based on sales performance over the first year resulting in higher rent, and to a lesser extent a decrease in depreciation expense as our building assets become fully depreciated. These decreases were partially offset by routine rent increases contributing to higher rental expense.
Franchise support and other costs remained flat in the quarter, and decreased $0.3 million year-to-date in 2016 as compared with the prior year, primarily due to a decrease in bad debt expense.

24


Qdoba Brand
Company Restaurant Operations
The following table presents Qdoba company restaurant sales, costs and margin, and restaurant costs and margin as a percentage of the related sales. Percentages may not add due to rounding (dollars in thousands):
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Company restaurant sales
$
92,128

 
 
 
$
83,912

 
 
 
$
209,070

 
 
 
$
194,465

 
 
Company restaurant costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Food and packaging
27,950

 
30.3
%
 
25,537

 
30.4
%
 
63,728

 
30.5
%
 
59,453

 
30.6
%
Payroll and employee benefits
24,736

 
26.8
%
 
22,188

 
26.4
%
 
56,954

 
27.2
%
 
51,124

 
26.3
%
Occupancy and other
22,622

 
24.6
%
 
20,417

 
24.3
%
 
52,150

 
24.9
%
 
46,817

 
24.1
%
Total company restaurant costs
75,308

 
81.7
%
 
68,142

 
81.2
%
 
172,832

 
82.7
%
 
157,394

 
80.9
%
Restaurant margin
$
16,820

 
18.3
%
 
$
15,770

 
18.8
%
 
$
36,238

 
17.3
%
 
$
37,071

 
19.1
%
Company restaurant sales increased $8.2 million in the quarter and $14.6 million year-to-date in 2016 as compared with the prior year due primarily to an increase in the number of Qdoba company-operated restaurants, and to a lesser extent, growth in AUVs. The following table presents the approximate impact of these increases on company restaurant sales (in thousands):
 
Quarter
 
Year-to-date
Increase in the average number of Qdoba company restaurants
$
6,300

 
$
11,400

Qdoba AUV increase
1,900

 
3,200

Total increase in company restaurant sales
$
8,200

 
$
14,600

Same-store sales at Qdoba company-operated restaurants increased 3.1% in the quarter and 2.2% year-to-date as compared with the prior year primarily driven by transaction growth, menu price increases and catering. The following table summarizes the change in company-operated same-store sales:
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Transactions
3.7
 %
 
(1.3
)%
 
2.4
 %
 
0.5
%
Average check (1)
(1.1
)%
 
7.4
 %
 
(1.0
)%
 
8.6
%
Catering
0.5
 %
 
0.9
 %
 
0.8
 %
 
1.1
%
Change in same-store sales
3.1
 %
 
7.0
 %
 
2.2
 %
 
10.2
%
____________________________
(1)
Amounts in 2016 and 2015 include price increases of approximately 1.0% and 0.5%, respectively, in the quarter, and 0.8% and 0.4%, respectively, year-to-date.
Food and packaging costs as a percentage of company restaurant sales in 2016 decreased to 30.3% in the quarter, and 30.5% year-to-date, compared with 30.4% and 30.6%, respectively, in 2015, due to lower commodity costs which were partially offset by higher discounting and a higher frequency of guests choosing to add on extras like guacamole and queso at no additional charge. In 2016, commodity costs decreased 4.6% in the quarter, and 5.1% year-to-date primarily due to lower costs for beef, poultry, and year-to-date, cheese. In 2016, beef costs decreased by approximately 12% in the quarter and 13% year-to-date. For fiscal 2016, we currently expect commodity costs to decrease approximately 5% at our Qdoba restaurants compared with fiscal 2015.
Payroll and employee benefit costs as a percentage of company restaurant sales in 2016 increased to 26.8% in the quarter, and 27.2% year-to-date, from 26.4% and 26.3%, respectively, in 2015. In the quarter, the percent of sales increase is primarily due to higher costs for group insurance and incentive compensation, as well as an increase in new restaurant openings. Year-to-date, the increase is driven by higher levels of labor staffing and an increase in new restaurant openings, partially offset by lower levels of incentive compensation.
Occupancy and other costs increased to 24.6% of company restaurant sales in the quarter, and 24.9% year-to-date in 2016, compared with 24.3% and 24.1%, respectively, a year ago due primarily to higher costs related to technology and kitchen equipment upgrades, maintenance and repair expenses, higher property rents associated with new restaurants, and year-to-date, higher costs for uniforms.

25


Franchise Operations
The following table presents our Qdoba franchise revenues, costs and margin in each period and other information we believe is useful in analyzing the change in franchise operating results (dollars in thousands):
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Franchise rental revenues
$
25

 
$
48

 
$
63

 
$
112

 
 
 
 
 
 
 
 
Royalties
4,572

 
4,365

 
10,364

 
9,942

Franchise fees and other
364

 
353

 
832

 
829

Franchise royalties and other
4,936

 
4,718

 
11,196

 
10,771

Total franchise revenues
4,961

 
4,766

 
11,259

 
10,883

 
 
 
 
 
 
 
 
Rental expense (1)
23

 
48

 
51

 
106

Franchise support and other costs
1,146

 
967

 
2,670

 
2,062

Total franchise costs
1,169

 
1,015

 
2,721

 
2,168

Franchise margin
$
3,792

 
$
3,751

 
$
8,538

 
$
8,715

Franchise margin as a % of franchise revenues
76.4
%
 
78.7
%
 
75.8
%
 
80.1
%
 
 
 
 
 
 
 
 
Average number of franchise restaurants
344

 
332

 
343

 
331

% increase
3.6
%
 
 
 
3.6
%
 
 
Franchise restaurant AUVs
$
267

 
$
263

 
$
610

 
$
598

Increase in franchise-operated same-store sales
1.2
%
 
9.6
%
 
1.8
%
 
12.6
%
Royalties as a percentage of estimated franchise restaurant sales
5.0
%
 
5.0
%
 
5.0
%
 
5.0
%
________________________________________
(1)
Included in franchise occupancy expenses in the accompanying Condensed Consolidated Statements of Earnings.
Franchise royalties and other increased $0.2 million or 4.6% in the quarter, and $0.4 million or 3.9% year-to-date in 2016 as compared with the prior year, primarily reflecting an increase in the average number of franchise restaurants, and to a lesser extent, higher AUVs resulting in an increase in revenue from royalties.
Franchise support and other costs increased $0.2 million in the quarter, and $0.6 million year-to-date in 2016 versus a year ago, due to an increase in support costs as well as bad debt expense of $0.2 million recorded in the first quarter of 2016.

26


Selling, General and Administrative (“SG&A”) Expenses
The following table presents the change in SG&A expenses compared with the prior year (in thousands):
 
Increase / (Decrease)
 
Quarter
 
Year-to-date
Advertising
$
1,680

 
$
3,625

Pre-opening costs
615

 
1,744

Qdoba brand conference

 
833

Consulting
(395
)
 
117

Cash surrender value of COLI policies, net
(694
)
 
119

Pension and postretirement benefits
(1,215
)
 
(2,835
)
Incentive compensation (including share-based compensation and related payroll taxes)
(3,914
)
 
(5,123
)
Other
(1,654
)
 
(1,280
)
 
$
(5,577
)
 
$
(2,800
)
In 2016, advertising costs associated with our Qdoba brand increased by $2.0 million in the quarter, and $4.1 million year-to-date versus a year ago due primarily to an increase in television and digital advertising as well as a shift in the timing of spending. Advertising costs at our Jack in the Box brand are primarily contributions to our marketing fund and are determined as a percentage of gross restaurant sales. Jack in the Box advertising costs decreased $0.3 million in the quarter, and $0.5 million year-to-date compared with a year ago primarily due to our refranchising strategy which resulted in a decrease in the number of company-operated restaurants.
Pre-opening costs increased in 2016 as compared to a year ago due to an increase in the number of Qdoba restaurants opened and under construction in the period.
In 2016, Qdoba held a conference to communicate the vision and direction of the brand strategy to key stakeholders, which resulted in an increase in 2016 SG&A expenses.
The cash surrender value of our COLI policies, net of changes in our non-qualified deferred compensation obligations supported by these policies, are subject to market fluctuations. The changes in market values had a positive impact of $2.3 million in the quarter and $1.3 million year-to-date, compared with $1.6 million and $1.4 million, respectively, a year ago.
Pension and postretirement benefit costs decreased primarily due to the sunsetting of our qualified pension plan on December 31, 2015, resulting in a decrease in the service cost component of our expense and a change in the amortization period for actuarial gains and losses from the average remaining service period to the average future lifetime of all participants. To a lesser extent, an increase in our discount rate also contributed to the decrease. These decreases were partially offset by an increase in Pension Benefit Guaranty Corporation premiums for 2016.
Incentive compensation decreased due primarily to lower levels of performance at both brands as compared to target bonus levels, and to a lesser extent, a reduction in payroll taxes associated with our stock compensation awards.

Impairment and Other Charges, Net
Impairment and other charges, net is comprised of the following (in thousands):
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Losses (gains) on the disposition of property and equipment, net
$
995

 
$
(269
)
 
$
1,646

 
$
352

Costs of closed restaurants (primarily lease obligations) and other
1,015

 
973

 
1,575

 
1,759

Accelerated depreciation
412

 
1,387

 
858

 
2,139

Restaurant impairment charges

 
27

 

 
41

Restructuring costs

 
12

 

 
19

 
$
2,422

 
$
2,130

 
$
4,079

 
$
4,310


27


Impairment and other charges, net increased $0.3 million in the quarter, and decreased $0.2 million year-to-date compared with a year ago. Decreases in accelerated depreciation in both periods were more than offset in the quarter and offset year-to-date by an increase in losses on the disposition of property and equipment related to income of $0.9 million recognized in the second quarter of 2015 in connection with the resolution of an eminent domain matter. Accelerated depreciation decreased as compared to a year ago due to a decrease in charges related to certain technology and beverage equipment upgrades at our Jack in the Box restaurants partially offset year-to-date by an increase in charges associated with exterior lighting upgrades at our Jack in the Box restaurants. Refer to Note 6, Impairment and Other Charges, Net of the Notes to the Condensed Consolidated Financial Statements for additional information regarding these costs.

(Losses) Gains on the Sale of Company-Operated Restaurants
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Number of restaurants sold to Jack in the Box franchisees

 
20

 
1

 
21

 
 
 
 
 
 
 
 
(Losses) gains on the sale of company-operated restaurants
$
(3
)
 
$
(5,020
)
 
$
815

 
$
(4,170
)
(Losses) gains are impacted by the number of restaurants sold and changes in average gains or losses recognized, which relate to the specific sales and cash flows of those restaurants. In 2016 and 2015, (losses) gains on the sale of company-operated restaurants include additional gains of $1.0 million and $0.1 million, respectively, year-to-date, recognized upon the extension of the underlying franchise and lease agreements related to Jack in the Box restaurants sold in previous years. No additional gains were recognized during the quarter in either year. Refer to Note 3, Summary of Refranchisings, Franchisee Development and Acquisitions, of the Notes to the Condensed Consolidated Financial Statements for additional information regarding these (losses) gains.
Interest Expense, Net
Interest expense, net is comprised of the following (in thousands):
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Interest expense
$
7,125

 
$
4,288

 
$
15,356

 
$
9,692

Interest income
(214
)
 
(68
)
 
(270
)
 
(259
)
Interest expense, net
$
6,911

 
$
4,220

 
$
15,086

 
$
9,433

Interest expense, net increased $2.7 million in the quarter and $5.7 million year-to-date compared with a year ago due to higher average borrowings and to a lesser extent, higher average interest rates.
Income Taxes
The tax rate in 2016 was 36.7% in the quarter and 37.2% year-to-date, compared with 37.9% and 36.8%, respectively, a year ago. The major components of the year-over-year change in tax rates were an increase in the Company’s state tax rate and the timing and amounts of gains or losses on insurance products used to fund certain non-qualified retirement plans which are excluded from taxable income. We expect the fiscal year tax rate to be approximately 38%. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2016 rate could differ from our current estimates.

28


Losses from Discontinued Operations, Net
As described in Note 2, Discontinued Operations, in the Notes to Condensed Consolidated Financial Statements, the results of operations from our distribution business and the 2013 Qdoba Closures have been reported as discontinued operations for all periods presented.
Losses from discontinued operations, net of tax are as follows for each discontinued operation (in thousands):
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Distribution business
$
3

 
$
(44
)
 
$
24

 
$
(80
)
2013 Qdoba Closures
(349
)
 
(313
)
 
(1,046
)
 
(1,540
)
 
$
(346
)
 
$
(357
)
 
$
(1,022
)
 
$
(1,620
)
In all periods presented, losses from discontinued operations incurred in connection with the 2013 Qdoba Closures primarily relate to unfavorable lease commitment adjustments.
Losses from discontinued operations reduced diluted earnings per share by the following in each period (earnings per share may not add due to rounding):
 
Quarter
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
 
April 10, 2016
 
April 12, 2015
Distribution business
$

 
$

 
$

 
$

2013 Qdoba Closures
(0.01
)
 
(0.01
)
 
(0.03
)
 
(0.04
)
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.03
)
 
$
(0.04
)

29


LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and our revolving bank credit facility.
We generally reinvest available cash flows from operations to develop new restaurants or enhance existing restaurants, to reduce debt, to repurchase shares of our common stock, and to pay cash dividends. Our cash requirements consist principally of:
working capital;
capital expenditures for new restaurant construction and restaurant renovations;
income tax payments;
debt service requirements; and
obligations related to our benefit plans.
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with other financing alternatives in place or available, 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.
As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories, and our vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. As a result, we may at times maintain current liabilities in excess of current assets, which results in a working capital deficit.
Cash Flows
The table below summarizes our cash flows from operating, investing and financing activities (in thousands):
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
Total cash provided by (used in):
 
 
 
Operating activities
$
80,453

 
$
90,920

Investing activities
(45,158
)
 
(28,584
)
Financing activities
(44,252
)
 
(62,539
)
Effect of exchange rate changes
13

 
11

Net decrease in cash and cash equivalents
$
(8,944
)
 
$
(192
)
Operating Activities. Operating cash flows in 2016 decreased $10.5 million compared with a year ago primarily due to a $32.1 million increase in income tax payments as we did not receive a tax benefit in the current year as a result of a fixed asset cost segregation study, which benefited the prior year, and due to a reduction in tax benefits associated with stock-based compensation. The increase in income tax payments was partially offset by an increase of $14.7 million in beverage funding in the current year due to timing of receipt, and an increase in net earnings in 2016.
Investing Activities. Cash used in investing activities in 2016 increased $16.6 million compared with a year ago due primarily to an increase in capital expenditures and a decrease in collections on notes receivable, partially offset by an increase in proceeds from assets held for sale and leaseback.

30


Capital Expenditures The composition of capital expenditures in each period follows (in thousands):
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
Jack in the Box:
 
 
 
Restaurant facility expenditures
$
14,489

 
$
12,106

New restaurants
6,213

 
2,699

Other, including information technology
286

 
342

 
20,988

 
15,147

Qdoba:
 
 
 
New restaurants
23,198

 
8,663

Restaurant facility expenditures
2,661

 
2,038

Other, including information technology
2,363

 
2,008

 
28,222

 
12,709

Shared Services:
 
 
 
Information technology
1,927

 
3,222

Other, including facility improvements
161

 
1,881

 
2,088

 
5,103

 
 
 
 
Consolidated capital expenditures
$
51,298

 
$
32,959

Our capital expenditure program includes, among other things, investments in new locations and equipment, restaurant remodeling, and information technology enhancements. Capital expenditures increased $18.3 million compared to a year ago primarily resulting from an increase in spending related to building new Qdoba and Jack in the Box restaurants. We expect fiscal 2016 capital expenditures to be approximately $100-$120 million. In fiscal 2016, we plan for 50 to 60 Qdoba restaurants to open, of which approximately half are expected to be company-operated locations. Additionally, we plan for approximately 20 Jack in the Box restaurants to open in fiscal 2016, of which four are expected to be company-operated locations.
Sale of Company-Operated Restaurants We continue to expand franchise ownership in the Jack in the Box system primarily through the sale of company-operated restaurants to franchisees. The following table details proceeds received in
connection with our refranchising activities in each period (dollars in thousands):
 
Year-to-date
 
April 10, 2016
 
April 12, 2015
Number of restaurants sold to Jack in the Box franchisees
1

 
21

 
 
 
 
Total proceeds
$
1,021

 
$
2,630

Proceeds in 2016 and 2015 include additional gains of $1.0 million and $0.1 million, respectively, year-to-date, recognized upon the extension of the underlying franchise and lease agreements related to Jack in the Box restaurants sold in previous years. For additional information, refer to Note 3, Summary of Refranchisings, Franchisee Development and Acquisitions, of the Notes to Condensed Consolidated Financial Statements.
Assets Held for Sale and Leaseback We use sale and leaseback financing to limit the initial cash investment in our restaurants to the cost of the equipment, whenever possible. During 2016, we exercised our right of first refusal related to three leased properties which we intend to sell and leaseback within the next 12 months. In 2015, we did not sell and leaseback any properties. The following table summarizes the cash flow activity related to sale and leaseback transactions in each period (dollars in thousands):
 
 
Year-to-date
 
 
April 10, 2016
 
April 12, 2015
Number of restaurants sold and leased back
 
5

 

 
 
 
 
 
Proceeds from sale and leaseback transactions
 
$
7,748

 
$

Purchases of assets intended for sale and leaseback
 
$
(5,581
)
 
$
(5,355
)

31


As of April 10, 2016, we had investments of $19.4 million relating to eight restaurant properties that we expect to sell and leaseback during the next 12 months.
Financing Activities. Cash flows used in financing activities in 2016 decreased $18.3 million compared with a year ago primarily due to an increase in our borrowings on our credit facility, partially offset by an increase in cash used to repurchase shares of our common stock, a decrease in excess tax benefits from share based compensation arrangements and a decrease in proceeds from issuance of our common stock.
Credit Facility — Our credit facility consists of (i) a $900.0 million revolving credit agreement and (ii) a $300.0 million term loan. Both the revolving credit agreement and the term loan have maturity dates of March 19, 2019. As part of the credit agreement, we may also request the issuance of up to $75.0 million in letters of credit, the outstanding amount of which reduces our net borrowing capacity under the agreement. At April 10, 2016, we had $288.3 million outstanding under the term loan, borrowings under the revolving credit agreement of $628.0 million and letters of credit outstanding of $25.2 million.
The interest rate on the credit facility is based on our leverage ratio and can range from London Interbank Offered Rate (“LIBOR”) plus 1.25% to 2.00% with no floor. The current interest rate is LIBOR plus 2.00%.
We are subject to a number of customary covenants under our credit facility, including limitations on additional borrowings, acquisitions, loans to franchisees, lease commitments, stock repurchases, dividend payments and requirements to maintain certain financial ratios. We were in compliance with all covenants as of April 10, 2016.
Interest Rate Swaps To reduce our exposure to rising interest rates under our credit facility, we consider interest rate swaps. In April 2014, we entered into nine forward-starting interest rate swap agreements that effectively convert $300.0 million of our variable rate borrowings to a fixed rate basis from October 2014 through October 2018. In June 2015, we entered into eleven forward-starting interest rate swap agreements that effectively convert an additional $200.0 million of our variable rate borrowings and future expected variable rate borrowings to a fixed rate from October 2015 through October 2018, and $500.0 million from October 2018 through October 2022. For additional information, refer to Note 5, Derivative Instruments, of the Notes to Condensed Consolidated Financial Statements and Item 3, Quantitative and Qualitative Disclosures About Market Risk, of this Report.
Repurchases of Common Stock During year-to-date 2016, we repurchased 3.5 million common shares at an aggregate cost of $250.0 million, compared with 2.1 million common shares at an aggregate cost of $176.6 million in 2015. As of April 10, 2016, there was $50.0 million remaining under a stock-buyback program which expires in November 2017.
Dividends — During year-to-date 2016, the Board of Directors declared two cash dividends of $0.30 per common share each, which totaled $20.8 million. Future dividends are subject to approval by our Board of Directors.
Off-Balance Sheet Arrangements
We have entered into certain off-balance sheet contractual obligations and commitments in the ordinary course of business, which are recognized in our Condensed Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles. There has been no material change in these arrangements as disclosed in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September 27, 2015. We are not a party to any other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.
DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those the Company believes 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 September 27, 2015. 
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, Basis of Presentation, of the Notes to Condensed Consolidated Financial Statements.

32


CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the federal securities laws. 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:
Food service businesses such as ours may be materially and adversely affected by changes in consumer preferences or dining habits, and economic, political and socioeconomic conditions. Adverse economic conditions such as unemployment and decreased discretionary spending may result in reduced restaurant traffic and sales and impose practical limits on pricing. We are also subject to geographic concentration risks, with nearly 70% of system Jack in the Box restaurants located in California and Texas.
Our profitability depends in part on food and commodity costs and availability, including animal feed costs and fuel costs and other supply and distribution costs. The risks of increased commodities costs and volatility in costs could adversely affect our profitability and results of operations.
The success of our business strategy depends on the value and relevance of our brands. Multi-unit food service businesses such as ours can be materially and adversely affected by widespread negative publicity of any type, particularly regarding food quality, food safety or public health issues. Negative publicity regarding our brands or the restaurant industry in general could cause a decline in system restaurant sales and could have a material adverse effect on our financial condition and results of operations.
We are reliant on third party suppliers and distributors, and any shortages or interruptions in supply could adversely affect the availability, quality and cost of ingredients.
Our business can be materially and adversely affected by severe weather conditions or natural disasters, which can result in lost restaurant sales, supply chain interruptions and increased costs.
Growth and new restaurant development involve substantial risks, including risks associated with unavailability of suitable franchisees, limited financing availability, cost overruns and the inability to secure suitable sites on acceptable terms. In addition, our growth strategy includes opening restaurants in new or existing markets where we cannot assure that we will be able to successfully expand or acquire critical market presence, attract customers or otherwise operate profitably.
There are risks associated with our franchise business model, including the demand for our franchises, the selection of appropriate franchisees and whether our franchisees and new restaurant developers will have the capabilities to be effective operators and remain aligned with us on operating, promotional and capital-intensive initiatives, in an ever-changing competitive environment. Additionally, our franchisees and operators could experience operational, financial or other challenges that could affect payments to us of rents and/or royalties, or could damage our brands and reputation.
Our plan to increase the percentage of franchise restaurants to over 90% is subject to risks and uncertainties, and we may not achieve reductions in costs at the rate we desire. We may not be able to identify franchisee candidates with appropriate experience and financial resources or to negotiate mutually acceptable agreements with potential franchisees. Our franchisee candidates may not be able to obtain financing at acceptable rates and terms. We may not be able to increase the percentage of franchised restaurants at the rate we desire or achieve the ownership mix of franchise to company-operated restaurants that we desire.
The restaurant and take-away food industry is highly competitive with respect to price, service, location, brand identification and menu quality and innovation. We cannot assure that we will be able to effectively respond to aggressive competitors (including competitors with significantly greater financial resources); or that our competitive strategies will increase our same-store sales and AUVs; or that our new products, service initiatives, overall strategies or execution of those strategies will be successful.
Should our advertising and promotions be less effective than our competitors, there could be a material adverse effect on our results of operations and financial condition.
In recent years, we have identified strategies and taken steps to reduce operating costs to align with the increased Jack in the Box franchise ownership and to further integrate Jack in the Box and Qdoba brand systems. The ability to evaluate, identify and implement operating cost reductions through these initiatives is subject to risks and uncertainties, and we cannot assure that these activities, or any other activities that we may undertake in the future, will achieve the desired cost savings and efficiencies.
The loss of key personnel could have a material adverse effect on our business.

33


The costs of compliance with government regulations, including those resulting in increased labor costs, could negatively affect our results of operations and financial condition.
A material failure or interruption of service or a breach in security of our information technology systems or databases could cause reduced efficiency in operations, loss or misappropriation of data or business interruptions, which in turn could affect cash flows or our operating results. In addition, the costs of information security, regulatory compliance, investment in technology and risk mitigation measures may negatively affect our margins or financial results.
We maintain a documented system of internal controls, which is reviewed and monitored by an Internal Controls Committee and tested by the Company’s full-time internal audit department. Any failures in the effectiveness of our internal controls could have a material adverse effect on our operating results or cause us to fail to meet our reporting obligations.
We are subject to risks of owning, operating and leasing property, including but not limited to environmental risks, which could result in the imposition of severe penalties or restrictions on operations by governmental agencies or courts of law, which could adversely affect operations.
We have a significant amount of indebtedness, which could adversely affect our business and our ability to meet our obligations. Our ability to repay expected borrowings under our credit facility and to meet our other debt or contractual obligations will depend upon our future performance and our cash flows from operations, both of which are subject to prevailing economic conditions and financial, business and other known and unknown risks and uncertainties, certain of which are beyond our control.
Changes in accounting standards, policies or related interpretations by accountants or regulatory entities may negatively impact our results.
We are subject to litigation which is inherently unpredictable and can result in unfavorable resolutions where the amount of ultimate loss may exceed our estimated loss contingencies, impose other costs related to defense of claims, or distract management from our operations.

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 September 27, 2015 (“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.

ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary exposure to risks relating to our financial instruments is changes in interest rates. Our credit facility is comprised of a revolving credit facility and a term loan, bearing interest at a rate equal to the prime rate or LIBOR plus an applicable margin based on a financial leverage ratio. As of April 10, 2016, the applicable margin for the LIBOR-based revolving loans and term loan was set at 2.00%.
We use interest rate swap agreements to reduce exposure to interest rate fluctuations. In April 2014, we entered into nine forward-starting interest rate swap agreements that effectively convert $300.0 million of our variable rate borrowings to a fixed rate basis from October 2014 through October 2018. In June 2015, we entered into eleven forward-starting interest rate swap agreements that effectively convert an additional $200.0 million of our variable rate borrowings, and future expected variable rate borrowings, to a fixed rate from October 2015 through October 2018, and $500.0 million from October 2018 through October 2022. Based on the applicable margin in effect as of April 10, 2016, these twenty interest rate swaps would yield average fixed rates of 3.18%, 3.90%, 4.41%, 4.62%, 4.89%, 5.07%, 5.17% in years two through eight, respectively. For additional information related to our interest rate swaps, refer to Note 5, Derivative Instruments, of the Notes to Condensed Consolidated Financial Statements.
We are also exposed to the impact of commodity and utility price fluctuations. Many of the ingredients we use are commodities or ingredients that are affected by the price of other commodities, weather, seasonality, production, availability and various other factors outside our control. In order to minimize the impact of fluctuations in price and availability, we monitor the primary commodities we purchase and may enter into purchasing contracts and pricing arrangements when considered to be advantageous. However, certain commodities remain subject to price fluctuations. We are exposed to the impact of utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs for commodities and utilities through higher prices is limited by the competitive environment in which we operate.

34


ITEM 4.        CONTROLS AND PROCEDURES
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 April 10, 2016, 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 April 10, 2016 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:

ITEM 1.        LEGAL PROCEEDINGS
See Note 12, Contingencies and Legal Matters, of the Notes to Condensed Consolidated Financial Statements for a discussion of our contingencies and legal matters.

ITEM 1A.    RISK FACTORS
When evaluating our business and our prospects, you should consider the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended September 27, 2015, which we filed with the SEC on November 19, 2015. 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 September 27, 2015, including our financial statements and the related notes. There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 27, 2015. 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.

ITEM 2.        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Our credit agreement provides for the potential payment of cash dividends and stock repurchases, subject to certain limitations based on our leverage ratio as defined in our credit agreement.
Stock Repurchases — During fiscal 2016, we repurchased 3.5 million common shares at an aggregate cost of $250.0 million. As of April 10, 2016, there was $50.0 million remaining under a stock-buyback program which expires in November 2017.
The following table summarizes common shares repurchased during the quarter ended April 10, 2016. The average price paid per common share in column (b) below does not include the cost of brokerage fees.
 
(a)
Total number
of shares
purchased
 
(b)
Average
price paid
per share
 
(c)
Total number
of shares
purchased as
part of  publicly
announced
programs
 
(d)
Maximum dollar
value that may yet
be purchased under
these programs
 
 
 
 
 
 
 
$
200,025,552

January 18, 2016 - February 14, 2016

 
$

 

 
$
200,025,552

February 15, 2016 - March 13, 2016
2,177,051

 
$
68.88

 
149,999,906

 
$
50,025,646

March 14, 2016 - April 10, 2016

 
$

 

 
$
50,025,646

Total
2,177,051

 
$

 
149,999,906

 
 

35


ITEM 3.        DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.        MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.    OTHER INFORMATION
None.
ITEM 6.    EXHIBITS
Number
Description
Form
Filed with SEC
3.1
Restated Certificate of Incorporation, as amended, dated September 21, 2007
10-K
11/20/2009
3.1.1
Certificate of Amendment of Restated Certificate of Incorporation, dated September 21, 2007
8-K
9/24/2007
3.2
Amended and Restated Bylaws, dated August 7, 2013
10-Q
8/8/2013
10.8.15*
Form of Restricted Stock Unit Grant Agreement for Non-Employee Directors under the 2004 Stock Incentive Plan
10-Q
Filed herewith
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
* Management contract or compensatory plan.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
JACK IN THE BOX INC.
 
 
 
 
By:
/S/    JERRY P. REBEL        
 
 
Jerry P. Rebel
 
 
Executive Vice President and Chief Financial Officer (principal financial officer)
(Duly Authorized Signatory)
Date: May 12, 2016

36