FY 2014 10-K



 
 
 
 
 
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 SEPTEMBER 28, 2014
COMMISSION FILE NUMBER 1-9390
JACK IN THE BOX INC.
(Exact name of registrant as specified in its charter)
Delaware
 
95-2698708
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
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 11, 2014, was approximately $2.2 billion.
Number of shares of common stock, $0.01 par value, outstanding as of the close of business on November 14, 201438,634,942.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 2015 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 “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 2,888 Jack in the Box® quick-service restaurants (“QSRs”) and Qdoba Mexican Grill® 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.  The first Jack in the Box restaurant opened in 1951. Jack in the Box is one of the nation’s largest hamburger chains and, based on number of restaurants, is the second largest QSR hamburger chain in nine of our top 10 major markets, which comprise approximately 70% of the total system. As of the end of our fiscal year on September 28, 2014, the Jack in the Box system included 2,250 restaurants in 21 states, as well as Guam, of which 431 were company-operated and 1,819 were franchise-operated.
Qdoba Mexican Grill.  To supplement our core growth and balance the risk associated with growing solely in the highly competitive hamburger segment of the QSR industry, in 2003 we acquired Qdoba Restaurant Corporation, operator and franchisor of Qdoba Mexican Grill. As of September 28, 2014, the Qdoba system included 638 restaurants in 47 states, as well as the District of Columbia and Canada, of which 310 were company-operated and 328 were franchise-operated. Qdoba is the second largest fast-casual Mexican brand in the United States.
Strategic Plan.  Our long-term strategic plan focuses on continued growth of our two restaurant brands, increasing average unit volumes, and improving restaurant profitability and returns on invested capital. During 2014, we essentially completed our refranchising initiative focused on increasing franchise ownership in the Jack in the Box system through the sale of company-operated restaurants to new and existing franchisees. Through the sale of 37 company-operated Jack in the Box restaurants to franchisees and the development of 11 new franchise restaurants in fiscal 2014, we increased franchise ownership of the Jack in the Box system to 81% at the end of fiscal 2014 from 79% at the end of fiscal 2013. We plan to maintain franchise ownership in the Jack in the Box system at a level between 80-85%. Now that we are within the range of our targeted franchise ownership, we expect the majority of our new unit development will be through franchised restaurants.
Through new unit growth and acquisitions of franchised Qdoba restaurants in select markets, and due to 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 2014, Qdoba comprised approximately 42% of our total company-operated units as compared with approximately 12% five years ago. We plan to continue to build out the number of Qdoba company locations at an accelerated pace over the next several years. Accelerating the growth of our Qdoba brand by increasing market penetration should generate heightened brand awareness.
Restaurant Concepts
Jack in the Box.  Jack in the Box restaurants offer a broad selection of distinctive, innovative products targeted primarily at the adult fast-food consumer. Our menu features a variety of items including hamburgers, tacos, specialty sandwiches, drinks, real ice cream shakes, salads and side items. Jack in the Box restaurants also offer guests the ability to customize their meals and to order any product, including breakfast items, any time of the day.
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 persons and are open 18-24 hours a day. Drive-thru sales currently account for approximately 70% of sales at company-operated restaurants. The average check in fiscal year 2014 was $6.83 for company-operated restaurants.
With a presence in only 21 states, we believe Jack in the Box is a brand with significant growth opportunities. In fiscal 2014, we continued to expand in both existing and new markets. We opened one company-operated restaurant and franchisees opened 11 Jack in the Box restaurants during the year. In fiscal 2015, approximately 10-15 new Jack in the Box restaurants are expected to open system-wide.

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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
 
 
2014
 
2013
 
2012
 
2011
 
2010
Company-operated restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
465

 
547

 
629

 
956

 
1,190

New
 
1

 
6

 
19

 
15

 
30

Refranchised
 
(37
)
 
(78
)
 
(97
)
 
(332
)
 
(219
)
Closed
 
(2
)
 
(11
)
 
(4
)
 
(10
)
 
(46
)
Acquired from franchisees
 
4

 
1

 

 

 
1

End of period total
 
431

 
465

 
547

 
629

 
956

% of system
 
19
%
 
21
%
 
24
%
 
28
%
 
43
%
Franchise restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
1,786

 
1,703

 
1,592

 
1,250

 
1,022

New
 
11

 
11

 
18

 
16

 
16

Refranchised
 
37

 
78

 
97

 
332

 
219

Closed
 
(11
)
 
(5
)
 
(4
)
 
(6
)
 
(6
)
Sold to Company
 
(4
)
 
(1
)
 

 

 
(1
)
End of period total
 
1,819

 
1,786

 
1,703

 
1,592

 
1,250

% of system
 
81
%
 
79
%
 
76
%
 
72
%
 
57
%
System end of period total
 
2,250

 
2,251

 
2,250

 
2,221

 
2,206

Qdoba Mexican Grill.  Our Qdoba restaurants feature fresh, high quality ingredients and unique Mexican flavors that combine to create a variety of innovative flavors and products. Customer orders are prepared in full view, which gives our guests the ability to build a customized meal specifically suited to their individual taste preferences and nutritional needs. Our restaurants also offer a variety of catering options that can be tailored to feed groups of ten to several hundred. While some of our restaurants serve breakfast, the majority generally operate from 10:30 a.m. to 10:00 p.m. and have a seating capacity that ranges from 60 to 80 persons, including outdoor patio seating at many locations. The average check, excluding catering sales, in fiscal year 2014 was $10.93 for company-operated restaurants.
We believe there is significant opportunity for continued growth at Qdoba. We 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, while franchise development is more weighted towards non-traditional sites (airports, campuses, etc.) or areas where local franchisees can operate more efficiently. During fiscal 2014, we opened 16 company-operated restaurants and franchisees opened 22 Qdoba restaurants, including four non-traditional sites and two locations in Canada. In fiscal 2015, 50-60 new Qdoba restaurants are expected to open system-wide, of which approximately half are expected to be company-operated locations.

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The following table summarizes the changes in the number of company-operated and franchise Qdoba restaurants over the past five years:
 
 
Fiscal Year
 
 
2014
 
2013
 
2012
 
2011
 
2010
Company-operated restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
296

 
316

 
245

 
188

 
157

New
 
16

 
34

 
26

 
25

 
15

Refranchised
 

 
(3
)
 

 

 

Acquired from franchisees
 

 
13

 
46

 
32

 
16

Closed
 
(2
)
 
(64
)
 
(1
)
 

 

End of period total
 
310

 
296

 
316

 
245

 
188

% of system
 
49
%
 
48
%
 
50
%
 
42
%
 
36
%
Franchise restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
319

 
311

 
338

 
337

 
353

New
 
22

 
34

 
32

 
42

 
21

Refranchised
 

 
3

 

 

 

Sold to Company
 

 
(13
)
 
(46
)
 
(32
)
 
(16
)
Closed
 
(13
)
 
(16
)
 
(13
)
 
(9
)
 
(21
)
End of period total
 
328

 
319

 
311

 
338

 
337

% of system
 
51
%
 
52
%
 
50
%
 
58
%
 
64
%
System end of period total
 
638

 
615

 
627

 
583

 
525


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.
We 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. The majority of our Jack in the Box restaurants are constructed on leased land or on land that we purchased and subsequently sold, along with the improvements, in a sale and leaseback transaction. Typical costs to develop a traditional Jack in the Box restaurant, excluding the land value, range from $1.4 million to $1.9 million. 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 typically range from $0.4 million to $1.1 million depending on the type, square footage and geographic region.
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 and marketing fees at 5% of gross sales. Royalty rates, typically 5% of gross sales, generally range from 2% to as high as 15% of gross sales, and some existing agreements provide for variable rates and royalty holidays. We 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 are required to pay a fee, which may be credited against a portion of the franchise fee due when restaurants open in the future. Developers may forfeit such fees and lose their rights to future development if they do not maintain the required schedule of openings. To stimulate growth we offer franchisees who opened restaurants within a specified time reduced franchise fees and lower royalty rates.
In connection with the sale of a company-operated restaurant, the restaurant equipment and the right to do business at that location are sold to the franchisee. 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

4




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 Mexican Grill.  The current Qdoba franchise agreement generally provides for an initial franchise fee of $30,000 per restaurant, a 10-year term with a 10-year option to extend at a fee of $5,000, and marketing fees of up to 2% of gross sales. Most franchisees are also required to spend a minimum of 2% of gross sales on local marketing for their restaurants. Royalty rates are typically 5% 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. We continue to pursue non-traditional locations both through multi-location commitments and single unit franchise agreements. To enhance our multi unit non-traditional growth, we may offer agreements that provide for lower fees. Currently, the non-traditional franchise agreements we enter into provide for a $30,000 initial franchise fee, a 6% royalty rate and no marketing 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.
Jack in the Box. Company restaurant managers are required to attend extensive management training classes involving a combination of classroom 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.
For Jack in the Box company operations, vice presidents supervise directors of operations, who supervise district managers, who in turn supervise restaurant managers. Under our performance system, these management levels are all eligible for periodic bonuses based on achievement of goals related to restaurant sales, profit and/or certain other operational performance standards.
Qdoba Mexican Grill. At Qdoba company restaurants, we focus on attracting, selecting, engaging and retaining people who share our values to create long-lasting positive impacts on operating results. Our Qdoba Career Map is the core development tool used to provide employees with detailed education by position, from entry level to area manager.  High performing restaurant managers and hourly team members are certified to train and develop employees through a series of on-the-job and classroom trainings that focus on knowledge, skills and behaviors.  The Team Member Progression program within the Career Map tool recognizes and rewards three levels of achievement for our cooks and line servers who showcase excellence in their positions.  Team members must have, or acquire, specific technical and behavioral skill sets to reach an achievement level.
For Qdoba restaurant operations, vice presidents supervise directors of operations, who supervise district managers, who in turn supervise restaurant managers. All levels are eligible for quarterly performance bonuses based on goals related to restaurant sales, profit optimization and other operations performance standards.
Customer Satisfaction
Company-operated and franchise-operated restaurants devote significant resources toward ensuring that all of our restaurants offer quality food and excellent service. To help us maintain a high level of customer satisfaction, our Voice of Guest program provides restaurant managers, district managers, and franchise operators with ongoing feedback from guests who complete a short guest satisfaction survey via an invitation 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 2014, the Jack in the Box and Qdoba systems received more than 2.1 million and 0.2 million guest survey responses, respectively.  We also have a “mystery guest” program at Jack in the Box that provides restaurant managers, district managers, and franchise operators feedback on guest service as evaluated by “secret shoppers” who visit the restaurant.  Finally, our Guest Relations department receives feedback that guests report through our toll-free number and via our website, and communicates that feedback to restaurant managers and franchise operators.



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 the restaurants. We maintain product specifications and approve product sources. We have a comprehensive Hazard Analysis & Critical Control Points (“HACCP”) system and a food safety management program for managing food safety in our restaurants. HACCP combines employee training, testing, documented restaurant practices and detailed attention to product safety and quality at each stage of the food preparation cycle. The U.S. Department of Agriculture, Food and Drug Administration and the Center for Science in the Public Interest have recognized our HACCP program as a leader in the industry.
In addition, our HACCP system 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
Historically, we provided purchasing and distribution services for our company-operated restaurants and most of our franchise-operated restaurants. Our remaining franchisees purchased product from approved suppliers and distributors. In fiscal 2012, all of our company-operated Qdoba restaurants and approximately 90% of our Qdoba franchises began utilizing the distribution services of a third-party distributor under a long-term contract, ending February 2017.
In July 2012, we and approximately 90% of our Jack in the Box franchisees entered into a long-term contract with another third-party distributor to provide distribution services to our Jack in the Box restaurants through August 2022. In the fourth quarter of fiscal 2012, we completed the transition of services from one distribution center and our remaining centers were transitioned by the end of the first quarter of fiscal 2013.
The primary commodities purchased by our restaurants are beef, poultry, pork, cheese and produce. We monitor the primary commodities we purchase in order to minimize the impact of fluctuations in price and availability, and may enter into purchasing contracts and pricing arrangements when considered to be advantageous. However, certain commodities remain subject to price fluctuations. We believe 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 labor data from the restaurants directly. We use standardized Windows-based touch screen point-of-sale (“POS”) platforms in our company and traditional site franchise restaurants, which allows us 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 which are distributed to sites via a hosted online ordering website.
We have developed 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. We have labor scheduling systems to assist in managing labor hours based on forecasted sales volumes, and 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. We also have kiosks in many corporate and franchise Jack in the Box restaurants throughout our major markets that allow customers to place their order themselves using easy-to-follow steps on a touchscreen. We are currently engaged in a comprehensive review of our restaurant level technologies at Jack in the Box and Qdoba to identify opportunities to integrate systems across both of our brands.

6




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 sales. Activities to advertise restaurant products, promote brand awareness and attract customers include, but are not limited to, regional and local campaigns on television, radio and print media, as well as Internet advertising on specific sites and broad-reach Web portals. Also, in recent years we began utilizing social media as a channel to better reach our target customers.
Qdoba Mexican Grill. At Qdoba, the goal of our advertising and marketing is to build brand awareness and generate traffic, and we seek to build brand advocates by delivering a great guest experience in the restaurants. All restaurants contribute a small percentage of gross sales to a fund primarily used for production and development of brand assets. Advertising is primarily done at the regional or local level for both company and franchise owned and operated restaurants, and is determined by the local management. 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.
Employees
At September 28, 2014, we had approximately 19,150 employees, of whom 18,350 were restaurant employees, 700 were corporate personnel, and 100 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 support our employees, including part-time workers, by offering industry competitive wages and benefits. We offer all hourly employees meeting certain minimum service requirements access to health coverage, including vision and dental benefits. As an additional incentive to our Jack in the Box hourly team members with more than a year of service, we pay a portion of their health insurance premiums.
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.:
Name
 
Age
 
Positions
 
Years with the
Company
Leonard A. Comma
 
45
 
Chairman of the Board and Chief Executive Officer
 
13
Mark H. Blankenship, Ph.D.
 
53
 
Executive Vice President, Chief People, Culture and Corporate Strategy Officer
 
17
Jerry P. Rebel
 
57
 
Executive Vice President and Chief Financial Officer
 
11
Phillip H. Rudolph
 
56
 
Executive Vice President, Chief Legal and Risk Officer and Corporate Secretary
 
7
Frances L. Allen
 
52
 
President, Jack in the Box Brand
 
Timothy P. Casey
 
54
 
President, Qdoba Restaurant Brand
 
2
Keith M. Guilbault
 
51
 
Senior Vice President and Chief Marketing Officer
 
10
Elana M. Hobson
 
54
 
Senior Vice President of Operations
 
37
Paul D. Melancon
 
58
 
Senior Vice President of Finance, Controller and Treasurer
 
9
Carol A. DiRaimo
 
53
 
Vice President of Investor Relations and Corporate Communications
 
6
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 also 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.
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 17 years of experience with the Company in various human resource and training positions.

7




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 30 years of corporate finance experience.
Mr. Rudolph has been Executive Vice President since February 2010, and Chief Legal and Risk Officer and Corporate Secretary since October 2014. Previously, he held the titles of General Counsel and Corporate Secretary 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, 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’ Brands; 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. Casey has been President of Qdoba since March 2013. From 2010 until March 2013, he served as President and Chief Executive Officer of MFOC Holdco, Inc. which is the parent company of the Mrs. Fields Brand and TCBY. From 2007 to 2010, Mr. Casey was an executive with International Coffee & Tea, which operated and franchised The Coffee Bean & Tea Leaf, most recently serving as Vice President of Global Brand Marketing, Product Development and Operations. As Regional Vice President at Starbucks from 1998 to 2004, Mr. Casey managed more than 500 stores in a 10-state region. Prior to joining Starbucks in 1996, Mr. Casey held leadership positions in marketing and operations with Circle K Corporation and Southland Corporation. He has more than 30 years experience in the restaurant and retail industries.
Mr. Guilbault has been Senior Vice President and Chief Marketing Officer since November 2013. He was previously 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 15 years of experience in management positions with several companies, including Mobil Oil Corporation, Priceline WebHouse Club and Freemarkets, Inc.
Ms. Hobson has been Senior Vice President of Operations since May 2013. She was previously Vice President of Operations from February 2010 to May 2013, Division Vice President of Operations Initiatives from March 2009 to February 2010, and Division Vice President of Guest Service Systems from June 2007 to March 2009. Prior to managing Guest Service Systems, Ms. Hobson held several management-level positions in the field, including Regional Vice President from 2003 to 2007; and Area Manager from 1998 to 2003. She joined Jack in the Box as a restaurant team member in 1977, and served in various District Manager and Restaurant Manager positions from 1981 to 1998.
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 Co. 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 of Investor Relations and Corporate Communications since July 2008. She 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.

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Trademarks and Service Marks
The Jack in the Box, Qdoba Mexican Grill, and Qdoba names are of material importance to us and each is a registered trademark and service mark in the United State and elsewhere. In addition, we have registered numerous service marks and trade names for use in our businesses, including the Jack in the Box logo, the Qdoba logo 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 and events, seasonal weather conditions and crises, 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, competitive changes in a geographic area, changes in consumer dining habits and preferences, and new information regarding diet, nutrition and health that 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, speed of service, personnel, advertising, 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 “food away from home” consumer options. 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 and 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 that contains our reports, proxy and information statements, and other information at www.sec.gov.
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, taxing and other services 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 in which a restaurant is located. Difficulties or failures in obtaining and maintaining any required permits, licensing or approval, 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, or the imposition of fines and other penalties.
We are also subject to federal, state and international laws regulating the offer and sale of franchises. 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.
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. A significant number of our food service personnel are paid at rates based on the federal and state minimum wage and, accordingly, increases in the minimum wage increase our labor costs. 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. 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.

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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. The failure of a Qdoba restaurant to obtain or retain a license could adversely affect the store’s results of operations.
We have processes in place to monitor compliance with applicable laws and regulations governing our 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 the Food Service Industry.  Food service businesses such as ours may be materially and adversely affected by changes in consumer preferences, national and regional economic, political and socioeconomic conditions, attitudes and changes in consumer dining habits, whether based on new information regarding diet, nutrition or health, on the cost of food at home compared to food away from home, or health-based regulations or on other factors. Adverse economic conditions, such as higher levels of unemployment, lower levels of consumer confidence and decreased discretionary spending may reduce restaurant traffic and sales and impose practical limits on pricing. If adverse or uncertain economic conditions persist for an extended period of time, consumers may make long-lasting changes to their spending behavior. The impact of these factors may be exacerbated by the geographic profile of our Jack in the Box segment. 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, government regulations, weather conditions or natural disasters affecting those states may therefore more greatly impact our results than would similar occurrences in other locations.
The performance of our business may also be adversely affected by factors such as:
 
seasonal sales fluctuations;
severe weather and other natural disasters;
unfavorable trends or developments concerning operating costs such as inflation, increased costs of food, fuel, utilities, technology, labor (including due to legislated minimum wage increases, labor disruptions or employee relations issues), insurance, or employee benefits (including healthcare, workers’ compensation and other insurance costs and premiums);
the impact of initiatives by competitors and increased competition generally;
lack of customer acceptance of new menu items, service initiatives or potential price increases necessary to cover higher input costs;
customers trading down to lower priced items and/or shifting to competitive offerings with lower priced products;
the availability of qualified, experienced management and hourly employees; and
failure to anticipate or respond quickly to relevant market trends or to implement successful advertising and marketing programs.
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 expectations of public market analysts and investors, and may adversely impact our stock price.
Risks Related to Food and Commodity Costs.  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, including changes in fuel costs and other supply and distribution costs. For example, prices for feed ingredients used to produce beef, chicken and pork could be adversely affected by changes in worldwide supply and demand or by regulatory mandates, leading to higher prices. Further, increases in fuel prices could result in increased distribution costs. In recent years, food and commodity costs increased significantly, out-pacing general inflation and industry expectations. Looking forward, we anticipate volatile or uncertain price conditions to continue.

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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 represent approximately 20% and 6%, respectively, of our consolidated commodity spend, do not lend themselves to fixed price contracts.
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 we have fixed price contracts for produce, 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 our purchasing practices or menu offerings. We also may not be able to pass along to our customers price increases 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.
A significant number of our Jack in the Box and Qdoba restaurants are company-operated, so we continue to have exposure to operating cost issues. Exposure to these fluctuating costs, including increases in commodity costs, could negatively impact our margins as well as franchise margins and franchisee financial health.
Risk Related to Our Brands and Reputation.  Multi-unit food service businesses such as ours can be materially and adversely affected by widespread negative publicity of any type, particularly regarding food quality, nutritional content, safety or public health issues (such as epidemics or the prospect of a pandemic), obesity or other health concerns, and employee relations issues, among other things. Adverse publicity in these areas could damage the trust customers place in our brands. The increasingly widespread use of mobile communications and social media applications 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.
To minimize the risk of food-borne illness, we have put in place HACCP and Food Safety Management Plans for managing food safety in our restaurants and with our vendors. Nevertheless, food safety risks cannot be completely eliminated. Any outbreak of illness attributed to company or franchised restaurants, or within the food service industry, or any widespread negative publicity regarding our brands or the restaurant industry in general could cause a decline in our and our franchisees’ restaurant sales, and could have a material adverse effect on our financial condition and results of operations.
In addition, the success of our business strategy depends on the value and relevance of our brands and reputation. If customers perceive that we and our franchisees fail to deliver a consistently positive and relevant experience, our brands could suffer. This could have an adverse effect on our business. Moreover, while we devote considerable efforts and resources to protecting our trademarks and other intellectual property, if these efforts are not successful, the value of our brands may be harmed. This could also have a material adverse effect on our business.
Supply and Distribution Risks.  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 and 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, distributor or supplier financial or solvency issues, product recalls, or other issues. In addition, if any of our distributors, suppliers, vendors or other contractors fail to meet our quality standards or otherwise do not perform adequately, or if any one or more of such entities 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.
Risks Associated with Severe Weather and Natural Disasters.  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 natural disasters, such as earthquakes and wild fires, and their aftermath. Any of these can result in:
 
lost restaurant sales when consumers stay home or are physically prevented from reaching the restaurants;
property damage, loss of product, and lost sales when locations are forced to close for extended periods of time;
interruptions in supply when distributors or vendors suffer damages or transportation is negatively affected; and
increased costs if agricultural capacity is diminished or if insurance recoveries do not cover all of our losses.
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 results of operations and financial condition.
Growth and Development Risks.  We intend to grow both Qdoba and Jack in the Box by developing additional company-owned restaurants and through new restaurant development by franchisees, both in existing markets and in new markets. Development involves substantial risks, including the risk of:
 

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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 on acceptable 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;
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.
Risks Related to Franchisee Financial and Business Operations.  The opening and continued success of franchise restaurants depends on various factors, including the demand for our franchises, the selection of appropriate franchisee candidates, the identification and availability of suitable sites, and 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. See “Growth and Development Risks” above. Despite our due diligence performed during the recruiting process, we cannot assure you that franchisees and developers planning the opening of franchise restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants required by their agreements, or prove to be effective operators and remain aligned with us on operations, 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 standards set forth in our agreements with them. However, franchisees are independent third parties whom we cannot and do not control. If franchisees do not successfully operate restaurants in a manner consistent with applicable laws and required standards, royalty, and in some cases rent, payments to us may be adversely affected. If customers have negative perceptions or experiences with operational execution, food quality or safety at our franchised locations, our brands’ image and reputation could be harmed, which in turn could negatively impact our business and operating results.
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, 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, franchisee 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 that franchisees will successfully participate in our strategic 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 or fails to adhere to our standards and projects an image inconsistent with our brands.
Risk Relating to Competition, Menu Innovation and Successful Execution of our Operational Strategies and Initiatives. We are focused on increasing same-store sales and average unit volumes as part of our long-term business plan.  These results are subject to a number of risks and uncertainties, including risks related to competition, menu innovation and the successful execution of our operational strategies and initiatives. The restaurant industry is highly competitive with respect to price, service, location, personnel, advertising, brand identification and the type, quality and innovativeness of menu items and new and differentiated

12




service offerings. There are many well-established competitors. Each of our restaurants competes directly and indirectly with a large number of national and regional restaurant chains, as well as with locally-owned and/or independent quick-service restaurants, fast-casual restaurants, casual dining restaurants, sandwich shops and similar types of businesses. The trend toward convergence in grocery, deli and restaurant services has and may continue to increase the number of our competitors. Such increased competition could decrease the demand for our products and negatively affect our sales and profitability. Some of our competitors have substantially greater financial, marketing, operating and other resources than we have, which may give them a competitive advantage. Certain of our competitors have introduced a variety of new products and service offerings and engaged in substantial price discounting in the past, and may adopt similar strategies in the future. In an effort to increase same-store sales, we continue to make improvements to our facilities, to implement new service and training initiatives, and to introduce new products and discontinue other menu items. However, there can be no assurance that our facility improvements will foster increases in sales and yield the desired return on investment, that our service initiatives or our overall strategies will be successful, that our menu offerings and promotions will generate sufficient customer interest or acceptance to increase sales, or that competitive product offerings, pricing and promotions will not have an adverse effect upon our margins, sales results and financial condition. In addition, the success of our strategy depends on, among other factors, our ability to motivate restaurant personnel and franchisees to execute our initiatives and achieve sustained high service levels.
Advertising and Promotion Risks.  Some of our competitors have greater financial resources, which enable them to purchase significantly more advertising, particularly television and radio ads, than we are able to purchase. Should our competitors increase spending on advertising and promotion, should the cost of advertising increase or our advertising funds decrease for any reason, including reduced sales or implementation of reduced spending strategies, or should our advertising and promotion be less effective than our competitors, there could be a material adverse effect on our results of operations and financial condition. Also, the fragmentation in the media favored by our target consumers, including growing prevalence and importance of social and mobile media, poses challenges and risks for our marketing, advertising and promotional strategies. Failure to effectively tackle these challenges and risks could also have a materially adverse effect on our results.
Taxes.  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, from time to time, we may take positions for filing our tax returns that differ from the treatment for financial reporting purposes. The ultimate outcome of such positions could have an adverse impact on our effective tax rate.
Risks Related to Reducing Operating Costs. In recent years, we have identified strategies and taken steps to reduce operating costs to align with the increased Jack in the Box franchise ownership and to further integrate Jack in the Box and Qdoba brand back office functions and systems. These strategies include outsourcing certain functions, reducing headcount, and increasing shared back office services between our brands. We continue to evaluate and implement further cost-saving initiatives. However, the ability to reduce our operating costs through these initiatives is subject to risks and uncertainties, and we cannot assure that these activities, or any other activities that we may undertake in the future, will achieve the desired cost savings and efficiencies. Failure to achieve such desired savings could adversely affect our results of operations and financial condition.
Risks Related to Loss of Key Personnel.  We believe that our success will depend, in part, on our ability to attract and retain the services of skilled personnel, including key executives. The loss of services of any such personnel could have a material adverse effect on our business.
Risks Related to Government Regulations, Including Regulations Increasing Labor Costs.  The restaurant industry is subject to extensive federal, state and local governmental regulations as described in Item 1 under “Regulation.” We are subject to regulations including but not limited to those related to:
the preparation, labeling, advertising and sale of food;
building and zoning requirements;
sanitation and safety standards;
employee healthcare requirements, including the implementation and legal, regulatory and cost implications of the Affordable Care Act;
labor and employment, including recently enacted and proposed minimum wage adjustments, overtime, working conditions, employment eligibility and documentation, sick leave, and other employee benefit and fringe benefit requirements, and changing regulatory interpretations of federal or state labor laws;
the registration, offer, sale, termination and renewal of franchises;
truth-in-advertising, consumer protection and the security of information;
Americans with Disabilities Act;
payment card regulation and related industry rules;
liquor licenses; and
climate change, including the potential impact of greenhouse gases, water consumption, or a tax on carbon emissions.

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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 regulatory claims which, in turn, could have a material adverse effect on our business. While we strive to comply with all applicable existing statutory and administrative rules, we cannot predict the effect on operations from issuance of additional requirements in the future.
Risks Related to Computer Systems, Information Technology and Cyber Security.  We and our franchisees rely on computer systems and information technology to conduct our business. A material failure or interruption of service or a breach in security of our computer systems caused by malware or other attack could cause reduced efficiency in operations, loss or misappropriation of data or business interruptions, or could impact delivery of food to restaurants or financial functions such as vendor payment or employee payroll. We have business continuity plans that attempt to anticipate and mitigate such failures, but it is possible that significant capital investment could be required to rectify these problems, or more likely that cash flows could be impacted, in the shorter term.
We have instituted controls intended to protect our point of sale (POS) systems and to limit third party access for vendors that require access to our restaurant networks. However, we cannot control every particular risk, particularly those affecting our franchise locations which are independent businesses. Our security architecture is decentralized, such that payment card information is primarily confined to the restaurant where the specific transaction took place. However, a security breach involving our POS, personnel, franchise operations reporting or other systems could result in disclosure or theft of confidential customer or employee or other proprietary data, and potentially cause loss of consumer confidence or potential costs, fines and litigation, including costs associated with reputational damage, consumer fraud or privacy breach. These risks may be magnified by the increased use of mobile communications and other new technologies, and are subject to increased and changing regulation. 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 negatively impact our margins.
Risks Related to the Failure of Internal Controls.  We maintain a documented system of internal controls, which is reviewed and monitored by an Internal Controls Committee and tested by the Company’s full-time internal audit department. The internal audit department reports to the Audit Committee of the Board of Directors. We believe we have a well-designed system to maintain adequate internal controls on the business; however, we cannot be certain that our controls will be adequate in the future or that adequate controls will be effective in preventing or detecting all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. If our internal controls are ineffective, we may not be able to accurately report our financial results or prevent fraud. Any failures in the effectiveness of our internal controls could have a material adverse effect on our operating results or cause us to fail to meet reporting obligations.
Environmental and Land Risks and Regulations.  We own or lease the real properties on which our Jack in the Box company-operated restaurants are located, and either own or lease (and subsequently sublease to the franchisee) a majority of our Jack in the Box franchised restaurant sites. We also own or lease the real properties upon which our company-operated Qdoba restaurants are located. 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. In addition, we are subject to a variety of federal, state and local governmental regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. Failure to comply with environmental laws could result in the imposition by governmental agencies or courts of law of severe penalties or restrictions on our operations. We are unaware of any significant hazards on properties we own or have owned, or operate or have operated. Accordingly, we do not have environmental liability insurance for our restaurants, nor do we maintain a reserve to cover such events. In the event of the determination of contamination on such properties, the Company, as owner or operator, could be held liable for severe penalties and costs of remediation, and this could result in material liability.
Risks Related to Leverage.  As of September 28, 2014, the Company has a credit facility comprised of a $600.0 million revolving credit facility and a $197.5 million term loan. We may also request the issuance of up to $75.0 million in letters of credit. 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 acquisitions, working capital, capital expenditures 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;

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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 as well as 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.
Risks of Market Volatility.  Many factors affect the trading price of our stock, including factors over which we have no control, such as reports on the economy 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.
Risks of Changes in Accounting Policies and Assumptions.  Changes in accounting standards, policies or related interpretations by accountants or regulatory entities may negatively impact our results. Many accounting standards require management to make subjective assumptions and estimates, such as those required for stock compensation, tax matters, pension costs, litigation, insurance accruals and asset impairment calculations. Changes in those underlying assumptions and estimates could significantly change our results.
Litigation.  We are subject to complaints or litigation brought by former, current or prospective employees, customers, franchisees, vendors, landlords, shareholders or others. We assess contingencies to determine the degree of probability and range of possible loss 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 condition or results of operations. 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 operations and hurt our performance. Further, adverse publicity resulting from claims may harm our business or that of our franchisees.
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 September 28, 2014:
 
 
Company-
Operated
 
Franchise
 
Total     
Company-owned restaurant buildings:
 
 
 
 
 
 
On company-owned land
 
40

 
181

 
221

On leased land
 
147

 
497

 
644

Subtotal
 
187

 
678

 
865

Company-leased restaurant buildings on leased land
 
554

 
937

 
1,491

Franchise directly-owned or directly-leased restaurant buildings
 

 
532

 
532

Total restaurant buildings
 
741

 
2,147

 
2,888

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 15% of our leases provide for contingent rental payments between 1% and 15% of the restaurant’s gross sales once certain thresholds are met. We have generally been able to renew our restaurant leases

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as they expire at then-current market rates. The remaining terms of ground leases range from approximately one year to 54 years, including optional renewal periods. The remaining lease terms of our other leases range from approximately one year to 43 years, including optional renewal periods. At September 28, 2014, our restaurant leases had initial terms expiring as follows:
 
 
Number of Restaurants
Fiscal Year
 
Ground
Leases
 
Land and
Building
Leases
2015 – 2019
 
228

 
677

2020 – 2024
 
245

 
596

2025 – 2029
 
146

 
102

2030 and later
 
25

 
116

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 Jack in the Box 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 Wheat Ridge, Colorado, until November 2014, and has since moved to a leased facility in Lakewood, Colorado.

ITEM 3. 
LEGAL PROCEEDINGS
See Note 16, 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.

16






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
 
 
September 28,
2014
 
July 6,
2014
 
April 13,
2014
 
January 19,
2014
High
 
$
65.87

 
$
61.39

 
$
62.90

 
$
51.26

Low
 
$
55.14

 
$
52.41

 
$
48.82

 
$
38.53

 
 
12 Weeks Ended
 
16 Weeks 
Ended
 
 
September 29,
2013
 
July 7,
2013
 
April 14,
2013
 
January 20,
2013
High
 
$
42.59

 
$
40.52

 
$
35.99

 
$
29.67

Low
 
$
38.45

 
$
34.81

 
$
28.71

 
$
24.71

Dividends.  The Company did not pay any cash dividends on its common stock during 2013. On May 9, 2014, the Board of Directors approved the initiation of a regular quarterly cash dividend. Two quarterly cash dividend payments of $0.20 per share of common stock were declared in fiscal 2014 on May 14, 2014 and July 31, 2014. On November 13, 2014, we declared a cash dividend of $0.20 per share of common stock, payable on December 12, 2014 to stockholders of record as of December 1, 2014. Our dividend is subject to the discretion of our Board of Directors and our compliance with applicable law, and depending on, 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. The following table summarizes shares repurchased during the quarter ended September 28, 2014:
 
 
(a)
Total Number
of Shares
Purchased
 
(b)
Average
Price Paid
Per Share
 
(c)
Total Number of Shares Purchased as Part of Publicly
Announced Programs
 
(d)
Maximum Dollar Value That May Yet Be Purchased Under These Programs
 
 
 
 
 
 
 
 
$
59,736,278

July 7, 2014 - August 3, 2014
 

 
$

 

 
$
159,736,278

August 4, 2014 - August 31, 2014
 
289,779

 
$
59.45

 
289,779

 
$
142,501,078

September 1, 2014 - September 28, 2014
 
407,331

 
$
62.39

 
407,331

 
$
117,077,119

Total
 
697,110

 
$
61.19

 
697,110

 
 
Stockholders.  As of November 14, 2014, there were 578 stockholders of record.

17




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 September 28, 2014. 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))(2)
Equity compensation plans approved by security holders (3)
 
2,021,925
 
$26.74
 
3,181,428
 ____________________________
(1)
Includes shares issuable in connection with our outstanding stock options, performance-vested stock 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 only.
(2)
Includes 107,646 shares that are reserved for issuance under our Employee Stock Purchase Plan.
(3)
For a description of our equity compensation plans, refer to Note 12, Share-Based Employee Compensation, of the notes to the consolidated financial statements.

18




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. As it does every year, the Compensation Committee of the Board of Directors (the “Committee”) reviews the make-up of the Peer Group as part of its process of setting the compensation of our executive officers. Working closely with its independent compensation consultant, and considering anticipated Company revenues, the Committee approved changes to the 2014 Peer Group to remove Darden Restaurants, Inc. due to its size being substantially larger than the other members of the Peer Group based on defined criteria (i.e., revenue, market capitalization, and systemwide sales), and added Buffalo Wild Wings, Inc., which more closely meets the established criteria for our Peer Group.
The below comparison assumes $100 was invested on September 30, 2009 in the Company’s common stock and in the comparison groups and assumes reinvestment of dividends. The Company paid dividends beginning in fiscal 2014.
 
2009
2010
2011
2012
2013
2014
Jack in the Box Inc.
$100
$105
$97
$137
$195
$335
S&P 500 Index
$100
$110
$111
$145
$173
$207
New Peer Group (1)
$100
$135
$172
$224
$299
$378
Old Peer Group (2)
$100
$134
$163
$212
$263
$330
____________________________
(1)
The New 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.; Panera Bread Company; Ruby Tuesday, Inc.; Sonic Corp.; The Cheesecake Factory Inc.; and The Wendy’s Company.
(2)
The Old Peer Group Index comprises the following companies: Brinker International, Inc.; Chipotle Mexican Grill Inc.; Cracker Barrel Old Country Store, Inc.; Darden Restaurants, Inc.; DineEquity, Inc.; Domino’s Pizza, Inc.; Panera Bread Company; Ruby Tuesday, Inc.; Sonic Corp.; The Cheesecake Factory Inc.; and The Wendy’s Company.

19




ITEM 6.  
SELECTED FINANCIAL DATA
Our fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30. All years presented include 52 weeks, except 2010 which includes 53 weeks. The selected financial data reflects as discontinued operations, 62 closed Qdoba stores and our distribution business for years 2010 through 2014. The following selected financial data of Jack in the Box Inc. for each fiscal year was extracted or derived from our audited financial statements. 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
 
 
2014
 
2013
 
2012
 
2011
 
2010
 
 
(in thousands, except per share data)
Statements of Earnings Data:
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
1,484,131

 
$
1,489,867

 
$
1,509,295

 
$
1,632,825

 
$
1,878,126

 
 
 
 
 
 
 
 
 
 
 
Total operating costs and expenses
 
$
1,318,275

 
$
1,356,302

 
$
1,417,624

 
$
1,542,752

 
$
1,805,601

Losses (gains) on the sale of company-operated restaurants, net
 
3,548

 
(4,640
)
 
(29,145
)
 
(61,125
)
 
(54,988
)
Total operating costs and expenses, net
 
$
1,321,823

 
$
1,351,662

 
$
1,388,479

 
$
1,481,627

 
$
1,750,613

 
 
 
 
 
 
 
 
 
 
 
Earnings from continuing operations
 
$
94,844

 
$
82,608

 
$
68,104

 
$
85,878

 
$
73,674

 
 
 
 
 
 
 
 
 
 
 
Earnings per Share and Share Data:
 
 
 
 
 
 
 
 
 
 
Earnings per share from continuing operations:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
2.33

 
$
1.91

 
$
1.55

 
$
1.74

 
$
1.34

Diluted
 
$
2.26

 
$
1.84

 
$
1.52

 
$
1.71

 
$
1.32

Cash dividends declared per common share
 
$
0.40

 
$

 
$

 

 

Weighted-average shares outstanding — Diluted (1)
 
41,973

 
44,899

 
44,948

 
50,085

 
55,843

Market price at year-end
 
$
65.73

 
$
40.10

 
$
28.11

 
$
19.92

 
$
21.47

Other Operating Data:
 
 
 
 
 
 
 
 
 
 
Jack in the Box restaurants:
 
 
 
 
 
 
 
 
 
 
Company-operated average unit volume (2)
 
$
1,708

 
$
1,606

 
$
1,557

 
$
1,405

 
$
1,297

Franchise-operated average unit volume (2)(3)
 
$
1,337

 
$
1,312

 
$
1,313

 
$
1,286

 
$
1,287

System average unit volume (2)(3)
 
$
1,412

 
$
1,381

 
$
1,379

 
$
1,331

 
$
1,292

Change in company-operated same-store sales
 
2.0
%
 
1.0
%
 
4.6
%
 
3.1
%
 
(8.6
)%
Change in franchise-operated same-store sales (3)
 
2.0
%
 
0.1
%
 
3.0
%
 
1.3
%
 
(7.8
)%
Change in system same-store sales (3)
 
2.0
%
 
0.3
%
 
3.4
%
 
1.8
%
 
(8.2
)%
Qdoba restaurants:
 
 
 
 
 
 
 
 
 
 
Company-operated average unit volume (2)(4)
 
$
1,114

 
$
1,080

 
$
1,060

 
$
1,003

 
$
972

Franchise-operated average unit volume (2)(3)
 
$
1,028

 
$
961

 
$
958

 
$
987

 
$
943

System average unit volume (2)(3)(4)
 
$
1,070

 
$
1,017

 
$
1,000

 
$
992

 
$
951

Change in company-operated same-store sales (4)
 
5.7
%
 
0.5
%
 
3.2
%
 
5.4
%
 
0.6
 %
Change in franchise-operated same-store sales (3)
 
6.3
%
 
1.1
%
 
1.9
%
 
5.4
%
 
3.6
 %
Change in system same-store sales (3)(4)
 
6.0
%
 
0.8
%
 
2.5
%
 
5.4
%
 
2.9
 %
Capital expenditures
 
$
60,525

 
$
84,690

 
$
80,200

 
$
129,312

 
$
95,610

Balance Sheet Data (at end of period):
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,270,665

 
$
1,319,209

 
$
1,463,725

 
$
1,432,322

 
$
1,407,092

Long-term debt, excluding current maturities
 
$
497,012

 
$
349,393

 
$
405,276

 
$
447,350

 
$
352,630

Stockholders’ equity
 
$
257,911

 
$
472,018

 
$
411,945

 
$
405,956

 
$
520,463

 ____________________________
(1)
Weighted-average shares reflect the impact of common stock repurchases under Board-approved programs.
(2)
Fiscal 2010 average unit volumes have been adjusted to exclude the 53rd week for the purpose of comparison to other years.
(3)
Changes in same-store sales and average unit volume 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 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)
Average unit volumes and same-store sales for all periods presented have been restated to exclude sales for restaurants reported as discontinued operations.

20





 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 periods ended September 28, 2014, September 29, 2013 and September 30, 2012 for fiscal years 2014, 2013 and 2012 respectively, unless otherwise indicated.
Our MD&A consists of the following sections: 
Overview — a general description of our business and fiscal 2014 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 cash flows including capital expenditures, aggregate contractual obligations, share repurchase activity, dividends, known trends that may impact liquidity, and the impact of inflation.
Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates.
Future application of accounting principles — a discussion of new accounting pronouncements, dates of implementation and impact on our consolidated financial position or results of operations, if any.
OVERVIEW
As of September 28, 2014, we operated and franchised 2,250 Jack in the Box restaurants, primarily in the western and southern United States, including one in Guam, and 638 Qdoba restaurants throughout the United States and including four in 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 royalties (based upon a percent of sales), franchise fees and rents from Jack in the Box franchisees. Historically, we also generated revenue from distribution sales of food and packaging commodities to franchisees. We completed the outsourcing of this function in the first quarter of fiscal 2013, and franchisees who previously utilized our distribution services now purchase product directly from our distribution service providers or other approved suppliers. 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.
The following summarizes the most significant events occurring in fiscal 2014 and certain trends compared to prior years:
 
Same-Store Sales Growth Sales at restaurants open more than one year (“same-store sales”) grew 2.0% at company-operated Jack in the Box restaurants driven primarily by growth in our breakfast and late-night dayparts. Qdoba’s same-store sales increase of 5.7% at company-operated restaurants reflects growth in excess of 7% for the last three quarters of the year driven primarily by menu innovation, catering and less discounting.
Restaurant Margin Expansion — Our consolidated company-operated restaurant margin increased 140 basis points in 2014 to 18.5%. Jack in the Box’s company-operated restaurant margin improved 170 basis points to 18.5% due primarily to lower food and packaging costs despite commodity inflation of 1.8%, in addition to benefits from refranchising activities and leverage from same-store sales increases. Restaurant margins at our Qdoba company-operated restaurants improved 40 basis points to 18.3% primarily reflecting leverage from same-store sales growth, partially offset by commodity inflation of 1.4%.
Jack in the Box Franchising Program  During 2014, we essentially completed our refranchising initiative focused on increasing franchise ownership in the Jack in the Box system through the sale of company-operated restaurants to new and existing franchisees. We refranchised 37 Jack in the Box restaurants in 2014, and have a signed letter of intent to sell another 20 restaurants in our remaining Southeast market. Additionally, Jack in the Box franchisees opened a total of 11 restaurants in 2014. Our Jack in the Box system was 81% franchised at the end of fiscal 2014, and we plan to maintain franchise ownership in the Jack in the Box system at a level between 80-85%. We expect the majority of our new Jack in the Box unit development to be through franchised restaurants.

21




Qdoba New Unit Growth In 2014, we opened 16 company-operated restaurants and franchisees opened 22 restaurants of which four were in non-traditional locations such as airports and college campuses. In fiscal 2015, we expect the majority of our franchise new unit development to be in non-traditional locations.
Debt Refinancing During the second quarter of fiscal 2014, we refinanced our credit facility to provide us with a more flexible, longer-term capital structure to support our strategic plan. The new facility consists of a $600.0 million revolving credit facility and a $200.0 million term loan, both with a five-year maturity.
Return of Cash to Shareholders During the year we returned cash to shareholders in the form of share repurchases and the initiation of a regular quarterly cash dividend. We repurchased over 5.6 million shares of our common stock at an average price of $56.63 per share, totaling $319.7 million, including the cost of brokerage fees, and declared dividends of $0.40 per share totaling $15.9 million.
FINANCIAL REPORTING
In the first quarter of fiscal 2014, we changed our segment disclosure to reflect updates made to our current management structure, internal reporting method and financial information used in deciding how to allocate resources. Refer to Note 17, Segment Reporting, in the notes to our consolidated financial statements for more information.
The consolidated statements of earnings for all periods presented have been prepared reflecting the results of operations for the 2013 Qdoba closures and charges incurred as a result of closing these restaurants as discontinued operations. The results of operations and costs incurred to outsource our distribution business are also reflected as discontinued operations for all periods presented. Refer to Note 2, Discontinued Operations, in the notes to our consolidated financial statements for more information.
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
 
 
2014
 
2013
 
2012
Revenues:
 
 
 
 
 
 
Company restaurant sales
 
75.5
%
 
76.8
 %
 
78.4
 %
Franchise revenues
 
24.5
%
 
23.2
 %
 
21.6
 %
Total revenues
 
100.0
%
 
100.0
 %
 
100.0
 %
Operating costs and expenses, net:
 
 
 
 
 
 
Company restaurant costs:
 
 
 
 
 
 
Food and packaging (1)
 
31.9
%
 
32.6
 %
 
32.9
 %
Payroll and employee benefits (1)
 
27.5
%
 
28.0
 %
 
28.6
 %
Occupancy and other (1)
 
22.1
%
 
22.3
 %
 
22.5
 %
Total company restaurant costs (1)
 
81.5
%
 
82.9
 %
 
84.0
 %
Franchise costs (1)
 
50.4
%
 
50.2
 %
 
51.0
 %
Selling, general and administrative expenses
 
13.9
%
 
14.8
 %
 
14.9
 %
Impairment and other charges, net
 
1.0
%
 
0.9
 %
 
2.2
 %
Losses (gains) on the sale of company-operated restaurants
 
0.2
%
 
(0.3
)%
 
(1.9
)%
Earnings from operations
 
10.9
%
 
9.3
 %
 
8.0
 %
Income tax rate (2)
 
35.3
%
 
32.8
 %
 
33.2
 %
  ____________________________
(1)
As a percentage of the related sales and/or revenues.
(2)
As a percentage of earnings from continuing operations and before income taxes.

22




SAME-STORE SALES DATA 
Same-store sales changed as follows:
 
 
2014
 
2013
 
2012
Jack in the Box:
 
 
 
 
 
 
Company
 
2.0%
 
1.0%
 
4.6%
Franchise
 
2.0%
 
0.1%
 
3.0%
System
 
2.0%
 
0.3%
 
3.4%
Qdoba:
 
 
 
 
 
 
Company
 
5.7%
 
0.5%
 
3.2%
Franchise
 
6.3%
 
1.1%
 
1.9%
System
 
6.0%
 
0.8%
 
2.5%
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:
 
 
2014
 
2013
 
2012
 
 
Company
 
Franchise
 
Total
 
Company
 
Franchise
 
Total
 
Company
 
Franchise
 
Total
Jack in the Box:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning of year
 
465

 
1,786

 
2,251

 
547

 
1,703

 
2,250

 
629

 
1,592

 
2,221

New
 
1

 
11

 
12

 
6

 
11

 
17

 
19

 
18

 
37

Refranchised
 
(37
)
 
37

 

 
(78
)
 
78

 

 
(97
)
 
97

 

Acquired from franchisees
 
4

 
(4
)
 

 
1

 
(1
)
 

 

 

 

Closed
 
(2
)
 
(11
)
 
(13
)
 
(11
)
 
(5
)
 
(16
)
 
(4
)
 
(4
)
 
(8
)
End of year
 
431

 
1,819

 
2,250

 
465

 
1,786

 
2,251

 
547

 
1,703

 
2,250

% of JIB system
 
19
%
 
81
%
 
100
%
 
21
%
 
79
%
 
100
%
 
24
%
 
76
%
 
100
%
% of consolidated system
 
58
%
 
85
%
 
78
%
 
61
%
 
85
%
 
79
%
 
63
%
 
85
%
 
78
%
Qdoba:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning of year
 
296

 
319

 
615

 
316

 
311

 
627

 
245

 
338

 
583

New
 
16

 
22

 
38

 
34

 
34

 
68

 
26

 
32

 
58

Refranchised
 

 

 

 
(3
)
 
3

 

 

 

 

Acquired from franchisees
 

 

 

 
13

 
(13
)
 

 
46

 
(46
)
 

Closed
 
(2
)
 
(13
)
 
(15
)
 
(64
)
 
(16
)
 
(80
)
 
(1
)
 
(13
)
 
(14
)
End of year
 
310

 
328

 
638

 
296

 
319

 
615

 
316

 
311

 
627

% of Qdoba system
 
49
%
 
51
%
 
100
%
 
48
%
 
52
%
 
100
%
 
50
%
 
50
%
 
100
%
% of consolidated system
 
42
%
 
15
%
 
22
%
 
39
%
 
15
%
 
21
%
 
37
%
 
15
%
 
22
%
Consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Total system
 
741

 
2,147

 
2,888

 
761

 
2,105

 
2,866

 
863

 
2,014

 
2,877

% of consolidated system
 
26
%
 
74
%
 
100
%
 
27
%
 
73
%
 
100
%
 
30
%
 
70
%
 
100
%

23




Company Restaurant Operations

The following table presents Jack in the Box and Qdoba company restaurant sales, costs and costs as a percentage of the related sales. Percentages may not add due to rounding. Dollars in thousands.

 
 
Fiscal Year
 
 
2014
 
2013
 
2012
Jack in the Box:
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant sales
 
$
782,461

 
 
 
$
850,512

 
 
 
$
943,990

 
 
Company restaurant costs:
 
 
 
 
 
 
 
 
 
 
 
 
Food and packaging
 
254,891

 
32.6
%
 
284,221

 
33.4
%
 
319,415

 
33.8
%
Payroll and employee benefits
 
218,000

 
27.9
%
 
241,149

 
28.4
%
 
275,678

 
29.2
%
Occupancy and other
 
164,433

 
21.0
%
 
182,493

 
21.5
%
 
207,920

 
22.0
%
Total company restaurant costs
 
$
637,324

 
81.5
%
 
$
707,863

 
83.2
%
 
$
803,013

 
85.1
%
Qdoba:
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant sales
 
$
338,451

 
 
 
$
293,268

 
 
 
$
239,493

 
 
Company restaurant costs:
 
 
 
 
 
 
 
 
 
 
 
 
Food and packaging
 
102,447

 
30.3
%
 
88,464

 
30.2
%
 
69,820

 
29.2
%
Payroll and employee benefits
 
90,494

 
26.7
%
 
79,235

 
27.0
%
 
62,532

 
26.1
%
Occupancy and other
 
83,428

 
24.6
%
 
73,093

 
24.9
%
 
58,520

 
24.4
%
Total company restaurant costs
 
$
276,369

 
81.7
%
 
$
240,792

 
82.1
%
 
$
190,872

 
79.7
%
As we have executed our Jack in the Box refranchising strategy, which includes the sale of restaurants to franchisees, we expected the number of company-operated restaurants and the related sales to decrease while revenues from franchise restaurants increase. As such, company restaurant sales decreased $22.9 million in 2014 and $39.7 million in 2013 as compared with the respective prior year. The decrease in restaurant sales in both years is due primarily to decreases in the average number of Jack in the Box company-operated restaurants, partially offset by an increase in the number of Qdoba company-operated restaurants and increases in average unit volumes (“AUVs”) at our Jack in the Box and Qdoba restaurants. The following table presents the approximate impact of these increases (decreases) on company restaurant sales (in millions):
 
 
 
2014 vs. 2013
 
2013 vs. 2012
Decrease in the average number of Jack in the Box restaurants
 
$
(122.1
)
 
$
(123.0
)
Jack in the Box AUV increase
 
54.0

 
29.5

Increase in the average number of Qdoba restaurants
 
36.0

 
49.3

Qdoba AUV increase
 
9.2

 
4.5

Total decrease in company restaurant sales
 
$
(22.9
)
 
$
(39.7
)
Same-store sales at Jack in the Box company-operated restaurants increased 2.0% in 2014 and 1.0% in 2013, primarily driven by price increases in both years, and in 2014 favorable product mix changes, partially offset by a decrease in transactions. Same-store sales at Qdoba company-operated restaurants increased 5.7% in 2014 and 0.5% in 2013 primarily driven by price increases, higher catering sales, and in 2014 favorable product mix, transaction growth and lower discounting. The following table summarizes the change in company-operated same-store sales. 
 
 
Increase/(Decrease)
 
 
2014 vs. 2013
 
2013 vs. 2012
Jack in the Box:
 
 
 
 
Transactions
 
(1.6
)%
 
(0.9
)%
Average Check (1)
 
3.6
 %
 
1.9
 %
Change in same-store sales
 
2.0
 %
 
1.0
 %
Qdoba:
 
 
 
 
Transactions
 
1.3
 %
 
(0.7
)%
Average Check (2)
 
3.6
 %
 
0.6
 %
Catering
 
0.8
 %
 
0.6
 %
Change in same-store sales
 
5.7
 %
 
0.5
 %
 ____________________________
(1)
Includes price increases of approximately 2.7% and 2.5% in 2014 and 2013, respectively.
(2)
Includes price increases of approximately 1.0% in both years.

24




Food and packaging costs as a percentage of company restaurant sales decreased 70 basis points to 31.9% in 2014 and 30 basis points to 32.6% in 2013 in comparison to the respective prior year. In 2014, the decrease primarily relates to an 80 basis point reduction in food and packaging costs as a percentage of sales at our Jack in the Box restaurants attributable to the benefit of selling price increases and favorable product mix changes, partially offset by an increase in commodity costs. At our Qdoba restaurants, food and packaging costs increased slightly to 30.3% from 30.2% in 2013 as the benefits of retail price increases and lower discounting were more than offset by higher commodity costs. In 2013, the benefit of selling price increases and favorable product mix at our Jack in the Box restaurants were partially offset by higher commodity costs and greater promotional activity at our Qdoba restaurants compared with fiscal 2012.
Commodity costs increased as follows compared with the prior year:
 
2014 vs. 2013
 
2013 vs. 2012
Jack in the Box
1.8%
 
2.2%
Qdoba
1.4%
 
1.5%
In 2014, commodity costs increased at our Jack in the Box restaurants primarily due to higher costs for beef, pork, and potatoes, and at our Qdoba restaurants due to higher costs for produce and pork. In 2013, costs were higher for most commodities other than bakery and dairy, with the largest increases in pork, beef and produce. Beef represents the largest portion, or approximately 20%, of the Company’s overall commodity spend, and we typically do not enter into fixed price contracts for our beef needs. For fiscal 2015, we currently expect beef costs to increase approximately 15-20%, and overall commodities to be up approximately 3% compared with fiscal 2014.
Payroll and employee benefit costs as a percentage of company restaurant sales decreased 50 basis points to 27.5% in 2014 and 60 basis points to 28.0% in 2013 in comparison to the respective prior year. The decrease in 2014 reflects a decline in payroll and employee benefit costs at our Jack in the Box restaurants of 50 basis points due to leverage from AUV sales increases and the benefits of refranchising lower performing Jack in the Box restaurants, which were partially offset by higher levels of incentive compensation. A decline in labor costs as a percent of sales at our Qdoba restaurants of 30 basis points also contributed to the favorable labor leverage in 2014 and primarily relates to leverage from same-store sales increases and changes to our staffing mix that utilizes a more variable labor model, partially offset by higher levels of incentive compensation. In 2013, the decrease versus 2012 was primarily attributable to an 80 basis point decrease in payroll and employee benefits as a percentage of the related sales at our Jack in the Box restaurants due to leverage from same-store sales increases, benefits of refranchising restaurants and lower levels of incentive compensation. These decreases were partially offset by a 90 basis point increase at our Qdoba restaurants due primarily to higher staffing levels.
As a percentage of company restaurant sales, occupancy and other costs decreased slightly to 22.1% of company restaurant sales in 2014, from 22.3% in 2013 and 22.5% in 2012. On a consolidated basis, occupancy and other costs were impacted by the mix of Jack in the Box and Qdoba company-operated restaurants as our Qdoba locations generally have higher occupancy and other costs than our Jack in the Box restaurants. At our Jack in the Box restaurants, the occupancy and other costs decreased 50 basis points to 21.0% in 2014 due to sales leverage and the benefits of refranchising, partially offset by the impact of higher utility costs and higher depreciation expense related to Jack in the Box remodel programs. At our Qdoba restaurants, occupancy and other costs as a percent of the related sales decreased 30 basis points to 24.6% in 2014 due to sales leverage which more than offset higher maintenance and repair expenses and costs for utilities, as well as an increase in equipment rental costs related to Coca-Cola Freestyle® beverage equipment. In 2013, the lower percentage was due primarily to leverage from same-store sales increases, the benefits of refranchising Jack in the Box restaurants and the favorable impact of acquisitions of Qdoba franchise restaurants, partially offset by higher depreciation expense related to Jack in the Box remodel programs.

25




Franchise Operations

The following table reflects the detail of our franchise revenues and costs in each year and other information we believe is useful in analyzing the changes in franchise operations (dollars in thousands):
 
 
2014
 
2013
 
2012
Royalties
 
$
140,986

 
$
132,663

 
$
127,887

Rental income
 
217,182

 
207,513

 
195,746

Re-image contributions to franchisees
 
(22
)
 
(1,990
)
 
(7,124
)
Franchise fees and other
 
5,073

 
7,901

 
9,303

Total franchise revenues
 
$
363,219

 
$
346,087

 
$
325,812

 
 
 
 
 
 
 
Rental expense
 
$
135,190

 
$
128,173

 
$
120,746

Depreciation and amortization
 
33,844

 
32,876

 
31,119

Other franchise support costs
 
13,852

 
12,518

 
14,213

Total franchise costs
 
$
182,886

 
$
173,567

 
$
166,078

 
 
 
 
 
 
 
Average number of franchise restaurants
 
2,116

 
2,032

 
1,952

% increase
 
4.1
%
 
4.1
%
 

Franchise restaurant AUVs
 
 
 
 
 
 
Jack in the Box
 
$
1,337

 
$
1,312

 
$
1,313

Qdoba
 
$
1,028

 
$
961

 
$
958

Increase in franchise-operated same-store sales:
 
 
 
 
 
 
Jack in the Box
 
2.0
%
 
0.1
%
 
 
Qdoba
 
6.3
%
 
1.1
%
 
 
Royalties as a percentage of estimated franchise restaurant sales:
 
 
 
 
 
 
Jack in the Box
 
5.2
%
 
5.2
%
 
5.3
%
Qdoba
 
5.0
%
 
4.9
%
 
5.0
%

Franchise revenues increased $17.1 million or 4.9% in 2014 and $20.3 million or 6.2% in 2013 as compared with the respective prior year. The increase in franchise revenues in both years primarily reflects an increase in the average number of Jack in the Box franchise restaurants, which contributed additional royalties and rents of approximately $11 million in 2014 and $17 million in 2013. In 2014, higher AUV’s at Qdoba and Jack in the Box franchised restaurants and a decrease in re-image contributions recorded as a reduction of franchise revenue contributed to the increase and were partially offset by a reduction in initial franchise fees of $2.1 million. In 2013, a reduction in re-image contributions, partially offset by a $1.5 million decrease in revenues from initial franchise fees, contributed to the increase.
Franchise costs, principally rents and depreciation on properties leased to Jack in the Box franchisees, increased $9.3 million in 2014 and $7.5 million in 2013, due primarily to our refranchising strategy. As a percentage of the related revenues, franchise costs were 50.4%, 50.2%, and 51.0% in 2014, 2013 and 2012, respectively. The percent of revenues increase in 2014 versus 2013 was primarily driven by a decrease in franchise fee revenue and an increase in franchise support costs at our Qdoba brand, partially offset by a decrease in re-image contributions to franchisees. The percent of revenues decrease in 2013 as compared with 2012 was primarily due to a decrease in re-image contributions to franchisees.


26




Other Operating Costs and Expenses
The following table presents the change in selling, general and administrative (“SG&A”) expenses in each year compared with the prior year (in thousands):
 
 
Increase/(Decrease)
 
 
2014 vs. 2013
 
2013 vs. 2012
Advertising
 
$
(2,298
)
 
$
(30
)
Refranchising strategy
 
(362
)
 
(2,005
)
Incentive compensation
 
1,181

 
(1,357
)
Cash surrender value of COLI policies, net
 
1,365

 
1,647

Pension and postretirement benefits
 
(17,386
)
 
4,409

Pre-opening costs
 
(777
)
 
(2,497
)
Employee relocation
 
1,152

 
37

Other
 
3,272

 
(4,415
)
 
 
$
(13,853
)
 
$
(4,211
)
Our refranchising strategy has resulted in a decrease in the number of Jack in the Box company-operated restaurants and the related overhead expenses to manage and support those restaurants, including advertising costs, which are primarily contributions to our marketing funds determined as a percentage of restaurant sales. As such, advertising costs decreased at Jack in the Box and were partially offset in 2014 and nearly offset in 2013 by higher advertising expenses at Qdoba, as well as same-store sales growth at Jack in the Box and Qdoba restaurants.
In 2014, the higher level of incentive compensation reflects improvements in the Company’s results compared with performance goals, partially offset by decreases in costs related to share-based compensation vesting. In 2013, incentive compensation declined due to a decrease in Qdoba’s results compared with performance goals, and was partially offset by an increase in share-based compensation due primarily to changes in the attribution period over which certain share-based compensation awards are recognized.
The cash surrender value of our Company-owned life insurance (“COLI”) policies, net of changes in our non-qualified deferred compensation obligation supported by these policies, are subject to market fluctuations. The changes in market values had a positive impact of $3.2 million in 2014, $4.6 million in 2013 and $6.2 million in 2012.
In 2014 and 2013, the changes in pension and postretirement benefits principally relate to changes in the discount rates as compared with the respective prior year.
In 2014 and 2013, pre-opening costs decreased primarily due to a decline in the number of new Jack in the Box company restaurants. Additionally, the decrease in 2013 was attributable to higher pre-opening costs in 2012 associated with restaurant openings in new markets which did not recur in 2013.
The following table presents the components of impairment and other charges, net in each year (in thousands):
 
 
2014
 
2013
 
2012
Impairment charges
 
$
570

 
$
3,874

 
$
3,112

Losses on disposition of property and equipment, net
 
2,876

 
3,645

 
5,904

Costs of closed restaurants (primarily lease obligations) and other
 
2,841

 
2,469

 
8,332

Restructuring costs
 
8,621

 
3,451

 
15,461

 
 
$
14,908

 
$
13,439

 
$
32,809

Impairment and other charges, net increased $1.5 million in 2014 versus 2013 due primarily to an increase in restructuring costs incurred in connection with the comprehensive review of our organizational structure, partially offset by a decrease in impairment charges associated with closed or underperforming Jack in the Box restaurants. In 2014, restructuring costs increased $5.2 million due to an impairment charge of $6.5 million related to a restaurant software asset we no longer plan to place in service as a result of our efforts to integrate certain systems across both of our brands and lower costs. Losses recognized on the disposition of property and equipment, net decreased slightly due to a decrease in restaurant enhancement activity which was partially offset by income of $2.8 million from the resolution of four eminent domain matters involving Jack in the Box restaurants in 2013. In 2013, impairment and other charges decreased $19.4 million versus 2012 due to a decrease in restructuring costs, a decline in lease obligation costs associated with closed restaurants and the aforementioned eminent domain income in 2013. Restructuring costs in 2012 included charges for pension benefits and severance related to a voluntary early retirement program offered by the Company.

27




Gains (losses) on the sale of company-operated restaurants to franchisees, net are detailed in the following table (dollars in thousands):
 
 
2014
 
2013
 
2012
Number of restaurants sold to franchisees
 
37

 
81

 
97

Gains (losses) on the sale of company-operated restaurants
 
$
(1,692
)
 
$
4,640

 
$
29,145

Loss on the anticipated sale of a Jack in the Box market
 
(1,856
)
 

 

  Total gains (losses) on the sale of company-operated restaurants
 
$
(3,548
)
 
$
4,640

 
$
29,145

Gains and losses are impacted by the number of restaurants sold and changes in average gains or losses recognized, which relate to specific sales and cash flows of those restaurants. In 2014, 2013 and 2012, gains (losses) on the sale of company-operated restaurants include additional gains of $2.1 million, $3.3 million and $2.3 million, respectively, recognized upon the extension of the underlying franchise and lease agreements related to Jack in the Box restaurants sold in previous years. In 2014, the loss on the anticipated sale of a Jack in the Box market relates to 25 company-operated restaurants of which we expect to sell 20 and close five in 2015.
Interest Expense, Net
Interest expense, net is comprised of the following (in thousands):
 
 
2014
 
2013
 
2012
Interest expense
 
$
16,531

 
$
16,471

 
$
20,953

Interest income
 
(853
)
 
(1,220
)
 
(2,079
)
Interest expense, net
 
$
15,678

 
$
15,251

 
$
18,874

In 2014, interest expense, net increased $0.4 million compared with a year ago due to a decrease in interest income attributable to a decline in notes receivable related to refranchising transactions. Interest expense remained fairly consistent versus the prior year as higher average borrowings and an increase in interest costs associated with lease commitments were offset by the impact of lower interest rates. Both 2014 and 2013 include the write-off of deferred finance fees of $0.8 million and $0.9 million, respectively, recorded in connection with refinancing of our credit facility in each year. The decrease in 2013 versus 2012 primarily relates to lower average borrowings and interest rates, offset in part by the write-off of deferred financing fees in 2013.
Income Taxes
The income tax provisions reflect effective tax rates of 35.3%, 32.8% and 33.2% of pretax earnings from continuing operations in 2014, 2013 and 2012, respectively. In 2014, the major components of the year-over-year change in tax rates were a decrease in tax credits related to the expiration of the Work Opportunity Tax Credit offset by the release of a valuation allowance on California tax credits due to a change in state tax law, and a decrease in the market performance of insurance products used to fund certain non-qualified retirement plans which are excluded from taxable income. The tax rate decrease in 2013 versus 2012 relates to the market performance of our insurance products coupled with the impact of work opportunity tax credits.
Earnings from Continuing Operations
Earnings from continuing operations were $94.8 million, or $2.26 per diluted share, in 2014; $82.6 million, or $1.84 per diluted share, in 2013; and $68.1 million, or $1.52 per diluted share, in 2012.
Losses from Discontinued Operations, Net
As described in Note 2, Discontinued Operations, in the notes to our consolidated financial statements, the losses from our distribution business and the 2013 Qdoba Closures have been reported as discontinued operations for all periods presented.
Losses from discontinued operations net of tax, are as follows for each discontinued operation in each year (in thousands):
 
 
2014
 
2013
 
2012
Distribution business
 
$
(790
)
 
$
(3,974
)
 
$
(5,321
)
2013 Qdoba Closures
 
(5,104
)
 
(27,482
)
 
(5,132
)
 
 
$
(5,894
)
 
$
(31,456
)
 
$
(10,453
)

28




In 2014, losses from discontinued operations, net of tax related to our distribution business primarily relates to workers’ compensation insurance settlements. In 2013, losses related to the discontinuation of our distribution business decreased versus 2012 due to a reduction in the accelerated depreciation of a long-lived asset disposed of upon completion of the outsourcing transaction.
In 2014 and 2013, losses, net of tax related to the 2013 Qdoba Closures include: costs of $1.3 million and $13.7 million, respectively, for asset impairments; $2.8 million and $6.4 million (net of reversals for deferred rent and tenant improvement allowances of $2.6 million in 2013), respectively, for future lease commitments; $0.4 million of brokers commissions in 2014; $5.5 million of losses related to operations in 2013; and $0.6 million and $1.9 million, respectively, related to other exit costs.
These losses from discontinued operations reduced diluted earnings per share by the following in each year (amounts may not add due to rounding):
 
 
2014
 
2013
 
2012
Distribution business
 
$
(0.02
)
 
$
(0.09
)
 
$
(0.12
)
2013 Qdoba Closures
 
(0.12
)
 
(0.61
)
 
(0.11
)
 
 
$
(0.14
)
 
$
(0.70
)
 
$
(0.23
)
LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and our revolving bank credit facility.
We generally reinvest available cash flows from operations to develop new restaurants or enhance existing restaurants, to reduce debt, to repurchase shares of our common stock and to pay cash dividends. Our cash requirements consist principally of:
 
working capital;