Attached files

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EX-10.2.3 - EXHIBIT 10.2.3 AGREEMENT TO PROVIDE CONDITIONAL BONUS PAYMENT - JACK IN THE BOX INC /NEW/ex1023q417.htm
EX-32.2 - EXHIBIT 32.2 CERTIFICTATION OF CFO SECTION 906 - JACK IN THE BOX INC /NEW/ex3223.htm
EX-32.1 - EXHIBIT 32.1 CERTIFICATION OF CEO SECTION 906 - JACK IN THE BOX INC /NEW/ex3213.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION OF CFO SECTION 302 - JACK IN THE BOX INC /NEW/ex3123.htm
EX-31.1 - EXHIBIT 31.1 CERTIFICATION OF CEO SECTION 302 - JACK IN THE BOX INC /NEW/ex3113.htm
EX-23.1 - EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - JACK IN THE BOX INC /NEW/ex231consentletter.htm
EX-21.1 - EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT - JACK IN THE BOX INC /NEW/ex211subsidiariesoftheregi.htm
EX-10.10.3 - EXHIBIT 10.10.3 FISCAL YEAR 2017 PERFORMANCE INCENTIVE PROGRAM - JACK IN THE BOX INC /NEW/ex10103q417.htm
EX-10.2.4 - EXHIBIT 10.2. COMPENSATION AND BENEFITS ASSURANCE AGREEMENT - JACK IN THE BOX INC /NEW/ex1024q417.htm





 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 1, 2017
COMMISSION FILE NUMBER 1-9390
image1a02.jpg
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
The NASDAQ Stock Market LLC (NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ    No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ¨    No þ
Indicate by check mark if 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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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 ¨        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
The aggregate market value of the common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter, computed by reference to the closing price reported on the NASDAQ Global Select Market — Composite Transactions as of April 13, 2017, was approximately $2.9 billion.
Number of shares of common stock, $0.01 par value, outstanding as of the close of business on November 24, 201729,433,478.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 2018 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
 
 
 
 
 

JACK IN THE BOX INC.
TABLE OF CONTENTS
 
 
 
Page
 
PART I
 
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
 
PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
 
PART IV
 
Item 15.
Exhibits, Financial Statement Schedules






FORWARD-LOOKING STATEMENTS
From time to time, we make oral and written forward-looking statements that reflect our current expectations regarding future results of operations, economic performance, financial condition and achievements of Jack in the Box Inc. (the “Company”). A forward-looking statement is neither a prediction nor a guarantee of future events or results. In some cases, forward-looking statements can be identified by words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “should,” “will,” “would,” and similar expressions. Certain forward-looking statements are included in this Form 10-K, principally in the sections captioned “Business,” “Legal Proceedings,” “Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including statements regarding our strategic plans and operating strategies. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, such expectations and forward-looking statements may prove to be materially incorrect due to known and unknown risks and uncertainties.
In some cases, information regarding certain important factors that could cause our actual results to differ materially from any forward-looking statement appears together with such statement. In addition, the factors described under “Risk Factors” and “Discussion of Critical Accounting Estimates” in this Form 10-K, as well as other possible factors not listed, could cause our actual results, economic performance, financial condition or achievements to differ materially from those expressed in any forward-looking statements. As a result, investors should not place undue reliance on such forward-looking statements, which speak only as of the date of this report. The Company is under no obligation to update forward-looking statements, whether as a result of new information or otherwise.


1




PART I
ITEM 1.  
BUSINESS
The Company
Overview.  Jack in the Box Inc., based in San Diego, California, operates and franchises 2,977 Jack in the Box® quick-service restaurants (“QSRs”) and Qdoba Mexican Eats® ("Qdoba") fast-casual restaurants. References to the Company throughout this Annual Report on Form 10-K are made using the first person notations of “we,” “us” and “our.”
Jack in the Box.  Jack in the Box opened its first restaurant in 1951, and has since become one of the nation’s largest hamburger chains. Based on number of restaurants, our top 10 major markets comprise approximately 70% of the total system, and Jack in the Box is the second largest QSR hamburger chain in nine of those major markets. As of the end of our fiscal year on October 1, 2017, the Jack in the Box system included 2,251 restaurants in 21 states and Guam, of which 276 were company-operated and 1,975 were franchise-operated.
Through the execution of our refranchising strategy over the last five years, we have increased franchise ownership of the Jack in the Box system from 76% at the end of fiscal 2012 to 88% at the end of fiscal 2017. We plan to increase franchise ownership of the Jack in the Box system to approximately 95%. In fiscal 2017, our Jack in the Box franchisees independently developed 18 new franchise restaurants, and we expect the majority of Jack in the Box new unit growth will be through franchise restaurants.
Qdoba.  In 2003, we expanded our competitive footprint beyond the hamburger segment of the QSR industry by acquiring Qdoba Restaurant Corporation, operator and franchisor of the fast-casual concept now known as Qdoba Mexican Eats. Qdoba is the second largest fast-casual Mexican food brand in the United States. As of October 1, 2017, the Qdoba system included 726 restaurants in 47 states, the District of Columbia and Canada, of which 385 were company-operated and 341 were franchise-operated.
Through new unit growth, acquisitions of franchised Qdoba restaurants in select markets, and the refranchising of Jack in the Box restaurants, Qdoba has become a more prominent part of our company restaurant operations. As of the end of fiscal 2017, Qdoba comprised approximately 58% of our total company-operated units as compared with approximately 37% at the end of fiscal 2012.

During 2017, we retained Morgan Stanley & Co. LLC to assist our Board of Directors in its evaluation of potential alternatives with respect to Qdoba, as well as other ways to enhance shareholder value. While substantial progress has been made on the evaluation, there can be no assurance that the evaluation process will result in any transaction or other specific course of action.

Restaurant Concepts
Jack in the Box.  Jack in the Box restaurants offer a broad selection of distinctive products including classic burgers like our Jumbo Jack® burgers, and innovative new product lines such as Buttery Jack® burgers and our Brunchfast® menu. We also offer quality products such as breakfast sandwiches with freshly cracked eggs, and craveble favorites such as tacos and curly fries, along with specialty sandwiches, salads and real ice cream shakes, among other items. We allow our guests to customize their meals to their tastes and order any product when they want it, including breakfast items any time of day (or night). We are known for variety and innovation which has led to the development of four strong dayparts: breakfast, lunch, dinner and late-night.
The Jack in the Box restaurant chain was the first major hamburger chain to develop and expand the concept of drive-thru restaurants. In addition to drive-thru windows, most of our restaurants have seating capacities ranging from 20 to 100 people and are open 18-24 hours a day. Drive-thru sales currently account for approximately 73% of sales at company-operated restaurants. The average check in fiscal year 2017 was $7.71 for company-operated restaurants.
With a presence in only 21 states and one territory, we believe Jack in the Box is a brand with significant growth opportunities. In fiscal 2017, we continued to expand in existing markets. We opened two company-operated restaurants and franchisees opened 18 Jack in the Box restaurants during the year.

2




The following table summarizes the changes in the number of company-operated and franchise Jack in the Box restaurants over the past five years: 
 
 
Fiscal Year
 
 
2017
 
2016
 
2015
 
2014
 
2013
Company-operated restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
417

 
413

 
431

 
465

 
547

New
 
2

 
4

 
2

 
1

 
6

Refranchised
 
(178
)
 
(1
)
 
(21
)
 
(37
)
 
(78
)
Closed
 
(15
)
 

 
(6
)
 
(2
)
 
(11
)
Acquired from franchisees
 
50

 
1

 
7

 
4

 
1

End of period total
 
276

 
417

 
413

 
431

 
465

% of system
 
12
%
 
18
%
 
18
%
 
19
%
 
21
%
Franchise restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
1,838

 
1,836

 
1,819

 
1,786

 
1,703

New
 
18

 
12

 
16

 
11

 
11

Refranchised
 
178

 
1

 
21

 
37

 
78

Closed
 
(9
)
 
(10
)
 
(13
)
 
(11
)
 
(5
)
Sold to company
 
(50
)
 
(1
)
 
(7
)
 
(4
)
 
(1
)
End of period total
 
1,975

 
1,838

 
1,836

 
1,819

 
1,786

% of system
 
88
%
 
82
%
 
82
%
 
81
%
 
79
%
System end of period total
 
2,251

 
2,255

 
2,249

 
2,250

 
2,251

Qdoba.  Qdoba’s menu features Mexican-themed food items including burritos, tacos, salads, and quesadillas. Guests can customize their meals by adding 3-cheese queso, guacamole, and a variety of sauces and salsas without paying an extra charge. Our new brand name and logos that debuted in fiscal 2016 modify the full name of our brand from Qdoba Mexican Grill® to Qdoba Mexican Eats to better reflect the flavors and variety our menu offers.
Our restaurants also offer a variety of catering options that can be tailored to feed groups of ten to several hundred people. While some of our restaurants serve breakfast, the majority generally operate from 10:30 a.m. to 10:00 p.m. Qdoba restaurants have a seating capacity that ranges from 60 to 80 people, and many locations include outdoor patio seating. In fiscal 2017, the average check for company-operated restaurants was $11.86, which excludes catering sales.
We currently estimate the long-term growth potential for Qdoba to be approximately 2,000 units across the United States. Our company-operated restaurants are generally located in larger market areas. Franchise development is more weighted towards traditional sites, but are also developed in non-traditional sites (airports, college campuses, etc.) or areas where local franchisees can operate more efficiently. During fiscal 2017, we opened 23 company-operated restaurants and franchisees opened 19 Qdoba restaurants, including 14 non-traditional sites.

3




The following table summarizes the changes in the number of company-operated and franchise Qdoba restaurants over the past five years:
 
 
Fiscal Year
 
 
2017
 
2016
 
2015
 
2014
 
2013
Company-operated restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
367

 
322

 
310

 
296

 
316

New
 
23

 
35

 
17

 
16

 
34

Refranchised
 

 

 

 

 
(3
)
Closed
 
(5
)
 
(4
)
 
(5
)
 
(2
)
 
(64
)
Acquired from franchisees
 

 
14

 

 

 
13

End of period total
 
385

 
367

 
322

 
310

 
296

% of system
 
53
%
 
53
%
 
49
%
 
49
%
 
48
%
Franchise restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
332

 
339

 
328

 
319

 
311

New
 
19

 
18

 
22

 
22

 
34

Refranchised
 

 

 

 

 
3

Closed
 
(10
)
 
(11
)
 
(11
)
 
(13
)
 
(16
)
Sold to company
 

 
(14
)
 

 

 
(13
)
End of period total
 
341

 
332

 
339

 
328

 
319

% of system
 
47
%
 
47
%
 
51
%
 
51
%
 
52
%
System end of period total
 
726

 
699

 
661

 
638

 
615


Site Selection and Design
Site selections for all new company-operated Jack in the Box and Qdoba restaurants are made after an economic analysis and a review of demographic data and other information relating to population density, traffic, competition, restaurant visibility and access, available parking, surrounding businesses and opportunities for market penetration. Restaurants developed by franchisees are built to brand specifications on sites we have reviewed.
Each of our brands have multiple restaurant models with different seating capacities to improve our flexibility in selecting locations for our restaurants. Management believes that this flexibility enables the Company to match the restaurant configuration with the specific economic, demographic, geographic or physical characteristics of a particular site.
Typical costs to develop a traditional Jack in the Box restaurant, excluding the land value, range from approximately $1.3 million to $2.4 million. The majority of our Jack in the Box restaurants are constructed on leased land or on land that we purchase and subsequently sell, along with the improvements, in sale and leaseback transactions. Upon completion of a sale and leaseback transaction, the Company’s initial cash investment is reduced to the cost of equipment, which ranges from approximately $0.3 million to $0.5 million.
The majority of Qdoba restaurants are located in leased spaces ranging from conventional large-scale retail projects to smaller neighborhood retail strip centers as well as non-traditional locations such as airports, college campuses and food courts. Qdoba restaurant development costs generally range from approximately $0.8 million to $1.1 million depending on the type, square footage, geographic region, and if the location includes an expanded alcohol offering. In fiscal 2016, we finalized our new restaurant design and approved remodel designs for existing restaurants. In fiscal 2017, we began rolling out the new designs for remodels system-wide.
Franchising Program
Jack in the Box.  The Jack in the Box franchise agreement generally provides for an initial franchise fee of $50,000 per restaurant for a 20-year term, royalty payments, and marketing fees at 5.0% of gross sales. Royalty rates, typically 5.0% of gross sales, can range from 2.5% to as high as 10.0% of gross sales, and some existing agreements provide for variable rates and/or royalty holidays. We may offer development agreements to franchisees for construction of one or more new restaurants over a defined period of time and in a defined geographic area. Developers may be required to pay fees for certain company-sourced new sites. Developers may lose their rights to future development if they do not maintain the required opening schedule. To stimulate growth we have offered a waiver of development fees for new sites, in addition to lower royalty rates or a development loan, to franchisees who open restaurants within a specified time frame.

4




In connection with the sale of a company-operated restaurant to a franchisee, we sell to the franchisee the restaurant equipment and the right to do business at that location for a specified term. The aggregate price is negotiated based upon the value of the restaurant as a going concern, which depends on various factors, including the sales and cash flows of the restaurant, as well as its location and history. In addition, the land and building are generally leased or subleased to the franchisee at a negotiated rent, typically equal to the greater of a minimum base rent or a percentage of gross sales. The franchisee is usually required to pay property taxes, insurance and ancillary costs, and is responsible for maintaining the restaurant.
Qdoba.  Qdoba franchisees are generally charged an initial franchise fee of $30,000 per restaurant for a 10-year franchise term with a 10-year option to extend at a fee of $5,000, royalty payments, and marketing fees of approximately 1.3% of gross sales. We also require franchisees to spend a minimum of approximately 1.8% of gross sales on local marketing for their restaurants. Royalty rates are typically 5.0% of gross sales. We offer development agreements to franchisees for the construction of one or more new restaurants over a defined period of time and in a defined geographic area for a development fee, a portion of which may be credited against franchise fees due for restaurants when they are opened. If the developer does not maintain the required schedule of openings, they may forfeit such fees and lose their rights to future development. To enhance our traditional growth, we have offered agreements that provide lower royalty rates or a development loan to franchisees who open restaurants within a specified time frame. We continue to pursue non-traditional locations both through multi-location commitments and single unit franchise agreements. Currently, the non-traditional franchise agreements we offer provide for an initial franchise fee between $15,000 to $30,000, and a 6.0% royalty rate. To enhance our multi unit non-traditional growth, we may offer agreements that provide for lower fees.
Restaurant Management and Operations
Jack in the Box and Qdoba restaurants are operated by a company manager or franchise operator who is directly responsible for the operations of the restaurant, including product quality, service, food safety, cleanliness, inventory, cash control and the conduct and appearance of employees. We focus on attracting, selecting, engaging and retaining employees and franchisees who share our passion for creating long-lasting, successful restaurants.
At both brands, company-operated restaurant managers are supervised by district managers, who are overseen by directors of operations, who report to vice presidents of operations. Under our performance system, vice presidents are eligible for an annual incentive based on achievement of goals related to brand earnings and margin, and company-wide performance. Directors are eligible for an annual incentive based on achievement of goals related to brand region level sales, profit, and company-wide performance. District managers and restaurant managers are eligible for quarterly incentives based on growth in restaurant sales and profit and/or certain other operational performance standards.
Jack in the Box. Company restaurant managers are required to complete an extensive management training program involving a combination of in-restaurant instruction and on-the-job training in specially designated training restaurants. Restaurant managers and supervisory personnel train other restaurant employees in accordance with detailed procedures and guidelines using training aids available at each location.
Qdoba. The Qdoba Training System is used to provide employees with detailed training by position, from entry level to restaurant manager. Restaurant management are certified to train and develop team members through a series in-restaurant instruction and on the job training that focus on knowledge, skills and behaviors. The Qdoba Training System certifies  achievement for our cooks and line servers who showcase excellence in their positions. Team members must have, or acquire, specific technical and behavioral skills to become certified in all positions.
Customer Satisfaction
Company-operated and franchise-operated restaurants devote significant resources toward offering quality food and excellent service at all of our restaurants. One tool we use to help us maintain a high level of customer satisfaction is our Voice of Guest program, which provides restaurant managers, district managers, and franchise operators with ongoing feedback from guests who complete a short guest satisfaction survey via an invitation typically provided on the register receipt. In these surveys, guests rate their satisfaction with key elements of their restaurant experience, including friendliness, food quality, cleanliness, speed of service and order accuracy. In 2017, the Jack in the Box and Qdoba systems received approximately 1.9 million and 0.3 million guest survey responses, respectively. Our Guest Relations Department receives feedback that guests provide via our website, and communicates that feedback to restaurant managers and franchise operators. We also collect guest feedback through social media and other resources.

5




Food Safety and Quality
Our “farm-to-fork” food safety and quality assurance programs are designed to maintain high standards for the food products and food preparation procedures used by our vendors and in our restaurants. We maintain product specifications for our ingredients and our Food Safety and Regulatory Compliance Department must approve all suppliers of food products to our restaurants. We use third-party and internal audits to review the food safety management programs of our vendors. We manage food safety in our restaurants through a comprehensive food safety management program that is based on the Food and Drug Administration (“FDA”) Food Code requirements. The food safety management program includes employee training, ingredient testing, documented restaurant practices and attention to product safety at each stage of the food preparation cycle. In addition, our food safety management program uses American National Standards Institute certified food safety training programs to train our company and franchise restaurant management employees on food safety practices for our restaurants.
Supply Chain
In fiscal 2012, all of our Jack in the Box company-operated restaurants and approximately 90% of our Jack in the Box franchisees entered into a long-term contract with a third-party distributor. Under this contract, the distributor will provide distribution services through seven distribution centers in the continental United States to our Jack in the Box restaurants through August 2022. Beginning in June 2015, the remaining 10% of our Jack in the Box franchisees decided to use the services of the same third-party distributor under the same long-term contract.
In fiscal 2012, all of our Qdoba company-operated restaurants and approximately 90% of our Qdoba franchisees began utilizing the distribution services of another third-party distributor under a long-term contract, which ended in February 2017. Since December 2014, the remaining 10% of our Qdoba franchisees have utilized the same third-party distributor under the same long-term contract. In March 2017, all company-operated and franchise-operated restaurants entered into a five year distribution services agreement, which ends in February of 2022, with a consortium of four Qdoba regional distributors comprising 18 distribution centers in the United States and two distribution centers in Canada.
The primary commodities purchased by our restaurants are beef, poultry, pork, cheese and produce. Shrimp, avocados, rice, beans and tortillas are additional commodities purchased by Qdoba. We monitor and purchase commodities in order to minimize the impact of fluctuations in price and supply. Contracts are entered into and commodity market positions may be secured when we consider them to be advantageous. However, certain commodities remain subject to price fluctuations. Most, if not all essential food and beverage products are available, or can be made available, upon short notice from alternative qualified suppliers.
Information Systems
At our shared services corporate support center, we have centralized financial accounting systems, human resources and payroll systems, and a communications and network infrastructure that supports both Jack in the Box and Qdoba corporate functions. Our restaurant software allows for daily polling of sales, inventory and other data from the restaurants directly. Our company restaurants and traditional site franchise restaurants use standardized Windows-based touch screen point-of-sale (“POS”) platforms. These platforms allow the restaurants to accept cash, credit cards and our re-loadable gift cards. Our Qdoba POS system is also enhanced with an integrated guest loyalty program as well as a takeout and delivery interface. The takeout and delivery interface is used to manage online and catering orders that are distributed to sites via a hosted online ordering website. Both brands offer distinct mobile applications that support order-ahead functionality and payment. Jack in the Box now offers mobile ordering in select locations. Qdoba allows for mobile and web ordering at all of its U.S. restaurants.
We have business intelligence systems that provide visibility to the key metrics in the operation of company and franchise restaurants. These systems play an integral role in accumulating and analyzing market information. Our company restaurants use labor scheduling systems to assist managers in managing labor hours based on forecasted sales volumes. We also have inventory management systems which enable timely and accurate deliveries of food and packaging to our restaurants. To support order accuracy and speed of service, our drive-thru Jack in the Box restaurants use color order confirmation screens.
Advertising and Promotion
Jack in the Box. At Jack in the Box, we build brand awareness through our marketing and advertising programs and activities. These activities are supported primarily by financial contributions to a marketing fund from all company and franchise restaurants based on a percentage of gross sales. Activities to advertise restaurant products, promote brand awareness and attract customers include, but are not limited to, system and regional campaigns on television, radio and print media, as well as digital and social media. 

6




Qdoba. At Qdoba, our marketing and advertising programs are designed to build brand awareness, lift restaurant traffic, and increase brand advocacy. All company and franchise restaurants financially contribute a percentage of gross sales to fund the production and development of advertising assets, including but not limited to national and regional radio, print, and digital and social media. Advertising is created at the brand level and the system operators can utilize these assets, or tap into our in-house creative services group to create custom advertising that meets their particular communication objectives while adhering to brand standards. Additionally, the brand has launched an affinity and mobile platform designed to inspire, motivate and reward increased frequency among Qdoba guests.
Employees
At October 1, 2017, we had approximately 16,600 employees, of whom 15,900 were restaurant employees, 500 were corporate personnel, and 200 were field management or administrative personnel. Employees are paid on an hourly basis, except certain restaurant management, operations and corporate management, and administrative personnel. We employ both full- and part-time restaurant employees in order to provide the flexibility necessary during peak periods of restaurant operations. We have not experienced any significant work stoppages, and we support our employees, including part-time workers, by offering industry competitive wages and benefits.
Executive Officers
The following table sets forth the name, age, position and years with the Company of each person who is an executive officer of Jack in the Box Inc. as of October 1, 2017:
Name
 
Age
 
Positions
 
Years with the
Company
Leonard A. Comma
 
48
 
Chairman of the Board and Chief Executive Officer
 
16
Mark H. Blankenship, Ph.D.
 
56
 
Executive Vice President, Chief People, Culture and Corporate Strategy Officer
 
20
Jerry P. Rebel
 
60
 
Executive Vice President and Chief Financial Officer
 
14
Phillip H. Rudolph
 
59
 
Executive Vice President, Chief Legal and Risk Officer and Corporate Secretary
 
10
Frances L. Allen
 
55
 
President, Jack in the Box Brand
 
3
Keith M. Guilbault
 
54
 
President, Qdoba Brand
 
13
Paul D. Melancon
 
61
 
Senior Vice President of Finance, Controller and Treasurer
 
12
Carol A. DiRaimo
 
56
 
Vice President, Chief Investor Relations and Corporate Communications Officer
 
9
Vanessa C. Fox
 
44
 
Vice President, Chief Development Officer
 
20
Dean C. Gordon
 
55
 
Vice President, Chief Supply Chain Officer
 
8
Raymond Pepper
 
56
 
Vice President and General Counsel
 
20
Iwona Alter
 
48
 
Vice President and Chief Marketing Officer, Jack in the Box Brand
 
11
The following sets forth the business experience of each executive officer for at least the last five years:
Mr. Comma has been Chairman of the Board and Chief Executive Officer since January 2014. From May 2012 until October 2014, he served as President, and from November 2010 through January 2014, as Chief Operating Officer. Mr. Comma served as Senior Vice President and Chief Operating Officer from February 2010 to November 2010, Vice President Operations Division II from February 2007 to February 2010, Regional Vice President of the Company’s Southern California region from May 2006 to February 2007 and Director of Convenience-Store & Fuel Operations for the Company’s proprietary chain of Quick Stuff convenience stores from August 2001 to May 2006. Mr. Comma has 25 years of retail and franchise experience.
Dr. Blankenship has been Executive Vice President, Chief People, Culture and Corporate Strategy Officer since November 2013. He was previously Senior Vice President and Chief Administrative Officer from October 2010 to November 2013, Vice President, Human Resources and Operational Services from October 2005 to October 2010 and Division Vice President, Human Resources from October 2001 to September 2005. Dr. Blankenship has 20 years of experience with the Company in various human resource and training positions.
Mr. Rebel has been Executive Vice President and Chief Financial Officer since October 2005. He was previously Senior Vice President and Chief Financial Officer from January 2005 to October 2005 and Vice President and Controller of the Company from September 2003 to January 2005. Prior to joining the Company in 2003, Mr. Rebel held senior level positions with Fleming Companies and CVS Corporation. He has more than 35 years of corporate finance experience. As the Company announced in April 2017, Mr. Rebel plans to retire as its Executive Vice President and Chief Financial Officer in 2018.
Mr. Rudolph has been Chief Legal and Risk Officer since October 2014, Executive Vice President since February 2010, and Corporate Secretary since November 2007. Before becoming Chief Legal and Risk Officer, he was General Counsel since November 2007. Prior to joining the Company, Mr. Rudolph was Vice President and General Counsel for Ethical Leadership Group. He was previously a partner in the Washington, D.C. office of Foley Hoag, LLP, and a Vice President at McDonald’s Corporation where,

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among other roles, he served as U.S. and International General Counsel. Before joining McDonald’s, Mr. Rudolph spent 15 years with the law firm of Gibson, Dunn & Crutcher, LLP, the last six of which he spent as a litigation partner in the firm’s Washington, D.C. office. Mr. Rudolph has more than 30 years of legal experience.
Ms. Allen has served as President of the Jack in the Box brand since October 2014. She joined the Company with more than 30 years of branding and marketing experience, including senior leadership roles at such major organizations as Denny’s, Dunkin’ Brands, Sony Ericsson Mobile Communications, PepsiCo and Frito-Lay. From July 2010 to October 2014, Ms. Allen worked for Denny’s Corp., most recently as its Chief Brand Officer and, previously, as its Chief Marketing Officer. From 2007 to 2009, she was Chief Marketing Officer of Dunkin’ Donuts, from 2004 to 2007, she was Vice President of Marketing, North America at Sony Ericsson Mobile Communications, and from 1998 to 2004, she held several positions at PepsiCo, most recently as Vice President of Marketing. Prior to that, Ms. Allen served at Frito-Lay as Director of International Advertising, and worked for several advertising agencies.
Mr. Guilbault has served as President of Qdoba brand since June 2016 and Chief Executive Officer of Qdoba Restaurant Corporation since September 2017. From March 2016 to June 2016, he served as Chief Operating Officer of Qdoba. Prior to that, Mr. Guilbault held several positions with the Jack in the Box brand, including: Senior Vice President and Chief Marketing Officer from November 2013 to March 2016; Vice President of Menu & Innovation from October 2012 to November 2013; Vice President of Franchising from October 2010 to October 2012; Division Vice President of Operations Initiatives from February 2010 to October 2010; and Division Vice President of Brand Innovation & Regional Marketing from February 2006 to February 2010. He joined the Company in 2004 as a Regional Vice President in Central California. Including his service with Jack in the Box Inc., Mr. Guilbault has more than 16 years of experience in management positions with several companies, including Mobil Oil Corporation, Priceline WebHouse Club and Freemarkets, Inc.
Mr. Melancon has been Senior Vice President of Finance, Controller and Treasurer since November 2013. He was previously Vice President of Finance, Controller and Treasurer from September 2008 to November 2013 and Vice President and Controller from July 2005 to September 2008. Before joining the Company, Mr. Melancon held senior financial positions at several major companies, including Guess?, Inc., Hyper Entertainment, Inc. (a subsidiary of Sony Corporation of America) and Sears, Roebuck and Company. Mr. Melancon has more than 35 years of experience in accounting and finance, including 11 years with Price Waterhouse.
Ms. DiRaimo has been Vice President and Chief Investor Relations and Corporate Communications Officer since April 2017. She served as Vice President of Investor Relations and Corporate Communications from July 2008 to April 2017. Ms. DiRaimo previously spent 14 years at Applebee’s International, Inc. where she held various positions including Vice President of Investor Relations from February 2004 to November 2007. Ms. DiRaimo has more than 30 years of corporate finance and public accounting experience, including positions with Gilbert/Robinson Restaurants, Inc. and Deloitte.
Ms. Fox has been Vice President and Chief Development Officer overseeing development for the Jack in the Box and Qdoba brands since June 2016, and the Jack in the Box brand since March 2014. Previously, she held numerous positions for the Jack in the Box brand, including: Division Vice President of Franchise Business Development since September 2013 and Division Vice President of Franchise Sales & Development since June 2011. From February 2011 to June 2011, she was Director of Franchise Business Development, and she previously had the same title in Franchise Sales since October 2010. Ms. Fox served in other capacities since joining the Company in 1997. Before joining Jack in the Box Inc., she was a licensed real estate agent and worked for several companies in the residential real estate industry. Ms. Fox has 25 years of real estate and development experience.
Mr. Gordon has been Vice President and Chief Supply Chain Officer since July 2017. He was previously Vice President of Supply Chain Services since October 2012, and Division Vice President of Purchasing from February 2009 to October 2012. Prior to joining the Company in February 2009, Mr. Gordon was Vice President of Supply Chain Management for Potbelly Sandwich Works from December 2005 to February 2009, and he held various positions with Applebee’s International from August 2000 to December 2005, most recently as Executive Director of Procurement. Mr. Gordon also held a number of positions at Prandium, Inc., an operator of multiple restaurant concepts, from October 1994 to August 2000. Mr. Gordon has over 20 years of Supply Chain Management experience.
Mr. Pepper has been Vice President and General Counsel since September 2014. He was previously Vice President, Deputy General Counsel since September 2013, and Division Vice President, Deputy General Counsel from July 2009 to September 2013. Prior to that, Mr. Pepper held the positions of Division Vice President, Corporate Counsel from 2003 to 2009 and Director, Corporate Counsel from 1997 to 2003. Before joining the Company, Mr. Pepper spent 11 years with the law firm of Miller, Boyko and Bell, both as an associate and partner. Mr. Pepper has over 30 years of legal experience.


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Ms. Alter has been Vice President and Chief Marketing Officer for the Jack in the Box brand since October 2016. From January 2014 to October 2016, she served as Vice President of Menu Strategy and Innovation. Ms. Alter was previously Division Vice President of Operations from 2011 to 2014, Director of Innovation from 2009 to 2011, and a Marketing Manager from 2005 to 2009. Ms. Alter has more than 20 years of experience in a variety of advertising, marketing and brand-management roles, both domestically and internationally.
Trademarks and Service Marks
The JACK IN THE BOX®, QDOBA MEXICAN EATS®, QDOBA MEXICAN GRILL® and QDOBA® names are of material importance to us, and each is a registered trademark and service mark in the United States and elsewhere. In addition, we have registered or applied to register numerous service marks and trade names for use in our businesses, including the Jack in the Box, Qdoba, and Qdoba Mexican Eats logos and design marks and various product names and designs.
Seasonality
Restaurant sales and profitability are subject to seasonal fluctuations because of factors such as vacation and holiday travel, seasonal weather conditions, and weather crises, all of which affect the public’s dining habits.
Competition and Markets
The restaurant business is highly competitive and is affected by local and national economic conditions, including unemployment levels, population and socioeconomic trends, traffic patterns, local and national competitive changes, changes in consumer dining habits and preferences, and new information regarding diet, nutrition and health, all of which may affect consumer spending habits. Key elements of competition in the industry are the quality and innovation in the food products offered, price and perceived value, quality of service experience (including technological and other innovations), speed of service, personnel, advertising and other marketing efforts, name identification, restaurant location, and image and attractiveness of the facilities.
Each Jack in the Box and Qdoba restaurant competes directly and indirectly with a large number of national and regional restaurant chains, some of which have significantly greater financial resources, as well as with locally-owned and/or independent restaurants in the quick-service and the fast-casual segments, and other consumer options including grocery and specialty stores, catering and delivery services. In selling franchises, we compete with many other restaurant franchisors, some of whom have substantially greater financial resources.
Available Information
The Company’s primary website can be found at www.jackinthebox.com. We make available free of charge at this website (under the caption “Investors — SEC Filings”) all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, including our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and amendments to those reports. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission (“SEC”). You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site (www.sec.gov) that contains our reports, proxy and information statements, and other information.
Regulation
Each restaurant is subject to regulation by federal agencies, as well as licensing and regulation by state and local health, sanitation, safety, fire, zoning, building, consumer protection, taxing and other agencies and departments. Restaurants are also subject to rules and regulations imposed by owners and/or operators of shopping centers, college campuses, airports, military bases or other locations where a restaurant is located. Difficulties or failures in obtaining and maintaining any required permits, licenses or approvals, or difficulties in complying with applicable rules and regulations, could result in restricted operations, closures of existing restaurants, delays or cancellations in the opening of new restaurants, increased cost of operations or the imposition of fines and other penalties.
We are subject to federal, state and local laws governing restaurant menu labeling, as well as to laws restricting the use of, or requiring disclosures about, certain ingredients used in food sold at our restaurants.
We are also subject to federal, state and international laws regulating the offer and sale of franchises, as well as judicial and administrative interpretations of such laws. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises, and may also apply substantive standards to the relationship between franchisor and franchisee, including limitations on the ability of franchisors to terminate franchises and alter franchise arrangements.

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We are subject to the federal Fair Labor Standards Act and various state laws governing such matters as minimum wages, exempt status classification, overtime, breaks and other working conditions for company employees. Our franchisees are subject to these same laws. Many of our food service personnel are paid at rates set in relation to the federal and state minimum wage laws and, accordingly, changes in the minimum wage requirements may increase labor costs for us and our franchisees. Federal and state laws may also require us to provide paid and unpaid leave to our employees, or healthcare or other employee benefits, which could result in significant additional expense to us and our franchisees. We are also subject to federal immigration laws requiring compliance with work authorization documentation and verification procedures.
We are subject to certain guidelines under the Americans with Disabilities Act of 1990 and various state codes and regulations, which require restaurants to provide full and equal access to persons with physical disabilities.
We are also subject to various federal, state and local laws regulating the discharge of materials into the environment. The cost of complying with these laws increases the cost of operating existing restaurants and developing new restaurants. Additional costs relate primarily to the necessity of obtaining more land, landscaping, storm drainage control and the cost of more expensive equipment necessary to decrease the amount of effluent emitted into the air, ground and surface waters.
Some of our Qdoba restaurants sell alcoholic beverages, which require licensing. The regulations governing licensing may impose requirements on licensees including minimum age of employees, hours of operation, and advertising and handling of alcoholic beverages.
In addition to laws and regulations governing restaurant businesses directly, there are also regulations, such as the Food Safety Modernization Act, that govern the practices of food manufacturers and distributors, including our suppliers.
We have processes in place to monitor compliance with applicable laws and regulations governing our company operations.
ITEM 1A.  
RISK FACTORS
We caution you that our business and operations are subject to a number of risks and uncertainties. The factors listed below are important factors that could cause our actual results to differ materially from our historical results and from projections in the forward-looking statements contained in this report, in our other filings with the SEC, in our news releases and in oral statements by our representatives. However, other factors that we do not anticipate or that we do not consider significant based on currently available information may also have an adverse effect on our results.
Risks Related to Operating in the Restaurant Industry  
Changes in consumer confidence and declines in general economic conditions could negatively impact our financial results.
The restaurant industry depends on consumer discretionary spending. We are impacted by consumer confidence, which is, in turn, influenced by general economic conditions and discretionary income levels. A material decline in consumer confidence or a decline in family “food away from home” spending could cause our financial results to decline. If economic conditions worsen, customer traffic could be adversely impacted if our customers choose to dine out less frequently or reduce the amount they spend on meals while dining out which could cause our average restaurant sales to decline. An economic downturn may be caused by a variety of factors, such as macro-economic shocks, increased unemployment rates, increased taxes, interest rates or other changes in government fiscal policy. High gasoline prices, increased healthcare costs, declining home prices, and political unrest, foreign or domestic, may potentially contribute to an economic downturn, as may regional or local events, including natural disasters or local regulation. The impact of these factors may be exacerbated by the geographic profile of our Jack in the Box brand. Specifically, nearly 70% of the restaurants in our Jack in the Box system are located in the states of California and Texas. Economic conditions, state and local laws, or government regulations affecting those states may therefore more greatly impact our results than would similar occurrences in other locations.
In addition, if economic conditions deteriorate or are uncertain for a prolonged period of time, or if our operating results decline unexpectedly, we may be required to record impairment charges, which will negatively impact our results of operations for the periods in which they are recorded. Due to the foregoing or other factors, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for a full fiscal year. These fluctuations may cause our operating results to be below the expectations of public market analysts and investors, and may adversely impact our stock price.




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We face significant competition in the food service industry and our inability to compete may adversely affect our business.
The food service industry is highly competitive with respect to price, service, location, product offering, image and attractiveness of the facilities, personnel, advertising, brand identification, and food quality. Our competition includes a large number of national and regional restaurant chains, as well as locally owned and/or independent businesses. In particular, we operate in the quick service and fast-casual restaurant chain segments, in both of which we face a number of established competitors, as well as frequent new entrants to the segment nationally and in regional markets. Some of our competitors have significantly greater financial, marketing, personnel, and other resources than we do. In addition, many of our competitors have greater name recognition nationally or in some of the local or regional markets in which we have restaurants.
Additionally, the trend toward convergence in grocery, deli, and restaurant services is increasing the number of our competitors. For example, competitive pressures can come from deli sections and in-store cafes of major grocery store chains, including those targeted at customers who desire high-quality food and convenience, as well as from convenience stores and other dining outlets. These competitors may have, among other things, a more diverse menu, lower operating costs and prices, better locations, better facilities, better management, more effective marketing, and more efficient operations than we do. Such increased competition could decrease the demand for our products and negatively affect our sales, operating results, profits, business and financial position, and prospects (collectively, our “financial results”).
While we continue to make improvements to our facilities, to implement new service and training initiatives, and to introduce new products, there can be no assurance that such efforts will generate increased sales or sufficient customer interest. Many of our competitors have introduced a variety of new products and service offerings, and advertise that their ingredients are more healthful or locally-sourced. Such competing products and health- or environmental-focused claims may hurt our competitive positioning as existing or potential customers could seek out other dining options.
Changes in demographic trends and in customer tastes and preferences could cause sales to decline.
Changes in customer preferences, demographic trends, and the number, type, and location of competing restaurants have great impact in the restaurant industry. Our sales could be impacted by changes in customer preferences in response to dietary concerns, such as preferences regarding calories, sodium content, carbohydrates, and fat. Such preference changes could result in customers favoring other foods to the exclusion of our menu items. Some customers also may choose to avoid freshly prepared foods, like those we serve, due to food safety concerns. Many of our restaurants, particularly our Qdoba restaurants, are located in or adjacent to shopping malls or similar retail districts; a consumer trend toward online shopping and delivery could reduce foot traffic and sales at these locations. If we fail to adapt to changes in customer preferences and trends, we may lose customers and our sales may deteriorate.
Increases in food and commodity costs could decrease our profit margins or result in a modified menu, which could adversely affect our financial results.
We and our franchisees are subject to volatility in food and commodity costs and availability. Accordingly, our profitability depends in part on our ability to anticipate and react to changes in food costs and availability. As is true of all companies in the restaurant industry, we are susceptible to increases in food costs that are outside of our control. Factors that can impact food and commodity costs include general economic conditions, seasonal fluctuations, weather and climate conditions, global demand, trade protections and subsidies, food safety issues, infectious diseases, possible terrorist activity, currency fluctuations, product recalls and government regulatory schemes. Additionally, some of our produce, meats and restaurant supplies are sourced from outside the United States. Any new or increased import duties, tariffs or taxes, or other changes in U.S. trade or tax policy, could result in higher food and commodity costs that would adversely impact our financial results.
Weather and climate related issues, such as freezes or drought, may lead to temporary or even longer-term spikes in the prices of some ingredients such as produce and meats, or of livestock feed. Increasing weather volatility or other long-term changes in global weather patterns, including any changes associated with global climate change, could have a significant impact on the price or availability of some of our ingredients. Any increase in the prices of the ingredients most critical to our menu, such as beef, chicken, pork, tomatoes, lettuce and potatoes for Jack in the Box, and chicken, beef, cheese, avocados, beans, rice, lettuce, tomatoes, and pork for Qdoba, could adversely affect our financial results. In the event of cost increases with respect to one or more of our raw ingredients, we may choose to change our pricing or suspend serving a menu item, rather than paying the increased cost for the particular ingredient. Any such changes to our currently available menu may negatively impact our restaurant traffic and comparable restaurant sales, and could have an adverse impact on our brand and financial results.
We seek to manage food and commodity costs, including through extended fixed price contracts, strong category and commodity management, and purchasing fundamentals. However, certain commodities such as beef and pork, which currently represent approximately 20% and 7%, respectively, of our consolidated commodity spend, do not lend themselves to fixed price contracts.

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We cannot assure you that we will successfully enter into fixed price contracts on a timely basis or on commercially favorable pricing terms. In addition, although our produce contracts contain pre-determined price limits, we are subject to force majeure clauses resulting from weather or acts of God that may result in temporary spikes in costs.
Further, we cannot assure you that we or our franchisees will be able to successfully anticipate and react effectively to changing food and commodity costs by adjusting purchasing practices or menu offerings. We and our franchisees also may not be able to pass along price increases to our customers as a result of adverse economic conditions, competitive pricing or other factors. Therefore, variability of food and other commodity costs could adversely affect our profitability and results of operations.
Failure to receive scheduled deliveries of high quality food ingredients and other supplies could harm our operations.
Dependence on frequent deliveries of fresh produce and other food products subjects food service businesses such as ours to the risk that shortages or interruptions in supply could adversely affect the availability, quality or cost of ingredients or require us to incur additional costs to obtain adequate supplies. Deliveries of supplies may be affected by adverse weather conditions, natural disasters, financial or solvency issues of our distributors or suppliers, product recalls, or other issues. Further, increases in fuel prices could result in increased distribution costs. In addition, if any of our distributors, suppliers, vendors or other contractors fail to meet our quality or safety standards or otherwise do not perform adequately, or if any one or more of them seeks to terminate its agreement or fails to perform as anticipated, or if there is any disruption in any of our distribution or supply relationships or operations for any reason, our business, financial condition and results of operations may be materially affected.
We have a limited number of suppliers for our major products and rely on a distribution network with a limited number of distribution partners for the majority of our national distribution program in the United States. If our suppliers or distributors are unable to fulfill their obligations under their contracts, it could harm our operations.
We contract with a distribution network with a limited number of distribution partners located throughout the nation to provide the majority of our food distribution services in the United States. Through these arrangements, our food supplies are largely distributed through several primary distributors. If any of these relationships are interrupted or terminated, or if one or more supply or distribution partners are unable or unwilling to fulfill their obligations for whatever reasons, product availability to our restaurants may be interrupted, and business and financial results may be negatively impacted. Although we believe that alternative supply and distribution sources are available, there can be no assurance that we will be able to identify or negotiate with such sources on terms that are commercially reasonable to us.
Food safety and food-borne illness concerns may have an adverse effect on our business by reducing demand and increasing costs.
Food safety is a top priority for our company, and we expend significant resources on food safety programs to ensure that our customers are able to enjoy safe and high quality food products. These include a daily, structured food safety assessment and documentation process at our restaurants, and periodic third-party and internal audits to review the food safety performance of our vendors, distributors and restaurants. Nonetheless, food safety risks cannot be completely eliminated, and food safety and food-borne illness issues do occur in the food service industry. Any report or publicity linking us to instances of food-borne illness or other food safety issues, including issues involving food tampering, natural or foreign objects, or other contaminants or adulterants in our food, could adversely affect our reputation, as well as our financial results. Furthermore, our reliance on food suppliers and distributors increases the risk that food-borne illness incidents could be introduced by third-party vendors outside our direct control. Although we test and audit these activities, we cannot guarantee that all food items are safely and properly maintained during transport or distribution throughout the supply chain.
Additionally, past reports linking nationwide or regional incidents of food-borne illnesses such as salmonella, E. coli, and listeria to certain products such as produce and proteins, or human-influenced illness such as hepatitis A or norovirus have resulted in consumers avoiding certain products and restaurant concepts for a period of time. Similarly, reaction to media-influenced reports of avian flu, incidents of “mad cow” disease, or similar concerns have also caused consumers to avoid any products that are, or are suspected of being, affected and could have an adverse effect on the price and availability of affected ingredients. Further, if we react to these problems by changing our menu or other key aspects of the brand experience, we may lose customers who do not accept those changes, and we may not be able to attract enough new customers to generate sufficient revenue to make our restaurants profitable.
Our restaurants currently have an ingredient mix that can be exposed to one or more food allergens, such as eggs, wheat, milk, fish, shellfish, tree nuts, peanuts, and soy. We employ precautionary allergen training steps for food handlers in order to minimize risk of allergen cross contamination. Even with such precautionary measures, the potential risk of allergen cross contamination exists in a restaurant environment. A potentially serious allergic reaction by a guest may result in adverse public communication, media coverage, a decline in restaurant sales, and a material decline in our financial results.

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Negative publicity relating to our business or industry could adversely impact our reputation.
Our business can be materially and adversely affected by widespread negative publicity of any type, particularly regarding food quality, food safety, nutritional content, safety or public health issues (such as outbreaks, epidemics, or the prospect of a pandemic), obesity or other health concerns, animal welfare issues, and employee relations issues, among other things. Adverse publicity in these areas could damage the trust customers place in our brand. The increasingly widespread use of mobile communications and social media platforms has amplified the speed and scope of adverse publicity and could hamper our ability to promptly correct misrepresentations or otherwise respond effectively to negative publicity. Any widespread negative publicity regarding the company, our brands, our vendors and suppliers, or the restaurant industry in general could cause a decline in restaurant sales, and could have a material adverse effect on our financial results.
Additionally, employee or customer claims against us or our franchisees based on, among other things, wage and hour violations, discrimination, harassment or wrongful termination may also create negative publicity that could adversely affect us and divert financial and management resources that would otherwise be focused on the future performance of our operations. Consumer demand for our products could decrease significantly if any such incidents or other matters create negative publicity or otherwise erode consumer confidence in us, our brand or our products, or in the restaurant industry in general.
We are also subject to the risk of negative publicity associated with animal welfare regulations and campaigns. Our restaurants utilize ingredients manufactured from beef, poultry, and pork. Our policies require that our approved food suppliers and their raw material providers engage in proper animal welfare practices. Despite our policies and efforts, media reports and portrayals of inhumane acts toward animals by participants in the food supply chain, whether by our suppliers or not, can create a negative opinion or perception of the food industry’s animal welfare efforts. Such media reports and negative publicity could impact guest perception of our brand or industry, and can have a material adverse effect on our financial results.
Our business could be adversely affected by increased labor costs or difficulties in finding and retaining top-performing personnel.
Labor is a primary component of our operating costs, and we believe good managers and crew are a key part of our success. We devote significant resources to recruiting and training our restaurant managers and crew. Increased labor costs due to factors such as competition for workers, labor market pressures, increased minimum wage requirements, paid sick leave or vacation accrual mandates, or other legal or regulatory changes, such as predictive scheduling, may adversely impact operating costs for us and our franchisees. Additional taxes or requirements to incur additional employee benefit costs, including the requirements of the Patient Protection and Affordable Care Act (the “Affordable Care Act”) or any new or replacement healthcare requirements, could also adversely impact our operating costs. Moreover, if restaurant managers do not schedule our restaurant crews efficiently, our restaurants may be overstaffed at some times, which adversely impacts our labor costs as a percentage of revenue, decreasing our operating margins.
We believe that our continued success will depend, in part, on our ability to attract and retain the services of skilled personnel, from our senior management to our in-store employees. The loss of the services of, or our inability to attract and retain, such personnel could have a material adverse effect on our business. We aim to reduce turnover among our restaurant crews and managers in an effort to retain top performing employees and better realize our investment in training new employees. Any failure to do so may adversely impact our operating results by increasing training costs and making it more difficult to deliver outstanding customer service, which could have a material adverse effect on our financial results.
We may not have the same resources as our competitors for advertising and promotion.
Some of our competitors have greater financial resources, which enable them to invest significantly more than us in advertising, particularly television and radio ads, as well as endorsements and sponsorships; have a presence across more media channels; and support multiple system and regional product launches at one time. Should our competitors increase spending on advertising and promotion, or should the cost of advertising increase or our advertising funds decrease for any reason (including reduced sales, implementation of reduced spending strategies or a decrease in the percentage contribution to the marketing funds for any reason), our results of operations and financial condition may be materially impacted. The growing prevalence and importance of social media platforms, behavioral advertising and mobile technology also pose challenges and risks for our marketing, advertising and promotional strategies; and failure to effectively use and gain traction on these platforms or technologies could cause our advertising to be less effective than our competitors. Our financial results may be harmed if our advertising and promotion are less effective than our competitors for any of these reasons. Moreover, improper or damaging use of social media or mobile technology, including by our employees, franchisees, or guests could increase our costs, lead to litigation or result in negative publicity, all of which could materially impact our results.

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We may be adversely impacted by severe weather conditions, natural disasters, terrorist acts or civil unrest that could result in property damage, injury to employees and staff, and lost restaurant sales.
Food service businesses such as ours can be materially and adversely affected by severe weather conditions, such as severe storms, hurricanes, flooding, prolonged drought or protracted heat or cold waves, and by natural disasters, such as earthquakes and wild fires, or “man-made” calamities such as terrorist incidents or civil unrest, and their aftermath. Such occurrences could result in lost restaurant sales, property damage, lost products, interruptions in supply, and increased costs.
If systemic or widespread adverse changes in climate or weather patterns occur, we could experience more of these losses, and such losses could have a material adverse effect on our financial results. The impact of these factors may be exacerbated by the geographic profile of our Jack in the Box brand, as nearly 70% of the restaurants in our Jack in the Box system are located in the states of California and Texas.
Our business is subject to seasonal fluctuations.
As a result of certain seasonal factors, our financial results for any quarter may not be indicative of the results that may be achieved for a full fiscal year. For example, historically, average weekly sales for our restaurants system-wide are lowest in the first quarter of the year.
Risks Related to Our Business Strategy
We may not achieve our development goals.
We intend to grow Qdoba and Jack in the Box either through developing additional company-owned restaurants or new restaurant development by franchisees, both in existing markets and in new markets. Development involves substantial risks, including the risk of:
the inability to identify suitable franchisees;
limited availability of financing for the Company and for franchisees at acceptable rates and terms;
development costs exceeding budgeted or contracted amounts;
delays in completion of construction;
the inability to identify, or the unavailability of suitable sites at acceptable cost and other leasing or purchase terms;
developed properties not achieving desired revenue or cash flow levels once opened;
the negative impact of a new restaurant upon sales at nearby existing restaurants;
the challenge of developing in areas where competitors are more established or have greater penetration or access to suitable development sites;
incurring substantial unrecoverable costs in the event a development project is abandoned prior to completion;
impairment charges resulting from underperforming restaurants or decisions to curtail or cease investment in certain locations or markets;
in new geographic markets where we have limited or no existing locations, the inability to successfully expand or acquire critical market presence for our brands, acquire name recognition, successfully market our products or attract new customers;
operating cost levels that reduce the demand for, or raise the cost of, developing new restaurants;
unique regulations or challenges applicable to operating in non-traditional locations, such as airports, college campuses, military or government facilities;
the challenge of identifying, recruiting and training qualified restaurant management;
the inability to obtain all required permits;
changes in laws, regulations and interpretations, including interpretations of the requirements of the Americans with Disabilities Act; and
general economic and business conditions.
Although we manage our growth and development activities to help reduce such risks, we cannot assure that our present or future growth and development activities will perform in accordance with our expectations. Our inability to expand in accordance with our plans or to manage the risks associated with our growth could have a material adverse effect on our results of operations and financial condition.

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The failure of our franchisees to operate successful and profitable restaurants could negatively impact our business.
The opening and continued success of franchise-operated restaurants depends on various factors, including the demand for our franchises, the selection of appropriate franchisee candidates, the identification and availability of suitable sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the availability of financing, and the financial and other capabilities of our franchisees and developers. Despite the due diligence we perform during the recruiting process, we cannot assure you that the franchisees and developers planning the opening of franchise-operated restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants as required by their agreements. Nor can we assure that they will prove to be effective operators and remain aligned with us with respect to operations, pricing, promotional or capital-intensive initiatives.
Our franchisees are contractually obligated to operate their restaurants in accordance with all applicable laws and regulations, as well as the standards set forth in our agreements with them. However, franchisees are independent third parties whom we cannot and do not control beyond the terms of our agreements with them. If franchisees do not operate restaurants in an effective or profitable manner or consistent with applicable laws and required standards, the royalty, and in some cases rent, payments that we receive from the franchisees may be adversely affected. If customers have negative perceptions or experiences with the operations, food quality or safety at our franchised locations, the image and reputation of our brands could be harmed, which in turn could negatively impact our financial results. Also, if franchisee employees have negative experiences and stage work stoppages or otherwise generate bad publicity, this could negatively impact our brand equity and financial results, even though franchise employees are not Company employees.
With an increase in the proportion of Jack in the Box franchised restaurants, the percentage of our revenues derived from royalties and rents at Jack in the Box franchise restaurants has increased and is anticipated to continue to increase, as has the risk that earnings could be negatively impacted by defaults in the payment of royalties and rents. As small businesses, some of our franchise operators may be negatively and disproportionately impacted by strategic initiatives, capital requirements, inflation, labor costs, employee relations issues or other causes. In addition, franchisees’ business obligations may not be limited to the operation of Jack in the Box or Qdoba restaurants, making them subject to business and financial risks unrelated to the operation of our restaurants. These unrelated risks could adversely affect a franchisee’s ability to make payments to us or to make payments on a timely basis. We cannot assure you that our franchisees will successfully participate in our strategic or marketing initiatives or operate their restaurants in a manner consistent with our concepts and standards. As compared to some of our competitors, our Jack in the Box brand has relatively fewer franchisees who, on average, operate more restaurants per franchisee. There are significant risks to our business if a franchisee, particularly one who operates a large number of restaurants, encounters financial difficulties, including bankruptcy, or fails to adhere to our standards, projecting an image inconsistent with our brands or negatively impacting our financial results.
We are subject to land risks and regulations with respect to our owned and leased properties and real estate development projects.
We own or lease the real properties on which most Jack in the Box system and our Qdoba company-operated restaurants are located, and we either own or lease (and subsequently lease/sublease to the franchisee) a majority of our Jack in the Box franchised restaurant sites and one of our Qdoba franchised restaurant sites. Further, we own our principal executive offices, our Innovation Center and approximately four acres of undeveloped land directly adjacent to the Innovation Center. We have engaged and continue to engage in real estate development projects. As is the case with any owner or operator of real property, we are subject to eminent domain proceedings that can impact the value of investments we have made in real property, and we are subject to other potential liabilities and damages arising out of owning, operating, leasing or otherwise having interests in real property.
Estimated values of our property, fixtures, and equipment or operating results that are lower than our current estimates at certain restaurant locations may cause us to incur impairment charges on certain long-lived assets; such charges may adversely affect our results of operations.
In accordance with accounting guidance as it relates to the impairment of long-lived assets, we make certain estimates and projections with regard to individual restaurant operations, as well as our overall performance, in connection with our impairment analyses for long-lived assets. We evaluate our long-lived assets, such as property and equipment, for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment evaluations for individual restaurants take into consideration a restaurant’s operating cash flows, the period of time since a restaurant has been opened or remodeled, and the maturity of the related market. The projections of future cash flows used in these analyses require the use of judgment and a number of estimates and projections of future operating results. If actual results differ from our estimates, additional charges for asset impairments may be required in the future. If future impairment charges are significant, our financial results would be adversely affected.

15





Our tax provision may fluctuate due to changes in expected earnings.
Our income tax provision is sensitive to expected earnings and, as those expectations change, our income tax provisions may vary from quarter-to-quarter and year-to-year.  In addition, we may occasionally take positions on our tax returns that differ from their treatment for financial reporting purposes. The difference in treatment of such positions could have an adverse impact on our effective tax rate.
We may incur costs as a result of certain restructuring activities which may negatively impact our financial results.
We are continuously seeking the most cost-effective means and structure to serve our customers, protect our shareholders and respond to changes in our markets. Since the beginning of 2012, as part of our ongoing effort to drive efficiencies throughout our organization, we have engaged in an ongoing and, at times, comprehensive review of our organizational structure. In connection with these restructuring activities, our business has occasionally incurred restructuring costs. From time to time, we may continue to engage in restructuring activities in an effort to improve cost competitiveness and profitability. As a result, restructuring costs are expected to be a recurring component of our operating costs and may vary significantly from year to year depending on the scope of such activities. Such restructuring costs and expenses could adversely impact our financial results.
General Business Risks
We may experience cyber security breaches or other incidents.
We and our franchisees rely on computer systems and information technology to conduct our business. We have instituted controls, including information security governance controls, intended to: protect our computer systems, our point of sale (“POS”) systems, and our information technology systems and networks; and adhere to payment card industry data security standards and limit third party access for vendors that require access to our restaurant networks. We also have business continuity plans that attempt to anticipate and mitigate failures. However, we cannot control or prevent every cyber security risk.
A material failure or interruption of service, or a breach in the security of our computer systems caused by malware or other attack, could cause: reduced efficiency in operations, loss or misappropriation of data, or other business interruptions; or could negatively impact: delivery of food to restaurants, or financial functions such as vendor payment, employee payroll, franchise operations reporting, or our ability to receive customer payments through our POS or other systems. Such events could negatively impact cash flows or require significant capital investment to rectify; result in damage to our business or reputation or loss of consumer confidence; and lead to potential costs, fines and litigation. These risks may be magnified by increased and changing regulations. The costs of compliance and risk mitigation planning, including increased investment in technology or personnel in order to protect valuable business or consumer information, may also negatively impact our financial results.
Restaurants and other retailers have faced, and we could in the future become subject to, claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information or the loss of personally identifiable information, and we may also be subject to lawsuits or other proceedings in the future relating to these types of incidents. Any such proceedings could distract our management from running our business and cause us to incur significant unplanned losses and expenses. Consumer perception of our brand could also be negatively affected by these events, which could further adversely affect our financial results.
We collect and maintain personal information about our employees and our guests. The collection and use of such information is regulated at the federal and state levels. We increasingly rely on cloud computing and other technologies that result in third parties holding significant amounts of customer or employee information on our behalf. There has been an increase over the past several years in the frequency and sophistication of attempts to compromise the security of these types of systems. If the security and information systems that we or our outsourced third-party providers use to store or process such information are compromised or if we, or such third parties, otherwise fail to comply with applicable laws and regulations, we could face litigation and the imposition of penalties that could adversely affect our financial performance. Our reputation as a brand or as an employer could also be adversely affected by these types of security breaches or regulatory violations, which could impair our ability to attract and keep qualified employees.

16





We may not be able to adequately protect our intellectual property, which could harm the value of our brands and adversely affect our business.
Our ability to successfully implement our business strategy depends, in part, on our ability to further build brand recognition using our trademarks, service marks, trade dress, and other proprietary intellectual property, including our name and logos, our strategy and the ambiance of our restaurants. If our efforts to protect our intellectual property are inadequate, or if any third party misappropriates or infringes our intellectual property, either in print, or on the Internet or a social media platform, the value of our brand may be harmed, which could have a material adverse effect on our business and might prevent our brand from achieving or maintaining market acceptance.
We adjust our capital structure from time to time and we may increase our debt leverage which would make us more sensitive to the effects of economic downturns.
As of October 1, 2017, the Company has a credit facility comprised of a $900.0 million revolving credit agreement and a $700.0 million term loan. 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 credit agreement. For additional information related to our credit facility, refer to Note 7, Indebtedness, of the notes to the consolidated financial statements. Increased leverage resulting from borrowings under our credit facility could have certain material adverse effects on the Company, including but not limited to the following:

our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate or other purposes could be impaired, or any such financing may not be available on terms favorable to us;
a substantial portion of our cash flows could be required for debt service and, as a result, might not be available for our operations or other purposes;
any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or could force us to modify our operations or sell assets;
our ability to operate our business and our ability to repurchase stock or pay cash dividends to our stockholders may be restricted by the financial and other covenants set forth in the credit facility;
our ability to withstand competitive pressures may be decreased; and
our level of indebtedness may make us more vulnerable to economic downturns and reduce our flexibility in responding to changing business, regulatory and economic conditions.
Our ability to repay expected borrowings under our credit facility and to meet our other debt or contractual obligations (including compliance with applicable financial covenants) 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. In addition, to the extent that banks in our revolving credit facility become insolvent, our ability to borrow to the full level of our facility could be limited.
The trading volatility and price of our common stock may be affected by many factors.
Many factors affect the trading price of our stock, including factors over which we have no control, such as reports on the economy, the industry or the price of commodities, as well as negative or positive announcements by competitors, regardless of whether the report relates directly to our business. In addition to investor expectations about our prospects, trading activity in our stock can reflect the portfolio strategies and investment allocation changes of institutional holders and non-operating initiatives such as a share repurchase program. Any failure to meet market expectations whether for sales, growth rates, refranchising goals, earnings per share or other metrics could cause our share price to drop.
Changes in accounting standards may negatively impact our results of operations.
  Changes in accounting standards, policies or related interpretations by accountants or regulatory entities may negatively impact our financial results. Many accounting standards require management to make subjective assumptions and estimates, such as those required for long-lived assets, retirement benefits, self-insurance, restaurant closing costs, goodwill and other intangibles, legal accruals, and income taxes. Changes in those underlying assumptions and estimates could significantly change our results.

17





We may be subject to claims or litigation that are costly and could result in our payment of substantial damages or settlement costs.
We are subject to complaints or litigation brought by former, current or prospective employees, customers, franchisees, vendors, landlords, shareholders, government regulations, or others. We assess contingencies to determine the degree of probability and range of possible losses for potential accrual in our financial statements. An estimated loss contingency is accrued if it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Because lawsuits are inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. However, the amount of ultimate loss may differ from these estimates. A judgment that is not covered by insurance or that is significantly in excess of our insurance coverage for any claims could materially adversely affect our financial results. In addition, regardless of whether any claims against us are valid or whether we are found to be liable, claims may be expensive to defend, and may divert management’s attention away from our operations and hurt our performance. Further, adverse publicity resulting from claims against us or our franchisees may harm our business or that of our franchisees.
Unionization activities or labor disputes may disrupt our operations and affect our profitability.
Some or all of our employees or our franchisees’ employees may elect to be represented by labor unions in the future. If a significant number of these employees were to become unionized and collective bargaining agreement terms were significantly different from current compensation arrangements, this could adversely affect our business and financial results or the business and financial results of our franchisees. In addition, a labor dispute or organizing effort involving some or all of our employees or our franchisees’ employees may harm our brand and reputation. Resolution of such disputes may be costly and time-consuming, and thus increase our costs and distract management resources.
Our insurance may not provide adequate levels of coverage against claims.
We believe that we maintain insurance policies customary for businesses of our size and type. Historically, through the use of deductibles or self-insurance retentions, we retained a portion of expected losses for our workers’ compensation, general liability, certain employee medical and dental, employment, property and other claims. However, there are types of losses that we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Such losses could have a material adverse effect on our business and results of operations.
Our bylaws contain an exclusive forum provision that may discourage lawsuits against us and our directors and officers.
Our bylaws provide that unless our Board of Directors otherwise determines, the state courts in the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware), will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, asserting a claim of breach of a fiduciary duty owed by any directors or officers to the Company or our stockholders, or any action asserting a claim as to which the Delaware General Corporate Law confers jurisdiction on the Delaware Court of Chancery. This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors and officers. Alternatively, if a court outside of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in multiple jurisdictions, which could materially and adversely affect our financial results.

18





Risks Related to Government Regulations
Governmental regulation, including in one or more of the following areas, may adversely affect our existing and future operations and results, including by harming our ability to profitably operate our restaurants.
Americans with Disabilities Act and Similar State Laws
We are subject to the Americans with Disabilities Act and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas. The expenses associated with any modifications we may be required to undertake with respect to our restaurants or services, or any damages, legal fees, and costs associated with litigating or resolving claims under the ADA or similar state laws, could be material.
Food Regulation
The Food Safety Modernization Act signed into law in January 2011, granted the FDA new authority regarding the safety of the entire food system, including through increased inspections and mandatory food recalls. Although restaurants are not directly implicated by some of these new requirements, our suppliers may initiate or otherwise be subject to food recalls or other consequences impacting the availability of certain products, which could result in adverse publicity, or require us to take actions that could be costly for us or otherwise impact our business and financial results.
Local Licensure, Zoning and Other Regulation
Each of our restaurants is subject to state and local licensing and regulation by health, alcoholic beverage, sanitation, food and workplace safety and other agencies. We may experience material difficulties or failures in obtaining the necessary licenses or approvals for new restaurants, which could delay planned restaurant openings. In addition, stringent and varied requirements of local regulators with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations. More specifically, some of our Qdoba restaurants sell alcoholic beverages, which require additional licensing. The regulations governing such licensing may impose requirements on licensees including minimum age of employees, hours of operation, and advertising and handling of alcoholic beverages. The failure of a restaurant to obtain or retain a license could adversely affect the store’s financial results.
Environmental Laws
We are subject to federal, state and local environmental laws and regulations concerning the discharge, storage, handling, release and disposal of hazardous or toxic substances, as well as local ordinances restricting the types of packaging we can use in our restaurants. If and to the extent any hazardous or toxic substances are present on or adjacent to any of our restaurant locations, we believe any such contamination would be the responsibility of one or more third parties, and would have been or should be addressed by the responsible party. If the relevant third parties have not or do not address the identified contamination properly or completely, then under certain environmental laws, we could be held liable as an owner or operator to address any remaining contamination, sometimes without regard to whether we knew of, or were responsible for, the release or presence of hazardous or toxic substances. Any such liability could be material. Further, we may not have identified all of the potential environmental liabilities at our properties, and any such liabilities could have a material adverse effect on our financial results. We also cannot predict what environmental laws or laws regarding packaging will be enacted in the future, how existing or future environmental or packaging laws will be administered or interpreted, or the amount of future expenditures that we may need to make to comply with, or to satisfy claims relating to, such laws.
Employment and Immigration Laws
We and our franchisees are subject to the federal labor laws, including the Fair Labor Standards Act, as well as various state and local laws governing such matters as minimum wages, exempt status classification, overtime, breaks, and other working conditions for employees. Federal, state and local laws may also require us to provide paid and unpaid leave, healthcare, or other benefits to our employees. Changes in the law, or penalties associated with any failure on our part to comply with legal requirements, could increase our labor costs or result in significant additional expense to us and our franchisees.
Various states in which we operate are considering or have already adopted new immigration laws or enforcement programs, and the U.S. Congress and the Department of Homeland Security from time to time consider and may implement changes to federal immigration laws, regulations or enforcement programs. Immigration laws have recently been an area of considerable focus by the Department of Homeland Security, with enforcement operations taking place across the country, resulting in arrests and detentions of unauthorized workers. Some of these changes and enforcement programs may increase our obligations for compliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome. Although we require all

19




workers to provide us with government-specified documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers. All of our Company restaurants, as well as our corporate support center, currently participate in the “E-Verify” program, an Internet-based, free program run by the United States government to verify employment eligibility. However, use of the “E-Verify” program does not guarantee that we will successfully identify all applicants who are ineligible for employment. Unauthorized workers are subject to deportation and may subject us to fines or penalties, and if any of our employees or our franchisees’ employees are found to be unauthorized we could experience adverse publicity that negatively impacts our brand and may make it more difficult to hire and keep qualified employees. Termination of a significant number of employees who are found to be unauthorized workers may disrupt operations, cause temporary increases in labor costs to train new employees, and result in additional adverse publicity. We could also become subject to fines, penalties, and other costs related to claims that we did not fully comply with all record keeping obligations of federal and state immigration compliance laws. These factors could materially adversely affect our financial results.
Franchising Activities
Our domestic franchising activities are subject to federal regulations administered by the U.S. Federal Trade Commission, laws enacted by a number of states, and with respect to Qdoba, certain rules and requirements regulating franchising activities in Canada, where we have some franchise-operated Qdoba restaurants. In particular, we are subject to federal, state, and Canadian laws regulating the offer and sale of franchises, as well as judicial and administrative interpretations of such laws. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises, and may also apply substantive standards to the relationship between franchisor and franchisee, including limitations on the ability of franchisors to terminate franchises and alter franchise arrangements. Failure to comply with new or existing franchise laws, rules, and regulations in any jurisdiction or to obtain required government approvals could negatively affect our ability to grow or expand our franchise business and sell franchises.
The proliferation of federal, state, and local regulations increases our compliance risks, which in turn could adversely affect our business.
The restaurant industry is subject to extensive federal, state, and local laws and regulations. The increasing amount and complexity of regulations and their interpretation may increase the costs to us and our franchisees of labor and compliance, and increase our exposure to legal and regulatory claims which, in turn, could have a material adverse effect on our business. While we strive to comply with all applicable existing rules and regulations, we cannot predict the effect on our operations from modifications to the language or interpretations of existing requirements, or to the issuance of new or additional requirements in the future.
Changes to healthcare laws in the United States or the repeal of existing healthcare laws may negatively impact our financial results in future periods.
The Affordable Care Act requires health care coverage for many previously uninsured individuals and expands coverage for those already insured. If we fail to offer such benefits, or the benefits we elect to offer do not meet the applicable requirements, we may incur penalties. Since the Affordable Care Act also requires individuals to obtain coverage or face individual penalties, employees who are currently eligible for but elect not to participate in our healthcare plans may find it advantageous to do so in the future, particularly as the level of individual penalties increases over time. It is also possible that by making changes or failing to make changes in the healthcare plans we offer, we will become less competitive in the market for our labor. Finally, continuing to implement the requirements of the Affordable Care Act is likely to impose additional administrative costs. The future costs and other effects of these or other new healthcare requirements cannot be determined with certainty, but they may continue to significantly increase our healthcare coverage costs and could materially adversely affect our financial results.
It is possible that legislation will be passed by the U.S. Congress and signed into law that repeals the Affordable Care Act, in whole or in part, and/or introduces a new form of health care reform. It is unclear at this point what the scope of such legislation would be and when it would become effective. Because of the uncertainty surrounding possible replacement health care reform legislation, we cannot predict with any certainty the likely impact of the Affordable Care Act’s repeal or the adoption of any other health care reform legislation on our business, financial condition or results of operations. Whether or not there is alternative health care legislation enacted in the United States, there is likely to be significant disruption to the health care market in the coming months and years and the costs of our health care expenditures may increase.

20





Legislation and regulations regarding our products and ingredients, including the nutritional content of our products, could impact customer preferences and negatively impact our financial results.
Changes in government regulation and consumer eating habits may impact the ingredients and nutritional content of our menu offerings, or require us to disclose the nutritional content of our menu offerings. For example, a number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information to customers, or have enacted legislation restricting the use of certain types of ingredients in restaurants. Furthermore the Affordable Care Act requires chain restaurants to publish calorie information on their menus and menu boards effective May 7, 2018. These and other requirements may increase our expenses, slow customers as they move through the line, or negatively influence the demand for our offerings; all of which can impact sales and profitability.
Compliance with current and future laws and regulations in a number of areas, including with respect to ingredients and nutritional content of our products, may be costly and time-consuming. Additionally, if consumer health regulations change significantly, we may be required to modify our menu offerings, and as a result, may experience higher costs or reduced demand associated with such changes. As some government authorities are increasing regulations regarding trans-fats and sodium, we may be required to limit or eliminate trans-fats from our menu offerings or reduce their sodium content. We may also be required to switch to higher cost ingredients, which may hinder our ability to operate in some markets or to offer our full menu in these markets, which could have a material adverse effect on our business. If we fail to comply with such laws and regulations, our business could also experience a material adverse effect.
Failure to obtain and maintain required licenses and permits or to comply with food control regulations could lead to the loss of our food service licenses and, thereby, harm our business.
We are required, as a restaurant business, under state, and local government regulations to obtain and maintain licenses, permits, and approvals to operate our businesses. Such regulations are subject to change from time to time. Any failure by us or our franchisees to obtain and maintain these licenses, permits, and approvals could adversely affect our financial results.
ITEM 1B.  
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.  
PROPERTIES
The following table sets forth information regarding our operating Jack in the Box and Qdoba restaurant properties as of October 1, 2017:
 
 
Company-
Operated
 
Franchise
 
Total     
Company-owned restaurant buildings:
 
 
 
 
 
 
On company-owned land
 
20

 
197

 
217

On leased land
 
96

 
546

 
642

Subtotal
 
116

 
743

 
859

Company-leased restaurant buildings on leased land
 
545

 
990

 
1,535

Franchise directly-owned or directly-leased restaurant buildings
 

 
583

 
583

Total restaurant buildings
 
661

 
2,316

 
2,977


21




Our restaurant leases generally provide for fixed rental payments (with cost-of-living index adjustments) plus real estate taxes, insurance and other expenses. In addition, approximately 14% of our leases provide for contingent rental payments between 1% and 20% of the restaurant’s gross sales once certain thresholds are met. We have generally been able to renew our restaurant leases as they expire at then-current market rates. The remaining terms of ground leases range from approximately less than one year to 51 years, including optional renewal periods. The remaining lease terms of our other leases range from approximately less than one year to 40 years, including optional renewal periods. As of October 1, 2017, our restaurant leases had initial terms expiring as follows:
 
 
Number of Restaurants
Fiscal Year
 
Ground
Leases
 
Land and
Building
Leases
2018 – 2022
 
332

 
905

2023 – 2027
 
216

 
429

2028 – 2032
 
76

 
157

2033 and later
 
18

 
44

Our principal executive offices are located in San Diego, California in an owned facility of approximately 150,000 square feet. We also own our 70,000 square foot Innovation Center and approximately four acres of undeveloped land directly adjacent to it. Qdoba’s corporate support center was located in a leased facility in Lakewood, Colorado, which we exited during the second quarter of 2017; with operations relocated to San Diego. We believe our principal executive offices and Innovation Center are suitable and adequate for our present purposes.
ITEM 3. 
LEGAL PROCEEDINGS
See Note 15, Commitments, Contingencies and Legal Matters, of the notes to the consolidated financial statements for a discussion of our legal proceedings.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.


22





PART II


ITEM 5.  
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information.  Our common stock is traded on the Nasdaq Global Select Market under the symbol “JACK.” The following table sets forth the high and low sales prices for our common stock during the fiscal quarters indicated, as reported on the NASDAQ — Composite Transactions:
 
 
12 Weeks Ended
 
16 Weeks 
Ended
 
 
October 1,
2017
 
July 9,
2017
 
April 16,
2017
 
January 22,
2017
High
 
$
104.13

 
$
113.00

 
$
112.86

 
$
113.30

Low
 
$
90.89

 
$
95.76

 
$
93.04

 
$
91.02

 
 
13 Weeks Ended
 
12 Weeks Ended
 
16 Weeks 
Ended
 
 
October 2,
2016
 
July 3,
2016
 
April 10,
2016
 
January 17,
2016
High
 
$
102.68

 
$
88.65

 
$
78.87

 
$
82.20

Low
 
$
83.64

 
$
64.30

 
$
61.78

 
$
69.60

Dividends.  In fiscal 2017, the Board of Directors declared four cash dividends of $0.40 per share each. In fiscal 2016, we declared four cash dividends of $0.30 per share each, and in fiscal 2015, we declared two cash dividends of $0.20 per share each, and two cash dividends of $0.30 per share each. Our dividend is subject to the discretion and approval of our Board of Directors and our compliance with applicable law, and depends upon, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our credit agreement and other factors that our Board of Directors may deem relevant.
Stock Repurchases. There were no shares repurchased during the quarter ended October 1, 2017.
Stockholders.  As of November 24, 2017, there were 477 stockholders of record.
Securities Authorized for Issuance Under Equity Compensation Plans.  The following table summarizes the equity compensation plans under which Company common stock may be issued as of October 1, 2017. Stockholders of the Company have approved all plans requiring such approval.
 
 
(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)
 
(b) Weighted-average exercise price of outstanding options (1)
 
(c) Number of securities remaining for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders (2)
 
893,056
 
$80.15
 
2,222,717
 ____________________________
(1)
Includes shares issuable in connection with our outstanding stock options, performance share awards, nonvested stock awards and units, and non-management director deferred stock equivalents. The weighted-average exercise price in column (b) includes the weighted-average exercise price of stock options.
(2)
For a description of our equity compensation plans, refer to Note 12, Share-Based Employee Compensation, of the notes to the consolidated financial statements.

23




Performance Graph.  The following graph compares the cumulative return to holders of the Company’s common stock at September 30th of each year to the yearly weighted cumulative return of a Peer Group Index and to the Standard & Poor’s (“S&P”) 500 Index for the same period. The below comparison assumes $100 was invested on September 30, 2012 in the Company’s common stock and in the comparison groups and assumes reinvestment of dividends. The Company paid dividends beginning in fiscal 2014.
performancegrapha24.jpg
 
2012
2013
2014
2015
2016
2017
Jack in the Box Inc.
$100
$142
$244
$279
$353
$381
S&P 500 Index
$100
$119
$143
$142
$164
$194
Peer Group (1)
$100
$142
$185
$220
$189
$180
____________________________
(1)
The Peer Group Index comprises the following companies: Brinker International, Inc.; Buffalo Wild Wings, Inc.; Chipotle Mexican Grill Inc.; Cracker Barrel Old Country Store, Inc.; DineEquity, Inc.; Domino’s Pizza, Inc.; Papa John's Int'l, Inc.; Sonic Corp.; The Cheesecake Factory Inc.; and The Wendy’s Company.

24




ITEM 6.  
SELECTED FINANCIAL DATA
Our fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30. All years presented below include 52-weeks, except for 2016 which includes 53-weeks. The selected financial data reflects, as discontinued operations, 62 closed Qdoba stores and our distribution business for all years presented. This selected financial data should be read in conjunction with our audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K. Our consolidated financial information may not be indicative of our future performance.
 
 
 
Fiscal Year
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
(dollars and shares in thousands, except per share data)
Statements of Earnings Data (1):
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
1,553,914

 
$
1,599,331

 
$
1,540,317

 
$
1,484,131

 
$
1,489,867

 
 
 
 
 
 
 
 
 
 
 
Operating costs and expenses
 
$
1,325,807

 
$
1,370,646

 
$
1,340,005

 
$
1,318,275

 
$
1,356,302

(Gains) losses on the sale of company-operated restaurants
 
(38,034
)
 
(1,230
)
 
3,139

 
3,548

 
(4,640
)
Total operating costs and expenses, net
 
$
1,287,773

 
$
1,369,416

 
$
1,343,144

 
$
1,321,823

 
$
1,351,662

 
 
 
 
 
 
 
 
 
 
 
Earnings from continuing operations
 
$
138,308

 
$
126,270

 
$
112,601

 
$
94,844

 
$
82,608

 
 
 
 
 
 
 
 
 
 
 
Earnings per Share and Share Data:
 
 
 
 
 
 
 
 
 
 
Earnings per share from continuing operations (1):
 
 
 
 
 
 
 
 
 
 
Basic
 
$
4.52

 
$
3.74

 
$
3.00

 
$
2.33

 
$
1.91

Diluted
 
$
4.47

 
$
3.70

 
$
2.95

 
$
2.26

 
$
1.84

Cash dividends declared per common share (1)
 
$
1.60

 
$
1.20

 
$
1.00

 
$
0.40

 
$

Weighted-average shares outstanding — Basic (1)(2)
 
30,630

 
33,735

 
37,587

 
40,781

 
43,351

Weighted-average shares outstanding — Diluted (1)(2)
 
30,914

 
34,146

 
38,215

 
41,973

 
44,899

Market price at year-end
 
$
101.92

 
$
95.94

 
$
79.71

 
$
65.73

 
$
40.10

 
 
 
 
 
 
 
 
 
 
 
Other Operating Data:
 
 
 
 
 
 
 
 
 
 
Jack in the Box restaurants:
 
 
 
 
 
 
 
 
 
 
Company-operated average unit volume (4)
 
$
1,874

 
$
1,870

 
$
1,858

 
$
1,708

 
$
1,606

Franchise-operated average unit volume (3)(4)
 
$
1,475

 
$
1,454

 
$
1,429

 
$
1,337

 
$
1,312

System average unit volume (3)(4)
 
$
1,543

 
$
1,530

 
$
1,510

 
$
1,412

 
$
1,381

Change in fiscal basis company-operated same-store sales (3)
 
(1.3
)%
 
0.0
%
 
5.1
%
 
2.0
%
 
1.0
%
Change in fiscal basis franchise-operated same-store sales (3)
 
0.9
 %
 
1.6
%
 
7.0
%
 
2.0
%
 
0.1
%
Change in fiscal basis system same-store sales (3)
 
0.5
 %
 
1.2
%
 
6.5
%
 
2.0
%
 
0.3
%
Qdoba restaurants:
 
 
 
 
 
 
 
 
 
 
Company-operated average unit volume (4)
 
$
1,164

 
$
1,209

 
$
1,199

 
$
1,114

 
$
1,080

Franchise-operated average unit volume (3)(4)
 
$
1,146

 
$
1,150

 
$
1,140

 
$
1,028

 
$
961

System average unit volume (3)(4)
 
$
1,156

 
$
1,179

 
$
1,169

 
$
1,070

 
$
1,017

Change in fiscal basis company-operated same-store sales (3)
 
(3.0
)%
 
1.7
%
 
8.3
%
 
5.7
%
 
0.5
%
Change in fiscal basis franchise-operated same-store sales (3)
 
0.3
 %
 
1.1
%
 
10.4
%
 
6.3
%
 
1.1
%
Change in fiscal basis system same-store sales (3)
 
(1.5
)%
 
1.4
%
 
9.3
%
 
6.0
%
 
0.8
%
Capital expenditures (1)
 
$
67,453

 
$
96,615

 
$
86,226

 
$
60,525

 
$
84,690

Balance Sheet Data (at end of period) (1):
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,228,421

 
$
1,345,012

 
$
1,303,979

 
$
1,270,665

 
$
1,319,209

Long-term debt, net of current maturities (5)
 
$
1,080,932

 
$
935,372

 
$
688,579

 
$
497,012

 
$
349,393

Stockholders’ (deficit) equity (6)
 
$
(388,032
)
 
$
(217,206
)
 
$
15,953

 
$
257,911

 
$
472,018

 ____________________________
(1)
Financial data was extracted or derived from our audited consolidated financial statements.
(2)
Weighted-average shares reflect the impact of common stock repurchases under Board-approved programs.
(3)
Changes in same-store sales and average unit volumes are presented for franchise 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 sales growth and average unit volume information is useful to investors as a significant indicator of the overall strength of our business as it incorporates our significant revenue drivers which are company and franchise same-store sales as well as net unit development. Company, franchise and system changes in same-store sales include the results of all restaurants that have been open more than one year.
(4)
2016 average unit volume is adjusted to exclude the 53rd week for comparison purposes.
(5)
Amounts in 2017 and 2016 are net of $639 and $2,140 of term loan debt issuance costs, respectively, due to the adoption of new authoritative accounting guidance on the presentation of debt issuance costs. For additional information, refer to Note 1, Nature of Operations and Summary of Significant Accounting Policies, of the notes to the consolidated financial statements.
(6)
In 2016, the Company began to accumulate a stockholders’ deficit related to the execution of our share repurchase programs authorized by our Board of Directors.

25





 ITEM 7.  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
For an understanding of the significant factors that influenced our performance during the past three fiscal years, we believe our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related notes included in this annual report as indexed on page F-1.
Comparisons under this heading refer to the 52-week period ended October 1, 2017, the 53-week period ended October 2, 2016 and the 52-week period ended September 27, 2015 for fiscal years 2017, 2016 and 2015, respectively, unless otherwise indicated.
Our MD&A consists of the following sections: 
Overview — a general description of our business and fiscal 2017 highlights.
Financial reporting — a discussion of changes in presentation, if any.
Results of operations — an analysis of our consolidated statements of earnings for the three years presented in our consolidated financial statements.
Liquidity and capital resources — an analysis of our cash flows including pension and postretirement health contributions, capital expenditures, sale of company-operated restaurants, our credit facility, 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.
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 changes in sales at restaurants open more than one year (“same-store sales”) and average unit volumes (“AUVs”). Same-store sales and AUVs are presented for franchised restaurants and on a system-wide basis, which includes company and franchise restaurants. Franchise sales represent sales at franchise restaurants and are revenues of our franchisees. We do not record franchise sales as revenues; however, our royalty revenues 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.
Due to the transition from a 53-week year in fiscal 2016 to a 52-week year in fiscal 2017, year-over-year same-store sales comparisons are off by one week. As such, we have included changes in same-store sales on a calendar basis to provide a clearer comparison. Same-store sales data that matches the periods presented in our financial statements is referred to as fiscal basis same-store sales.
Same-store sales and AUVs 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.
OVERVIEW
As of October 1, 2017, 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 726 Qdoba fast-casual restaurants operating primarily throughout the United States 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 consolidated statements of earnings.

26





The following summarizes the most significant events occurring in fiscal 2017, and certain trends compared to prior year:
 
Calendar Basis Same-Store Sales Calendar basis same-store sales increased 0.5% at Jack in the Box system restaurants compared with a year ago primarily driven by an increase in franchise restaurant AUVs. Qdoba’s calendar basis same-store sales decreased 3.0% at company-operated restaurants compared with a year ago driven primarily by declines in traffic, partially offset by an increase in average check and growth in catering sales.
Company Restaurant Operations Our consolidated company restaurant costs as a percentage of company restaurant sales increased to 82.4% from 79.8% in the prior year. Jack in the Box’s company restaurant costs as a percentage of company restaurant sales increased to 79.9% from 78.8% in the prior year due primarily to sales deleverage, higher labor costs related to wage inflation, and higher maintenance and repair costs, partially offset by the benefits of refranchising completed in 2017. Qdoba company restaurant costs as a percentage of company restaurant sales increased to 86.4% from 81.9% in the prior year primarily reflecting sales deleverage, an increase in food costs, and an increase in labor costs primarily related to the impact of new restaurant openings and wage inflation.
Jack in the Box Franchise Operations Franchise costs as a percent of franchise revenues decreased to 47.3%, from 48.5% in the prior year, primarily driven by an increase in franchise fees resulting from the sale of 178 company-operated restaurants to franchisees, and a decrease in franchise support costs primarily due to savings realized in connection with our restructuring plan.
Jack in the Box Franchising Program  Jack in the Box franchisees opened a total of 18 restaurants. As part of our refranchising strategy, we sold 178 company-operated restaurants to franchisees in several different markets during 2017 generating proceeds of $99.4 million. Our Jack in the Box system was 88% franchised at the end of fiscal 2017. We plan to increase franchise ownership of the system to approximately 95%. Subsequent to the end of fiscal 2017, we signed non-binding letters of intent with franchisees to sell 32 company-operated restaurants in several markets with estimated pre-tax gross proceeds of $17.5 million to $18.0 million.
Jack in the Box Acquisition of Franchise-Operated Restaurants We acquired 50 franchise-operated Jack in the Box restaurants from two franchisees for total consideration of $15.9 million, of which $13.8 million was non-cash. In the third quarter of 2017, we took back 31 restaurants as the result of an agreement with an underperforming franchisee who voluntarily agreed to turn over the restaurants. The additional 19 restaurants acquired in 2017 were the result of a legal action filed in September 2013 against a franchisee in which we obtained a judgment in January 2017 granting the Company possession of the restaurants.
Qdoba New Unit Growth — We opened 23 company-operated restaurants and franchisees opened 19 restaurants, of which 14 were in non-traditional locations such as military bases and college campuses.
Restructuring Costs (including costs related to the Qdoba Evaluation) In 2016, we announced a plan to reduce our general and administrative costs. Furthermore, during 2017, we retained Morgan Stanley & Co. LLC to assist our Board of Directors in its evaluation of potential alternatives with respect to Qdoba (the “Qdoba Evaluation”), as well as other ways to enhance shareholder value. In connection with these activities, we have recorded $8.8 million of restructuring charges, including $5.3 million related to the Qdoba Evaluation, which are included in impairment and other charges, net in the accompanying consolidated statements of earnings.
Return of Cash to Shareholders We returned cash to shareholders in the form of share repurchases and quarterly cash dividends. We repurchased 3.2 million shares of our common stock at an average price of $101.59 per share, totaling $327.2 million, including the cost of brokerage fees. We also declared dividends of $1.60 per share totaling $49.2 million.
FINANCIAL REPORTING
During fiscal 2012, we entered into an agreement to outsource our Jack in the Box distribution business. In fiscal 2013, we closed 62 Qdoba restaurants (the “2013 Qdoba Closures”) as part of a comprehensive Qdoba market performance review. All charges related to our distribution business and the 2013 Qdoba Closures are reported as discontinued operations for all periods presented. Refer to Note 2, Discontinued Operations, in the notes to consolidated financial statements for additional information. Unless otherwise noted, amounts and disclosures throughout our MD&A relate to our continuing operations.
In fiscal 2017, we adopted an Accounting Standards Update (“ASU”) which changes the presentation of debt issuance costs on the balance sheet. Under this ASU, debt issuance costs are to be presented on the balance sheet as a direct deduction from the related debt liability rather than as an asset. We retrospectively adopted this guidance which resulted in the reclassification of $3.8 million in debt issuance costs from other assets, net to current maturities of long-term debt and long-term debt, net of current maturities in the amount of $1.6 million and $2.2 million, respectively, in our October 2, 2016 consolidated balance sheet. Refer to Note 1, Nature of Operations and Summary of Significant Accounting Policies, in the notes to consolidated financial statements for more information.

27




RESULTS OF OPERATIONS
The following table presents certain income and expense items included in our consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.
CONSOLIDATED STATEMENTS OF EARNINGS DATA 
 
 
Fiscal Year
 
 
2017
 
2016
 
2015
Revenues:
 
 
 
 
 
 
Company restaurant sales
 
74.2
 %
 
75.3
 %
 
75.1
%
Franchise rental revenues
 
14.9
 %
 
14.6
 %
 
14.7
%
Franchise royalties and other
 
10.9
 %
 
10.1
 %
 
10.2
%
Total revenues
 
100.0
 %
 
100.0
 %
 
100.0
%
Operating costs and expenses, net:
 
 
 
 
 
 
Company restaurant costs:
 
 
 
 
 
 
Food and packaging (1)
 
30.1
 %
 
30.1
 %
 
31.3
%
Payroll and employee benefits (1)
 
28.9
 %
 
27.8
 %
 
27.1
%
Occupancy and other (1)
 
23.3
 %
 
21.9
 %
 
21.3
%
Total company restaurant costs (1)
 
82.4
 %
 
79.8
 %
 
79.6
%
Franchise occupancy expenses (2)
 
74.1
 %
 
73.1
 %
 
75.0
%
Franchise support and other costs (3)
 
8.4
 %
 
9.9
 %
 
10.0
%
Selling, general and administrative expenses
 
10.7
 %
 
12.7
 %
 
14.4
%
Impairment and other charges, net
 
1.6
 %
 
1.2
 %
 
0.8
%
(Gains) losses on the sale of company-operated restaurants
 
(2.4
)%
 
(0.1
)%
 
0.2
%
Earnings from operations
 
17.1
 %
 
14.4
 %
 
12.8
%
Income tax rate (4)
 
37.0
 %
 
36.5
 %
 
36.9
%
  ____________________________
(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 
 
 
Fiscal Year
 
 
Calendar Basis
 
Fiscal Basis
 
 
2017
 
2017
 
2016
 
2015
Jack in the Box:
 
 
 
 
 
 
 
 
Company
 
(1.1
)%
 
(1.3
)%
 
0.0
%
 
5.1
%
Franchise
 
0.9
 %
 
0.9
 %
 
1.6
%
 
7.0
%
System
 
0.5
 %
 
0.5
 %
 
1.2
%
 
6.5
%
Qdoba:
 
 
 
 
 
 
 
 
Company
 
(3.0
)%
 
(3.0
)%
 
1.7
%
 
8.3
%
Franchise
 
0.4
 %
 
0.3
 %
 
1.1
%
 
10.4
%
System
 
(1.4
)%
 
(1.5
)%
 
1.4
%
 
9.3
%


28




The following table summarizes the changes in Jack in the Box and Qdoba company-operated same-store sales:
 
 
Fiscal Year
 
 
Calendar Basis
 
Fiscal Basis
 
 
2017
 
2017
 
2016
 
2015
Jack in the Box:
 
 
 
 
 
 
 
 
Transactions
 
(5.2
)%
 
(5.5
)%
 
(2.9
)%
 
0.9
 %
Average check (1)
 
4.1
 %
 
4.2
 %
 
2.9
 %
 
4.2
 %
Change in same-store sales
 
(1.1
)%
 
(1.3
)%
 
0.0
 %
 
5.1
 %
Qdoba:
 
 
 
 
 
 
 
 
Transactions
 
(4.8
)%
 
(4.8
)%
 
1.5
 %
 
(0.1
)%
Average Check (2)
 
1.1
 %
 
1.1
 %
 
(0.4
)%
 
7.3
 %
Catering
 
0.7
 %
 
0.7
 %
 
0.6
 %
 
1.1
 %
Change in same-store sales
 
(3.0
)%
 
(3.0
)%
 
1.7
 %
 
8.3
 %
____________________________
(1)
Amounts in 2017 on a calendar and fiscal basis include price increases of approximately 2.2%. Amounts in 2016 and 2015 include price increases of approximately 3.0% and 2.2%, respectively.
(2)
Amounts in 2017 on a calendar and fiscal basis include price increases of 0.3%. Amounts in 2016 and 2015 include price increases of approximately 1.0% and 0.2%, respectively.
The following table summarizes the changes in the number and mix of Jack in the Box (“JIB”) and Qdoba company and franchise restaurants in each fiscal year:
 
 
2017
 
2016
 
2015
 
 
Company
 
Franchise
 
Total
 
Company
 
Franchise
 
Total
 
Company
 
Franchise
 
Total
Jack in the Box:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning of year
 
417

 
1,838

 
2,255

 
413

 
1,836

 
2,249

 
431

 
1,819

 
2,250

New
 
2

 
18

 
20

 
4

 
12

 
16

 
2

 
16

 
18

Refranchised
 
(178
)
 
178

 

 
(1
)
 
1

 

 
(21
)
 
21

 

Acquired from franchisees
 
50

 
(50
)
 

 
1

 
(1
)
 

 
7

 
(7
)
 

Closed
 
(15
)
 
(9
)
 
(24
)
 

 
(10
)
 
(10
)
 
(6
)
 
(13
)
 
(19
)
End of year
 
276

 
1,975

 
2,251

 
417

 
1,838

 
2,255

 
413

 
1,836

 
2,249

% of JIB system
 
12
%
 
88
%
 
100
%
 
18
%
 
82
%
 
100
%
 
18
%
 
82
%
 
100
%
Qdoba:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning of year
 
367

 
332

 
699

 
322

 
339

 
661

 
310

 
328

 
638

New
 
23

 
19

 
42

 
35

 
18

 
53

 
17

 
22

 
39

Acquired from franchisees
 

 

 

 
14

 
(14
)
 

 

 

 

Closed
 
(5
)
 
(10
)
 
(15
)
 
(4
)
 
(11
)
 
(15
)
 
(5
)
 
(11
)
 
(16
)
End of year
 
385

 
341

 
726

 
367

 
332

 
699

 
322

 
339

 
661

% of Qdoba system
 
53
%
 
47
%
 
100
%
 
53
%
 
47
%
 
100
%
 
49
%
 
51
%
 
100
%
Consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Total system
 
661

 
2,316

 
2,977

 
784

 
2,170

 
2,954

 
735

 
2,175

 
2,910

% of consolidated system
 
22
%
 
78
%
 
100
%
 
27
%
 
73
%
 
100
%
 
25
%
 
75
%
 
100
%

29




Jack in the Box Brand
Company Restaurant Operations
The following table presents Jack in the Box company restaurant sales, costs, and restaurant costs as a percentage of the related sales in each fiscal year. Percentages may not add due to rounding (dollars in thousands):
 
 
2017
 
2016
 
2015
Company restaurant sales
 
$
715,921

 
 
 
$
789,040

 
 
 
$
782,525

 
 
Company restaurant costs:
 
 
 
 
 
 
 
 
 
 
 
 
Food and packaging
 
206,653

 
28.9
%
 
235,538

 
29.9
%
 
247,931

 
31.7
%
Payroll and employee benefits
 
211,611

 
29.6
%
 
223,019

 
28.3
%
 
215,598

 
27.6
%
Occupancy and other
 
153,451

 
21.4
%
 
162,869

 
20.6
%
 
157,281

 
20.1
%
Total company restaurant costs
 
$
571,715

 
79.9
%
 
$
621,426

 
78.8
%
 
$
620,810

 
79.3
%
Company restaurant sales decreased $73.1 million in 2017 and increased $6.5 million in 2016 as compared with the respective prior year. In 2017, the decrease was primarily driven by a decrease in the average number of restaurants resulting from the execution of our refranchising strategy, additional sales in 2016 from a 53rd week and, to a lesser extent, a decrease in traffic, partially offset by menu price increases and favorable product mix. In 2016, the increase was primarily driven by additional sales from a 53rd week and higher AUVs, partially offset by a decrease in the average number of restaurants attributable to refranchising. The following table presents the approximate impact of these (decreases) increases on Jack in the Box company restaurant sales (in millions):
 
 
2017 vs. 2016
 
2016 vs. 2015
Decrease in the average number of restaurants
 
$
(59.5
)
 
$
(13.9
)
53rd week
 
(15.1
)
 
15.1

AUV increase
 
1.5

 
5.3

Total (decrease) increase in company restaurant sales
 
$
(73.1
)
 
$
6.5

Fiscal basis same-store sales at Jack in the Box company-operated restaurants decreased 1.3% in 2017 compared with 2016 as a decline in transactions was partially offset by menu price increases and favorable mix. In 2016, menu price increases were offset by a decline in transactions resulting in flat same store sames as compared to the prior year. The following table summarizes the change in company-operated fiscal basis same-store sales: 
 
 
Increase/(Decrease)
 
 
2017 vs. 2016
 
2016 vs. 2015
Transactions
 
(5.5
)%
 
(2.9
)%
Average check (1)
 
4.2
 %
 
2.9
 %
Change in same-store sales
 
(1.3
)%
 
0.0
 %
 ____________________________
(1)
Includes price increases of approximately 2.2% and 3.0% in 2017 and 2016, respectively.
Food and packaging costs as a percentage of company restaurant sales decreased to 28.9% in 2017 from 29.9% in 2016, and 31.7% in 2015. In 2017, the decrease was driven by menu price increases and favorable product mix changes. In 2016, the decrease was driven by lower commodity costs, favorable product mix, and menu price increases.
In 2017, commodity costs decreased approximately 0.3% as lower costs for eggs, produce and cheese were partially offset by higher costs for beverages, beef, potatoes and poultry. Beef, our most significant commodity, increased by approximately 1.8% in 2017 compared with a decrease of 18% in 2016 versus the prior year. In 2016, commodity costs decreased 3.0% as lower costs for beef were partially offset by higher costs for pork, poultry and produce.
Payroll and employee benefit costs as a percentage of company restaurant sales increased to 29.6% in 2017 from 28.3% in 2016, and 27.6% in 2015. In 2017, the increase was primarily due to wage inflation resulting from an increase in the minimum wage in certain markets, highly competitive labor markets, and labor management, and an increase in worker’s compensation costs during the year. In 2016, higher wages from minimum wage increases were partially offset by lower levels of incentive compensation driven by operating results, and by the benefits of refranchising.


30




Occupancy and other costs decreased $9.4 million in 2017 compared to 2016 and increased $5.6 million in 2016 as compared to 2015. In 2017 the decrease was primarily the result of a decrease in the average number of restaurants, impacting occupancy and other costs by approximately $12.8 million, and additional costs of approximately $3.2 million in 2016 from a 53rd week, partially offset by approximately $4.2 million of higher maintenance and repair expenses and, to a lesser extent, higher utility costs. In 2016, higher costs for equipment upgrades of approximately $3.7 million, additional costs resulting from a 53rd week, and to a lesser extent higher costs for maintenance and repair expenses were partially offset by a decrease in the number of company operated restaurants of approximately $2.9 million and lower costs for utilities.
Jack in the Box Franchise Operations

The following table presents Jack in the Box franchise revenues and costs in each fiscal year and other information we believe is useful in analyzing the change in franchise operating results (dollars in thousands):
 
 
2017
 
2016
 
2015
Franchise rental revenues
 
$
231,578

 
$
232,794

 
$
226,494

 
 
 
 
 
 
 
Royalties
 
141,457

 
138,424

 
133,726

Franchise fees and other
 
8,334

 
2,000

 
2,431

Franchise royalties and other
 
149,791

 
140,424

 
136,157

Total franchise revenues
 
381,369

 
373,218

 
362,651

 
 
 
 
 
 
 
Rental expense
 
140,623

 
137,706

 
136,782

Depreciation and amortization
 
30,860

 
32,344

 
33,128

Franchise occupancy expenses
 
171,483

 
170,050

 
169,910

Franchise support and other costs
 
8,811

 
11,107

 
11,726

Total franchise costs
 
$
180,294

 
$
181,157

 
$
181,636

Franchise costs as a % of total franchise revenues
 
47.3
%
 
48.5
%
 
50.1
%
 
 
 
 
 
 
 
Average number of franchise restaurants
 
1,867

 
1,838

 
1,828

% increase
 
1.6
%
 
0.5
%
 
 
Franchise restaurant AUV (1)
 
$
1,475

 
$
1,454

 
$
1,429

Increase in franchise-operated same-store sales
 
0.9
%
 
1.6
%
 
7.0
%
Royalties as a percentage of total franchise restaurant sales
 
5.1
%
 
5.1
%
 
5.1
%
 ____________________________
(1) 2016 AUV is adjusted to exclude the 53rd week for comparison purposes.

Franchise rental revenues decreased $1.2 million, or 0.5%, in 2017, and increased $6.3 million, or 2.8%, in 2016 as compared with the respective prior year. In 2017, the decrease is primarily due to an additional $4.4 million of rental revenues in 2016 from a 53rd week, partially offset by additional rental revenues of approximately $1.6 million in 2017 resulting from the net increase in the average number of restaurants leased or subleased from the Company due to our refranchising strategy, and, to a lesser extent, an increase in AUVs on a comparable 52 week basis. In 2016, the increase primarily reflected additional rent revenue from a 53rd week, higher AUVs resulting in an increase in revenues from percentage rent, and increased rental income due to routine rent increases.
Franchise royalties and other increased $9.4 million, or 6.7%, in 2017, and $4.3 million, or 3.1%, in 2016 versus the respective prior year. In 2017, the increase primarily reflects additional franchise fees of $6.6 million related to the sale of 178 company-operated restaurants to franchisees during 2017, an increase in royalties of $3.1 million driven by an increase in the average number of franchise restaurants, and, to a lesser extent, an increase in AUVs on a comparable 52 week basis. These increases were offset by additional royalties in 2016 of approximately $2.6 million from a 53rd week. The increase in 2016 is primarily reflects additional royalties from the 53rd week and an increase in royalties driven by higher AUVs, partially offset by a reduction in franchise fees.
Franchise occupancy expenses, principally rents and depreciation on properties subleased or leased to franchisees, increased $1.4 million in 2017 and $0.1 million in 2016 as compared with the respective prior year. In 2017, the increase was primarily driven by an increase in the average number of company-operated restaurants, contributing additional costs of approximately $3.9 million, and a decrease of $2.4 million in favorable lease commitment adjustments related to previously refranchised markets based on sales performance over the prior year. These increases were partially offset by decreases related to additional costs of approximately $3.2 million in 2016 for a 53rd week, and a decrease in depreciation expense as our building assets become fully depreciated. In 2016, the increase relates to routine rent increases contributing to higher rental expense, and additional expenses

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from a 53rd week. These increases were partially offset by lower depreciation expense as our building assets become fully depreciated and favorable lease commitment adjustments of $1.9 million related to previously refranchised markets based on sales performance over the first year resulting in higher rent.
Franchise support and other costs decreased $2.3 million in 2017 and $0.6 million in 2016 as compared with the respective prior year. In 2017, costs decreased primarily due to savings realized from our restructuring plan. In 2016, costs decreased due to a decrease in bad debt expense and incentive compensation.

Qdoba Brand
Company Restaurant Operations
The following table presents Qdoba company restaurant sales, costs, and restaurant costs as a percentage of the related sales in each fiscal year. Percentages may not add due to rounding (dollars in thousands):
 
 
2017
 
2016
 
2015
Company restaurant sales
 
$
436,558

 
 
 
$
415,495

 
 
 
$
374,338

 
 
Company restaurant costs:
 
 
 
 
 
 
 
 
 
 
 
 
Food and packaging
 
140,291

 
32.1
%
 
127,464

 
30.7
%
 
114,057

 
30.5
%
Payroll and employee benefits
 
122,000

 
27.9
%
 
111,451

 
26.8
%
 
97,704

 
26.1
%
Occupancy and other
 
115,095

 
26.4
%
 
101,289

 
24.4
%
 
88,742

 
23.7
%
Total company restaurant costs
 
$
377,386

 
86.4
%
 
$
340,204

 
81.9
%
 
$
300,503

 
80.3
%
Company restaurant sales increased $21.1 million in 2017 and $41.2 million in 2016 as compared with the respective prior year. The increase in 2017 is primarily related to the net addition of 18 Qdoba company-operated restaurants since a year ago, partially offset by a decrease in traffic and additional sales in 2016 from a 53rd week. In 2016, the increase primarily related to an increase in the average number of Qdoba company-operated restaurants, and to a lesser extent, additional sales from a 53rd week and growth in AUVs. The following table presents the approximate impact of these increases on company restaurant sales (in millions):
 
 
 
2017 vs. 2016
 
2016 vs. 2015
Increase in the average number of restaurants
 
$
44.6

 
$
29.6

AUV (decrease) increase
 
(15.3
)
 
3.4

53rd week
 
(8.2
)
 
8.2

Total increase in company restaurant sales
 
$
21.1

 
$
41.2

Fiscal basis same-store sales at Qdoba company-operated restaurants decreased 3.0% in 2017 and increased 1.7% in 2016. In 2017, the decrease was driven by a decline in traffic, partially offset by catering growth and menu price increases. In 2016, the increase in same-store sales was primarily driven by transaction growth resulting from increased discounting, menu price increases and catering. The following table summarizes the change in company-operated same-store sales: 
 
 
Increase/(Decrease)
 
 
2017 vs. 2016
 
2016 vs. 2015
Transactions
 
(4.8
)%
 
1.5
 %
Average check (1)
 
1.1
 %
 
(0.4
)%
Catering
 
0.7
 %
 
0.6
 %
Change in same-store sales
 
(3.0
)%
 
1.7
 %
 ____________________________
(1)
Includes price increases of approximately 0.3% and 1.0% in 2017 and 2016, respectively.
Food and packaging costs as a percentage of company restaurant sales increased to 32.1% in 2017 from 30.7% in 2016, and 30.5% in 2015. In 2017, the increase was primarily driven by unfavorable product mix, operational inefficiencies and higher commodity costs, partially offset by a decrease in discounting and menu price increases. In 2016, unfavorable product mix and higher discounting were partially offset by the benefit of lower commodity costs.


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In 2017, commodity costs increased approximately 0.5% at our Qdoba company-operated restaurants primarily due to higher costs for avocados and produce, partially offset by lower costs for beef, tortillas and cheese. Costs for avocados increased most significantly by approximately 42% in 2017 compared with the prior year. In 2016, commodity costs decreased 4.4% primarily due to lower costs for beef and poultry.
Payroll and employee benefit costs as a percentage of company restaurant sales increased to 27.9% in 2017 from 26.8% in 2016, and 26.1% in 2015. The increase in 2017 is driven primarily by the impact of new restaurant openings, wage inflation due to highly competitive labor markets, deleverage from a decrease in fiscal basis same-store sales and labor inefficiencies during the first half of the year. These increases were partially offset by lower insurance costs and lower levels of incentive compensation driven by operating results. Restaurants opened since fiscal 2015 negatively impacted payroll and employee benefit costs as a percentage of company restaurant sales by approximately 80 basis points in 2017. In 2016, the increase primarily relates to an increase in new restaurant openings and higher costs for workers’ compensation insurance as well as increases in labor staffing. Restaurants opened since fiscal 2015 negatively impacted payroll and employee benefit costs as a percentage of company restaurant sales by approximately 50 basis points in 2016.
Occupancy and other costs increased $13.8 million in 2017 and $12.5 million in 2016 as compared with the respective prior year. In 2017, the higher costs were primarily driven by an increase in the number of company-operated restaurants, impacting occupancy and other costs by approximately $11.8 million. To a lesser extent, the increase was driven by an increase of approximately $1.8 million in property rent due to routine rent increases and higher average rent for new locations, as well as higher maintenance and repair expenses. These increases were partially offset by additional costs of approximately $2.1 million in 2016 from a 53rd week. In 2016, the increase in costs were primarily driven by an increase in the number of company-operated restaurants, impacting occupancy and other costs by approximately $6.9 million, additional costs from a 53rd week, and higher per store average property rents primarily associated with new restaurants of approximately $1.6 million. To a lesser extent, the increase was driven by higher maintenance and repair costs, and higher costs for equipment upgrades. These increases were partially offset by lower costs for supplies and utilities.
Qdoba Franchise Operations

The following table presents Qdoba franchise revenues and costs in each fiscal year and other information we believe is useful in analyzing the change in franchise operating results (dollars in thousands):
 
 
2017
 
2016
 
2015
Franchise rental revenues
 
$
109

 
$
113

 
$
208