Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ____________________________________________________
FORM 10-Q
 _______________________________________________________________________________________ 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 9, 2017
Commission File Number: 1-9390
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11744122&doc=13
DELAWARE
 
95-2698708
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
9330 BALBOA AVENUE, SAN DIEGO, CA
 
92123
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (858) 571-2121
   _______________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  þ    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨    No  þ
As of the close of business August 4, 2017, 29,424,476 shares of the registrant’s common stock were outstanding.



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

1


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

JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
 
July 9,
2017
 
October 2,
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash
$
7,560

 
$
17,030

Accounts and other receivables, net
56,245

 
73,360

Inventories
7,418

 
8,229

Prepaid expenses
52,071

 
40,398

Assets held for sale
36,755

 
14,259

Other current assets
2,656

 
2,129

Total current assets
162,705

 
155,405

Property and equipment, at cost
1,516,247

 
1,605,576

Less accumulated depreciation and amortization
(881,240
)
 
(886,526
)
Property and equipment, net
635,007

 
719,050

Intangible assets, net
14,776

 
14,042

Goodwill
172,963

 
166,046

Other assets, net
269,768

 
290,469

 
$
1,255,219

 
$
1,345,012

LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
60,115

 
$
55,935

Accounts payable
34,857

 
40,736

Accrued liabilities
151,580

 
181,250

Total current liabilities
246,552

 
277,921

Long-term debt, net of current maturities
1,124,798

 
935,372

Other long-term liabilities
322,865

 
348,925

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

 

Common stock $0.01 par value, 175,000,000 shares authorized, 81,835,883 and 81,598,524 issued, respectively
818

 
816

Capital in excess of par value
450,830

 
432,564

Retained earnings
1,467,671

 
1,399,721

Accumulated other comprehensive loss
(167,876
)
 
(187,021
)
Treasury stock, at cost, 52,411,407 and 49,190,992 shares, respectively
(2,190,439
)
 
(1,863,286
)
Total stockholders’ deficit
(438,996
)
 
(217,206
)
 
$
1,255,219

 
$
1,345,012

See accompanying notes to condensed consolidated financial statements.

2


JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
 
Quarter
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Revenues:
 
 
 
 
 
 
 
Company restaurant sales
$
264,839

 
$
278,829

 
$
911,176

 
$
903,842

Franchise rental revenues
52,849

 
52,878

 
175,639

 
175,218

Franchise royalties and other
40,158

 
37,231

 
128,353

 
121,852

 
357,846

 
368,938

 
1,215,168

 
1,200,912

Operating costs and expenses, net:
 
 
 
 
 
 
 
Company restaurant costs:
 
 
 
 
 
 
 
Food and packaging
80,159

 
81,825

 
272,007

 
272,802

Payroll and employee benefits
74,898

 
76,910

 
264,578

 
250,954

Occupancy and other
61,716

 
59,118

 
209,330

 
196,344

Total company restaurant costs
216,773

 
217,853

 
745,915

 
720,100

Franchise occupancy expenses
39,837

 
38,848

 
129,703

 
128,475

Franchise support and other costs
2,928

 
3,654

 
9,507

 
12,423

Selling, general and administrative expenses
38,365

 
42,768

 
129,861

 
155,535

Impairment and other charges, net
6,212

 
10,519

 
15,600

 
14,598

Gains on the sale of company-operated restaurants
(13,250
)
 
(409
)
 
(21,166
)
 
(1,224
)
 
290,865

 
313,233

 
1,009,420

 
1,029,907

Earnings from operations
66,981

 
55,705

 
205,748

 
171,005

Interest expense, net
11,433

 
7,613

 
35,091

 
22,699

Earnings from continuing operations and before income taxes
55,548

 
48,092

 
170,657

 
148,306

Income taxes
18,427

 
17,308

 
62,682

 
54,597

Earnings from continuing operations
37,121

 
30,784

 
107,975

 
93,709

Losses from discontinued operations, net of income tax benefit
(770
)
 
(595
)
 
(2,601
)
 
(1,617
)
Net earnings
$
36,351

 
$
30,189

 
$
105,374

 
$
92,092

 
 
 
 
 
 
 
 
Net earnings per share - basic:
 
 
 
 
 
 
 
Earnings from continuing operations
$
1.26

 
$
0.94

 
$
3.49

 
$
2.75

Losses from discontinued operations
(0.03
)
 
(0.02
)
 
(0.08
)
 
(0.05
)
Net earnings per share (1)
$
1.23

 
$
0.92

 
$
3.40

 
$
2.70

Net earnings per share - diluted:
 
 
 
 
 
 
 
Earnings from continuing operations
$
1.25

 
$
0.93

 
$
3.46

 
$
2.72

Losses from discontinued operations
(0.03
)
 
(0.02
)
 
(0.08
)
 
(0.05
)
Net earnings per share (1)
$
1.22

 
$
0.91

 
$
3.37

 
$
2.67

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
29,474

 
32,642

 
30,976

 
34,073

Diluted
29,718

 
33,016

 
31,234

 
34,469

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.40

 
$
0.30

 
$
1.20

 
$
0.90

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

3


JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Quarter
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Net earnings
$
36,351

 
$
30,189

 
$
105,374

 
$
92,092

Cash flow hedges:
 
 
 
 
 
 
 
Net change in fair value of derivatives
2,887

 
(7,825
)
 
21,992

 
(28,008
)
Net loss reclassified to earnings
1,009

 
860

 
4,294

 
3,180

 
3,896

 
(6,965
)
 
26,286

 
(24,828
)
Tax effect
(1,507
)
 
2,696

 
(10,170
)
 
9,610

 
2,389

 
(4,269
)
 
16,116

 
(15,218
)
Unrecognized periodic benefit costs:
 
 
 
 
 
 
 
Actuarial losses and prior service costs reclassified to earnings
1,483

 
1,050

 
4,944

 
3,498

Tax effect
(574
)
 
(408
)
 
(1,916
)
 
(1,355
)
 
909

 
642

 
3,028

 
2,143

Other:
 
 
 
 
 
 
 
Foreign currency translation adjustments
3

 
2

 
2

 
(19
)
Tax effect
(1
)
 

 
(1
)
 
8

 
2

 
2

 
1

 
(11
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax
3,300

 
(3,625
)
 
19,145

 
(13,086
)
 
 
 
 
 
 
 
 
Comprehensive income
$
39,651

 
$
26,564

 
$
124,519

 
$
79,006

See accompanying notes to condensed consolidated financial statements.


4


JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
Cash flows from operating activities:
 
 
 
Net earnings
$
105,374

 
$
92,092

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
69,527

 
70,314

Deferred finance cost amortization
2,707

 
2,049

Excess tax benefits from share-based compensation arrangements
(4,133
)
 
(3,822
)
Deferred income taxes
5,824

 
15,672

Share-based compensation expense
8,855

 
9,220

Pension and postretirement expense
3,242

 
10,374

Gains on cash surrender value of company-owned life insurance
(364
)
 
(5,008
)
Gains on the sale of company-operated restaurants
(21,166
)
 
(1,224
)
Losses on the disposition of property and equipment
2,186

 
2,295

Impairment charges and other
4,320

 
2,928

Changes in assets and liabilities, excluding acquisitions and dispositions:
 
 
 
Accounts and other receivables
6,026

 
(16,333
)
Inventories
1,000

 
(557
)
Prepaid expenses and other current assets
(8,057
)
 
(7,677
)
Accounts payable
2,238

 
(7,466
)
Accrued liabilities
(27,485
)
 
1,534

Pension and postretirement contributions
(4,110
)
 
(14,700
)
Other
(6,077
)
 
(2,992
)
Cash flows provided by operating activities
139,907

 
146,699

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(47,210
)
 
(74,971
)
Purchases of assets intended for sale and leaseback
(3,248
)
 
(5,593
)
Proceeds from the sale and leaseback of assets
2,466

 
7,748

Proceeds from the sale of company-operated restaurants
62,923

 
1,434

Collections on notes receivable
1,426

 
3,237

Acquisition of franchise-operated restaurants

 
324

Proceeds from the sale of property and equipment
2,898

 
140

Other
(1,713
)
 
(89
)
Cash flows provided by (used in) investing activities
17,542

 
(67,770
)
Cash flows from financing activities:
 
 
 
Borrowings on revolving credit facilities
638,500

 
576,000

Repayments of borrowings on revolving credit facilities
(400,000
)
 
(376,000
)
Principal repayments on debt
(43,162
)
 
(19,651
)
Dividends paid on common stock
(37,194
)
 
(30,513
)
Proceeds from issuance of common stock
5,166

 
5,093

Repurchases of common stock
(334,361
)
 
(250,000
)
Excess tax benefits from share-based compensation arrangements
4,133

 
3,822

Change in book overdraft

 
1,213

Cash flows used in financing activities
(166,918
)
 
(90,036
)
Effect of exchange rate changes on cash
(1
)
 
11

Net decrease in cash
(9,470
)
 
(11,096
)
Cash at beginning of period
17,030

 
17,743

Cash at end of period
$
7,560

 
$
6,647


See accompanying notes to condensed consolidated financial statements.

5

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




1.    BASIS OF PRESENTATION
Nature of operations — Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box® quick-service restaurants and Qdoba Mexican Eats® (“Qdoba”) fast-casual restaurants. The following table summarizes the number of restaurants as of the end of each period:
 
July 9,
2017
 
July 3,
2016
Jack in the Box:
 
 
 
Company-operated
340

 
415

Franchise
1,915

 
1,839

Total system
2,255

 
2,254

Qdoba:
 
 
 
Company-operated
381

 
344

Franchise
339

 
344

Total system
720

 
688

References to the Company throughout these notes to condensed consolidated financial statements are made using the first person notations of “we,” “us” and “our.”
Basis of presentation — The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). During fiscal 2012, we entered into an agreement to outsource our Jack in the Box distribution business. In fiscal 2013, we closed 62 Qdoba restaurants (the “2013 Qdoba Closures”) as part of a comprehensive Qdoba market performance review. The results of operations for our distribution business and for the 2013 Qdoba Closures are reported as discontinued operations for all periods presented. Refer to Note 2, Discontinued Operations, for additional information. Unless otherwise noted, amounts and disclosures throughout these notes to condensed consolidated financial statements relate to our continuing operations. In our opinion, all adjustments considered necessary for a fair presentation of financial condition and results of operations for these interim periods have been included. Operating results for one interim period are not necessarily indicative of the results for any other interim period or for the full year.
These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended October 2, 2016 (“2016 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2016 Form 10-K with the exception of three new accounting pronouncements adopted in fiscal 2017 which are described below.
Reclassifications and adjustments — Certain prior year amounts in the condensed consolidated balance sheets have been reclassified due to the adoption of a new accounting pronouncement. See discussion below.
Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal year 2017 includes 52 weeks, while fiscal year 2016 includes 53 weeks. Our first quarter includes 16 weeks and all other quarters include 12 weeks, with the exception of the fourth quarter of fiscal 2016, which includes 13 weeks. All comparisons between 2017 and 2016 refer to the 12-weeks (“quarter”) and 40-weeks (“year-to-date”) ended July 9, 2017 and July 3, 2016, respectively, unless otherwise indicated.
Principles of consolidation — The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the accounts of any variable interest entities (“VIEs”) where we are deemed the primary beneficiary. All significant intercompany accounts and transactions are eliminated. The financial results and position of our VIE are immaterial to our condensed consolidated financial statements.
Use of estimates — In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates.

6

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



Effect of new accounting pronouncements adopted in fiscal 2017 — In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. Under this ASU, an entity presents such costs on the balance sheet as a direct deduction from the related debt liability rather than as an asset. This new standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. We adopted this standard in the first quarter of 2017 and the prior period was retrospectively adjusted. The adjustment resulted in a reclassification of $3.8 million in debt issuance costs from other assets, net to current maturities of long-term debt and long-term debt, net of current maturities in the amount of $1.6 million and $2.2 million, respectively, in our October 2, 2016 condensed consolidated balance sheet.
In August 2015, the FASB issued ASU No. 2015-15, Interest-Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which addresses line-of-credit arrangements that were omitted from ASU No. 2015-03. This ASU states that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing those costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This new standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. We adopted this standard in the first quarter of 2017 and there was no impact on our consolidated financial statements as we continue to present debt issuance costs associated with our line-of-credit arrangement as an asset on our condensed consolidated balance sheets.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard simplifies the subsequent measurement of goodwill, requiring only a single-step quantitative test to identify and measure impairment based on the excess of a reporting unit's carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to determine if a quantitative impairment test is necessary. This standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The standard requires adoption on a prospective basis. We adopted this standard in the second quarter of 2017 and we do not expect the adoption of this standard to have an impact on our consolidated financial statements.
Effect of new accounting pronouncements to be adopted in future periods — In May 2014, the FASB issued ASU No. 2014-09, Revenue Recognition - Revenue from Contracts with Customers (Topic 606), which provides a comprehensive new revenue recognition model that requires an entity to recognize revenue in an amount that reflects the consideration the entity expects to receive for the transfer of promised goods or services to its customers. The standard also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Further, in March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the guidance in ASU No. 2014-09 when evaluating when another party, along with the entity, is involved in providing a good or service to a customer. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the guidance in ASU No. 2014-09 regarding assessing whether promises to transfer goods or services are distinct, and whether an entity's promise to grant a license provides a customer with a right to use, or right to access the entity's intellectual property. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Revenue from Contracts with Customers (Topic 606). This ASU clarifies the guidance in ASU 2014-09, providing technical corrections and improvements to clarify guidance and correct unintended applications of the guidance. All standards are effective for annual periods beginning after December 15, 2017, and interim periods within that reporting period. As such, we will be required to adopt these standards in the first quarter of fiscal 2019. These standards are to be applied retrospectively or using a cumulative effect transition method, and early adoption is not permitted. We do not believe the new revenue recognition standard will impact our recognition of restaurant sales, rental revenues or royalty fees from franchisees. However, we are still evaluating the impact that this pronouncement will have on the recognition of certain transactions on our consolidated financial statements, including the initial franchise fees currently recognized upon the opening of a franchise restaurant and our advertising arrangements with franchisees currently reported on a net versus gross basis in our consolidated statements of earnings, and the effect it will have on our disclosures. We have not yet selected a transition method.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize assets and liabilities on the balance sheet for those leases classified as operating leases under previous guidance. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As such, we will be required to adopt this standard in the first quarter of fiscal 2020. This standard requires adoption based upon a modified retrospective transition approach, with early adoption permitted. Based on a preliminary assessment, we expect that most of our operating lease commitments will be subject to the new guidance and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on

7

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



our consolidated balance sheets. We are continuing our evaluation, which may identify additional impacts this standard will have on our consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-04, Liabilities-Extinguishment of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products, which is designed to provide guidance and eliminate diversity in the accounting for the derecognition of financial liabilities related to certain prepaid stored-value products using a revenue-like breakage model. This standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. As such, we will be required to adopt this standard in the first quarter of fiscal 2019. This standard is to be applied retrospectively or using a cumulative effect transition method as of the date of adoption. We are currently evaluating which transition method to use, but believe the impact this standard will have on our consolidated financial statements and related disclosures will be immaterial upon adoption.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard is intended to simplify various aspects of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. This standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period, with early adoption permitted. As such, we will be required to adopt this standard in fiscal 2018 and will classify the excess tax benefits from share-based compensation arrangements, which were $4.1 million year-to-date 2017, as a discrete item within income tax expense on the consolidated statements of earnings, rather than recognizing such excess income tax benefits in capital in excess of par value on the consolidated statements of stockholders’ deficit. This reclassification will be made on a prospective basis and will also impact the related classification on our consolidated statements of cash flows as excess tax benefits from share-based compensation arrangements will only be reported in cash flows from operating activities rather than as currently reported in cash flows from operating activities and cash flows used in investing activities. Other than these reclassifications, we do not believe the adoption of this ASU will materially impact our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This standard is intended to address eight classification issues related to the statement of cash flows to reduce diversity in practice in how certain transactions are classified. This standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. As such, we will be required to adopt this standard in the first quarter of fiscal 2019. This standard requires adoption based upon a retrospective transition method. We are currently evaluating this standard, but do not believe it will have a material impact on the classification of cash flows within our statement of cash flows.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This standard requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than deferring the recognition until the asset has been sold to an outside party. This standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. As such, we will be required to adopt this standard in the first quarter of fiscal 2019. The standard requires adoption on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. We are currently evaluating this standard, but do not believe it will have a material impact on our consolidated financial statements.
In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements. This standard contains amendments that affect a wide variety of topics in the Accounting Standards Codification. The amendments include differences between original FASB guidance and the Accounting Standards Codification, guidance clarification and reference corrections, simplification and minor improvements. This standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period, with early adoption permitted. As such, we will be required to adopt this standard in the first quarter of fiscal 2018. This standard is not expected have a significant effect on our accounting policies or on our consolidated financial statements and related disclosures.
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The standard provides clarification about the term “in substance nonfinancial asset” and guidance for recognizing gains and losses from the transfer of nonfinancial assets and for partial sales of nonfinancial assets. The standard is required to be adopted retrospectively, in conjunction with ASU 2014-09. As such, we will be required to adopt this standard in the first quarter of fiscal 2019. This standard is not expected to have a material impact on our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This standard requires the presentation of the service cost component of net benefit cost to be in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. All other components of net benefit cost

8

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



should be presented separately from the service cost component and outside of a subtotal of earnings from operations, or separately disclosed. The standard is effective for annual and interim periods beginning after December 15, 2017 and must be adopted retrospectively. Early adoption is permitted as of the beginning of an annual period, but we plan to adopt this standard in the first quarter of fiscal 2019. Upon adoption of this standard, we will separately present the components of net periodic benefit cost, excluding the service cost component, outside of earnings from operations. Net periodic benefit cost, excluding the service cost component, was $1.6 million and $6.3 million year-to-date in 2017 and 2016, respectively.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This standard provides guidance that clarifies when changes to the terms or conditions of a share-based payment award require the application of modification accounting under ASC 718. This new guidance will allow for certain changes to be made to awards without accounting for them as modifications. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The standard is required to be applied prospectively to awards modified on or after the adoption date. We will be required to adopt this standard in the first quarter of fiscal 2019. This standard is not expected to have a significant effect on our accounting policies or on our consolidated financial statements and related disclosures.

2.
DISCONTINUED OPERATIONS
Distribution business — During fiscal 2012, we entered into an agreement with a third party distribution service provider pursuant to a plan approved by our Board of Directors to sell our Jack in the Box distribution business. During fiscal 2013, we completed the transition of our distribution centers. The operations and cash flows of the business have been eliminated and in accordance with the provisions of the FASB authoritative guidance on the presentation of financial statements, the results are reported as discontinued operations for all periods presented.
In 2017 and 2016, results of discontinued operations were immaterial to our condensed consolidated results of operations. Our liability for lease commitments related to our distribution centers is immaterial to our condensed consolidated balance sheets as of July 9, 2017 and October 2, 2016. The lease commitment balance relates to one distribution center lease that expires in July 2017 and is currently subleased at a loss.
2013 Qdoba Closures — During fiscal 2013, we closed 62 Qdoba restaurants. The decision to close these restaurants was based on a comprehensive analysis that took into consideration levels of return on investment and other key operating performance metrics. Since the closed locations were not predominantly located near those remaining in operation, we did not expect the majority of cash flows and sales lost from these closures to be recovered. In addition, we did not anticipate any ongoing involvement or significant direct cash flows from the closed stores. Therefore, in accordance with the provisions of the FASB authoritative guidance on the presentation of financial statements, the results of operations for these restaurants are reported as discontinued operations for all periods presented.
The following table summarizes the results related to the 2013 Qdoba Closures for each period (in thousands):
 
Quarter
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Unfavorable lease commitment adjustments
$
(153
)
 
$
(675
)
 
$
(3,092
)
 
$
(2,143
)
Bad debt related to subtenants
(524
)
 
(225
)
 
(72
)
 
(349
)
Ongoing facility related and other costs
(4
)
 
(2
)
 
(169
)
 
(72
)
Broker commissions

 

 
(56
)
 
(21
)
Loss before income tax benefit
$
(681
)
 
$
(902
)
 
$
(3,389
)
 
$
(2,585
)
We do not expect the remaining costs to be incurred related to these closures to be material; however, our estimates related to our future lease obligations, primarily sublease income, are subject to a high degree of judgment and may differ from actual sublease income due to changes in economic conditions, desirability of the sites and other factors.

9

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



Our liability for lease commitments related to the 2013 Qdoba Closures is included in accrued liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheets and has changed as follows in 2017 (in thousands):
Balance as of October 2, 2016
$
2,943

Adjustments (1)
3,092

Cash payments
(3,335
)
Balance as of July 9, 2017 (2)
$
2,700

____________________________
(1)
Adjustments relate to revisions to certain sublease assumptions due to changes in market conditions, as well as charges to terminate five lease agreements, and includes interest expense.
(2)
The weighted average remaining lease term related to these commitments is approximately 2 years.

3.    SUMMARY OF REFRANCHISINGS, FRANCHISEE DEVELOPMENT AND ACQUISITIONS
Refranchisings and franchisee development — The following table summarizes the number of restaurants sold to franchisees, the number of restaurants developed by franchisees, and the related fees and gains recognized in each period (dollars in thousands):
 
Quarter
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Restaurants sold to Jack in the Box franchisees
58

 

 
118

 
1

New restaurants opened by franchisees:
 
 
 
 
 
 
 
Jack in the Box
2

 
4

 
15

 
9

Qdoba
1

 
1

 
13

 
11

 
 
 
 
 
 
 
 
Initial franchise fees
$
2,352

 
$
205

 
$
5,354

 
$
710

 
 
 
 
 
 
 
 
Proceeds from the sale of company-operated restaurants (1)
$
31,534

 
$
413

 
$
62,923

 
$
1,434

Net assets sold (primarily property and equipment)
(9,532
)
 

 
(19,838
)
 
(196
)
Lease commitment charges (2)
(3,203
)
 

 
(10,854
)
 

Goodwill related to the sale of company-operated restaurants
(4,453
)
 
(5
)
 
(4,795
)
 
(15
)
Other (3)
(1,096
)
 
1

 
(6,270
)
 
1

Gains on the sale of company-operated restaurants
$
13,250

 
$
409

 
$
21,166

 
$
1,224

____________________________
(1)
Amounts in 2017 include additional proceeds of $0.1 million year-to-date, and none in the quarter, related to restaurants sold in a prior year. Amounts in 2016 include additional proceeds of $0.4 million and $1.4 million in the quarter and year-to-date, respectively, related to the extension of the underlying franchise and lease agreements from the sale of restaurants in prior years.
(2)
Charges are for operating restaurant leases with lease commitments in excess of our sublease rental income.
(3)
Amounts in year-to-date 2017 primarily represent impairment of $3.2 million and equipment write-offs of $1.4 million related to restaurants closed in connection with the sale of the related markets. In the 2017 quarter, amounts primarily represent maintenance and repair charges related to the sales. As of July 9, 2017, there was $8.8 million of property related to these closed restaurants classified as assets held for sale on our condensed consolidated balance sheet.
As of the end of the 2017 quarter, we had signed non-binding letters of intent with franchisees to sell an additional 63 company-operated restaurants. Pre-tax gross proceeds related to these sales are estimated at $35.0 million to $40.0 million. Equipment of $10.6 million related to these sales has been classified as assets held for sale on our July 9, 2017 condensed consolidated balance sheet.
Franchise acquisitions —During year-to-date 2017 and 2016, we acquired 50 and one Jack in the Box franchise restaurants, respectively. Of the 50 restaurants acquired in 2017, we took over 31 restaurants in the third quarter as a result of an agreement with an underperforming franchisee who was in violation of franchise and lease agreements with the Company. Under this agreement, the franchisee voluntarily agreed to turn over the restaurants. The acquisition of the additional 19 restaurants in 2017 was the result of a legal action filed in September 2013 against a franchisee in which we obtained a judgment in January 2017 granting us possession of the restaurants. Of the 50 restaurants acquired in 2017, we sold eight of the restaurants to a franchisee and closed three during the quarter. We plan to sell the remaining restaurants

10

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



acquired in 2017 as part of our refranchising strategy. Refer to Note 6, Impairment and Other Charges, Net, for additional information regarding impairment charges related to the restaurants closed subsequent to acquisition.
We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). The goodwill recorded primarily relates to the sales growth potential of the markets acquired and is expected to be deductible for income tax purposes.
Total consideration in each year is non-cash, and in 2017 is primarily comprised of $2.2 million and $10.1 million in the quarter and year-to-date, respectively, of receivables that were eliminated in the acquisition accounting. In 2017, consideration also includes accounts payable of $0.4 million and $4.2 million in the quarter and year-to-date, respectively, that was recorded in acquisition accounting and is primarily due to third parties to waive their liens and security interest on certain assets acquired.
The following table provides detail of the acquisitions in each period (dollars in thousands):
 
Quarter
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Restaurants acquired from franchisees
31

 

 
50

 
1

 
 
 
 
 
 
 
 
Goodwill (gain on bargain purchase)
$
1,891

 
$

 
$
11,712

 
$
(289
)
Intangible assets
793

 

 
1,260

 
37

Inventory
189

 

 
189

 

Property and equipment

 

 
2,238

 
58

Cash

 

 

 
324

Liabilities assumed
(302
)
 

 
(1,116
)
 

Total consideration
$
2,571

 
$

 
$
14,283

 
$
130


4.
FAIR VALUE MEASUREMENTS
Financial assets and liabilities — The following table presents our financial assets and liabilities measured at fair value on a recurring basis (in thousands):
 
Total      
 
Quoted Prices
in Active
Markets for
Identical
Assets (3)
(Level 1)
 
Significant
Other
Observable
Inputs (3)
(Level 2)
 
Significant
Unobservable
Inputs (3)
(Level 3)
Fair value measurements as of July 9, 2017:
 
 
 
 
 
 
 
Non-qualified deferred compensation plan (1)
$
(36,429
)
 
$
(36,429
)
 
$

 
$

Interest rate swaps (Note 5) (2) 
(21,479
)
 

 
(21,479
)
 

Total liabilities at fair value
$
(57,908
)
 
$
(36,429
)
 
$
(21,479
)
 
$

Fair value measurements as of October 2, 2016:
 
 
 
 
 
 
 
Non-qualified deferred compensation plan (1)
$
(36,933
)
 
$
(36,933
)
 
$

 
$

Interest rate swaps (Note 5) (2) 
(47,765
)
 

 
(47,765
)
 

Total liabilities at fair value
$
(84,698
)
 
$
(36,933
)
 
$
(47,765
)
 
$

 
____________________________
(1)
We maintain an unfunded defined contribution plan for key executives and other members of management. The fair value of this obligation is based on the closing market prices of the participants’ elected investments.
(2)
We entered into interest rate swaps to reduce our exposure to rising interest rates on our variable rate debt. The fair values of our interest rate swaps are based upon Level 2 inputs which include valuation models as reported by our counterparties. The key inputs for the valuation models are quoted market prices, discount rates and forward yield curves.
(3)
We did not have any transfers in or out of Level 1, 2 or 3.

The fair values of our debt instruments are based on the amount of future cash flows associated with each instrument discounted using our borrowing rate. At July 9, 2017, the carrying value of all financial instruments was not materially different from fair value, as the borrowings are prepayable without penalty. The estimated fair values of our capital lease obligations approximated their carrying values as of July 9, 2017.

11

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



Non-financial assets and liabilities — Our non-financial instruments, which primarily consist of property and equipment, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on an annual basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial instruments are assessed for impairment. If applicable, the carrying values are written down to fair value.
In connection with our impairment reviews performed during 2017, no material fair value adjustments were required. Refer to Note 6, Impairment and Other Charges, Net, for additional information regarding impairment charges.
During fiscal 2017, we closed six Jack in the Box company-operated restaurants in connection with the sale of the related markets to franchisees, and recorded an impairment charge of $3.1 million against the gain on sale of company-operated restaurants. Refer to Note 3, Summary of Refranchisings, Franchisee Development and Acquisitions, for additional information regarding these sales.

5.
DERIVATIVE INSTRUMENTS
Objectives and strategies — We are exposed to interest rate volatility with regard to our variable rate debt. In April 2014, to reduce our exposure to rising interest rates, we entered into nine forward-starting interest rate swap agreements that effectively converted $300.0 million of our variable rate borrowings to a fixed-rate basis from October 2014 through October 2018. Additionally, in June 2015, we entered into eleven forward-starting interest rate swap agreements that effectively converted an additional $200.0 million of our variable rate borrowings to a fixed rate from October 2015 through October 2018, and $500.0 million from October 2018 through October 2022.
These agreements have been designated as cash flow hedges under the terms of the FASB authoritative guidance for derivatives and hedging. To the extent that they are effective in offsetting the variability of the hedged cash flows, changes in the fair values of the derivatives are not included in earnings, but are included in other comprehensive income (“OCI”). These changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are made on our variable rate debt.
Financial position — The following derivative instruments were outstanding as of the end of each period (in thousands):
 
Balance
Sheet
Location
 
Fair Value
 
 
July 9,
2017
 
October 2, 2016
Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
Interest rate swaps
Accrued liabilities
 
$
(3,747
)
 
$
(5,857
)
Interest rate swaps
Other long-term liabilities
 
(17,732
)
 
(41,908
)
Total derivatives (Note 4)
 
 
$
(21,479
)
 
$
(47,765
)
Financial performance — The following table summarizes the OCI activity related to our interest rate swap derivative instruments (in thousands):
 
Location of Loss in Income
 
Quarter
 
Year-to-date
 
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Gain (loss) recognized in OCI
N/A
 
$
2,887

 
$
(7,825
)
 
$
21,992

 
$
(28,008
)
Loss reclassified from accumulated OCI into net earnings
Interest expense, net
 
$
1,009

 
$
860

 
$
4,294

 
$
3,180

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


12

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



6.
IMPAIRMENT AND OTHER CHARGES, NET
Impairment and other charges, net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):
 
Quarter
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Costs of closed restaurants and other (primarily lease obligations)
$
2,244

 
$
914

 
$
5,434

 
$
2,489

Restructuring costs
1,837

 
7,744

 
6,081

 
7,744

Losses on disposition of property and equipment, net
952

 
637

 
2,186

 
2,283

Accelerated depreciation
674

 
673

 
1,394

 
1,531

Restaurant impairment charges
505

 
551

 
505

 
551

 
$
6,212

 
$
10,519

 
$
15,600

 
$
14,598

Restructuring costs — Restructuring charges in 2017 and 2016 are the result of a plan that management initiated in fiscal 2016 to reduce our general and administrative costs. This plan includes cost saving initiatives from workforce reductions, relocation and consolidation of our Qdoba corporate support center, refranchising initiatives, and the consolidation of information technology across both brands. Restructuring charges in 2017 also include costs related to the evaluation of potential alternatives with respect to the Qdoba brand (the “Qdoba Evaluation”).

The following is a summary of our restructuring costs (in thousands):
 
Quarter
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Qdoba Evaluation costs (1)
$
1,654

 
$

 
$
1,654

 
$

Employee severance and related costs
179

 
6,487

 
722

 
6,487

Facility closing costs (2)

 
847

 
2,908

 
847

Other (3)
4

 
410

 
797

 
410

 
$
1,837

 
$
7,744

 
$
6,081

 
$
7,744

____________________________
(1)
Qdoba Evaluation costs are primarily comprised of third party consulting, legal services, and audit fees.
(2)
Year-to-date 2017 facility closing costs includes $2.9 million in costs for the accrual of the future lease commitment and expected ancillary costs, net of anticipated sublease rental, for our Qdoba corporate support center, which was offset by $0.9 million due to the reversal of the related tenant improvement allowance, and $0.3 million due to the reversal of the related straight-line rent expense. Year-to-date 2017, facility closing costs also includes $1.2 million of accelerated depreciation related to the relocation of our Qdoba corporate support center.
(3)
Other primarily represents employee relocation costs and moving expenses related to the relocation of our Qdoba corporate support center.

The following is a summary of our 2017 restructuring costs by operating segment (in thousands):
 
Quarter
Year-to-date
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Jack in the Box restaurant operations
$

 
$
1,796

 
$
159

 
$
1,796

Shared services (1)
168

 
1,535

 
439

 
1,535

Qdoba restaurant operations (2)
1,669

 
4,413

 
5,483

 
4,413

 
$
1,837

 
$
7,744

 
$
6,081

 
$
7,744

____________________________
(1)
Shared service functions consist primarily of accounting/finance, information technology, human resources, audit services, legal, tax and treasury.
(2)
Includes Qdoba Evaluation costs.
At this time, we are unable to estimate additional charges to be incurred.

13

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



Total accrued facility closing costs related to our restructuring activities, which are comprised of the future lease commitment and expected ancillary costs, net of anticipated sublease rental, are included in accrued liabilities and other long-term liabilities, and changed as follows during 2017 (in thousands):
Balance as of October 2, 2016
 
$

Additions
 
2,927

Interest expense
 
3

Cash payments
 
(212
)
Balance as of July 9, 2017
 
$
2,718

Total accrued severance costs related to our restructuring activities are included in accrued liabilities and changed as follows during 2017 (in thousands):
Balance as of October 2, 2016
 
$
4,198

Additions
 
722

Cash payments
 
(4,253
)
Balance as of July 9, 2017
 
$
667

Restaurant closing costs — Costs of closed restaurants primarily consist of future lease commitments and expected ancillary costs, net of anticipated sublease rentals. In 2017, restaurant closing costs include $0.5 million in property and equipment impairment charges and $0.5 million in future lease commitment charges related to the closure of three underperforming Jack in the Box restaurants acquired in the third quarter of 2017, as well as $0.4 million in equipment impairment charges resulting from the closure of one Qdoba restaurant in the second quarter of 2017.
Accrued restaurant closing costs, included in accrued liabilities and other long-term liabilities, changed as follows during 2017 (in thousands):
Balance as of October 2, 2016
 
$
7,231

Additions
 
482

Adjustments (1)
 
966

Interest expense
 
1,196

Cash payments
 
(3,501
)
Balance as of July 9, 2017 (2) (3)
 
$
6,374

___________________________
(1)
Adjustments relate primarily to revisions of certain sublease and cost assumptions. Our estimates related to our future lease obligations, primarily the sublease income we anticipate, are subject to a high degree of judgment and may differ from actual sublease income due to changes in economic conditions, desirability of the sites and other factors.
(2)
The weighted average remaining lease term related to these commitments is approximately 4 years.
(3)
This balance excludes $2.2 million of restaurant closing costs that are included in accrued liabilities and other long-term liabilities, which were initially recorded as losses on the sale of company-operated restaurants upon sale to Jack in the Box franchisees in prior years.
Accelerated depreciation — When a long-lived asset will be replaced or otherwise disposed of prior to the end of its estimated useful life, the useful life of the asset is adjusted based on the estimated disposal date and accelerated depreciation is recognized. In 2017, accelerated depreciation primarily relates to Jack in the Box and Qdoba restaurant remodels, as well as the anticipated closure of two Jack in the Box and three Qdoba company-operated restaurants. In 2016, accelerated depreciation was primarily related to expenses at Jack in the Box company-operated restaurants for exterior facility enhancements and the replacement of technology equipment.


14

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



7.
INCOME TAXES

The 2017 income tax provisions reflect tax rates of 33.2% in the quarter and 36.7% year-to-date, compared with 36.0% and 36.8%, respectively, in 2016. The major components of the year-over-year change in tax rates were a partial release of valuation allowance against state tax credits, partially offset by a decrease in current year tax credits and a decrease in gains from the market performance of insurance products used to fund certain non-qualified retirement plans, which are excluded from taxable income. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2017 rate could differ from our current estimates.

We file income tax returns in the United States and all state and local jurisdictions in which we operate that impose an income tax. The federal statute of limitations has not expired for fiscal years 2014 and forward. The statutes of limitations for California and Texas, which constitute the Company’s major state tax jurisdictions, have not expired for fiscal years 2012 and forward.

8.
RETIREMENT PLANS
Defined benefit pension plans — We sponsor two defined benefit pension plans, a “Qualified Plan” covering substantially all full-time employees hired prior to January 1, 2011, and an unfunded supplemental executive retirement plan (“SERP”) which provides certain employees additional pension benefits and was closed to new participants effective January 1, 2007. In fiscal 2011, the Board of Directors approved the sunset of our Qualified Plan whereby participants no longer accrue benefits effective December 31, 2015. Benefits under both plans are based on the employee’s years of service and compensation over defined periods of employment.
Postretirement healthcare plans — We also sponsor two healthcare plans, closed to new participants, that provide postretirement medical benefits to certain employees who have met minimum age and service requirements. The plans are contributory; with retiree contributions adjusted annually, and contain other cost-sharing features such as deductibles and coinsurance.
Net periodic benefit cost — The components of net periodic benefit cost in each period were as follows (in thousands): 
  
Quarter
 
Year-to-date
  
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Defined benefit pension plans:
 
 
 
 
 
 
 
Interest cost
$
5,247

 
$
5,579

 
$
17,491

 
$
18,599

Service cost
505

 
1,212

 
1,682

 
4,040

Expected return on plan assets
(6,494
)
 
(5,020
)
 
(21,647
)
 
(16,735
)
Actuarial loss (1)
1,411

 
943

 
4,703

 
3,144

Amortization of unrecognized prior service costs (1)
35

 
56

 
117

 
185

Net periodic benefit cost
$
704

 
$
2,770

 
$
2,346

 
$
9,233

Postretirement healthcare plans:
 
 
 
 
 
 
 
Interest cost
$
232

 
$
292

 
$
772

 
$
972

Actuarial loss (1)
37

 
51

 
124

 
169

Net periodic benefit cost
$
269

 
$
343

 
$
896

 
$
1,141

___________________________
(1)
Amounts were reclassified from accumulated OCI into net earnings as a component of selling, general and administrative expenses.

Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of January 1, 2016, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement. Details regarding 2017 contributions are as follows (in thousands):
 
SERP
 
Postretirement
Healthcare Plans
Net year-to-date contributions
$
3,350

 
$
760

Remaining estimated net contributions during fiscal 2017
$
1,100

 
$
300

We continue to evaluate contributions to our Qualified Plan based on changes in pension assets as a result of asset performance in the current market and the economic environment. We do not anticipate making any contributions to our Qualified Plan in fiscal 2017.

15

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




9.
SHARE-BASED COMPENSATION
We offer share-based compensation plans to attract, retain and motivate key officers, employees and non-employee directors to work towards the financial success of the Company. During 2017, we granted the following shares related to our share-based compensation awards:
Nonvested stock units
65,947

Performance share awards
29,625

Stock options
89,792

The components of share-based compensation expense recognized in each period are as follows (in thousands):
 
Quarter
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Nonvested stock units
$
1,241

 
$
745

 
$
5,250

 
$
4,472

Performance share awards
496

 
238

 
1,736

 
2,372

Stock options
363

 
316

 
1,532

 
2,039

Nonvested stock awards
20

 
20

 
67

 
67

Deferred compensation for non-management directors

 

 
270

 
270

Total share-based compensation expense
$
2,120

 
$
1,319

 
$
8,855

 
$
9,220


10.
STOCKHOLDERS’ EQUITY
Repurchases of common stock In fiscal 2017, we repurchased 3.2 million common shares at an aggregate cost of $327.2 million. As of July 9, 2017, there was approximately $181.0 million remaining under Board-authorized stock-buyback programs which expire in November 2018. In our condensed consolidated statement of cash flows for 2017, repurchases of common stock includes $7.2 million related to repurchase transactions traded in the prior fiscal year that settled in 2017.
Dividends During year-to-date 2017, the Board of Directors declared three cash dividends of $0.40 per common share which were paid on June 12, 2017, March 20, 2017 and December 16, 2016 to shareholders of record as of the close of business on May 30, 2017, March 7, 2017 and December 5, 2016, respectively, and totaled $37.4 million. Future dividends are subject to approval by our Board of Directors.

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

The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):
 
Quarter
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Weighted-average shares outstanding – basic
29,474

 
32,642

 
30,976

 
34,073

Effect of potentially dilutive securities:
 
 
 
 
 
 
 
Nonvested stock awards and units
175

 
176

 
180

 
182

Stock options
53

 
145

 
62

 
161

Performance share awards
16

 
53

 
16

 
53

Weighted-average shares outstanding – diluted
29,718

 
33,016

 
31,234

 
34,469

Excluded from diluted weighted-average shares outstanding:
 
 
 
 
 
 
 
Antidilutive
90

 
170

 
72

 
176

Performance conditions not satisfied at the end of the period
79

 
61

 
79

 
61


16

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




12.    CONTINGENCIES AND LEGAL MATTERS 
Legal matters — We assess contingencies, including litigation 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 in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates. 
Gessele v. Jack in the Box Inc. — In August 2010, five former employees instituted litigation in federal court in Oregon alleging claims under the federal Fair Labor Standards Act and Oregon wage and hour laws. The plaintiffs alleged that the Company failed to pay non-exempt employees for certain meal breaks and improperly made payroll deductions for shoe purchases and for workers’ compensation expenses, and later added additional claims relating to timing of final pay and related wage and hour claims involving employees of a franchisee. In 2016, the court dismissed the federal claims and those relating to franchise employees. In June 2017, the court granted class certification with respect to state law claims of improper deductions and late payment of final wages. In fiscal 2012, we accrued for a single claim for which we believe a loss is both probable and estimable; this accrued loss contingency did not have a material effect on our results of operations. We continue to believe that no additional losses are probable beyond this accrual. Nor can we estimate a possible loss contingency or range of reasonably possible loss contingencies beyond the accrual. We plan to vigorously defend against this lawsuit. Nonetheless, an unfavorable resolution of this matter in excess of our current accrued loss contingencies could have a material adverse effect on our business, results of operations, liquidity or financial condition.
Other legal matters — In addition to the matter described above, we are subject to normal and routine litigation brought by former, current or prospective employees, customers, franchisees, vendors, landlords, shareholders or others. We intend to defend ourselves in any such matters. Some of these matters may be covered, at least in part, by insurance. Our insurance liability (undiscounted) and reserves are established in part by using independent actuarial estimates of expected losses for reported claims and for estimating claims incurred but not reported. We believe that the ultimate determination of liability in connection with legal claims pending against us, if any, in excess of amounts already provided for such matters in the condensed consolidated financial statements, will not have a material adverse effect on our business, our annual results of operations, liquidity or financial position; however, it is possible that our business, results of operations, liquidity, or financial condition could be materially affected in a particular future reporting period by the unfavorable resolution of one or more matters or contingencies during such period.


17

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



13.
SEGMENT REPORTING
Our principal business consists of developing, operating and franchising our Jack in the Box and Qdoba restaurant concepts, each of which we consider a reportable operating segment. This segment reporting structure reflects our current management structure, internal reporting method and financial information used in deciding how to allocate our resources. Based upon certain quantitative thresholds, each operating segment is considered a reportable segment.
We measure and evaluate our segments based on segment revenues and earnings from operations. The reportable segments do not include an allocation of the costs related to shared service functions; nor do they include unallocated costs such as pension expense, share-based compensation and restructuring expense. These costs are reflected in the caption “Shared services and unallocated costs.” The following table provides information related to our operating segments in each period (in thousands):
 
Quarter
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
 
July 9,
2017
 
July 3,
2016
Revenues by segment:
 
 
 
 
 
 
 
Jack in the Box restaurant operations
$
246,101

 
$
264,493

 
$
865,166

 
$
876,138

Qdoba restaurant operations
111,745

 
104,445

 
350,002

 
324,774

Consolidated revenues
$
357,846

 
$
368,938

 
$
1,215,168

 
$
1,200,912

Earnings from operations by segment:
 
 
 
 
 
 
 
Jack in the Box restaurant operations
$
59,423

 
$
69,528

 
$
220,485

 
$
218,364

Qdoba restaurant operations
11,905

 
14,172

 
29,126

 
33,532

Shared services and unallocated costs
(17,597
)
 
(28,404
)
 
(65,029
)
 
(82,115
)
Gains on the sale of company-operated restaurants
13,250

 
409

 
21,166

 
1,224

Consolidated earnings from operations
66,981

 
55,705

 
205,748

 
171,005

Interest expense, net
11,433

 
7,613

 
35,091

 
22,699

Consolidated earnings from continuing operations and before income taxes
$
55,548


$
48,092


$
170,657


$
148,306

Total depreciation expense by segment:
 
 
 
 
 
 
 
Jack in the Box restaurant operations
$
13,731

 
$
14,877

 
$
47,503

 
$
50,409

Qdoba restaurant operations
4,875

 
4,536

 
16,274

 
14,403

Shared services and unallocated costs
1,608

 
1,401

 
5,222

 
4,936

Consolidated depreciation expense
$
20,214

 
$
20,814

 
$
68,999

 
$
69,748

We do not evaluate, manage or measure performance of segments using asset, interest income and expense, or income tax information; accordingly, this information by segment is not prepared or disclosed.
The following table provides detail of the change in the balance of goodwill for each of our reportable segments (in thousands):
 
Jack in the Box
 
Qdoba
 
Total
Balance at October 2, 2016
$
48,415

 
$
117,631

 
$
166,046

Sale of company-operated restaurants to franchisees
(4,795
)
 

 
(4,795
)
Acquisition of franchise-operated restaurants
11,712

 

 
11,712

Balance at July 9, 2017
$
55,332

 
$
117,631

 
$
172,963

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


18

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



14.
SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)
 
Year-to-date
 
July 9,
2017
 
July 3,
2016
Cash paid during the year for:
 
 
 
Income tax payments
$
68,554

 
$
33,453

Interest, net of amounts capitalized
$
34,678

 
$
22,919

Decrease in obligations for purchases of property and equipment
$
6,066

 
$
4,882

Decrease in obligations for treasury stock repurchases
$
7,208

 
$

Non-cash transactions:
 
 
 
Consideration for franchise acquisitions
$
14,283

 
$
130

Decrease in equipment capital leases and related obligations from the sale of company-operated restaurants
$
3,825

 
$

Equipment capital lease obligations incurred
$
1,286

 
$
702

Increase in dividends accrued or converted to common stock equivalents
$
230

 
$
163



19

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



15.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)

 
July 9,
2017
 
October 2,
2016
Accounts and other receivables, net:
 
 
 
Trade
$
51,419

 
$
66,837

Notes receivable
1,381

 
1,603

Other
7,463

 
7,680

Allowance for doubtful accounts
(4,018
)
 
(2,760
)
 
$
56,245

 
$
73,360

Prepaid expenses:
 
 
 
Prepaid income taxes
$
29,539

 
$
12,113

Prepaid rent
14,753

 
18,613

Other
7,779

 
9,672

 
$
52,071

 
$
40,398

Other assets, net:
 
 
 
Company-owned life insurance policies
$
107,997

 
$
105,957

Deferred tax assets
99,668

 
117,587

Deferred rent receivable
46,646

 
47,485

Other
15,457

 
19,440

 
$
269,768

 
$
290,469

Accrued liabilities:
 
 
 
Insurance
$
39,148

 
$
38,368

Payroll and related taxes
29,584

 
44,627

Advertising
15,093

 
21,827

Deferred rent income
13,000

 
15,909

Sales and property taxes
10,593

 
14,311

Beverage allowance
9,783

 
5,926

Gift card liability
5,199

 
5,183

Deferred franchise fees
1,149

 
929

Other
28,031

 
34,170

 
$
151,580

 
$
181,250

Other long-term liabilities:
 
 
 
Defined benefit pension plans
$
155,178

 
$
161,003

Straight-line rent accrual
46,844

 
47,070

Other
120,843

 
140,852

 
$
322,865

 
$
348,925


16.
SUBSEQUENT EVENTS

On August 3, 2017, the Board of Directors declared a cash dividend of $0.40 per common share, to be paid on   September 5, 2017 to shareholders of record as of the close of business on August 22, 2017.




20


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All comparisons between 2017 and 2016 refer to the 12-weeks (“quarter”) and 40-weeks (“year-to-date”) ended July 9, 2017 and July 3, 2016, respectively, unless otherwise indicated.
For an understanding of the significant factors that influenced our performance during 2017 and 2016, 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 Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended October 2, 2016.
Our MD&A consists of the following sections:
Overview — a general description of our business and 2017 highlights.
Financial reporting — a discussion of changes in presentation, if any.
Results of operations — an analysis of our condensed consolidated statements of earnings for the periods presented in our condensed consolidated financial statements.
Liquidity and capital resources — an analysis of our cash flows including pension and postretirement health contributions, capital expenditures, sale of company-operated restaurants, our credit facility, share repurchase activity, dividends, known trends that may impact liquidity and the impact of inflation, if applicable.
Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates.
New accounting pronouncements — a discussion of new accounting pronouncements, dates of implementation and the impact on our consolidated financial position or results of operations, if any.
Cautionary statements regarding forward-looking statements — a discussion of the risks and uncertainties that may cause our actual results to differ materially from any forward-looking statements made by management.
We have included in our MD&A certain performance metrics that management uses to assess company performance and which we believe will be useful in analyzing and understanding our results of operations. These metrics include changes in sales at restaurants open more than one year (“same-store sales”) and average unit volumes (“AUVs”). Same-store sales and AUVs are presented for franchised restaurants and on a system-wide basis, which includes company and franchise restaurants. Franchise sales represent sales at franchise restaurants and are revenues of our franchisees. We do not record franchise sales as revenues; however, our royalty revenues and percentage rent revenues are calculated based on a percentage of franchise sales. We believe franchise and system same-store sales and AUV information is useful to investors as a significant indicator of the overall strength of our business.
Due to the transition from a 53-week year in fiscal 2016 to a 52-week year in fiscal 2017, year-over-year same-store sales comparisons are off by one week. As such, we have included changes in same-store sales on a calendar basis to provide a clearer comparison. Same-store sales data that matches the periods presented in our financial statements is referred to as fiscal basis same-store sales.
Same-store sales and AUVs are not measurements determined in accordance with generally accepted accounting principles (“GAAP”) and should not be considered in isolation, or as an alternative to income from operations, or other similarly titled measures of other companies.

21


OVERVIEW
As of July 9, 2017, we operated and franchised 2,255 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam, and 720 Qdoba fast-casual restaurants operating primarily throughout the United States and Canada.
Our primary source of revenue is from retail sales at Jack in the Box and Qdoba company-operated restaurants. We also derive revenue from Jack in the Box and Qdoba franchise restaurants, including rental revenue, royalties (based upon a percent of sales) and franchise fees. In addition, we recognize gains or losses from the sale of company-operated restaurants to franchisees, which are included as a line item within operating costs and expenses, net in the accompanying condensed consolidated statements of earnings.
The following summarizes the most significant events occurring year-to-date in fiscal 2017, and certain trends compared to a year ago:
Calendar Basis Same-Store Sales Calendar basis same-store sales increased 0.9% year-to-date at Jack in the Box system restaurants compared with a year ago primarily driven by an increase in franchise restaurant AUVs. Qdoba’s year-to-date calendar basis same-store sales decreased 2.7% at company-operated restaurants compared with a year ago, driven primarily by declines in traffic, partially offset by catering growth and an increase in the average check.
Commodity Costs Commodity costs decreased approximately 1.1% and 0.4% year-to-date at our Jack in the Box and Qdoba restaurants, respectively, in 2017 compared with a year ago. We expect our overall commodity costs in fiscal year 2017 to be approximately flat at both our Jack in the Box and Qdoba restaurants. Beef represents the largest portion, or approximately 20%, of the Company’s overall commodity spend. We typically do not enter into fixed price contracts for our beef needs. For the full year, we currently expect beef costs to decrease approximately 1%.
Company Restaurant Operations Consolidated company restaurant costs as a percentage of company restaurant sales increased in 2017 to 81.9% from 79.7% a year ago. Jack in the Box company restaurant costs as a percentage of company restaurant sales increased to 79.6% from 78.7% a year ago primarily due to sales deleverage, higher labor costs related to wage inflation, and higher maintenance and repair costs, partially offset by the impact from refranchising completed year-to-date in 2017. Restaurant costs as a percentage of restaurant sales at our Qdoba company-operated restaurants increased in 2017 to 85.7% from 81.6% a year ago primarily reflecting sales deleverage, an increase in food costs resulting from unfavorable mix, and new restaurant activity, partially offset by lower costs for insurance.
Jack in the Box Franchise Operations Franchise costs as a percent of franchise revenues decreased in 2017 to 47.1%, from 48.8% in the prior year, primarily driven by an increase in franchise fees resulting from the sale of 118 company-operated restaurants to franchisees, and a decrease in franchise support costs primarily due to savings realized in connection with our restructuring plan.
Jack in the Box Franchising Program Franchisees opened a total of 15 restaurants. As part of our refranchising strategy, we sold 118 company-operated restaurants to franchisees in several different markets during 2017 resulting in proceeds of approximately $62.9 million. In fiscal year 2017, we expect to open approximately 20 to 25 Jack in the Box restaurants system-wide, the majority of which will be franchise locations. Our Jack in the Box system was 85% franchised as of July 9, 2017. We plan to increase franchise ownership of the Jack in the Box system to over 90%. Prior to the end of the third quarter, we additionally signed non-binding letters of intent with franchisees to sell 63 company-operated restaurants in several markets. Pre-tax gross proceeds related to these sales are estimated at $35.0 million to $40.0 million, and we have classified $10.6 million of equipment related to these sales as assets held for sale in our July 9, 2017 condensed consolidated balance sheet.
Jack in the Box Acquisition of Franchise-Operated Restaurants We acquired 50 franchise-operated Jack in the Box restaurants from two franchisees for total consideration of $14.3 million in two non-cash transactions. In the third quarter of 2017, we took back 31 restaurants as the result of an agreement with an underperforming franchisee who voluntarily agreed to turn over the restaurants. The additional 19 restaurants acquired in 2017 were the result of a legal action filed in September 2013 against a franchisee in which we obtained a judgment in January 2017 granting the Company possession of the restaurants.
Qdoba New Unit Growth We opened 18 company-operated restaurants, and franchisees opened 13 restaurants of which nine were in non-traditional locations such as military bases and college campuses. In fiscal 2017, we expect approximately 45 Qdoba restaurants to open system-wide, of which 25 are expected to be company-operated restaurants.
Restructuring Costs (including costs related to the Qdoba Evaluation) In 2016, we announced a plan to reduce our general and administrative costs, and in the third quarter of 2017, we began an evaluation of potential alternatives with respect to the Qdoba brand. In connection with these activities, we have recorded $6.1 million of restructuring charges in 2017, which includes $1.7 million related to the Qdoba Evaluation, which are included in impairment and other costs, net in the accompanying condensed consolidated statements of earnings.

22


Return of Cash to Shareholders We returned cash to shareholders in the form of share repurchases and cash dividends. We repurchased 3.2 million shares of our common stock in 2017 at an average price of $101.59 per share, totaling $327.2 million, including the costs of brokerage fees. We also declared three cash dividends of $0.40 per share totaling $37.4 million.
FINANCIAL REPORTING
During fiscal 2012, we entered into an agreement to outsource our Jack in the Box distribution business. In fiscal 2013, we closed 62 Qdoba restaurants (the “2013 Qdoba Closures”) as part of a comprehensive Qdoba market performance review. All charges related to our distribution business and the 2013 Qdoba Closures are reported as discontinued operations for all periods presented. Refer to Note 2, Discontinued Operations, in the notes to condensed consolidated financial statements for additional information. Unless otherwise noted, amounts and disclosures throughout our MD&A relate to our continuing operations.
In the first quarter of fiscal 2017, we adopted an Accounting Standards Update (“ASU”) which changes the presentation of debt issuance costs on the balance sheet. Under this ASU, debt issuance costs are to be presented on the balance sheet as a direct deduction from the related debt liability rather than as an asset. We retrospectively adopted this guidance which resulted in the reclassification of $3.8 million in debt issuance costs from other assets, net to current maturities of long-term debt and long-term debt, net of current maturities in the amount of $1.6 million and $2.2 million, respectively, in our October 2, 2016 condensed consolidated balance sheet. Refer to Note 1, Basis of Presentation, in the notes to condensed consolidated financial statements for more information.
RESULTS OF OPERATIONS
The following table presents certain income and expense items included in our condensed consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS DATA
 
Quarter
 
Year-to-date
 
July 9, 2017
 
July 3, 2016
 
July 9, 2017
 
July 3, 2016
Revenues:
 
 
 
 
 
 
 
Company restaurant sales
74.0
%
 
75.6
%
 
75.0
%
 
75.3
%
Franchise rental revenues
14.8
%
 
14.3
%
 
14.5
%
 
14.6
%
Franchise royalties and other
11.2
%
 
10.1
%
 
10.6
%
 
10.1
%
Total revenues
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Operating costs and expenses, net:
 
 
 
 
 
 
 
Company restaurant costs:
 
 
 
 
 
 
 
Food and packaging (1)
30.3
%
 
29.3
%
 
29.9
%
 
30.2
%
Payroll and employee benefits (1)
28.3
%
 
27.6
%
 
29.0
%
 
27.8
%
Occupancy and other (1)
23.3
%
 
21.2
%
 
23.0
%
 
21.7
%
Total company restaurant costs (1)
81.9
%
 
78.1
%
 
81.9
%
 
79.7
%
Franchise occupancy expenses (2)
75.4
%
 
73.5
%
 
73.8
%
 
73.3
%
Franchise support and other costs (3)
7.3
%
 
9.8
%
 
7.4
%
 
10.2
%
Selling, general and administrative expenses
10.7
%
 
11.6
%
 
10.7
%
 
13.0
%
Impairment and other charges, net
1.7
%
 
2.9
%
 
1.3
%
 
1.2
%
Gains on the sale of company-operated restaurants
(3.7
)%
 
(0.1
)%
 
(1.7
)%
 
(0.1
)%
Earnings from operations
18.7
%
 
15.1
%
 
16.9
%
 
14.2
%
Income tax rate (4) 
33.2
%
 
36.0
%
 
36.7
%
 
36.8
%
____________________________
(1)
As a percentage of company restaurant sales.
(2)
As a percentage of franchise rental revenues.
(3)
As a percentage of franchise royalties and other.
(4)
As a percentage of earnings from continuing operations and before income taxes.

CHANGES IN SAME-STORE SALES

23


 
Quarter
 
Year-to-date
 
Calendar Basis
 
Fiscal Basis
 
Calendar Basis
 
Fiscal Basis
 
July 9, 2017
 
July 9, 2017
 
July 3, 2016
 
July 9, 2017
 
July 9, 2017
 
July 3, 2016
Jack in the Box:
 
 
 
 
 
 
 
 
 
 
 
Company
(1.6
)%
 
(1.8
)%
 
(0.2
)%
 
(0.9
)%
 
(1.0
)%
 
(0.2
)%
Franchise
0.1
 %
 
 %
 
1.5
 %
 
1.5
 %
 
1.4
 %
 
1.3
 %
System
(0.2
)%
 
(0.4
)%
 
1.1
 %
 
0.9
 %
 
0.9
 %
 
0.9
 %
Qdoba:
 
 
 
 
 
 
 
 
 
 
 
Company
(1.1
)%
 
(1.7
)%
 
1.0
 %
 
(2.7
)%
 
(2.7
)%
 
1.8
 %
Franchise
2.3
 %
 
1.1
 %
 
0.1
 %
 
0.5
 %
 
0.2
 %
 
1.3
 %
System
0.5
 %
 
(0.4
)%
 
0.6
 %
 
(1.2
)%
 
(1.3
)%
 
1.6
 %
The following table summarizes the changes in Jack in the Box and Qdoba company-operated same-store sales:
 
Quarter
 
Year-to-date
 
Calendar Basis
 
Fiscal Basis
 
Calendar Basis
 
Fiscal Basis
 
July 9, 2017
 
July 9, 2017
 
July 3, 2016
 
July 9, 2017
 
July 9, 2017
 
July 3, 2016
Jack in the Box:
 
 
 
 
 
 
 
 
 
 
 
Average check (1)
2.8
 %
 
3.2
 %
 
3.5
 %
 
4.3
 %
 
4.5
 %
 
2.8
 %
Transactions
(4.4
)%
 
(5.0
)%
 
(3.7
)%
 
(5.2
)%
 
(5.5
)%
 
(3.0
)%
Change in same-store sales
(1.6
)%
 
(1.8
)%
 
(0.2
)%
 
(0.9
)%
 
(1.0
)%
 
(0.2
)%
Qdoba:
 
 
 
 
 
 
 
 
 
 
 
Transactions
(2.8
)%
 
(3.6
)%
 
0.4
 %
 
(4.4
)%
 
(4.4
)%
 
1.8
 %
Average Check (2)
0.7
 %
 
1.1
 %
 
 %