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Business Combination
 12 Months Ended
Oct. 01, 2023
Business Combination and Asset Acquisition [Abstract]  
Business Combination BUSINESS COMBINATION
On March 8, 2022 (the “Closing Date”), the Company acquired 100% of the outstanding equity interest of Del Taco for cash according to the terms and conditions of the Agreement and Plan of Merger, dated as of December 5, 2021 (the “Merger Agreement”). The acquisition of Del Taco has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with the Company treated as the accounting acquirer, which requires, among other things, that the assets acquired, and liabilities assumed be recognized at their acquisition date fair value. Jack in the Box acquired Del Taco as a part of the Company’s goal to gain greater scale and accelerate growth.
In connection with the transaction, the Company repaid Del Taco's existing debt of $115.2 million related to a syndicated credit facility and Del Taco entered into a new syndicated credit facility.
The total purchase consideration for Del Taco was $593.3 million. Each share of Del Taco common stock issued and outstanding was converted into the right to receive $12.51 in cash without interest, less any applicable withholding taxes (“Merger Consideration”). Additionally, in connection with the transaction, each Del Taco equity award granted under Del Taco’s equity compensation plans was either (i) converted into the right to receive Merger Consideration or (ii) converted into equity awards with respect to Jack in the Box common stock. Other components of purchase consideration include cash paid to settle Del Taco’s existing debt and $7.1 million of seller transaction costs funded by Jack in the Box.
As part of the Merger Agreement, on the Closing Date, the Company assumed Del Taco’s historical equity compensation plans. The awards under Del Taco’s historical equity compensation plans that were not subject to accelerated vesting were exchanged for replacement awards of the Company, which included Del Taco’s non-accelerating restricted stock awards (“non-accelerating RSAs”). Immediately following the Merger, these replacement awards were modified to accelerate the remaining vesting period to be one year following the Closing Date, other than the awards already scheduled to vest on June 30, 2022. The portion of the fair value of the replacement awards associated with pre-acquisition service of Del Taco’s employees represented a component of the total purchase consideration. The remaining fair value of these replacement awards are subject to the recipients’ continued service and thus were excluded from the purchase price. The awards which are subject to continued service will be recognized ratably as stock-based compensation expense over the requisite service period.
The acquisition of Del Taco was funded by cash on hand and borrowings under our 2022 Class A-2 Notes and 2022 Variable Funding Notes. The Company recognized transaction costs of $12.3 million in fiscal 2022. These costs were associated with advisory, legal, and consulting services and are presented in “Other operating expense (income), net” in the consolidated statement of earnings.
Purchase consideration — The following summarizes the purchase consideration paid to Del Taco shareholders (in thousands, except per share data):
Amount
Del Taco shares outstanding as of March 8, 202236,442
Del Taco RSAs subject to accelerated vesting805
Del Taco RSUs subject to accelerated vesting70
Del Taco options subject to accelerated vesting292
Total Del Taco shares outstanding37,610
Merger Consideration (per Del Taco share)$12.51 
Total cash consideration paid to selling shareholders$470,500 
Del Taco transaction costs paid by Jack in the Box (1)7,141 
Del Taco closing indebtedness settled by Jack in the Box (2) 115,219 
Replacement share-based payment awards pre-combination vesting expense 449 
Total aggregate purchase consideration$593,309 
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(1)Represents the portion of Del Taco merger-related transaction costs that were paid at the Closing Date by the Company.
(2)Represents the closing indebtedness of Del Taco’s existing debt that was paid at the Closing Date by the Company.
Purchase price allocation — The final allocation of the purchase consideration was as follows (in thousands):
Total aggregate purchase consideration, net of $12,068 cash acquired
$581,241 
Assets:
Accounts and other receivables4,583 
Inventories3,233 
Prepaid expenses2,950 
Other current assets105 
Property and equipment145,032 
Operating lease right-of-use assets350,289 
Intangible assets12,371 
Trademarks283,500 
Other assets5,128 
Liabilities:
Current maturities of long-term debt22 
Current operating lease liabilities21,991 
Accounts payable18,808 
Accrued liabilities112,579 
Long-term debt, net of current maturities349 
Long-term operating lease liabilities, net of current portion303,488 
Deferred tax liabilities75,355 
Other long-term liabilities13,080 
Net assets acquired, excluding goodwill$261,519 
Goodwill$319,722 
The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. The goodwill of $319.7 million arising from the acquisition is primarily attributable to the market position and future growth potential of Del Taco for both company-operated and franchised restaurants related to future store openings, expansion into new markets, and expected synergies. None of the goodwill resulting from the acquisition is deductible for tax purposes. The goodwill arising from the Del Taco acquisition has been allocated to the Company’s reporting units as follows (in thousands):
Del Taco brand$230,722 
Jack in the Box brand89,000 
Total acquisition date goodwill $319,722 
Identifiable intangible assets — The identifiable intangible assets acquired consist of trademarks, franchise and development agreements, and favorable subleases. The Company amortizes the fair value of the franchise and development agreements and favorable and unfavorable sublease assets and liabilities on a straight-line basis over their respective useful lives.
The trademarks were valued using the relief from royalty method of the income approach, which was applied by discounting the after-tax royalties avoided by owning the trademark to present value. The key inputs and assumptions included the Company's estimates of the projected system wide sales, royalty rate and discount rate applicable to the trademark.
The franchise and development agreements were valued using the income approach, which was applied by discounting the projected after-tax cash flows associated with the agreements to present value. The key inputs and assumptions included the Company's estimates of the projected royalties received under the existing franchise and development agreements (including the impact of franchise churn) and the applicable discount rate.
The favorable and unfavorable sublease assets and liabilities were valued using the income approach, which was applied by discounting the differential between the market rent and contract rent to present value. The key inputs and assumptions included the Company's estimates of the market rent, contract rent and discount rate applicable to the favorable and unfavorable subleases.
The values allocated to intangible assets and the useful lives are as follows (in thousands):
AmountWeighted Average Useful Life (Years)
Trademarks$283,500 Indefinite
Franchise contracts9,700 18
Sublease assets2,671 13
Estimated fair value of acquired intangible assets$295,871 
The estimated values of sublease liabilities totaled approximately $6.0 million. These liabilities have an estimated weighted-average useful life of approximately 15 years and are included in “Other long-term liabilities” in the accompanying consolidated balance sheets.
Unaudited pro forma results — The following unaudited pro forma combined financial information presents the Company’s results as though Del Taco and the Company had been combined as the beginning of fiscal year 2021 (in thousands):
20222021
Total revenue
$1,686,160 $1,665,660 
Net earnings
$118,000 $133,485 
The unaudited pro forma financial information for all periods presented includes the business combination accounting effects resulting from this acquisition, mainly including adjustments to reflect additional amortization expense from acquired intangibles, incremental depreciation expense from the fair value property and equipment, elimination of historical interest expense associated with both Del Taco’s and the Company’s historical indebtedness, additional interest expense associated with the new Del Taco revolving credit facility and the Company’s new borrowings as part of the refinancing to fund the acquisition, adjusted rent expense reflecting the acquired right-of-use assets and liabilities to their estimated acquisition-date values based upon valuation of related lease intangibles and remaining payments, as well as the fair value adjustments made to leasehold improvements, certain material non-recurring adjustments and the tax-related effects as though Del Taco was combined as of the beginning of fiscal 2021. The unaudited pro forma financial information as presented above is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2021, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the two brands.
For the periods subsequent to the acquisition that are included in 2022, Del Taco had total revenues of $316.9 million and net earnings of $6.5 million.