UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~____________________________________________________~~FORM 10-Q

~~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 ~~7, 2019~~5, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ________to________.

Commission File Number: 1-9390

~~____________________________________________________~~

JACK IN THE BOX INC.

(Exact name of registrant as specified in its charter)

_______________________________________________________________________________________

Delaware

95-2698708

(State of Incorporation)

(I.R.S. Employer Identification No.)

~~9330 Balboa Avenue~~9357 Spectrum Center Blvd.

San Diego,, California92123

(Address of principal executive offices)

9330 Balboa Avenue

San Diego, California 92123

(Former name or former address, if changed since last report)

Registrant’s telephone number, including area code (~~858~~) (858) 571-2121

~~_______________________________________________________________________________________~~

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	JACK	NASDAQ Global Select Market

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 every Interactive Data File required to be submitted 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 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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer			þ	~~Accelerated filer~~	☐
~~Non-accelerated filer~~	☐	Smaller reporting company	☐
Accelerated filer			☐	Emerging growth company	☐
Non-accelerated filer			☐

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 2, 2019, 25,824,470~~July 30, 2020, 22,677,817 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 Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Earnings	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3637
Item 4.	Controls and Procedures	3637
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	3738
Item 1A.	Risk Factors	3738
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults of Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40
	Signature	41

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 7, 2019			September 30, 2018				July 5, 2020		September 29, 2019
ASSETS							ASSETS
Current assets:							Current assets:
Cash	$	12,447		$	2,705		Cash	$	159,540	$	125,536
Restricted cash							Restricted cash	37,373		26,025
Accounts and other receivables, net	57,647			57,422			Accounts and other receivables, net	88,242		45,235
Inventories	1,937			1,858			Inventories	1,835		1,776
Prepaid expenses	17,484			14,443			Prepaid expenses	13,447		9,015
Current assets held for sale	13,236			13,947			Current assets held for sale	6,191		16,823
Other current assets	3,246			4,598			Other current assets	3,504		2,718
Total current assets	105,997			94,973			Total current assets	310,132		227,128
Property and equipment:							Property and equipment:
Property and equipment, at cost	1,178,894			1,190,031			Property and equipment, at cost	1,140,285		1,176,241
Less accumulated depreciation and amortization	(788,956		)	(770,362		)	Less accumulated depreciation and amortization	(796,159)		(784,307)
Property and equipment, net	389,938			419,669			Property and equipment, net	344,126		391,934
Other assets:							Other assets:
Operating lease right-of-use assets							Operating lease right-of-use assets	902,858		—
Intangible assets, net	451			600			Intangible assets, net	283		425
Goodwill	46,747			46,749			Goodwill	47,161		46,747
Deferred tax assets	72,903			62,140			Deferred tax assets	66,132		85,564
Other assets, net	215,234			199,266			Other assets, net	216,008		206,685
Total other assets	335,335			308,755			Total other assets	1,232,442		339,421
	$	831,270		$	823,397			$	1,886,700	$	958,483
LIABILITIES AND STOCKHOLDERS’ DEFICIT							LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:							Current liabilities:
Current maturities of long-term debt	$	42,895		$	31,828		Current maturities of long-term debt	$	13,821	$	774
Current operating lease liabilities							Current operating lease liabilities	169,347		—
Accounts payable	51,131			44,970			Accounts payable	26,339		37,066
Accrued liabilities	124,823			106,922			Accrued liabilities	143,344		120,083
Total current liabilities	218,849			183,720			Total current liabilities	352,851		157,923
Long-term liabilities:							Long-term liabilities:
Long-term debt, net of current maturities	971,763			1,037,927			Long-term debt, net of current maturities	1,366,171		1,274,374
Long-term operating lease liabilities, net of current portion							Long-term operating lease liabilities, net of current portion	777,883		—
Other long-term liabilities	221,219			193,449			Other long-term liabilities	216,752		263,770
Total long-term liabilities	1,192,982			1,231,376			Total long-term liabilities	2,360,806		1,538,144
Stockholders’ deficit:							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, 82,146,917 and 82,061,661 issued, respectively	821			821
Preferred stock $0.01 par value, 15,000,000 shares authorized, NaN issued							Preferred stock $0.01 par value, 15,000,000 shares authorized, NaN issued	—		—
Common stock $0.01 par value, 175,000,000 shares authorized, 82,320,270 and 82,159,002 issued, respectively							Common stock $0.01 par value, 175,000,000 shares authorized, 82,320,270 and 82,159,002 issued, respectively	823		822
Capital in excess of par value	478,256			470,826			Capital in excess of par value	491,594		480,322
Retained earnings	1,565,287			1,561,353			Retained earnings	1,607,485		1,577,034
Accumulated other comprehensive loss	(94,486		)	(94,260		)	Accumulated other comprehensive loss	(117,553)		(140,006)
Treasury stock, at cost, 56,325,632 shares	(2,530,439		)	(2,530,439		)
Treasury stock, at cost, 59,646,773 and 57,760,573 shares, respectively							Treasury stock, at cost, 59,646,773 and 57,760,573 shares, respectively	(2,809,306)		(2,655,756)
Total stockholders’ deficit	(580,561		)	(591,699		)	Total stockholders’ deficit	(826,957)		(737,584)
	$	831,270		$	823,397			$	1,886,700	$	958,483

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)


	Quarter						Year-to-date							Quarter						Year-to-date
	July 7, 2019			July 8, 2018			July 7, 2019			July 8, 2018				July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Revenues:													Revenues:
Company restaurant sales	$	78,434		$	87,574		$	257,948		$	371,149		Company restaurant sales	$	82,444	$	78,434	$	262,188	$	257,948
Franchise rental revenues	63,359			61,622			208,895			196,682			Franchise rental revenues	76,021		63,359		241,990		208,895
Franchise royalties and other	40,180			38,787			130,840			124,387			Franchise royalties and other	43,239		40,180		133,469		130,840
Franchise contributions for advertising and other services	40,386			—			131,189			—			Franchise contributions for advertising and other services	40,571		40,386		128,458		131,189
	222,359			187,983			728,872			692,218				242,275		222,359		766,105		728,872
Operating costs and expenses, net:													Operating costs and expenses, net:
Company restaurant costs (excluding depreciation and amortization):													Company restaurant costs (excluding depreciation and amortization):
Food and packaging	23,058			24,946			74,350			106,448			Food and packaging	24,077		23,058		77,662		74,350
Payroll and employee benefits	23,121			24,875			76,163			106,911			Payroll and employee benefits	25,085		23,121		81,236		76,163
Occupancy and other	11,052			13,715			38,165			59,608			Occupancy and other	12,334		11,052		40,862		38,165
Total company restaurant costs	57,231			63,536			188,678			272,967			Total company restaurant costs	61,496		57,231		199,760		188,678
Franchise occupancy expenses (excluding depreciation and amortization)	38,371			37,401			127,702			119,987			Franchise occupancy expenses (excluding depreciation and amortization)	48,612		38,371		161,470		127,702
Franchise support and other costs	2,695			2,829			8,337			7,894			Franchise support and other costs	2,692		2,695		10,339		8,337
Franchise advertising and other services expenses	41,882			—			136,397			—			Franchise advertising and other services expenses	42,176		41,882		133,134		136,397
Selling, general and administrative expenses	24,389			19,671			66,057			80,326			Selling, general and administrative expenses	13,680		24,389		66,131		66,057
Depreciation and amortization	12,786			13,194			42,645			46,306			Depreciation and amortization	12,141		12,786		41,151		42,645
Impairment and other charges, net	(3,256		)	3,265			5,567			10,449			Impairment and other charges, net	738		(3,256)		(7,837)		5,567
Gains on the sale of company-operated restaurants	—			(28,676		)	(219		)	(43,088		)	Gains on the sale of company-operated restaurants	(1,050)		—		(2,625)		(219)
	174,098			111,220			575,164			494,841				180,485		174,098		601,523		575,164
Earnings from operations	48,261			76,763			153,708			197,377			Earnings from operations	61,790		48,261		164,582		153,708
Other pension and post-retirement expenses, net	342			423			1,141			1,410			Other pension and post-retirement expenses, net	1,482		342		40,972		1,141
Interest expense, net	36,494			10,873			67,144			34,066			Interest expense, net	15,700		36,494		51,051		67,144
Earnings from continuing operations and before income taxes	11,425			65,467			85,423			161,901			Earnings from continuing operations and before income taxes	44,608		11,425		72,559		85,423
Income tax (benefit) expense	(2,048		)	17,334			15,699			75,898
Income tax expense (benefit)													Income tax expense (benefit)	12,432		(2,048)		21,023		15,699
Earnings from continuing operations	13,473			48,133			69,724			86,003			Earnings from continuing operations	32,176		13,473		51,536		69,724
(Losses) earnings from discontinued operations, net of income taxes	(284		)	(2,826		)	2,652			19,099
Earnings (losses) from discontinued operations, net of income taxes													Earnings (losses) from discontinued operations, net of income taxes	379		(284)		379		2,652
Net earnings	$	13,189		$	45,307		$	72,376		$	105,102		Net earnings	$	32,555	$	13,189	$	51,915	$	72,376

Net earnings per share - basic:													Net earnings per share - basic:
Earnings from continuing operations	$	0.52		$	1.72		$	2.69		$	2.97		Earnings from continuing operations	$	1.41	$	0.52	$	2.22	$	2.69
(Losses) earnings from discontinued operations	(0.01		)	(0.10		)	0.10			0.66
Earnings (losses) from discontinued operations													Earnings (losses) from discontinued operations	0.02		(0.01)		0.02		0.10
Net earnings per share (1)	$	0.51		$	1.62		$	2.79		$	3.63		Net earnings per share (1)	$	1.42	$	0.51	$	2.24	$	2.79
Net earnings per share - diluted:													Net earnings per share - diluted:
Earnings from continuing operations	$	0.51		$	1.70		$	2.67		$	2.94		Earnings from continuing operations	$	1.40	$	0.51	$	2.21	$	2.67
(Losses) earnings from discontinued operations	(0.01		)	(0.10		)	0.10			0.65
Earnings (losses) from discontinued operations													Earnings (losses) from discontinued operations	0.02		(0.01)		0.02		0.10
Net earnings per share (1)	$	0.50		$	1.60		$	2.77		$	3.59		Net earnings per share (1)	$	1.42	$	0.50	$	2.23	$	2.77

Cash dividends declared per common share	$	0.40		$	0.40		$	1.20		$	1.20		Cash dividends declared per common share	$	—	$	0.40	$	0.80	$	1.20

____________________________


~~(1)~~	~~Earnings per share may not add due to rounding.~~

(1)Earnings per share may not add due to rounding.

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Quarter						Year-to-date							Quarter						Year-to-date
	July 7, 2019			July 8, 2018			July 7, 2019			July 8, 2018				July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Net earnings	$	13,189		$	45,307		$	72,376		$	105,102		Net earnings	$	32,555	$	13,189	$	51,915	$	72,376
Cash flow hedges:													Cash flow hedges:
Net change in fair value of derivatives	(11,499		)	1,494			(23,625		)	16,080			Net change in fair value of derivatives	—		(11,499)		—		(23,625)
Net loss reclassified to earnings	23,715			539			24,328			3,089			Net loss reclassified to earnings	—		23,715		—		24,328
	12,216			2,033			703			19,169				—		12,216		—		703
Tax effect	(6,132		)	(517		)	(3,165		)	(4,868		)	Tax effect	—		(6,132)		—		(3,165)
	6,084			1,516			(2,462		)	14,301				—		6,084		—		(2,462)
Unrecognized periodic benefit costs:													Unrecognized periodic benefit costs:
Actuarial income (losses) arising during the period													Actuarial income (losses) arising during the period	19,666		—		(12,841)		—
Actuarial losses and prior service costs reclassified to earnings	904			1,152			3,013			3,838			Actuarial losses and prior service costs reclassified to earnings	1,494		904		43,166		3,013
														21,160		904		30,325		3,013
Tax effect	(232		)	(292		)	(777		)	(1,126		)	Tax effect	(5,493)		(232)		(7,872)		(777)
	672			860			2,236			2,712
Other:
Foreign currency translation adjustments	—			—			—			6
Tax effect	—			—			—			(2		)
	—			—			—			4
Derecognition of foreign currency translation adjustments due to sale	—			—			—			76
	—			—			—			80				15,667		672		22,453		2,236

Other comprehensive income (loss), net of taxes	6,756			2,376			(226		)	17,093			Other comprehensive income (loss), net of taxes	15,667		6,756		22,453		(226)

Comprehensive income	$	19,945		$	47,683		$	72,150		$	122,195		Comprehensive income	$	48,222	$	19,945	$	74,368	$	72,150

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Year-to-date
	July 5, 2020		July 7, 2019
Cash flows from operating activities:
Net earnings	$	51,915	$	72,376
Earnings from discontinued operations	379		2,652
Earnings from continuing operations	51,536		69,724
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	41,151		42,645
Amortization of franchise tenant improvement allowances and other	2,383		1,524
Deferred finance cost amortization	4,337		1,903
Excess tax benefits from share-based compensation arrangements	(71)		(66)
Deferred income taxes	12,567		(1,745)
Share-based compensation expense	7,612		6,589
Pension and postretirement expense	40,972		1,141
Gains on cash surrender value of company-owned life insurance	(1,861)		(3,117)
Gains on the sale of company-operated restaurants	(2,625)		(219)
Gains on the disposition of property and equipment, net	(10,386)		(5,756)
Non-cash operating lease costs	(5,689)		—
Impairment charges and other	195		1,624
Changes in assets and liabilities, excluding acquisitions:
Accounts and other receivables	(39,198)		(3,555)
Inventories	14		(79)
Prepaid expenses and other current assets	(5,034)		1,509
Accounts payable	(4,620)		24,321
Accrued liabilities	15,755		9,363
Pension and postretirement contributions	(4,921)		(5,126)
Franchise tenant improvement allowance distributions	(7,105)		(7,875)
Other	(4,844)		(16,012)
Cash flows provided by operating activities	90,168		116,793
Cash flows from investing activities:
Purchases of property and equipment	(16,736)		(25,041)
Proceeds from the sale of property and equipment	22,790		7,563
Proceeds from the sale and leaseback of assets	19,828		3,056
Proceeds from the sale of company-operated restaurants	2,625		133
Collections on notes receivable	—		15,239
Other	1,036		—
Cash flows provided by investing activities	29,543		950
Cash flows from financing activities:
Borrowings on revolving credit facilities	111,376		229,798
Repayments of borrowings on revolving credit facilities	(3,500)		(252,800)
Principal repayments on debt	(7,094)		(32,611)
Debt issuance costs	(216)		(5,088)
Dividends paid on common stock	(18,466)		(30,929)
Proceeds from issuance of common stock	3,559		696
Repurchases of common stock	(155,576)		(14,362)
Payroll tax payments for equity award issuances	(4,442)		(2,705)
Cash flows used in financing activities	(74,359)		(108,001)
Net increase in cash and restricted cash	45,352		9,742
Cash and restricted cash at beginning of period	151,561		2,705
Cash and restricted cash at end of period	$	196,913	$	12,447

Year-to-date
July 7,
2019 July 8,
2018
Cash flows from operating activities:
Net earnings $ 72,376
$ 105,102
Earnings from discontinued operations 2,652
19,099
Earnings from continuing operations 69,724
86,003
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 42,645
46,306
Amortization of franchise tenant improvement allowances and other 1,524
497
Deferred finance cost amortization 1,903
2,268
Excess tax benefits from share-based compensation arrangements (66 ) (2,084 )
Deferred income taxes (1,745 ) 38,544
Share-based compensation expense 6,589
7,830
Pension and postretirement expense 1,141
1,789
Gains on cash surrender value of company-owned life insurance (3,117 ) (1,335 )
Gains on the sale of company-operated restaurants (219 ) (43,088 )
(Gains) losses on the disposition of property and equipment, net (5,756 ) 958
Impairment charges and other 1,624
2,205
Changes in assets and liabilities, excluding dispositions:
Accounts and other receivables (3,555 ) 945
Inventories (79 ) 1,330
Prepaid expenses and other current assets 1,509
(27,448 )
Accounts payable 24,321
3,135
Accrued liabilities 9,363
(34,653 )
Pension and postretirement contributions (5,126 ) (4,384 )
Franchise tenant improvement allowance distributions (7,875 ) (9,099 )
Other (16,012 ) (10,351 )
Cash flows provided by operating activities 116,793
59,368
Cash flows from investing activities:
Purchases of property and equipment (25,041 ) (25,730 )
Purchases of assets intended for sale and leaseback —
(5,491 )
Proceeds from the sale and leaseback of assets 3,056
7,571
Proceeds from the sale of company-operated restaurants 133
23,666
Collections on notes receivable 15,239
34,057
Proceeds from the sale of property and equipment 7,563
3,799
Other —
2,921
Cash flows provided by investing activities 950
40,793
Cash flows from financing activities:
Borrowings on revolving credit facilities 229,798
560,800
Repayments of borrowings on revolving credit facilities (252,800 ) (412,100 )
Principal repayments on debt (32,611 ) (293,671 )
Debt issuance costs (5,088 ) (1,367 )
Dividends paid on common stock (30,929 ) (34,609 )
Proceeds from issuance of common stock 696
2,365
Repurchases of common stock (14,362 ) (200,000 )
Change in book overdraft —
(573 )
Payroll tax payments for equity award issuances (2,705 ) (7,250 )
Cash flows used in financing activities (108,001 ) (386,405 )
Cash flows provided by (used in) continuing operations 9,742
(286,244 )
Net cash provided by operating activities of discontinued operations —
5,159
Net cash provided by investing activities of discontinued operations —
273,653
Net cash used in financing activities of discontinued operations —
(78 )
Net cash provided by discontinued operations —
278,734
Effect of exchange rate changes on cash —
6
Cash at beginning of period 2,705
7,642
Cash at end of period $ 12,447
$ 138

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.BASIS OF PRESENTATION


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. The following table summarizes the number of restaurants as of the end of each period:

July 7,
2019 July 8,
2018
Company-operated 137
146
Franchise 2,105
2,095
Total system 2,242
2,241


	July 5, 2020	July 7, 2019
Company-operated	144	137
Franchise	2,100	2,105
Total system	2,244	2,242

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”).

These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended September ~~30, 2018~~29, 2019 (“~~2018~~2019 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our ~~2018~~2019 Form 10-K with the exception of ~~two~~the new lease accounting ~~pronouncements~~standard adopted in fiscal ~~2019,~~2020, which ~~are~~is described below.

On December 19, 2017, we entered into a definitive agreement to sell Qdoba Restaurant Corporation (“Qdoba”), a wholly owned subsidiary of the Company which operates and franchises more than 700 Qdoba Mexican Eats^® fast-casual restaurants, to certain funds managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, the “Buyer”). The sale was completed on March 21, 2018. For all periods presented in our condensed consolidated statements of earnings, all sales, costs, expenses and income taxes attributable to Qdoba, except as related to the impact of the decrease in the federal statutory tax rate (see Note 9, ~~Income Taxes), have been aggregated under the caption “(Losses) earnings from discontinued operations, net of income taxes.” Refer to Note 3,~~ ~~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.

Segment reporting — ~~As a result~~The Company is comprised of ~~our sale of Qdoba, which has been classified as discontinued operations, we now have one reporting~~1 operating segment.

~~Reclassifications and adjustments~~ — We recorded certain adjustments in fiscal 2019 upon the adoption of a new accounting pronouncement; see details regarding the effects of the adoption on our condensed consolidated financial statements below.

Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years ~~2019~~2020 and ~~2018~~2019 include 52 weeks. Our first quarter includes 16-weeks and all other quarters include 12-weeks. All comparisons between ~~2019~~2020 and ~~2018~~2019 refer to the 12-weeks (“quarter”) and 40-weeks (“year-to-date”) ended July ~~7, 2019~~5, 2020 and July ~~8, 2018,~~7, 2019, respectively, unless otherwise indicated.

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.

Risks and uncertainties — The novel coronavirus (“COVID-19”) has disrupted and is expected to continue to disrupt our business. While sales have accelerated in the third quarter of 2020, we continue to see a significant reduction in guest traffic at our restaurants due to changes in consumer behavior as social distancing practices, dining room closures, and other restrictions have been mandated or encouraged by federal, state, and local governments. Throughout the pandemic, substantially all of our restaurants have remained open, with dining rooms closed and locations operating in an off-premise capacity, which has historically represented close to 90% of the Company’s business, including drive-thru, third-party delivery, and carry-out.

The Company is closely monitoring the impact of the pandemic on all aspects of its business and is unable to predict the continued financial impact of the COVID-19 pandemic on our business due to numerous uncertainties. We cannot predict how or when the social impacts resulting from the pandemic may change, or how any such change will impact our business. Ongoing material adverse effects on our company-owned restaurants or the financial health of our franchisees could negatively affect our operating results, including reductions in revenue and cash flow and could impact the recoverability of our accounts receivable, long-lived assets, and/or goodwill.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Advertising costs — We administer a marketing fund which includes contractual contributions. In ~~2019~~2020 and ~~2018,~~2019, marketing fund contributions from franchise and company-operated restaurants were approximately 5.0% of gross revenues with the exception of our March and ~~year-to-date~~April 2020 marketing fees. In response to the economic burden associated with the COVID-19 pandemic, the Company reduced March marketing fees to 4.0% and postponed the collection of these fees over the course of 24 months starting in October 2020. April marketing fees ranged from 2% to 4% based on annualized sales volumes, and these fees will be collected over three months beginning October 2020. As of July 5, 2020, postponed marketing fees which remain uncollected were $16.2 million, of which $10.3 million is included within “Accounts and other receivable, net” and $5.9 million is included within “Other assets, net” in our condensed consolidated balance sheet.

In 2019, incremental contributions made by the Company were $2.0 ~~million and $3.3 million, respectively.~~

Production costs of commercials, programming and other marketing activities are charged to the marketing fund when the advertising is first used for its intended purpose, and the costs of advertising are charged to operations as incurred.million. There have been 0 incremental contributions made in 2020. Total contributions made by the Company, including incremental contributions, are included in “Selling, general, and administrative expenses” in the accompanying condensed consolidated statements of ~~earnings. Advertising costs~~earnings and for the quarter and year-to-date totaled $3.9 million and $12.8 million, respectively, in ~~2019 were~~2020 and $4.0 million and $15.0 million, respectively, in 2019.

Restricted cash — In accordance with the terms of our securitized financing facility, certain cash balances are required to be held in trust. Such restricted cash primarily represents cash collections and ~~in 2018~~cash reserves held by the trustee to be used for payments of principal, interest and commitments fees required for the Class A-1 and Class A-2 Notes. As of July 5, 2020 and September 29, 2019, restricted cash balances were ~~$5.9~~$37.4 million and ~~$22.0~~$26.0 million, respectively. During the third quarter, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we continued to voluntarily elect to fund cash held in trust for quarterly interest and principal payments due in November 2020.

Effect of new accounting pronouncements adopted in fiscal ~~2019~~2020 — ~~In May 2014,~~We adopted ASU 2016-02, Leases (Topic 842) (“ASC 842”) in the ~~FASB issued ASU 2014-09,~~ ~~Revenue Recognition - Revenue from Contracts with Customers (Topic 606)~~ ~~(“ASC 606”), which provides~~first quarter of 2020. The new guidance requires the recognition of lease liabilities, representing future minimum lease payments on a ~~comprehensive new revenue recognition model that requires an entity to recognize revenue in an amount that reflects~~discounted basis, and corresponding right-of-use (“ROU”) assets on the ~~consideration the entity expects to receive~~balance sheet for ~~the transfer of promised goods or services to its customers.~~most leases. The ~~standard also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We~~Company adopted the new ~~standard on October 1, 2018~~guidance in the first quarter of 2020 using the ~~modified retrospective method, whereby~~alternative transition method; therefore, the cumulative effect of this transition to applicable contracts with customers that were not completed as of October 1, 2018 was recorded as an adjustment to beginning retained earnings as of this date. The comparative ~~information~~period has not been restated and continues to be reported under the ~~accounting standards in effect for those periods.~~previous lease guidance.

~~The new revenue recognition standard did~~We elected the transition package of three practical expedients, which, among other items, permitted us not impact our recognition of restaurant sales, rental revenues, or royalty fees from franchisees. The new pronouncement changed the way initial fees from franchisees for new restaurant openings or new franchise terms are recognized. Under the previous revenue recognition guidance, initial franchise fees were recognized as revenue at the time when a new restaurant opened or at the start of a new franchise term. In accordance withto reassess under the new ~~guidance,~~standard our prior conclusions about lease identification, lease classification, and initial direct costs. We also elected the ~~initial franchise services are~~short-term lease recognition exemption for all leases that qualify, permitting us to not ~~distinct from~~apply the ~~continuing rights and services offered during the~~recognition requirements of this standard to leases with a term of ~~the franchise agreement~~12 months or less, and ~~will therefore be treated~~an accounting policy to not separate lease and non-lease components for underlying assets subject to real estate leases. As lessor, we elected for all classes of underlying leased assets to account for lease and non-lease components, primarily property taxes and maintenance, as a single ~~performance obligation together with~~lease component. We did not elect the ~~continuing rights~~use-of-hindsight practical expedient, and ~~services.~~therefore continued to utilize lease terms determined under the existing lease guidance.

The adoption had a material impact on our consolidated balance sheet. As ~~such, initial fees received will be~~a result of the adoption, we recognized ~~over~~operating lease assets and liabilities of $880.6 million and $931.0 million, respectively, at the ~~franchise term~~date of adoption. The ROU assets were adjusted for certain lease-related assets and ~~any unamortized portion will be recorded~~liabilities at adoption, primarily comprised of straight-line rent accruals of $29.0 million, incentives and unfavorable lease liabilities of $2.1 million, sublease loss and exit-related lease liabilities of $19.4 million, which were previously reported in “Accrued liabilities” and “Other long-term liabilities”, as ~~deferred revenue~~well as favorable lease assets of $0.4 million, which were previously reported in “Intangible assets, net” in our condensed consolidated balance sheet. AnWe also recorded a cumulative adjustment to opening retained earnings of $2.9 million, net of tax, as a result of the impairment of certain newly recognized ROU assets and ~~a corresponding contract liability~~derecognition of ~~approximately $50.3 million (of which $5.0 million was current~~deferred gains and ~~$45.3 million was long-term) was established~~losses on sale-leaseback transactions upon transition to the ~~date of adoption. A deferred tax asset of approximately $13.0 million related to this contract liability was also established on the date of adoption.~~new guidance.

The new standard also had an impact on transactions presented net and not included in our revenues and expenses such as franchisee contributions to and expenditures from our advertising fund, and sourcing and technology fee contributions from franchisees and the related expenses. We determined that we are the principal in these arrangements, and as such, contributions to and expenditures from the advertising fund, and sourcing and technology fees and expenditures are now reported on a gross basis within our consolidated statements of earnings. While this change materially impacted our gross amount of reported revenues and expenses, the impact will be largely offsetting with no material impact to our reported net earnings. However, any annual surplus or deficit in the marketing fund will impact income from operations and net income.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The ~~following table summarizes~~effects of the ~~impacts of adopting ASC 606 on~~changes made to the ~~Company’s~~Company's condensed consolidated ~~financial statements~~balance sheet as of ~~and~~September 29, 2019 for the ~~12-weeks and 40-weeks ended July 7, 2019~~adoption of the new lease guidance were as follows (in thousands):

Adjustments
As Reported Franchise Fees Marketing and Sourcing Fees Technology Support Fees Balances without Adoption
Condensed Consolidated Statements of Earnings
12-Weeks Ended July 7, 2019
Franchise royalties and other $ 40,180
$ (918 ) $ —
$ —
$ 39,262
Franchise contributions for advertising and other services $ 40,386
$ —
$ (38,133 ) $ (2,253 ) $ —
Total revenues $ 222,359
$ (918 ) $ (38,133 ) $ (2,253 ) $ 181,055
Franchise advertising and other services expenses $ 41,882
$ —
$ (38,133 ) $ (3,749 ) $ —
Selling, general and administrative expenses $ 24,389
$ —
$ —
$ 1,496
$ 25,885
Total operating costs and expenses, net $ 174,098
$ —
$ (38,133 ) $ (2,253 ) $ 133,712
Earnings from operations $ 48,261
$ (918 ) $ —
$ —
$ 47,343
Earnings from continuing operations and before income taxes $ 11,425
$ (918 ) $ —
$ —
$ 10,507
Income tax (benefit) expense $ (2,048 ) $ (237 ) $ —
$ —
$ (2,285 )
Earnings from continuing operations $ 13,473
$ (681 ) $ —
$ —
$ 12,792
Net earnings $ 13,189
$ (681 ) $ —
$ —
$ 12,508

40-Weeks Ended July 7, 2019
Franchise royalties and other $ 130,840
$ (2,983 ) $ —
$ —
$ 127,857
Franchise contributions for advertising and other services $ 131,189
$ —
$ (124,187 ) $ (7,002 ) $ —
Total revenues $ 728,872
$ (2,983 ) $ (124,187 ) $ (7,002 ) $ 594,700
Franchise advertising and other services expenses $ 136,397
$ —
$ (124,187 ) $ (12,210 ) $ —
Selling, general and administrative expenses $ 66,057
$ —
$ —
$ 5,208
$ 71,265
Total operating costs and expenses, net $ 575,164
$ —
$ (124,187 ) $ (7,002 ) $ 443,975
Earnings from operations $ 153,708
$ (2,983 ) $ —
$ —
$ 150,725
Earnings from continuing operations and before income taxes $ 85,423
$ (2,983 ) $ —
$ —
$ 82,440
Income tax (benefit) expense $ 15,699
$ (769 ) $ —
$ —
$ 14,930
Earnings from continuing operations $ 69,724
$ (2,214 ) $ —
$ —
$ 67,510
Net earnings $ 72,376
$ (2,214 ) $ —
$ —
$ 70,162

Condensed Consolidated Balance Sheet
July 7, 2019
Prepaid expenses $ 17,484
$ 769
$ —
$ —
$ 18,253
Total current assets $ 105,997
$ 769
$ —
$ —
$ 106,766
Deferred tax assets $ 72,903
$ (12,958 ) $ —
$ —
$ 59,945
Other assets, net $ 215,234
$ 269
$ —
$ —
$ 215,503
Total other assets $ 335,335
$ (12,689 ) $ —
$ —
$ 322,646
Total assets $ 831,270
$ (11,920 ) $ —
$ —
$ 819,350
Accrued liabilities $ 124,823
$ (4,968 ) $ —
$ —
$ 119,855
Total current liabilities $ 218,849
$ (4,968 ) $ —
$ —
$ 213,881
Other long-term liabilities $ 221,219
$ (42,067 ) $ —
$ —
$ 179,152
Total long-term liabilities $ 1,192,982
$ (42,067 ) $ —
$ —
$ 1,150,915
Retained earnings $ 1,565,287
$ 35,114
$ —
$ —
$ 1,600,401
Total stockholders’ deficit $ (580,561 ) $ 35,114
$ —
$ —
$ (545,447 )
Total liabilities and stockholders’ deficit $ 831,270
$ (11,921 ) $ —
$ —
$ 819,349

The adoption of ASC 606 had no impact on the Company’s cash provided by or used in operating, investing or financing activities as previously reported in its condensed consolidated statement of cash flows.

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~


	Balance at September 29, 2019		Adjustments due to ASC 842 adoption		Balance at September 30, 2019
Assets
Other assets:
Operating lease ROU assets	$	—	$	880,564	$	880,564
Intangible assets, net	$	425	$	(386)	$	39
Deferred income taxes	$	85,564	$	1,006	$	86,570
Liabilities and Stockholders’ Deficit
Current liabilities:
Current operating lease liabilities	$	—	$	159,821	$	159,821
Accrued liabilities	$	120,083	$	(4,702)	$	115,381
Long-term liabilities:
Long-term operating lease liabilities, net of current portion	$	—	$	770,818	$	770,818
Other long-term liabilities	$	263,770	$	(41,883)	$	221,887
Stockholders’ deficit:
Retained earnings	$	1,577,034	$	(2,870)	$	1,574,164

~~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 costs 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 costs should be presented separately from the service cost component and outside of a subtotal of earnings from operations, or separately disclosed. We adopted this standard in the first quarter of fiscal 2019 applying the retrospective method. As a result of the adoption, 2018 quarter and year-to-date amounts of $0.4 million and $1.4 million, respectively, previously reported within “Selling, general, and administrative expenses” have been reclassified to a separate line under earnings from operations to conform to current year presentation.

~~Effect of new accounting pronouncements to be adopted in future periods~~ ~~— In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)(as subsequently amended by ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01) which requi~~res a lessee to recognize assets and liabilities on the balance sheet for those leases classified as operating leases under previous guidance. 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 our consolidated balance sheets. The accounting guidance for lessors ~~will remain~~remains largely unchanged from previous guidance, ~~with the exception of~~except for the presentation of certain lease costs that the Company passes through to lessees, including but not limited to, property taxes and maintenance. These costs are generally paid by the Company and reimbursed by the lessee. Historically, these costs have been recorded on a net basis in ~~the~~our condensed consolidated statements of ~~operations,~~earnings but ~~will be~~are now presented gross upon adoption of the new guidance. ~~While~~As a result, we ~~are unable~~expect annual revenues and expenses reported in “Franchise rental revenues” and “Franchise occupancy expenses” to ~~quantify~~increase by approximately $37.7 million in fiscal 2020. Refer to Note 4, Leases, for further information on our leases and the impact on the Company’s accounting policies.

Effect of new accounting pronouncements to be adopted in future periods — In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will replace the incurred loss methodology that is currently required with a methodology that instead reflects a current estimate of all expected credit losses on financial assets, including receivables. The guidance requires that an entity measure and recognize expected credit losses at ~~this~~the time wethe asset is recorded, while considering a broader range of information to estimate credit losses, including macroeconomic conditions that correlate with historical loss experience, delinquency trends, and aging behavior of receivables, among others. The standard is effective for the Company beginning with our 2021 fiscal year. We do not ~~expect~~anticipate the adoption of this ~~guidance to~~standard will have a material impact onto our consolidated ~~statement of earnings~~financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and ~~statement of cash flows.~~Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for the Company beginning with our 2021 fiscal year. We ~~will be required to adopt this standard in~~do not anticipate the ~~first quarter of fiscal 2020 and plan to utilize the alternative transition method, whereby an entity records a cumulative adjustment to opening retained earnings in the year of~~ adoption without restating prior periods. The new standard also provides a number of optional practical expedients in transition. We expect to elect the transition package of three practical expedients, which, among other items, permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also expect to elect the short-term lease recognition exemption for all leases that qualify, permitting us to not apply the recognition requirements of this standard to leases with a term of 12 months or less. We also expect to elect the practical expedient to not separate lease and non-lease components for all of our leases. We do not expect to elect the use-of-hindsight practical expedient, and therefore expect to continue to utilize lease terms determined under the existing lease guidance.

~~We are continuing our evaluation, which may identify additional impacts this standard and its amendments~~ will have ona material impact to our consolidated financial ~~statements and related disclosures.~~statements.


2.	~~REVENUE~~

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.REVENUE

Nature of products and services — We derive revenue from retail sales at Jack in the Box company-operated restaurants and rental revenue, royalties, advertising, and franchise and other fees from franchise-operated restaurants.

Our franchise arrangements generally provide for an initial franchise fee of $50,000 per restaurant and generally require that franchisees pay royalty and marketing fees at 5% of gross sales. The agreement also requires franchisees to pay sourcing, technology and other miscellaneous fees.

~~Significant accounting policy~~ — “Company restaurant sales” include revenue recognized upon delivery of food and beverages to the customer at company-operated restaurants, which is when our obligation to perform is satisfied. Company restaurant sales exclude taxes collected from the Company’s customers. Company restaurant sales also include income for gift cards. Gift cards, upon customer purchase, are recorded as deferred income and are recognized in revenue as they are redeemed. The timing and amount of revenue recognized related to company restaurant sales was not impacted by the adoption of ASC 606.

“Franchise royalties and other” includes royalties fees and franchise and other fees received from franchisees. Royalties are based upon a percentage of sales of the franchised restaurant and are recognized as earned. Franchise royalties are billed on a monthly basis. Franchise fees when a new restaurant opens or at the start of a new franchise term are recorded as deferred revenue when received and recognized as revenue over the term of the franchise agreement.

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

“Franchise contributions for advertising and other services” includes franchisee contributions to our marketing fund billed on a monthly basis and sourcing and technology fees, as required under the franchise agreements. Contributions to our marketing fund are based on a percentage of sales and recognized as earned. Sourcing and technology services are recognized when the goods or services are transferred to the franchisee. The adoption of the new revenue standard did not impact the timing of revenue recognition for these fees received; however, these arrangements are now presented on a gross basis because we believe we are the principal in the arrangement.

“Franchise rental revenues” received from franchised restaurants based on fixed rental payments are recognized as revenue over the term of the lease. Certain franchise rents, which are contingent upon sales levels, are recognized in the period in which the contingency is met. Rental revenues are accounted for in accordance with applicable guidance for leases and are excluded from the scope of the new revenue standard.

Disaggregation of revenue — The following table disaggregates revenue by primary source ~~for the 12-weeks and 40-weeks ended July 7, 2019~~ (in thousands):

Quarter Year-to-date
Sources of revenue:
Company restaurant sales $ 78,434
$ 257,948
Franchise rental revenues 63,359
208,895
Franchise royalties 38,752
125,407
Marketing fees 37,269
121,078
Technology and sourcing fees 3,117
10,111
Franchise fees and other services 1,428
5,433
Total revenue $ 222,359
$ 728,872


	Quarter						Year-to-date
	July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Sources of revenue:
Company restaurant sales	$	82,444	$	78,434	$	262,188	$	257,948
Franchise rental revenues	76,021		63,359		241,990		208,895
Franchise royalties	41,537		38,752		127,829		125,407
Marketing fees	36,757		37,269		116,142		121,078
Technology and sourcing fees	3,814		3,117		12,316		10,111
Franchise fees and other services	1,702		1,428		5,640		5,433
Total revenue	$	242,275	$	222,359	$	766,105	$	728,872

Contract liabilities — Our contract liabilities consist of deferred revenue resulting from initial fees received from franchisees for new restaurant openings or new franchise terms, which are generally recognized over the franchise term. We classify these contract liabilities as ~~“Other long-term~~“Accrued liabilities” and ~~“Accrued~~“Other long-term liabilities” in our condensed consolidated balance sheets.

A summary of significant changes in our contract liabilities ~~between the date of adoption (October 1, 2018) and July 7, 2019~~ is presented below (in thousands):

Deferred Franchise Fees
Deferred franchise fees at October 1, 2018 $ 50,018
Revenue recognized during the period (3,953 )
Additions during the period 970
Deferred franchise fees at July 7, 2019 $ 47,035


	Year-to-date
	July 5, 2020		July 7, 2019
Deferred franchise fees at beginning of period	$	46,272	$	50,018
Revenue recognized	(4,249)		(3,953)
Additions	1,923		970
Deferred franchise fees at end of period	$	43,946	$	47,035

The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied ~~at the end~~as of ~~the period~~July 5, 2020 (in thousands):


Remainder of 2020	$	1,136
2021	4,947
2022	4,742
2023	4,590
2024	4,398
Thereafter	24,133
	$	43,946

2019 (1) $ 1,145
2020 4,878
2021 4,856
2022 4,656
2023 4,501
Thereafter 26,999
$ 47,035

~~____________________________~~

~~(1) Represents the estimate for remainder of fiscal year 2019.~~

We have applied the optional exemption, as provided for under ~~ASC~~Accounting Standards Codification Topic 606,Revenue from Contracts with Customers, which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.SUMMARY OF REFRANCHISINGS AND FRANCHISEE DEVELOPMENT

Refranchisings and franchisee development/closures — Through the third quarter in 2020 and 2019, 0 company-operated restaurants were sold to franchisees. In 2020 and 2019, amounts presented in “Gains on the sale of company-operated restaurants” of $2.6 million and $0.2 million, respectively, pertain to meeting certain contingent consideration provisions included in the sale of restaurants in previous years. The following table summarizes the number of restaurants developed and closed by franchisees.


	Quarter			Year-to-date
	July 5, 2020	July 7, 2019	July 5, 2020	July 7, 2019
New restaurants opened by franchisees	4	5	20	16
Franchisee restaurants closed	(6)	(3)	(18)	(11)

Franchise acquisitions — During the second quarter of 2020, we acquired 8 franchise restaurants as a result of a legal action filed in October 2019 against a franchisee in which we obtained a judgment in January 2020 granting us the possession of the restaurants.

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 market acquired and is expected to be deductible for income tax purposes.

Total consideration on the acquisition was $0.9 million, comprised of receivables that were eliminated in acquisition accounting.

The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for the restaurants acquired (in thousands):


3.Inventory	~~DISCONTINUED OPERATIONS~~$	73
Property and equipment	903
Intangible assets	263
Other assets	6
Goodwill	414
Liabilities assumed	(800)
Total consideration	$	859

~~Qdoba~~ — In December 2017, we entered into a stock purchase agreement (the “Qdoba Purchase Agreement”) with the Buyer to sell all issued and outstanding shares of Qdoba. The Buyer completed the acquisition of Qdoba on March 21, 2018 (the “Qdoba Sale”).

4.LEASES

Nature of leases — We own restaurant sites and we also lease restaurant sites from third parties. Some of these owned or leased sites are leased and/or subleased to franchisees. Initial terms of our real estate leases are generally 20 years, exclusive of options to renew, which are generally exercisable at our sole discretion for 1 to 20 years. In some instances, our leases have provisions for contingent rentals based upon a percentage of defined revenues. Many of our restaurants also have rent escalation clauses and require the payment of property taxes, insurance, and maintenance costs. Variable lease costs include contingent rent, cost-of-living index adjustments, and payments for additional rent such as real estate taxes, insurance and common area maintenance, which are excluded from the measurement of the lease liability. We also ~~entered into a Transition Services Agreement~~lease certain restaurant and office equipment with initial terms generally ranging from 3 to 8 years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees subsequent to refranchising transactions. The lease descriptions, terms, variable lease payments and renewal options are generally the ~~Buyer pursuant to which~~same as the Buyer is receiving certain services (the “Services”) to enable it to operate the Qdoba business after the closing of the Qdoba Sale. The Services include information technology, finance and accounting, human resources, supply chain and other corporate support services. Under the Agreement, the Serviceslessee leases described above. Revenues from leasing arrangements with our franchisees are being provided at cost for a period of up to 12 months, with two 3-month extensions available for certain services. We are still providing accounting and information technology services under the Agreement and currently estimate these services will be performed up to, but no later than, September 21, 2019. In 2019 and 2018, we recorded $0.9 million and $3.6 millionpresented in “Franchise rental revenues” in the quarter, respectively, and $6.5 million and $4.7 million year-to-date, respectively, in income related to the Services as a reduction of selling, general and administrative expenses in the condensed consolidated statements of earnings.

Further, in 2018, we entered into an Employee Agreement with the Buyer pursuant to which we continued to employ all Qdoba employees who work for the Buyer (the “Qdoba Employees”) from the date of closing of the Qdoba Sale through December 31, 2018. During the term of the Employee Agreement, we paid all wages and benefits of the Qdoba Employees and received reimbursement of these costs from the Buyer. From October 1, 2018 to December 31, 2018, we paid $35.4 million of Qdoba wages and benefits pursuant to the Employee Agreement.

As the Qdoba Sale represents a strategic shift that had a major effect on our operations and financial results, in accordance with the provisions of FASB authoritative guidance on the presentation of financial statements, Qdoba results are classified as discontinued operations in ouraccompanying condensed consolidated statements of earnings, and ~~our condensed consolidated statements of cash flows for all periods presented.~~the related expenses are presented in “Franchise occupancy expenses.”

~~Income taxes~~ Significant assumptions and judgements— ~~In fiscal 2019,~~We evaluate the contracts entered into by the Company ~~entered into~~to determine whether such contracts contain leases. A contract contains a ~~bilateral California election with Quidditch Acquisition, Inc.~~lease if the contract conveys the right to ~~retroactively treat~~control the ~~divestment~~use of ~~Qdoba Restaurant Corporation~~identified property, plant or equipment for a period of time in exchange for consideration. At commencement, contracts containing a lease are further evaluated for classification as an operating or finance lease where the Company is a lessee, or as an operating, sales-type or direct financing lease where the Company is a lessor, based on ~~March 21, 2018 as a sale of assets instead of a stock sale for income tax purposes. This election reduced the Company’s fiscal year 2018 California tax liability on the divestment by $2.8 million.~~

~~The following table summarizes the Qdoba-related activity for each period in discontinued operations (in thousands, except per share data~~):their terms.

Quarter Year-to-date
July 7,
2019 July 8,
2018 July 7,
2019 July 8,
2018
Company restaurant sales $ —
$ —
$ —
$ 192,620
Franchise revenues —
—
—
9,337
Company restaurant costs (excluding depreciation and amortization) —
—
—
(166,122 )
Franchise costs (excluding depreciation and amortization) —
—
—
(2,338 )
Selling, general and administrative expenses (120 ) (202 ) 123
(18,314 )
Depreciation and amortization —
—
—
(5,012 )
Impairment and other charges, net (262 ) (123 ) (262 ) (2,386 )
Interest expense, net —
—
—
(4,787 )
Operating (losses) earnings from discontinued operations before income taxes (382 ) (325 ) (139 ) 2,998
Gain (loss) on Qdoba Sale —
(3,648 ) (85 ) 32,081
(Losses) earnings from discontinued operations before income taxes (382 ) (3,973 ) (224 ) 35,079
Income tax benefit (expense) 98
1,097
2,876
(15,927 )
(Losses) earnings from discontinued operations, net of income taxes $ (284 ) $ (2,876 ) $ 2,652
$ 19,152

Net earnings per share from discontinued operations:
Basic $ (0.01 ) $ (0.10 ) $ 0.10
$ 0.66
Diluted $ (0.01 ) $ (0.10 ) $ 0.10
$ 0.65

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Selling, general and administrative expenses presented in the table above include corporate costs directly in support of Qdoba operations, as well as resolutions of certain matters that existed prior to the Qdoba sale. All other corporate costs were classified in results of continuing operations. Our credit facility required us to make a mandatory prepayment (“Qdoba Prepayment”) on our term loan upon the closing of the Qdoba Sale, which was $260.0 million. In accordance with authoritative guidance on financial statement presentation, interest expense associated with our credit facility was allocated to discontinued operations in the prior year based on our estimate of the mandatory prepayment that was made upon closing of the Qdoba Sale.

~~Lease guarantees~~ — While all operating leases held in the name of Qdoba were part of the Qdoba Sale, some of the leases remain guaranteed by the Company pursuant to one or more written guarantees (the “Guarantees”). In the event Qdoba fails to meet its payment and performance obligations under such guaranteed leases, we may be required to make rent and other payments to the landlord under the requirements of the Guarantees. Should we, as guarantor of the lease obligations, be required to make any lease payments due for the remaining term of the subject lease(s) subsequent to March 21, 2018, the maximum amount we may be required to pay is approximately $33.8 million as of July 7, 2019. The lease ~~terms extend~~term and incremental borrowing rate for ~~a maximum~~each lease requires judgement by management and can impact the classification of ~~approximately 16 more years as of July 7, 2019, and we would remain a guarantor of the~~our leases in the event the leases are extended for any established renewal periods. In the event that we are obligated to make payments under the Guarantees, we believe the exposure is limited due to contractual protections and recourse available in the lease agreements, as well as the ~~Qdoba Purchase Agreement, including a requirement~~value of our lease assets and liabilities. When determining the lease term, we consider option periods available, and include option periods in the measurement of the ~~landlord~~lease ROU asset and lease liability where the exercise is reasonably certain to ~~mitigate damages by re-letting~~occur. As our leases do not provide an implicit discount rate, we have determined it is appropriate to use our estimated collateralized incremental borrowing rate, based on the ~~properties~~yield curve for the respective lease terms, in ~~default,~~calculating our lease liabilities.

Rent Concessions as Lessee

In response to the pandemic, certain landlords have agreed to temporary rent concessions. These concessions generally relate to the deferral of certain rent payments for April, May, June, and ~~indemnity from~~July until future periods and total approximately $15.5 million. We considered the ~~Buyer. Qdoba continues~~FASB’s recent guidance regarding rent concessions related to ~~meet its obligations under these leases and there have not been any events that would indicate that Qdoba will not continue to meet~~ the ~~obligations~~effects of the ~~leases. As such,~~COVID-19 pandemic and have elected to apply the temporary practical expedient to account for rent concessions as though enforceable rights and obligations for those concessions existed in the lease agreements. Therefore, we did not remeasure our lease ROU assets and liabilities, and we have not ~~recorded a liability for~~bifurcated our operating lease liabilities into the ~~Guarantees~~portion that remains subject to accretion of $934.5 million, and the portion that is related to the rent deferrals of $12.7 million.

Rent Concessions as ~~the likelihood~~Lessor

We postponed collection of ~~Qdoba defaulting on the assigned agreements was deemed~~approximately 40% of April rents due from our franchisees totaling approximately $9.1 million, to be ~~less than probable.~~collected over three months beginning July 2020. Furthermore, we passed on to our franchisees approximately $5.6 million of the rent concessions secured from our landlords for April, May, June, and July. As of the end of the third quarter, $6.2 million of the postponed April rent has been repaid and the franchisees have chosen to pay according to the original lease terms on approximately half of the rent concessions that we offered.

Company as Lessee

Leased assets and liabilities consisted of the following as of July 5, 2020 (in thousands):


4.	~~INDEBTEDNESS~~July 5, 2020
Assets:
Operating lease ROU assets	$	902,858
Finance lease ROU assets (1)	2,511
Total ROU assets	$	905,369
Liabilities:
Current operating lease liabilities	$	169,347
Current finance lease liabilities (2)	821
Long term operating lease liabilities	777,883
Long-term finance lease liabilities (2)	2,306
Total lease liabilities	$	950,357

____________________________

~~Amended credit facility~~ (1)~~— On May 1, 2019, we entered into the Fifth Amendment to the Credit Agreement (the “Fifth Amendment”). The Fifth Amendment extended the maturity date of both~~Included in “Property and equipment, net” on our term loan and revolving credit facility from March 19, 2020 to March 19, 2021. Fees of $1.3 million paid to third parties in connection with the Fifth Amendment were capitalized as deferred loan costs during the quarter.condensed consolidated balance sheet.

As(2)Included in “Current maturities of ~~July 7, 2019, we had outstanding borrowings~~long-term debt” and “Long-term debt, net of ~~$304.4 million under the term loan and $707.4 million under the revolving credit facility. In addition, letters of credit of $29.9 million were outstanding. As of July 7, 2019,~~current maturities” on our ~~unused borrowing capacity was $162.7 million.~~condensed consolidated balance sheet.

~~Subsequent events~~ ~~— See Note 16,~~ ~~Subsequent Events, as to events occurring after July 7, 2019 that impact the Company’s long-term debt.~~

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


5.	~~SUMMARY OF REFRANCHISINGS AND FRANCHISEE DEVELOPMENT~~

~~Refranchisings and franchisee development~~ — The following table ~~summarizes~~presents the ~~number~~components of ~~restaurants sold to franchisees, the number of restaurants developed by franchisees, and gains recognized in each period~~our lease costs (~~dollars~~ in thousands):

Quarter Year-to-date
July 7,
2019 July 8,
2018 July 7,
2019 July 8,
2018
Restaurants sold to franchisees —
42
—
127
New restaurants opened by franchisees 5
—
16
8

Proceeds from the sale of company-operated restaurants:
Cash (1) $ —
$ 6,822
$ 133
$ 23,666
Notes receivable —
33,042
—
64,548
—
39,864
133
88,214

Net assets sold (primarily property and equipment) —
(6,745 ) —
(19,891 )
Lease commitment charges —
—
—
(863 )
Goodwill related to the sale of company-operated restaurants —
(566 ) (2 ) (4,526 )
Other (2) —
(3,877 ) 88
(19,846 )
Gains on the sale of company-operated restaurants $ —
$ 28,676
$ 219
$ 43,088


	Quarter		Year-to-date
	July 5, 2020		July 5, 2020
Lease costs:
Finance lease cost:
Amortization of ROU assets (1)	$	177	$	590
Interest on lease liabilities (2)	27		88
Operating lease cost (3)	44,006		146,409
Short-term lease cost (3)	46		149
Variable lease cost (3)(4)	9,494		31,317
	$	53,750	$	178,553

____________________________

(1)Included in “Depreciation and amortization” in our condensed consolidated statement of earnings.

(2)Included in “Interest expense, net” in our condensed consolidated statement of earnings.

(3)Operating lease, short-term and variable lease costs associated with franchisees and company-operated restaurants are included in “Franchise occupancy expenses” and “Occupancy and other,” respectively, in our condensed consolidated statement of earnings. For our closed restaurants, these costs are included in “Impairment and other, net” and all other costs are included in “Selling, general and administrative expenses.”

(4)Includes $8.6 million in the quarter and $28.8 million year-to-date of property taxes and common area maintenance costs which are reimbursed by sub-lessees.

The following table presents supplemental information related to leases:


~~(1)~~	~~The year-to-date amounts in 2019 and 2018 include additional proceeds of $0.1 million and $1.3 million, respectively, related to restaurants sold in prior years.~~July 5, 2020
Weighted-average remaining lease term (in years):
Finance leases	3.5
Operating leases	8.3
Weighted-average discount rate:
Finance leases	3.6	%
Operating leases	4.2	%

The following table presents as of July 5, 2020, the annual maturities of our lease liabilities (in thousands):


	Finance Leases		Operating Leases
Fiscal year:
Remainder of 2020 (1)	$	405	$	38,311
2021 (1)	917		211,404
2022	906		163,586
2023	893		136,250
2024	217		104,566
Thereafter	49		484,203
Total future lease payments (2)	$	3,387	$	1,138,320
Less: imputed interest	(260)		(191,090)
Present value of lease liabilities	$	3,127	$	947,230

____________________________

(1)The impact of rent concessions increased 2020 operating leases maturities by $5.5 million and increased 2021 by $7.3 million.

(2)Total future lease payments include non-cancellable commitments of $3.4 million for finance leases and $1,080 million for operating leases.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents as of September 29, 2019, future minimum lease payments for non-cancellable leases (in thousands):


	Capital Leases		Operating Leases
Fiscal year:
2020	$	879	$	193,313
2021	879		186,226
2022	879		145,794
2023	864		117,753
2024	396		87,420
Thereafter	40		363,505
Total minimum lease payments	$	3,937	$	1,094,011
Less: imputed interest	(343)
Present value of lease liability	$	3,594

The following table includes supplemental cash flow and non-cash information related to our lessee leases (in thousands):


~~(2)~~			~~Amounts~~Year-to-date
			July 5, 2020
Cash paid for amounts included in ~~2018 are primarily related to an $8.8 million reduction~~the measurement of gains related to the modification of certain 2017 refranchising transactions. The quarter and year-to-date amounts in 2018 also include $2.9 million and $8.1 million, respectively, of costs related to franchise remodel incentives.lease liabilities:


6.Operating cash flows from operating leases	~~FAIR VALUE MEASUREMENTS~~$	151,981
Operating cash flows from financing leases	$	88
Financing cash flows from financing leases	$	593
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	143,604
Financing leases	$	132

Sale leaseback transactions — In the first quarter of 2020, we completed a sale leaseback transaction of a multi-tenant commercial property in Los Angeles, California and leased back the parcel on which a company-operated restaurant is located. The Company received net proceeds of $17.4 million and recognized a $0.2 million loss on the sale. The initial term on the lease is 20 years and the lease has been accounted for as an operating lease.

In the first quarter of 2020, we completed the sale of one of our corporate office buildings as we move forward with our previously announced consolidation of our headquarters. We entered into a lease with the buyer to leaseback the property for up to 18 months with an option to terminate earlier without penalty, upon providing a 90-day notice. The net proceeds received on the sale was $20.6 million and the lease has been accounted for as an operating lease. A gain on the sale of $10.8 million was recognized, and is presented within “Impairment and other charges, net” in our condensed consolidated statement of earnings.

Company as Lessor

The following table presents rental income (in thousands):


	Quarter										Year-to-date
	July 5, 2020										July 5, 2020
	Owned Properties		Leased Properties		Total		Owned Properties		Leased Properties		Total
Operating lease income - franchise	$	4,562	$	49,819	$	54,381	$	15,229	$	166,511	$	181,740
Variable lease income - franchise	2,570		19,070		21,640		7,096		53,154		60,250
Franchise rental revenues	$	7,132	$	68,889	$	76,021	$	22,325	$	219,665	$	241,990
Operating lease income - closed restaurants and other (1)	$	—	$	1,442	$	1,442	$	—	$	4,969	$	4,969

____________________________

(1)Primarily relates to closed restaurant properties included in “Impairment and other, net” in our condensed consolidated statement of earnings.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents as of July 5, 2020, future minimum rental receipts for non-cancellable leases and subleases (in thousands):


	July 5, 2020
Fiscal year:
Remainder of 2020 (1)(2)	$	44,093
2021 (2)	262,910
2022	233,084
2023	226,507
2024	201,325
Thereafter	1,259,936
Total minimum rental receipts	$	2,227,855

____________________________

(1)Includes $2.9 million of postponed April rents to be repaid over three months beginning July 2020.

(2)The impact of rent concessions passed on to franchisees increased 2020 by $1.9 million and increased 2021 by $2.7 million.

The following table presents as of September 29, 2019, future minimum rental receipts for non-cancellable leases and subleases (in thousands):


	September 29, 2019
Fiscal year:
2020	$	239,219
2021	255,315
2022	231,394
2023	224,605
2024	199,442
Thereafter	1,215,811
Total minimum rental receipts	$	2,365,786

5.INDEBTEDNESS

Long-term debt as of July 5, 2020 and September 29, 2019 consisted of the following (in thousands):


	July 5, 2020		September 29, 2019
Class A-2-I Notes	$	572,125	$	575,000
Class A-2-II Notes	273,625		275,000
Class A-2-III Notes	447,750		450,000
Class A-1 Variable Funding Notes	107,876		—
Finance lease obligations	3,127		3,594
Total debt	1,404,503		1,303,594
Less current maturities of long-term debt	(13,821)		(774)
Less unamortized debt issuance costs	(24,511)		(28,446)
Long-term debt	$	1,366,171	$	1,274,374

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company’s outstanding debt consists of Series 2019-1 3.982% Fixed Rate Senior Secured Notes (the “Class A-2-I Notes”), Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”), and Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes”) and together with the Class A-2-I Notes and the Class A-2-II Notes, (the “Class A-2 Notes”), issued by Jack in the Box Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of the Company. In addition, the Master Issuer entered into a revolving financing facility of Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Variable Funding Notes”), which allows for the drawing of up to $150.0 million under the Variable Funding Notes and the issuance of letters of credit. As of July 5, 2020 and September 29, 2019, $41.1 million and $45.6 million, respectively, of letters of credit were pledged against the Variable Funding Notes.

During the second quarter of 2020, to secure our liquidity position and provide financial flexibility given the uncertain market conditions, we borrowed $107.9 million under the Variable Funding Notes. As of July 5, 2020, unused borrowing capacity under our Variable Funding Notes was $1.1 million.

6.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 7, 2019:
Non-qualified deferred compensation plan (1) $ 31,012
$ 31,012
$ —
$ —
Total liabilities at fair value $ 31,012
$ 31,012
$ —
$ —
Fair value measurements as of September 30, 2018:
Non-qualified deferred compensation plan (1) $ 37,447
$ 37,447
$ —
$ —
Interest rate swaps (Note 7) (2) 703
—
703
—
Total liabilities at fair value $ 38,150
$ 37,447
$ 703
$ —


	Total		Quoted Prices in Active Markets for Identical Assets (2) (Level 1)		Significant Other Observable Inputs (2) (Level 2)		Significant Unobservable Inputs (2) (Level 3)
Fair value measurements as of July 5, 2020:
Non-qualified deferred compensation plan (1)	$	26,638	$	26,638	$	—	$	—
Total liabilities at fair value	$	26,638	$	26,638	$	—	$	—
Fair value measurements as of September 29, 2019:
Non-qualified deferred compensation plan (1)	$	30,104	$	30,104	$	—	$	—
Total liabilities at fair value	$	30,104	$	30,104	$	—	$	—

____________________________


~~(1)~~	(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. The obligation is included in “Accrued liabilities” and “Other long-term liabilities” on our condensed consolidated balance sheets.

~~(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. These valuation models use a discounted cash flow analysis on the cash flows of each derivative. The key inputs for the valuation models are quoted market prices, discount rates, and forward yield curves. The Company also considers its own nonperformance risk and the respective counter-party’s nonperformance risk in the fair value measurements. ~~As further described in Note 7,~~ ~~Derivatives, the Company’s interest rate swaps were terminated on July 2, 2019 and settled in connection with our refinancing transaction on July 8, 2019.~~


~~(3)~~	~~We did not have any transfers in or out of Level 1, 2 or 3.~~

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~(2)We did not have any transfers in or out of Level 1, 2 or 3.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~The following table presents the carrying value and estimated fair value of our Class A-2 Notes as of July 5, 2020 and September 29, 2019 (in thousands):


	July 5, 2020						September 29, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Class A-2 Notes	$	1,293,500	$	1,337,755	$	1,300,000	$	1,344,300

The fair ~~values~~value of ~~our debt instruments are~~the Class A-2 Notes was estimated using Level 2 inputs based on ~~the amount~~quoted market prices in markets that are not considered active markets. The Company had $107.9 million of ~~future cash flows associated with each instrument discounted using our borrowing rate. At July 7, 2019, the~~outstanding borrowings under its Variable Funding Notes. The fair value of this loan approximates carrying value due to the variable rate nature 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 7, 2019.these borrowings.

Non-financial assets and liabilities — Our non-financial instruments, which primarily consist of property and equipment, operating lease right-of-use assets, 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 ~~2019,~~2020, no material fair value adjustments were required. Refer to Note 8, Impairment and Other Charges, Net, for additional information regarding impairment charges.


7.	~~DERIVATIVE INSTRUMENTS~~

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7.DERIVATIVE INSTRUMENTS

Interest rate swaps — We have used interest rate swaps to mitigate interest rate volatility with regard to variable rate borrowings under our senior credit facility. In June 2015, we entered into forward-starting interest rate swap agreements that effectively converted $500.0 million of our variable rate borrowings to a fixed rate from October 2018 through October 2022. These agreements were designated as cash flow hedges under the terms of the FASB authoritative guidance for derivatives and hedging. ~~To the extent that~~Since they were effective in offsetting the variability of the hedged cash flows, changes in the fair values of the derivatives ~~are~~were not included in earnings but ~~are~~were included in other comprehensive income (“OCI”). These changes in fair value were subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments ~~are~~were made on our variable rate debt.

Effective July 2, 2019, the Company terminated all interest rate swap agreements in anticipation of the securitization transaction and related retirement of our senior credit facility ~~(see Note 16,~~ ~~Subsequent Events)~~.in the fourth quarter of 2019. The fair value of the interest rate swaps at the termination date was $23.6 million, which was paid on July 8, 2019. As a result of the decision to extinguish the senior credit facility, forecasted cash flows associated with the variable-rate debt interest payments were no longer considered to be probable. Consequently, unrealized losses in other comprehensive income at the termination date were immediately reclassified to “Interest expense, net” in the condensed consolidated statement of earnings.

~~Financial position~~ ~~— The following derivative instruments were outstanding as of the end of each period (in thousands~~):

Balance
Sheet
Location
Fair Value
July 7,
2019 September 30, 2018
Derivatives designated as hedging instruments:
Interest rate swaps Accrued liabilities $ —
$ (26 )
Interest rate swaps Other long-term liabilities —
(1,266 )
Interest rate swaps Other assets, net —
589
Total derivatives $ —
$ (703 )

During fiscal 2019, our interest rate swaps had no hedge ineffectiveness.

Financial performance — The following table summarizes the OCI activity related to our interest rate swap derivative instruments and the amounts reclassified from accumulated OCI (in thousands):


	Location in Income	Quarter			Year-to-date
				July 7, 2019			July 7, 2019
Loss recognized in OCI	N/A	$	(11,499)		$	(23,625)
Loss reclassified from accumulated OCI into net earnings	Interest expense, net	$	23,715		$	24,328

Location in Income Quarter Year-to-date
July 7,
2019 July 8,
2018 July 7,
2019 July 8,
2018
(Loss) gain recognized in OCI N/A $ (11,499 ) $ 1,494
$ (23,625 ) $ 16,080
Loss reclassified from accumulated OCI into
net earnings
Interest expense, net $ 23,715
$ 539
$ 24,328
$ 3,089

~~JACK IN THE BOX INC.~~8.IMPAIRMENT AND ~~SUBSIDIARIES~~OTHER CHARGES, NET

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~


8.	~~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 7,
2019 July 8,
2018 July 7,
2019 July 8,
2018
Restructuring costs $ (64 )
$ 1,872

$ 6,722

$ 4,805
Costs of closed restaurants and other 2,010

378

3,259

3,483
Accelerated depreciation 416

538

1,342

912
(Gains) losses on disposition of property and equipment, net (1) (5,618 )
477

(5,756 )
958
Operating restaurant impairment charges (2) —

—

—

291
$ (3,256 ) $ 3,265
$ 5,567
$ 10,449


	Quarter						Year-to-date
	July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Restructuring costs	$	2	$	(64)	$	1,165	$	6,722
Costs of closed restaurants and other	890		2,010		1,322		3,259
Gains on disposition of property and equipment, net (1)	(216)		(5,618)		(10,386)		(5,756)
Accelerated depreciation	62		416		62		1,342
	$	738	$	(3,256)	$	(7,837)	$	5,567

____________________________


~~(1)~~	~~In 2019, includes a $0.8 million gain recognized in the second quarter related to an eminent domain transaction and a $5.7 million gain related to a sale of property recognized in the third quarter.~~


~~(2)~~	~~In 2018, impairment charges relate to our landlord’s sale of a restaurant property to a franchisee.~~

(1)In 2020, year-to-date includes a $10.8 million gain related to the sale of one of our corporate office buildings. In 2019, includes a $5.7 million gain related to a sale of property recognized in the third quarter.

Restructuring costs — Restructuring charges include costs resulting from the exploration of strategic alternatives (the “Strategic Alternatives Evaluation”) in 2019, which was concluded in the third quarter of 2019, and a plan that management initiated to reduce our general and administrative ~~costs. Restructuring charges in 2018 also include~~ costs, ~~related to the evaluation of potential alternatives with respect to the Qdoba brand (the “Qdoba Evaluation”),~~ which ~~resulted~~was completed in the ~~Qdoba Sale. Refer to Note 3,~~ ~~Discontinued Operations,~~ ~~for information regarding the Qdoba Sale.~~third quarter of 2020. We do not expect any future severance and related costs under these initiatives.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following is a summary of our restructuring costs (in thousands):


	Quarter					Year-to-date					Quarter						Year-to-date
	July 7, 2019			July 8, 2018		July 7, 2019		July 8, 2018			July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Employee severance and related costs	$	287		$	1,476	$	5,436	$	2,828	Employee severance and related costs	$	2	$	287	$	1,165	$	5,436
Strategic Alternatives Evaluation (1)	(351		)	376		1,286		1,188		Strategic Alternatives Evaluation (1)	—		(351)		—		1,286
Qdoba Evaluation (2)	—			20		—		788
Other	—			—		—		1
	$	(64	)	$	1,872	$	6,722	$	4,805		$	2	$	(64)	$	1,165	$	6,722

____________________________


~~(1)~~	~~Strategic Alternative Evaluation costs are primarily related~~ (1) Strategic Alternative Evaluation costs primarily relate to third party advisory services.


~~(2)~~	~~Qdoba Evaluation costs are primarily related to retention compensation and third party advisory services.~~

~~We currently expect to recognize severance and related costs of approximately $0.2 million for t~~he remainder of fiscal 2019 related to positions that have been identified for elimination. At this time, we are unable to estimate any additional charges to be incurred related to additional positions that may be identified for elimination or our other restructuring activities.

Total accrued severance costs related to our restructuring activities are included in “Accrued liabilities” on our condensed consolidated balance sheets, and changed as follows during ~~2019~~2020 (in thousands):

Balance as of September 30, 2018 $ 5,309
Costs incurred 5,946
Accruals released (605 )
Cash payments (8,167 )
Balance as of July 7, 2019 $ 2,483

~~Costs of closed restaurants and other~~ — Costs of closed restaurants and other is generally comprised of future lease commitment charges and expected ancillary costs, net of anticipated sublease rentals, impairment and other costs associated with closed restaurants, and canceled project costs.

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The liability for lease termination costs related to closed restaurants, included in “Accrued liabilities” and “Other long-term liabilities” on our condensed consolidated balance sheets, changed as follows during 2019 (~~in thousands~~):

Balance as of September 30, 2018 $ 3,534
Additions —
Adjustments (1) 572
Interest expense 1,094
Cash payments (3,156 )
Balance as of July 7, 2019 (2) (3) $ 2,044

~~___________________________~~


~~(1)~~Balance as of September 29, 2019			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.			$	2,100

Costs incurred		1,165

~~(2)~~Cash payments	~~The weighted average remaining lease term related to these commitments is approximately 4 years.~~

			(3,265)
~~(3)~~Balance as of July 5, 2020			This balance excludes $1.7 million of restaurant closing costs that are included in “Accrued liabilities” and “Other long-term liabilities” on our condensed consolidated balance sheets, which were initially recorded as losses on the sale of company-operated restaurants to franchisees.			$	—

~~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.


9.	~~INCOME TAXES~~

Our tax rates for the quarter and year-to-date ended July 7, 2019 were impacted by the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted into law on December 22, 2017. As a fiscal year taxpayer, the corporate federal tax rate reduction from 35% to 21% was phased in, resulting in a statutory federal tax rate of 24.5% for our fiscal year ending September 30, 2018, and 21.0% for our fiscal year ending September 29, 2019 and subsequent fiscal years.

~~In 2019 and 2018,~~9.INCOME TAXES

The income tax provisions reflect ~~quarter~~ tax rates of ~~(17.9)%~~27.9% in the quarter and ~~26.5%~~29.0% year-to-date, compared with (17.9%) and 18.4%, respectively, ~~and year-to-date tax rates of 18.4% and 46.9%, respectively.~~in fiscal year 2019. The major components of the year-over-year change in tax rates were the ~~one-time, non-cash~~ impact of ~~the enactment of the Tax Act~~non-recurring activity in fiscal year ~~2018, a decrease in the statutory tax rate, the impact of~~2019 including the termination of interest rate swap agreements, the release of valuation reserves on state tax credits and losses, and the release of a federal tax liability due to expiration of ~~the~~ statute of ~~limitations.~~limitations, and an increase in nondeductible costs resulting from a California Private Attorney General Act lawsuit settled in the current year. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2020 rate could differ from our current estimates.

The ~~following~~Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the U.S. on March 27, 2020. The CARES Act includes several U.S. income tax provisions related to, among other things, modifications to the net interest deduction limitations, and technical amendments regarding the income tax depreciation of qualified improvement property placed in service after December 31, 2017. The CARES Act is not expected to have a ~~summary of~~material impact on the ~~components of each tax rate~~ Company’s financial results.

~~(dollars in thousands)~~:

Quarter Year-to-date
July 7,
2019 July 8,
2018 July 7,
2019 July 8,
2018
Income tax expense at statutory rate $ 2,948
25.8 % $ 18,715
28.6 % $ 22,040
25.8 % $ 46,752
28.9 %
One-time, non-cash impact of the Tax Act —
— % 878
1.3 % —
— % 32,082
19.8 %
Termination of interest rate swaps (2,984 ) (26.1 )% —
— % (2,984 ) (3.5 )% —
— %
Release of valuation reserve on state tax losses and credits (873 ) (7.6 )% (1,312 ) (2.0 )% (1,023 ) (1.2 )% (1,312 ) (0.8 )%
Release of federal tax liability (817 ) (7.2 )% —
— % (817 ) (1.0 )% —
— %
Stock compensation excess tax expense (18 ) (0.2 )% (1,268 ) (1.9 )% (66 ) (0.1 )% (2,084 ) (1.3 )%
Adjustment to state tax provision —
— % —
— % (1,027 ) (1.2 )% —
— %
Other (304 ) (2.6 )% 321
0.5 % (424 ) (0.4 )% 460
0.3 %
(1) $ (2,048 ) (17.9 )% $ 17,334
26.5 % $ 15,699
18.4 % $ 75,898
46.9 %
10.RETIREMENT PLANS

~~____________________________~~


~~(1)~~	~~Percentages may not add due to rounding.~~

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~


~~10.~~	~~RETIREMENT PLANS~~

Defined benefit pension plans — We sponsor ~~two~~2 defined benefit pension plans, a frozen “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. Benefits under both plans are based on the employee’s years of service and compensation over defined periods of employment.

In the fourth quarter of 2019, the Company amended its Qualified Plan to add a limited lump sum payment window whereby certain terminated participants with a vested pension benefit could elect to receive either an immediate lump sum or a monthly annuity payment of their accrued benefit. The offering period began September 16, 2019 and ended October 31, 2019. The participants that elected a lump sum benefit under the program were paid in December 2019, which triggered settlement accounting. As a result of the offering, the Company’s Qualified Plan paid $122.3 million from its plan assets to those who accepted the offer, thereby reducing the plan’s pension benefit obligation (“PBO”). The transaction had no cash impact to the Company but did result in a non-cash settlement charge of $38.6 million in the first quarter of fiscal 2020. Routine lump sum payments made in the second and third quarters of fiscal 2020 resulted in non-cash settlement charges of $0.3 million and $0.1 million, respectively.

Postretirement healthcare plans — We also sponsor ~~two~~2 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;~~contributory, with retiree contributions adjusted annually, and they contain other cost-sharing features such as deductibles and coinsurance.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net periodic benefit cost — The components of net periodic benefit cost in each period were as follows (in thousands):

Quarter Year-to-date

July 7,
2019 July 8,
2018 July 7,
2019 July 8,
2018
Defined benefit pension plans:
Interest cost $ 5,286
$ 5,159
$ 17,619
$ 17,198
Service cost —
114
—
379
Expected return on plan assets (1) (6,077 ) (6,108 ) (20,257 ) (20,360 )
Actuarial loss (2) 914
1,124
3,046
3,745
Amortization of unrecognized prior service costs (2) 27
34
89
113
Net periodic benefit cost $ 150
$ 323
$ 497
$ 1,075
Postretirement healthcare plans:
Interest cost $ 229
$ 220
$ 766
$ 734
Actuarial gain (2) (37 ) (6 ) (122 ) (20 )
Net periodic benefit cost $ 192
$ 214
$ 644
$ 714


	Quarter						Year-to-date
	July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Defined benefit pension plans:
Interest cost	$	3,581	$	5,286	$	12,326	$	17,619
Expected return on plan assets (1)	(3,779)		(6,077)		(15,141)		(20,257)
Pension settlements (2)	103		—		39,030		—
Actuarial losses (2)	1,367		914		4,058		3,046
Amortization of unrecognized prior service costs (2)	20		27		65		89
Net periodic benefit cost	$	1,292	$	150	$	40,338	$	497
Postretirement healthcare plans:
Interest cost	$	186	$	229	$	621	$	766
Actuarial losses (gains) (2)	4		(37)		13		(122)
Net periodic benefit cost	$	190	$	192	$	634	$	644

___________________________


~~(1)~~	~~Determined as of the beginning of the year based on a return on asset assumption of 6.2%.~~

~~(2)~~

(1)Based on a return on asset, net of administrative expenses, assumption of 5.8% determined at the end of fiscal 2019, subsequently updated to 5.9% as of December 31, 2019, 5.2% as of March 31, 2020, and 5.4% as of June 30, 2020, upon remeasurement of the Qualified Plan’s assets and PBO as required by settlement accounting.

(2)Amounts were reclassified from accumulated OCI into net earnings as a component of “Other pension and post-retirement expenses, net.”

~~Changes in presentation—As discussed in Note 1,~~ ~~Basis in Presentation~~, we adopted ASU 2017-07 during the first quarter of 2019 using the retrospective method, which changed the financial statement presentation of service costs and the other components of net periodic benefit cost. The service cost component continues to be included in operating income; however, the other components are now presented in a separate line below earnings from operations captioned “Other pension and post-retirement expenses, net” in our condensed consolidated statements of earnings. Further, in connection with the adoption, plan administrative expenses historically presented as a component of service cost are now presented as a component of expected return on plan assets. The prior year components of net periodic benefit costs have been recast to conform to current year presentation.

Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of January 1, ~~2018,~~2019, the date of our last actuarial funding valuation, there was no0 minimum contribution funding requirement. Details regarding ~~2019~~2020 contributions are as follows (in thousands):

SERP
Postretirement
Healthcare Plans
Net year-to-date contributions $ 4,213
$ 913
Remaining estimated net contributions during fiscal 2019 $ 800
$ 500


	SERP		Postretirement Healthcare Plans
Net year-to-date contributions	$	4,070	$	851
Remaining estimated net contributions during fiscal 2020	$	1,301	$	550

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 ~~2019.~~2020.

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~11.STOCKHOLDERS’ DEFICIT

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~


~~11.~~	~~STOCKHOLDERS’ DEFICIT~~

Summary of changes in stockholders’ deficit — A reconciliation of the beginning and ending amounts of stockholders’ deficit is presented below (in thousands):


	Quarter						Year-to-date
	July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Balance at beginning of period	$	(876,926)	$	(592,514)	$	(737,584)	$	(591,699)
Shares issued under stock plans, including tax benefit	—		453		3,559		696
Share-based compensation expense	1,747		1,881		7,612		6,589
Dividends declared	—		(10,326)		(18,492)		(30,967)
Purchases of treasury stock	—		—		(153,550)		—
Net earnings	32,555		13,189		51,915		72,376
Other comprehensive income (loss), net of taxes	15,667		6,756		22,453		(226)
Cumulative-effect from a change in accounting principle	—		—		(2,870)		(37,330)
Balance at end of period	$	(826,957)	$	(580,561)	$	(826,957)	$	(580,561)

Quarter Year-to-date
July 7,
2019 July 8,
2018 July 7,
2019 July 8,
2018
Balance at beginning of period $ (592,514 ) $ (430,910 ) $ (591,699 ) $ (388,130 )
Shares issued under stock plans, including tax benefit 453
2,325
696
2,364
Share-based compensation 1,881
1,684
6,589
7,950
Dividends declared (10,326 ) (11,252 ) (30,967 ) (34,698 )
Purchases of treasury stock —
(100,000 ) —
(200,000 )
Net earnings 13,189
45,307
72,376
105,102
Other comprehensive income, net of taxes 6,756
2,376
(226 ) 17,093
Cumulative-effect from a change in accounting principle —
—
(37,330 ) (151 )
Balance at end of period $ (580,561 ) $ (490,470 ) $ (580,561 ) $ (490,470 )

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Repurchases of common stock — ~~In 2019, we have not~~The Company repurchased ~~any~~1.9 million shares of its common ~~shares.~~stock in the first quarter of fiscal 2020 at an average price of $81.41 per share for an aggregate cost of $153.5 million. There were 0 repurchases of common stock in the second or third quarter of fiscal 2020. As of July ~~7, 2019, there was~~5, 2020, this leaves approximately ~~$101.0~~$122.2 million remaining under share repurchase programs authorized by the ~~Board-authorized stock buyback program which~~Board of Directors, consisting of $22.2 million that expires in November ~~2019.~~2020 and $100.0 million that expires in November 2021.

Repurchases of common stock included in our condensed consolidated statement of cash flows for fiscal ~~2019 includes $14.4~~2020 include $2.0 million related to repurchase transactions traded in the prior ~~fiscal~~ year ~~that~~but settled in ~~2019.~~2020.

Dividends — During ~~year-to-date 2019,~~2020, the Board of Directors declared ~~three~~2 cash dividends of $0.40 per common share which were paid on ~~June 14, 2019,~~ March ~~19, 2019~~17, 2020 and December ~~18, 2018~~20, 2019 to shareholders of record as of the close of business on ~~May 29, 2019,~~ March ~~4, 2019~~3, 2020 and December 5, ~~2018,~~2019, respectively, and totaled ~~$31.2~~$18.5 million. Future dividends are subject to approval by our Board of Directors.


~~12.~~	~~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.

12.AVERAGE SHARES OUTSTANDING

The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):


	Quarter			Year-to-date
	July 5, 2020	July 7, 2019	July 5, 2020	July 7, 2019
Weighted-average shares outstanding – basic	22,847	25,958	23,192	25,933
Effect of potentially dilutive securities:
Nonvested stock awards and units	62	206	123	205
Stock options	—	10	—	10
Performance share awards	7	2	7	2
Weighted-average shares outstanding – diluted	22,916	26,176	23,322	26,150
Excluded from diluted weighted-average shares outstanding:
Antidilutive	344	186	334	186
Performance conditions not satisfied at the end of the period	77	89	77	89

Quarter Year-to-date
July 7,
2019 July 8,
2018 July 7,
2019 July 8,
2018
Weighted-average shares outstanding – basic 25,958
28,042
25,933
28,989
Effect of potentially dilutive securities:
Nonvested stock awards and units 206
215
205
241
Stock options 10
32
10
47
Performance share awards 2
7
2
7
Weighted-average shares outstanding – diluted 26,176
28,296
26,150
29,284
Excluded from diluted weighted-average shares outstanding:
Antidilutive 186
192
186
139
Performance conditions not satisfied at the end of the period 89
67
89
67

~~JACK IN THE BOX INC.~~13.CONTINGENCIES AND ~~SUBSIDIARIES~~LEGAL MATTERS

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~


~~13.~~	~~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~~is adverse to the Company 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 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. As of July 5, 2020 and September 29, 2019, the Company had recorded aggregate liabilities of $14.9 million and $10.0 million, respectively, within “Accrued liabilities” on our condensed consolidated balance sheets, for all matters including those described below, that were probable and reasonably estimable. While we believe that additional losses beyond these accruals are reasonably possible, we cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond these accruals.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 February 2019, ~~plaintiff’s~~plaintiffs’ counsel reduced their earlier demand from $62.0 million to $42.0 million. WeIn November 2019, the court issued a ruling on various dispositive motions, disallowing approximately $25.0 million in claimed damages. The parties participated in a voluntary mediation on March 16, 2020, but the matter did not settle. The plaintiffs recently filed a motion for reconsideration of the court’s prior denial of class certification regarding meal and rest break claims which was denied by the court. The plaintiffs have ~~accrued an amount that is not material~~now filed a motion requesting permission to ~~our financial statements relating to claims for which we believe a loss is both probable~~appeal this ruling. The Company has opposed the motion and ~~estimable. We~~will continue ~~to believe that no additional losses are probable beyond this accrual and we cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond this accrual. We plan~~ to vigorously defend against this lawsuit. ~~Nonetheless, an unfavorable resolution~~

Marquez v. Jack in the Box Inc. — In August 2017, a former employee filed a class action lawsuit in California state court and as a Private Attorney General Act (“PAGA”) representative suit alleging that the Company failed to provide all non-exempt California employees with compliant rest and meal breaks, overtime pay, accurate wage statements, and final pay upon termination of ~~this matter~~employment. On January 29, 2020, the parties participated in ~~excess of our current accrued loss contingencies could~~voluntary mediation and reached a tentative agreement to settle the case. The parties have executed a ~~material adverse effect~~settlement agreement and submitted the settlement to the court for final approval. The settlement was approved on ~~our business, results of operations, liquidity, or financial condition.~~July 1, 2020.

Ramirez v. Jack in the Box Inc. — On June 11, 2019, an unfavorable jury verdict was delivered in a wrongful termination lawsuit against the Company in Los Angeles Superior Court. Plaintiff in the case was a restaurant employee who was terminated in 2013. The jury’s verdict included $5.4 million in compensatory damages and $10.0 million in punitive damages. The Company ~~disagrees with the verdict and the damages awarded by the jury and has~~ filed post-trial motions with the trial judge for the purpose of setting aside or significantly reducing damages. These motions were granted, resulting in a reduction of damages from $15.4 million to $3.2 million. The ~~Company intends to appeal~~plaintiff accepted the ~~verdict~~reduction. In October 2019, the plaintiff’s counsel filed a motion for attorney’s fees in the ~~event~~amount of $5.1 million. On January 9, 2020, the court issued its ~~post-trial motions are unsuccessful~~ruling awarding $4.1 million in attorney fees and costs. As of July 5, 2020, we have recorded an accrual for legal settlement of $7.3 million within “Accrued liabilities” and a ~~judgment is entered~~litigation insurance recovery receivable of $7.3 million, which represents the expected payment of the settlement by the ~~trial court. Pending resolution of the appeals process, the payment of any damages~~Company’s insurance carriers, within “Accounts and other receivable, net” in this matter will be stayed. During the third quarter of 2019, a charge of $7.1 million was recorded in “Selling, general, and administrative expenses” related to this case, net of any amounts covered by insurance. We continue to believe that no additional losses are probable beyond this accrual, and we cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond this accrual. our condensed consolidated balance sheet.

Other legal matters —— In addition to the matter described above, we are subject to normal and routine litigation brought by former or current 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 or other third party indemnity ~~obligation.~~obligations. We record receivables from third party insurers when recovery has been determined to be probable. ~~The amount of such receivables recorded at July 7, 2019 was $13.6 million.~~

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 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.

14.DISCONTINUED OPERATIONS

Qdoba — In December 2017, we entered into a stock purchase agreement (the “Qdoba Purchase Agreement”) with the Buyer to sell all issued and outstanding shares of Qdoba. The Buyer completed the acquisition of Qdoba on March 21, 2018 (the “Qdoba Sale”).

We also entered into a Transition Services Agreement with the Buyer pursuant to which the Buyer received certain services (the “Services”) to enable it to operate the Qdoba business after the closing of the Qdoba Sale. The Services included information technology, finance and accounting, human resources, supply chain and other corporate support services. Under the Agreement, the Services were provided at cost for a period of up to 12 months, with 2 3-month extensions available for certain services. As of September 21, 2019, we are no longer providing transition services to Qdoba. In 2019, we recorded $0.9 million in the quarter and $6.5 million year-to-date, in income related to the Services as a reduction of “Selling, general and administrative expenses” in the condensed consolidated statements of earnings.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents results of operations in periods which have been included in discontinued operations (in thousands):


	Quarter						Year-to-date
	July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Total revenues	$	—	$	—	$	—	$	—
Total cost and expense (income) (1)	(527)		382		(527)		224
Earnings (losses) before income taxes	527		(382)		527		(224)
Income tax expense (benefit) (2)	148		(98)		148		(2,876)
Earnings (losses) from discontinued operations, net of income taxes	$	379	$	(284)	$	379	$	2,652

____________________________

(1)Activity primarily consists of resolutions on certain liabilities related to our discontinued operations, including self-insurance reserves and asset retirement obligations.

(2)In fiscal 2019, the Company entered into a bilateral California election with Quidditch Acquisition, Inc. to retroactively treat the divestment of Qdoba Restaurant Corporation on March 21, 2018 as a sale of assets instead of a stock sale for income tax purposes. This election reduced the Company’s fiscal year 2018 California tax liability on the divestment by $2.8 million.

Lease guarantees — — While all operating leases held in the name of Qdobawere part of the Qdoba Sale, some of the leases remain guaranteed by the Company pursuant to one or more written ~~guarantees.~~guarantees (the “Guarantees”). In the event Qdoba fails to meet its payment and performance obligations under such guaranteed leases, we may be required to make rent and other payments to the landlord under the requirements of the Guarantees. ~~Qdoba continues to meet its obligations under these leases and there have not been any events that would indicate that Qdoba will not continue to meet the obligations~~Should we, as guarantor of the ~~leases. As such, we have not recorded a liability~~lease obligations, be required to make any lease payments due for the remaining term of the subject leases, the maximum amount we may be required to pay is approximately $29.3 million as of July 5, 2020. The lease terms extend for a maximum of approximately 15 more years as of July 5, 2020, and we would remain a guarantor of the leases in the event the leases are extended for any established renewal periods. In the event that we are obligated to make payments under the Guarantees, we believe the exposure is limited due to contractual protections and recourse available in the lease agreements, as well as the ~~likelihood~~Qdoba Purchase Agreement, including a requirement of ~~Qdoba defaulting on~~ the ~~assigned agreements was deemed~~landlord to ~~be less than~~mitigate damages by re-letting the properties in default, and indemnity from the Buyer. As of July 5, 2020, 0 amounts have been accrued relating to these guarantees as we do not believe any losses are probable. ~~Refer to Note 3,~~ ~~Discontinued Operations, for additional information regarding the Guarantees.~~


~~14.~~	~~SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands~~)

Year-to-date
July 7,
2019 July 8,
2018
Non-cash investing and financing transactions:
Decrease in obligations for treasury stock repurchases $ 14,362
$ —
Decrease in obligations for purchases of property and equipment $ 5,421
$ 2,456
Increase in dividends accrued or converted to common stock equivalents $ 184
$ 218
Decrease in capital lease obligations from the termination of equipment and building leases $ 41
$ 3,654
Increase in notes receivable from the sale of company-operated restaurants $ —
$ 31,160
Equipment capital lease obligations incurred $ —
$ 78

15.SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)


	Year-to-date
	July 5, 2020		July 7, 2019
Non-cash investing and financing transactions:
Decrease in obligations for treasury stock repurchases	$	2,025	$	14,362
Decrease in obligations for purchases of property and equipment	$	2,534	$	5,421
Increase in dividends accrued or converted to common stock equivalents	$	65	$	184
Consideration for franchise acquisitions	$	859	$	—
Decrease in finance lease obligations from the termination of equipment and building leases	$	24	$	41

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

16.SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)


	July 5, 2020		September 29, 2019
Accounts and other receivables, net:
Trade	$	82,132	$	36,907
Notes receivable	505		278
Income tax receivable	1,172		160
Other	10,273		10,855
Allowance for doubtful accounts	(5,840)		(2,965)
	$	88,242	$	45,235
Prepaid expenses:
Prepaid income taxes	$	6,881	$	579
Prepaid advertising	32		1,838
Other	6,534		6,598
	$	13,447	$	9,015
Other assets, net:
Company-owned life insurance policies	$	112,984	$	112,753
Deferred rent receivable	48,832		49,333
Franchise tenant improvement allowance	29,967		26,925
Other	24,225		17,674
	$	216,008	$	206,685
Accrued liabilities:
Insurance	$	25,605	$	27,888
Payroll and related taxes	30,214		31,095
Deferred franchise fees	4,934		4,978
Sales and property taxes	15,428		4,268
Gift card liability	2,214		2,036
Deferred rent income	17,347		915
Other	47,602		48,903
	$	143,344	$	120,083
Other long-term liabilities:
Defined benefit pension plans	$	126,217	$	120,260
Deferred franchise fees	39,012		41,295
Straight-line rent accrual	—		29,537
Other	51,523		72,678
	$	216,752	$	263,770


~~15.~~	~~SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION~~ ~~(in thousands)~~

July 7,
2019 September 30,
2018
Accounts and other receivables, net:
Trade $ 44,403
$ 35,877
Notes receivable 1,854
11,480
Due from marketing fund 839
—
Income tax receivable 184
5,637
Other 12,059
6,123
Allowance for doubtful accounts (1,692 ) (1,695 )
$ 57,647
$ 57,422
Prepaid expenses:
Prepaid rent $ 11,977
$ —
Prepaid income taxes —
4,837
Prepaid advertising 28
4,318
Other 5,479
5,288
$ 17,484
$ 14,443
Other assets, net:
Company-owned life insurance policies $ 113,025
$ 109,908
Deferred rent receivable 49,204
48,372
Franchise tenant improvement allowance 24,328
22,506
Other 28,677
18,480
$ 215,234
$ 199,266
Accrued liabilities:
Insurance $ 30,206
$ 35,405
Payroll and related taxes 24,807
29,498
Deferred franchise fees 4,968
375
Deferred rent income 16,960

1,387
Sales and property taxes 4,097
4,555
Gift card liability 2,109
2,081
Other 41,676
33,621
$ 124,823
$ 106,922
Other long-term liabilities:
Defined benefit pension plans $ 66,185
$ 69,012
Deferred franchise fees 42,063
—
Straight-line rent accrual 29,700
31,762
Other 83,271
92,675
$ 221,219
$ 193,449


~~16.~~	~~SUBSEQUENT EVENTS~~

~~Securitized Refinancing Transaction~~17.SUBSEQUENT EVENTS—

On July 8, 2019, the Company completed the sale of $575.0 million of its Series 2019-1 3.982% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”), $275.0 million of its Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”), and $450.0 million of its Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes” and, together with the Class A-2-I Notes and Class A-2-II Notes, the “2019 Notes”). Interest payments on the 2019 Notes are payable on a quarterly basis. The anticipated repayment dates of the Class A-2-I Notes, the Class A-2-II Notes and the Class A-2-III Notes are August 2023, August 2026 and August 2029, respectively, unless earlier prepaid to the extent permitted under the indenture that will govern the 2019 Notes. The 2019 Notes were issued in a privately placed securitization transaction.

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

In addition, the Company also entered into a purchase agreement under which it will issue up to $150 million of its Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the "Class A-1 Notes"), which will allow us to borrow amounts from time to time on a revolving basis.

The net proceeds of the sale of the 2019 Notes were used to retire the Company’s existing senior credit facility and to repay transaction costs related to the transaction. The Company intends to use remaining proceeds for working capital purposes and general corporate purposes, which may include a return of capital to the Company’s equity holders.

~~Dividends~~—~~On August 2, 2019,~~31, 2020, the Board of Directors declared a cash dividend of $0.40 per common share, to be paid on September ~~10, 2019~~3, 2020 to shareholders of record as of the close of business on August ~~19, 2019.~~18, 2020.

~~Share Repurchases~~ —~~On August 2, 2019, the Board of Directors authorized an additional $200 million stock buy-back program that expires on November 30, 2020.~~

~~Purchase Agreement~~ —On July 25, 2019, the Company completed the purchase of a commercial property in Los Angeles, California, on which an existing company restaurant and another retail tenant are located. The purchase price was $17.3 million and we currently intend to sell the entire property and lease back the parcel on which our company operated restaurant is located within the next 12 months.


~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

All comparisons between ~~2019~~2020 and ~~2018~~2019 refer to the 12-weeks (“quarter”) and 40-weeks (“year-to-date”) ended July ~~7, 2019~~5, 2020 and July ~~8, 2018,~~7, 2019, respectively, unless otherwise indicated.

For an understanding of the significant factors that influenced our performance during ~~2019~~2020 and ~~2018,~~2019, our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended September ~~30, 2018.~~29, 2019.

Our MD&A consists of the following sections:

•

•Overview — a general description of our business and 2020 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, franchise tenant improvement allowance distributions, 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.

• ~~— a general description of our business and 2019 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, franchise tenant improvement allowance distributions, 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”), system restaurant sales, franchised restaurant sales, and average unit volumes (“AUVs”). Same-store sales, restaurant 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, franchised and system restaurant sales,~~and AUV information are useful to investors as they have a direct effect on the Company’s profitability.~~

•

Adjusted EBITDA, which represents net earnings on a generally accepted accounting principles (“GAAP”) basis excluding earnings or losses from discontinued operations, income taxes, interest expense, net, gains or losses on the sale of company-operated restaurants, impairment and other charges, net, depreciation and amortization, and the amortization of tenant improvement allowances and other.

•Changes in sales at restaurants open more than one year (“same-store sales”), system restaurant sales, franchised restaurant sales, and average unit volumes (“AUVs”). Same-store sales, restaurant 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, marketing fees and percentage rent revenues are calculated based on a percentage of franchise sales. We believe franchise and system same-store sales, franchised and system restaurant sales,and AUV information are useful to investors as they have a direct effect on the Company’s profitability.

•Adjusted EBITDA, which represents net earnings on a generally accepted accounting principles (“GAAP”) basis excluding earnings or losses from discontinued operations, income taxes, interest expense, net, gains or losses on the sale of company-operated restaurants, impairment and other charges, net, depreciation and amortization, amortization of tenant improvement allowances and other, and pension settlement charges. We are presenting Adjusted EBITDA because we believe that it provides a meaningful supplement to net earnings of the Company's core business operating results, as well as a comparison to those of other similar companies. Management believes that Adjusted EBITDA, when viewed with the Company's results of operations in accordance with GAAP and the accompanying reconciliations within MD&A, provides useful information about operating performance and period-over-period change, and provides additional information that is useful for evaluating the operating performance of the Company's core business without regard to potential distortions. Additionally, management believes that Adjusted EBITDA permits investors to gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced.

Same-store sales, system restaurant sales, franchised restaurant sales, AUVs, and Adjusted EBITDA are not measurements determined in accordance with GAAP and should not be considered in isolation, or as an alternative to earnings from operations, or other similarly titled measures of other companies.

IMPACT OF COVID-19

Throughout the pandemic, substantially all of our restaurants remain open, with dining rooms closed and all locations operating in an off-premise capacity, which has historically represented close to 90% of the Company’s business, including drive-thru, third-party delivery, and carry-out. While we navigate through this time of uncertainty, Jack in the Box remains committed to operating our restaurants with integrity, providing great guest service, and most importantly, protecting the health and safety of our employees and guests.

In the last five weeks of the second quarter, upon the rise in “shelter-in-place” mandates and “social distancing” requirements across the country, system same-store sales decreased by 17.0%; however, during the third quarter our system same-store sales have accelerated, increasing by 6.6%. Given the level of volatility and uncertainty surrounding the future impact of COVID-19 on the broader United States economy and specific impacts to our business, in the second quarter we withdrew our previously issued fiscal 2020 and long-term guidance. We will provide an update when we can reasonably estimate the impacts of the COVID-19 pandemic on business results.

To mitigate the impact of COVID-19 on the Company, operations, franchisees and our employees, we have undertaken the following actions:

•Implemented a short-term cash preservation strategy (refer to the Liquidity and Capital Resources section for further information).

•Provided financial support to our franchisees in the form of a reduction and payment deferral of marketing fees, postponement of rent, and delayed remodel requirements and development agreements for at least six months.

•Instituted a new emergency paid sick leave program at company-operated restaurants and have procured protective masks, gloves, sneeze guards and thermometers at all company-owned and franchised locations.

OVERVIEW

As of July ~~7, 2019,~~5, 2020, we operated and franchised ~~2,242~~2,244 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam.

The following summarizes the most significant events occurring ~~year-to-date~~ in ~~fiscal 2019,~~the third quarter of 2020, and certain trends compared to a year ago:

•

~~Same-store and system sales~~ — System same-store sales are up 0.8% year-to-date as compared with the prior year primarily due to menu price and favorable product mix, partially offset by a decline in transactions. System sales increased $14.5

•System same-store sales — System same-store sales increased by 6.6% in the quarter and 1.5% year-to-date. Company same-store sales increased 4.1% in the quarter, driven by a 20.2% increase in average check growth, partially offset by a 16.1% decrease in transactions.

•Company restaurant operations — Company restaurant costs as a percentage of company restaurant sales increased in the quarter to 74.6% from 73.0% a year ago primarily due to wage inflation and increases in other operating costs.

•Franchise operations — Franchise same-store sales increased by 6.9% in the quarter, resulting in higher royalties and percentage rent for the Company during the quarter.

•Selling, general and administrative (“SG&A”) expenses - SG&A decreased by $10.7 million in the quarter, primarily due to lower litigation-related matters and favorable mark-to-market adjustments on investments supporting the Company’s non-qualified retirement plans.

•Adjusted EBITDA — Adjusted EBITDA increased to $72.9 million in the quarter from $57.8 million ~~or 0.5%, compared with a year ago primarily due to the net increase~~ in the ~~number of open restaurants.~~


•	~~Company restaurant operations~~ — Company restaurant costs as a percentage of company restaurant sales decreased in 2019 to 73.1% from 73.5% a year ago primarily due to the benefit of refranchising units that had lower AUVs than the average for all company restaurants, partially offset by higher costs for labor and other operating expenses.


•	~~Franchise operations~~ — ~~Excluding the impacts of the adoption of ASC 606 further described below, franchise costs as a percentage of franchise revenues were flat compared to~~ prior year.

•

~~Restructuring costs~~ — In 2019, we have continued with our plan to reduce our general and administrative costs by revamping our organization and cost structures. Additionally, in the first quarter of fiscal 2019, we began an evaluation of strategic alternatives for the Company (the “Strategic Alternatives Evaluation”). In connection with these activities, we have recorded $6.7 million of restructuring charges in 2019, which includes $5.4 million related to severance costs, and $1.3 million related to the Strategic Alternatives Evaluation. These costs are included in “Impairment and other costs, net” in the accompanying condensed consolidated statements of earnings.


•	~~Return of cash to shareholders~~— ~~We returned cash to shareholders in the form of cash dividends. We declared three cash dividends of $0.40 per share totaling $31.2 million.~~


•	~~Adjusted EBITDA~~ — ~~Adjusted EBITDA decreased in 2019 to $202.1 million from $210.1 million in 2018.~~

FINANCIAL REPORTING

In fiscal ~~2019,~~2020, we adopted ~~ASU 2014-09,~~Accounting Standards Codification Topic 842, ~~Revenue Recognition - Revenue from Contracts with Customers (Topic 606)~~Leases (“ASC ~~606”~~842”), effective at the beginning of our fiscal year on a modified retrospective basis using the ~~modified retrospective method, whereby~~effective date transition method. Our consolidated financial statements reflect the ~~cumulative effect~~application of ~~initially adopting~~ASC 842 guidance beginning in 2020, while our consolidated financial statements for prior periods were prepared under the guidance ~~was recognized as an adjustment to beginning retained earnings at October 1, 2018. The comparative information has not been restated and continues to be reported under the~~of a previously applicable accounting ~~standards in effect for those periods.~~ standard.

The most significant effects of this transition that affect comparability of our results of operations between ~~2019~~2020 and ~~2018~~2019 include the following:

~~Franchise fee revenue for franchise services will be recognized over~~•Our transition to ASC 842 resulted in the ~~franchise term beginning in 2019 compared to upfront recognition~~gross presentation of property tax and maintenance expenses and related lessee reimbursements as “Franchise occupancy expenses” and “Franchise rental revenues”, respectively. These expenses and reimbursements were presented on a net basis under the previous ~~revenue guidance.~~

~~Franchise contribution for advertising and other services are reflected on a gross basis~~accounting standard. Although there was no net impact to our consolidated statement of earnings from this change, the presentation resulted in ~~2019 compared to a net basis~~total increases in ~~2018. Newly created captions~~ “Franchise ~~contribution for advertising and other services”~~rental revenues” and “Franchise ~~advertising~~occupancy expenses” of $8.6 million in the quarter and ~~other services expenses” include the gross-up~~$28.8 million year-to-date.

•ASC 842 also changed how lessees account for leases subleased at a loss. Under ASC 842, sublease income and lessee rent expense are recorded as franchise rent revenue and franchise occupancy costs as earned or incurred. As a result of ~~respective~~this change, franchise revenues and ~~expenses; however,~~franchise occupancy expenses increased by $1.1 million and $1.3 million, respectively, in the ~~2018 results have not been restated to conform to current year presentation.~~quarter and $3.2 million and $3.9 million year-to-date.

~~In fiscal 2018, we completed the sale of Qdoba on March 21, 2018. Qdoba results are included in discontinued operations for all periods presented.~~

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					Quarter						Year-to-date
	July 7, 2019		July 8, 2018		July 7, 2019		July 8, 2018			July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Revenues:									Revenues:
Company restaurant sales	35.3	%	46.6	%	35.4	%	53.6	%	Company restaurant sales	34.0	%	35.3	%	34.2	%	35.4	%
Franchise rental revenues	28.5	%	32.8	%	28.7	%	28.4	%	Franchise rental revenues	31.4	%	28.5	%	31.6	%	28.7	%
Franchise royalties and other	18.1	%	20.6	%	18.0	%	18.0	%	Franchise royalties and other	17.8	%	18.1	%	17.4	%	18.0	%
Franchise contributions for advertising and other services	18.2	%	—	%	18.0	%	—	%	Franchise contributions for advertising and other services	16.7	%	18.2	%	16.8	%	18.0	%
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%	Total revenues	100.0	%	100.0	%	100.0	%	100.0	%
Operating costs and expenses, net:									Operating costs and expenses, net:
Company restaurant costs (excluding depreciation and amortization):									Company restaurant costs (excluding depreciation and amortization):
Food and packaging (1)	29.4	%	28.5	%	28.8	%	28.7	%	Food and packaging (1)	29.2	%	29.4	%	29.6	%	28.8	%
Payroll and employee benefits (1)	29.5	%	28.4	%	29.5	%	28.8	%	Payroll and employee benefits (1)	30.4	%	29.5	%	31.0	%	29.5	%
Occupancy and other (1)	14.1	%	15.7	%	14.8	%	16.1	%	Occupancy and other (1)	15.0	%	14.1	%	15.6	%	14.8	%
Total company restaurant costs (1)	73.0	%	72.5	%	73.1	%	73.5	%	Total company restaurant costs (1)	74.6	%	73.0	%	76.2	%	73.1	%
Franchise occupancy expenses (excluding depreciation and amortization) (2)	60.6	%	60.7	%	61.1	%	61.0	%
Franchise occupancy expenses (2)									Franchise occupancy expenses (2)	63.9	%	60.6	%	66.7	%	61.1	%
Franchise support and other costs (3)	6.7	%	7.3	%	6.4	%	6.3	%	Franchise support and other costs (3)	6.2	%	6.7	%	7.7	%	6.4	%
Franchise advertising and other services expenses (4)	103.7	%	—	%	104.0	%	—	%	Franchise advertising and other services expenses (4)	104.0	%	103.7	%	103.6	%	104.0	%
Selling, general and administrative expenses	11.0	%	10.5	%	9.1	%	11.6	%	Selling, general and administrative expenses	5.6	%	11.0	%	8.6	%	9.1	%
Depreciation and amortization	5.8	%	7.0	%	5.9	%	6.7	%	Depreciation and amortization	5.0	%	5.8	%	5.4	%	5.9	%
Impairment and other charges, net	(1.5	%)	1.7	%	0.8	%	1.5	%	Impairment and other charges, net	0.3	%	(1.5)	%	(1.0)	%	0.8	%
Gains on the sale of company-operated restaurants	—	%	(15.3	)%	—	%	(6.2	)%	Gains on the sale of company-operated restaurants	(0.4)	%	—	%	(0.3)	%	—	%

Earnings from operations	21.7	%	40.8	%	21.1	%	28.5	%	Earnings from operations	25.5	%	21.7	%	21.5	%	21.1	%
Income tax rate (5)	(17.9	%)	26.5	%	18.4	%	46.9	%	Income tax rate (5)	27.9	%	(17.9)	%	29.0	%	18.4	%

____________________________


~~(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 franchise contributions for advertising and other services.~~


~~(5)~~	~~As a percentage of earnings from continuing operations and before income taxes.~~

(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 franchise contributions for advertising and other services.

(5)As a percentage of earnings from continuing operations and before income taxes.

The following table summarizes changes in same-store sales for company-owned, franchised, and system-wide restaurants:


	Quarter				Year-to-date					Quarter						Year-to-date
	July 7, 2019		July 8, 2018		July 7, 2019		July 8, 2018			July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Company	2.8	%	0.6	%	1.2	%	0.5	%	Company	4.1	%	2.8	%	1.2	%	1.2	%
Franchise	2.7	%	0.5	%	0.8	%	—	%	Franchise	6.9	%	2.7	%	1.5	%	0.8	%
System	2.7	%	0.5	%	0.8	%	—	%	System	6.6	%	2.7	%	1.5	%	0.8	%

The following table summarizes ~~the year-to-date~~ changes in the number and mix of company and franchise restaurants:


	2019						2018							2020										2019
	Company		Franchise		Total		Company		Franchise		Total			Company		Franchise		Total		Company		Franchise		Total
Beginning of year	137		2,100		2,237		276		1,975		2,251		Beginning of year	137		2,106		2,243		137		2,100		2,237
New	—		16		16		1		8		9		New	—		20		20		—		16		16
Refranchised	—		—		—		(127	)	127		—

Acquired from franchisees													Acquired from franchisees	8		(8)		—		—		—		—
Closed	—		(11	)	(11	)	(4	)	(15	)	(19	)	Closed	(1)		(18)		(19)		—		(11)		(11)
End of period	137		2,105		2,242		146		2,095		2,241		End of period	144		2,100		2,244		137		2,105		2,242
% of system	6	%	94	%	100	%	7	%	93	%	100	%	% of system	6	%	94	%	100	%	6	%	94	%	100	%

The following table summarizes ~~the~~ restaurant sales for company-owned, franchised, and total system sales (in thousands):


	Quarter				Year-to-date					Quarter						Year-to-date
	July 7, 2019		July 8, 2018		July 7, 2019		July 8, 2018			July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Company-owned restaurant sales	$	78,434	$	87,574	$	257,948	$	371,149	Company-owned restaurant sales	$	82,444	$	78,434	$	262,188	$	257,948
Franchised restaurant sales (1)	747,398		716,453		2,428,708		2,301,031		Franchised restaurant sales (1)	804,791		747,398		2,480,062		2,428,708
System sales (1)	$	825,832	$	804,027	$	2,686,656	$	2,672,180	System sales (1)	$	887,235	$	825,832	$	2,742,250	$	2,686,656

____________________________

~~(1)~~

Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees. System sales include company and franchised restaurant sales. We do not record franchised sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchised sales. We believe franchised and system restaurant sales information is useful to investors as they have a direct effect on the Company's profitability.

(1)Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees. System sales include company and franchised restaurant sales. We do not record franchised sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchised sales. We believe franchised and system restaurant sales information is useful to investors as they have a direct effect on the Company's profitability.

Below is a reconciliation of Non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands):


	Quarter						Year-to-date
	July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Net earnings - GAAP	$	32,555	$	13,189	$	51,915	$	72,376
(Earnings) losses from discontinued operations, net of taxes	(379)		284		(379)		(2,652)
Income tax expense (benefit)	12,432		(2,048)		21,023		15,699
Interest expense, net	15,700		36,494		51,051		67,144
Pension settlement charges	103		—		39,030		—
Gains on the sale of company-operated restaurants	(1,050)		—		(2,625)		(219)
Impairment and other charges, net	738		(3,256)		(7,837)		5,567
Depreciation and amortization	12,141		12,786		41,151		42,645
Amortization of franchise tenant improvement allowances and other	618		387		2,383		1,524
Adjusted EBITDA - Non-GAAP	$	72,858	$	57,836	$	195,712	$	202,084

Quarter Year-to-date
July 7, 2019 July 8, 2018 July 7, 2019 July 8, 2018
Net earnings - GAAP $ 13,189

$ 45,307

$ 72,376

$ 105,102
Losses (earnings) from discontinued operations, net of taxes 284

2,826

(2,652 )
(19,099 )
Income tax (benefit) expense (2,048 )
17,334

15,699

75,898
Interest expense, net 36,494

10,873

67,144

34,066
Gains on the sale of company-operated restaurants —

(28,676 )
(219 )
(43,088 )
Impairment and other charges, net (3,256 )
3,265

5,567

10,449
Depreciation and amortization 12,786

13,194

42,645

46,306
Amortization of franchise tenant improvement allowances and other 387

232

1,524

497
Adjusted EBITDA - Non-GAAP $ 57,836
$ 64,355
$ 202,084
$ 210,131

Company Restaurant Operations

The following table presents company restaurant sales and costs, and restaurant costs as a percentage of the related sales. Percentages may not add due to rounding (dollars in thousands):


	Quarter														Year-to-date
	July 5, 2020						July 7, 2019						July 5, 2020				July 7, 2019
Company restaurant sales	$	82,444			$	78,434			$	262,188			$	257,948
Company restaurant costs:
Food and packaging	24,077		29.2	%	23,058		29.4	%	77,662		29.6	%	74,350		28.8	%
Payroll and employee benefits	25,085		30.4	%	23,121		29.5	%	81,236		31.0	%	76,163		29.5	%
Occupancy and other	12,334		15.0	%	11,052		14.1	%	40,862		15.6	%	38,165		14.8	%
Total company restaurant costs	$	61,496	74.6	%	$	57,231	73.0	%	$	199,760	76.2	%	$	188,678	73.1	%

Quarter Year-to-date
July 7, 2019 July 8, 2018 July 7, 2019 July 8, 2018
Company restaurant sales $ 78,434
$ 87,574
$ 257,948
$ 371,149

Company restaurant costs:
Food and packaging 23,058
29.4 % 24,946
28.5 % 74,350
28.8 % 106,448
28.7 %
Payroll and employee benefits 23,121
29.5 % 24,875
28.4 % 76,163
29.5 % 106,911
28.8 %
Occupancy and other 11,052
14.1 % 13,715
15.7 % 38,165
14.8 % 59,608
16.1 %
Total company restaurant costs $ 57,231
73.0 % $ 63,536
72.5 % $ 188,678
73.1 % $ 272,967
73.5 %

Company restaurant sales ~~decreased $9.1~~increased $4.0 million, or 5.1% in the quarter and ~~$113.2~~$4.2 million, ~~year-to-date as compared with~~or 1.6% versus a year ago due primarily to increases in the ~~prior year primarily driven by a decrease in~~average check, menu pricing, and the number of ~~company~~company-operated restaurants ~~resulting~~related to the acquisition of eight restaurants from a franchisee during the ~~execution of our refranchising strategy~~second quarter, and ~~to a lesser extent,~~were partially offset by a ~~decrease~~decline in traffic, which was more than offset by menu price increases and favorable product mix. The following table presents the approximate impact of these (decreases) increases on company restaurant sales in 2019 (~~in millions~~):

Quarter Year-to-date
Decrease in the average number of restaurants $ (11.0 ) $ (116.3 )
AUV increase 1.9
3.1
Total change in company restaurant sales $ (9.1 ) $ (113.2 )
traffic.

Same-store sales at company-operated restaurants increased ~~2.8%~~4.1% in the quarter and 1.2% year-to-date as compared ~~with the prior~~to a year ~~primarily due to menu price increases and favorable product mix, partially offset by a decline in transactions year-to-date.~~ago. The following table summarizes the change in company-operated ~~same-store sales~~same store-sales versus a year ago:


	Quarter				Year-to-date					Quarter						Year-to-date
	July 7, 2019		July 8, 2018		July 7, 2019		July 8, 2018			July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Average check (1)	2.8	%	2.6	%	3.2	%	2.6	%	Average check (1)	20.2	%	2.8	%	9.1	%	3.2	%
Transactions	—	%	(2.0	)%	(2.0	)%	(2.1	)%	Transactions	(16.1)	%	—	%	(7.9)	%	(2.0)	%
Change in same-store sales	2.8	%	0.6	%	1.2	%	0.5	%	Change in same-store sales	4.1	%	2.8	%	1.2	%	1.2	%

____________________________


~~(1)~~	~~Amounts in 2019 include price increases of approximately 2.3% in the quarter and year-to-date. Amounts in 2018 include price increases of approximately 2.6% in the quarter and 2.2% year-to-date.~~

(1)Amounts in 2020 include price increases of approximately 3.0% in the quarter and 2.7% year-to-date. Amounts in 2019 include price increases of approximately 2.3% in the quarter and year-to-date.

Food and packaging costs as a percentage of company restaurant sales decreased to 29.2% in the quarter and increased to 29.6% year-to-date in 2020 compared to 29.4% in the quarter and 28.8% year-to-date in ~~2019, from 28.5% in~~2019. In the quarter, menu price increases and ~~28.7% year-to-date~~favorable changes in ~~2018. The increases~~product mix were ~~primarily due~~partially offset by higher costs for ingredients. Year to date, the impact of higher ~~commodity~~ costs for ingredients and changes in product mix were partially offset by menu price increases. Commodity costs increased in the quarter and year-to-date by ~~2.9%~~3.6% and ~~1.4%~~4.4%, respectively, ~~compared~~due primarily to ~~a year ago. For fiscal 2019, we currently expect~~increases in beef in both periods and cheese year-to-date. Beef, our most significant commodity, ~~costs to increase by approximately 2% compared with fiscal 2018.~~increased 27% in the quarter and 18% year-to-date.

Payroll and employee benefit costs as a percentage of company restaurant sales increased to 30.4% in the quarter and 31.0% year-to-date in 2020 compared with 29.5% in the quarter and year-to-date in 2019, ~~compared with 28.4%~~due primarily to higher average wages resulting from wage inflation, higher incentive compensation in the quarter, ~~and 28.8% year-to-date~~as well as higher costs related to our new emergency paid sick leave program implemented in ~~2018 primarily due~~response to ~~wage inflation resulting from an increase in the minimum wage in certain markets and a highly competitive labor market, and a change in mix of restaurants due to refranchising.~~COVID-19.

Occupancy and other costs decreased $2.7 million in the quarter and $21.4 million year-to-date in 2019 compared to the prior year, primarily due to a decrease in the average number of restaurants, impacting occupancy and other costs by approximately$2.3 million in the quarter and $22.7 million year-to-date. In the quarter and year-to-date, as a percentage of company restaurant sales, ~~occupancy~~increased to 15.0% in the quarter and ~~other costs decreased to~~15.6% year-to-date in 2020 compared with 14.1% in the quarter and 14.8%~~, respectively, from 15.7% and 16.1% a year ago due primarily to refranchising and lower maintenance costs, partially offset~~ year-to-date in 2019 driven by higher costs for delivery fees, ~~information technology,~~higher costs for supplies related to COVID-19, and ~~uniforms year-to-date, at~~ the acquisition in 2020 of eight restaurants ~~we continue to operate.~~with lower than average sales volumes.

Franchise Operations

The following table presents franchise revenues and costs in each period and other information we believe is useful in analyzing the change in franchise operating results (dollars in thousands):


	Quarter						Year-to-date							Quarter									Year-to-date
	July 7, 2019			July 8, 2018			July 7, 2019			July 8, 2018				July 5, 2020			July 7, 2019			July 5, 2020			July 7, 2019
Franchise rental revenues	$	63,359		$	61,622		$	208,895		$	196,682		Franchise rental revenues	$	76,021		$	63,359		$	241,990		$	208,895

Royalties	38,752			36,863			125,407			118,341			Royalties	41,537			38,752			127,829			125,407
Franchise fees and other	1,428			1,924			5,433			6,046			Franchise fees and other	1,702			1,428			5,640			5,433
Franchise royalties and other	40,180			38,787			130,840			124,387			Franchise royalties and other	43,239			40,180			133,469			130,840
Franchise contributions for advertising and other services	40,386			—			131,189			—			Franchise contributions for advertising and other services	40,571			40,386			128,458			131,189
Total franchise revenues	$	143,925		$	100,409		$	470,924		$	321,069		Total franchise revenues	$	159,831		$	143,925		$	503,917		$	470,924

Franchise occupancy expenses (excluding depreciation and amortization)	$	38,371		$	37,401		$	127,702		$	119,987		Franchise occupancy expenses (excluding depreciation and amortization)	$	48,612		$	38,371		$	161,470		$	127,702
Franchise support and other costs	2,695			2,829			8,337			7,894			Franchise support and other costs	2,692			2,695			10,339			8,337
Franchise advertising and other services expenses	41,882			—			136,397			—			Franchise advertising and other services expenses	42,176			41,882			133,134			136,397
Total franchise costs	$	82,948		$	40,230		$	272,436		$	127,881		Total franchise costs	$	93,480		$	82,948		$	304,943		$	272,436
Franchise costs as a percentage of total franchise revenues	57.6		%	40.1		%	57.9		%	39.8		%	Franchise costs as a percentage of total franchise revenues	58.5		%	57.6		%	60.5		%	57.9		%

Average number of franchise restaurants	2,081			2,069			2,084			2,012			Average number of franchise restaurants	2,079			2,081			2,084			2,084
% increase	0.6		%				3.6		%
Increase in franchise-operated same-store sales	2.7		%	0.5		%	0.8		%	—		%	Increase in franchise-operated same-store sales	6.9		%				1.5		%
Franchised restaurant sales	$	747,398		$	716,453		$	2,428,708		$	2,301,031		Franchised restaurant sales	$	804,791		$	747,398		$	2,480,062		$	2,428,708
Franchised restaurant AUVs	$	359		$	346		$	1,166		$	1,144		Franchised restaurant AUVs	$	387		$	359		$	1,190		$	1,166
Royalties as a percentage of total franchised restaurant sales	5.2		%	5.1		%	5.2		%	5.1		%	Royalties as a percentage of total franchised restaurant sales	5.2		%	5.2		%	5.2		%	5.2		%

Franchise rental revenues increased ~~$1.7~~$12.7 million, or ~~2.8%,~~20.0% in the quarter and ~~$12.2~~$33.1 million, or ~~6.2%,~~15.8% year-to-date compared to the prior year, primarily from our adoption of ASC 842, which increased our rental revenues $9.7 million in the quarter and $32.0 million year-to-date, as well as higher percentage rent revenues due to an increase in franchise restaurant sales.

Franchise royalties and other increased $3.1 million, or 7.6% in the ~~number of franchised restaurants~~quarter and $2.6 million, or 2.0% year-to-date compared to ~~a lesser extent,~~the prior year, due primarily to an increase in franchise same-store sales ~~in the quarter. The increase in the number of restaurants leased~~driving royalties higher.

Franchise contributions for advertising and other services revenues increased $0.2 million, or ~~subleased from the Company due to our refranchising strategy, contributed additional rental revenues in 2019 of $0.9 million~~0.5% in the quarter as a result of $0.7 million higher technology and ~~$12.1~~sourcing fees, partially offset by $0.5 million ~~year-to-date.~~

~~Franchise royalties and other increased $1.4 million, or 3.6%, in the quarter and $6.5 million, or 5.2%, year-to-date primarily~~lower marketing contributions. Marketing contributions were lower due to a reduction in April marketing fees and was largely offset by an increase in ~~the number of franchise-operated restaurants. Upon adoption of ASC 606 in 2019,~~marketing contributions due to higher franchise ~~fees are now recognized over the franchise term~~restaurant sales compared ~~to upfront recognition in the prior year.~~

~~In years prior to 2019,~~with a year ago. Year-to-date, franchise contributions for advertising and other services ~~were shown net with~~revenues decreased $2.7 million, or 2.1%, as a result of $4.9 million lower marketing contributions driven by a decrease in the ~~related disbursements within “Selling, general,~~contribution percentages; partially offset by $2.2 million higher technology and ~~administrative expenses”~~sourcing fees as a result of an increase in ~~our condensed consolidated statement of earnings. Upon adoption of ASC 606~~technology fees in ~~2019, these revenues and expenses are presented on a gross basis within our consolidated statement of earnings. Refer to Note 2,~~ ~~Revenue,~~ ~~for additional information related to the adoption of this new accounting standard.~~July 2019.

Franchise occupancy expenses, principally rents, increased ~~$1.0~~$10.2 million in the quarter and ~~$7.7~~$33.8 million year-to-date compared to the prior year, due primarily ~~due~~ to ~~a net increase in~~ the ~~average number~~adoption of ~~franchise-operated restaurants resulting from our refranchising strategy, contributing additional costs of approximately $1.0~~ASC 842, which increased franchise occupancy expenses by $9.9 million in the quarter and ~~$7.0~~$32.7 million year-to-date.

Franchise support and other costs remained flat in the quarter and increased $2.0 million year-to-date compared to the prior year, primarily as a result of an increase in franchisee bad debt expense related to specific franchise situations that occurred in the first quarter of 2020.

Franchise advertising and other service expenses increased $0.3 million, or 0.7% in the quarter as a result of higher technology and sourcing costs of $0.8 million; partially offset by lower marketing contributions of $0.5 million. Year-to-date, franchise advertising and other service expenses decreased $3.3 million, or 2.4% compared to the prior year, as a result of lower marketing contributions of $4.9 million, partially offset by an increase in technology and sourcing costs of $1.7 million.

Depreciation and Amortization

Depreciation and amortization decreased by ~~$0.4~~$0.6 million in the quarter and ~~$3.7~~$1.5 million year-to-date ~~in 2019 as~~ compared with the prior year, primarily due to ~~a decrease in equipment depreciation driven by a decrease in the average number~~certain of ~~company-operated restaurants resulting from our refranchising activities in 2018. A decline in depreciation resulting from~~ our franchise building assets becoming fully depreciated ~~also contributed to~~in the ~~decrease.~~

current fiscal year.

Selling, General and Administrative (“SG&A”) Expenses

The following table presents the change in ~~2019~~2020 SG&A expenses compared with the prior year (in thousands):

Increase / (Decrease)
Quarter Year-to-date
Insurance $ (5,062 ) $ (4,542 )
Advertising (1,956 ) (6,975 )
Technology fees (1,113 ) (3,676 )
Cash surrender value of COLI policies, net (979 ) (3,035 )
Region administration (750 ) (2,601 )
Employee litigation matter 7,110
7,122
Incentive compensation (including share-based compensation and related payroll taxes) 5,208
786
Legal fees 384
1,531
Other (includes transition services income and savings related to our restructuring plan) 1,876
(2,879 )
$ 4,718

$ (14,269 )

~~Insurance costs decreased in 2019 as compared to 2018 primarily due to favorable development factors related to prior year workers’ compensation and general liability claims.~~


	Increase / (Decrease)
	Quarter		Year-to-date
Advertising	$	(68)	$	(2,290)
Incentive compensation (including share-based compensation and related payroll taxes)	(2,489)		(2,111)
Cash surrender value of COLI policies, net	(2,587)		1,128
Litigation matters	(6,982)		(1,182)
Insurance	2,553		1,781
Other (includes transition services income and savings related to our restructuring plan)	(1,136)		2,748
	$	(10,709)	$	74

Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales. Advertising costs decreased ~~by $2.0~~$0.1 million ~~and $7.0 million for~~in the quarter and $2.3 million year-to-date ~~respectively, primarily due to a decrease in the number of company-operated restaurants~~ compared to the prior year. ~~Additionally,~~In the quarter, the decrease was driven by a decrease in the contribution percentage, largely offset by higher company-operated restaurant sales. Year-to-date, the decrease was primarily due to a $2.0 million discretionary marketing fund ~~contributions~~contribution made by the Company in 2019 that was non-recurring in 2020.

Incentive compensation decreased by ~~$1.5~~$2.5 million ~~for~~in the quarter and ~~$1.3~~$2.1 million year-to-date ~~in 2019.~~

~~Upon adoption~~primarily as a result of ASC 606 in 2019, technology fees and costs are recorded on a gross basis within our condensed consolidated statements of earnings within “Franchise contributions from advertising and other services” and “Franchise advertising and other services expenses.”lower achievement levels compared to the prior year for the Company’s annual incentive plan.

The cash surrender value of our ~~Company-owned~~company-owned life insurance (“COLI”) policies, net of changes in our non-qualified deferred compensation obligation supported by these policies, are subject to market fluctuations. The changes in market values had a positive impact of ~~$1.3 million in the quarter and $2.7 million year-to-date in 2019, compared with a positive impact of $0.3~~$2.6 million in the quarter and a negative impact of ~~$0.3~~$1.1 million year-to-date, incompared to the prior year.

~~Region administration~~Litigation matters decreased by $7.0 million in the quarter and $1.2 million year-to-date, primarily due to lower costs ~~decreased in 2019 as compared to 2018 due primarily to workforce reductions related to our refranchising efforts.~~

~~Employee~~on certain employee litigation ~~matter represents costs recorded in 2019 pertaining to an adverse jury verdict.~~matters. Refer to Note 13, Contingencies and Legal Matters, of the notes to the condensed consolidated financial statements for additional information regarding these charges.

~~Incentive compensation~~Insurance costs increased by ~~$5.2~~$2.6 million ~~for~~in the quarter and ~~$0.8~~$1.8 million year-to-date, ~~based on higher estimated achievement relative~~primarily due to ~~annual targets~~less favorable development factors related to workers’ compensation and general liability claims compared to the prior year.

Impairment and Other Charges, Net

Impairment and other charges, net is comprised of the following (in thousands):


	Quarter						Year-to-date
	July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Restructuring costs	$	2	$	(64)	$	1,165	$	6,722
Costs of closed restaurants and other	890		2,010		1,322		3,259
Gains on disposition of property and equipment, net	(216)		(5,618)		(10,386)		(5,756)
Accelerated depreciation	62		416		62		1,342
	$	738	$	(3,256)	$	(7,837)	$	5,567

Quarter Year-to-date
July 7, 2019 July 8, 2018 July 7, 2019 July 8, 2018
Restructuring costs $ (64 ) $ 1,872
$ 6,722
$ 4,805
Costs of closed restaurants and other 2,010
378
3,259
3,483
Accelerated depreciation 416
538
1,342
912
(Gains) losses on disposition of property and equipment, net (5,618 ) 477
(5,756 ) 958
Operating restaurant impairment charges —
—
—
291
$ (3,256 ) $ 3,265
$ 5,567
$ 10,449

~~Restructuring costs decreased~~Impairment and other charges, net increased by ~~$1.9~~$4.0 million in the quarter ~~and increased~~compared to a year ago, driven by ~~$1.9 million year-to-date, primarily due to timing~~a gain on sale of ~~initiatives and related employee severance costs. Costs of closed restaurants increased by $1.6 million and decreased $0.2 million~~a restaurant property in the ~~quarter~~prior year. Impairment and ~~year-to-date, respectively, due to an increase in costs related to canceled projects, partially offset~~other charges, net decreased year-to-date by $13.4 million, as a ~~decrease in closed restaurants costs. Gains on disposition~~result of ~~property and equipment, net, increased by $6.1 million and $6.7 million, respectively, primarily due to~~ a ~~$5.7~~$10.8 million gain related to athe sale of ~~property~~one of our corporate office buildings in the ~~third~~first quarter of ~~2019~~2020 and ~~a $0.8 million gain related to an eminent domain transaction in the second quarter~~lower restructuring costs of ~~2019. Refer to Note 8,~~ $5.6 million.

~~Impairment and Other Charges, Net~~
~~of the notes to the condensed consolidated financial statements for additional information regarding these charges.~~

Gains on the Sale of Company-Operated Restaurants

In 2020 and 2019, no company-operated restaurants were sold to franchisees. Gains on the sale of company-operated restaurants ~~net is detailed~~ in ~~the following table (dollars~~both periods pertain to meeting certain contingent consideration provisions included in ~~thousands~~):

Quarter Year-to-date
July 7, 2019 July 8, 2018 July 7, 2019 July 8, 2018
Number of restaurants sold to franchisees —
42
—
127
Gains on the sale of company-operated restaurants $ —
$ 28,676
$ 219
$ 43,088

Gains are impacted by the number of restaurants sold and changes in average gains or losses recognized, which primarily relate to the specific sales and cash flows of those restaurants. Gains in 2019 primarily relate to escrow funds released on restaurants sold in previous years.

Other Pension and Post-Retirement Expenses, Net

Other pension and post-retirement expenses, net increased by $1.1 million in the quarter and $39.8 million year-to-date versus the prior ~~years.~~year, primarily due to non-cash pension settlement charges of $0.1 million in the quarter and $39.0 million year-to-date. Refer to Note 5, 10,~~Summary of Refranchisings and Franchisee Development~~ Retirement Plans, of the notes to the condensed consolidated financial statements for additional information regarding these ~~gains.~~charges.

Interest Expense, Net

Interest expense, net is comprised of the following (in thousands):


	Quarter						Year-to-date							Quarter						Year-to-date
	July 7, 2019			July 8, 2018			July 7, 2019			July 8, 2018				July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019
Interest expense	$	36,561		$	11,209		$	67,587		$	34,491		Interest expense	$	15,703	$	36,561	$	51,580	$	67,587
Interest income	(67		)	(336		)	(443		)	(425		)	Interest income	(3)		(67)		(529)		(443)
Interest expense, net	$	36,494		$	10,873		$	67,144		$	34,066		Interest expense, net	$	15,700	$	36,494	$	51,051	$	67,144

Interest expense, net ~~increased $25.6~~decreased $20.8 million in the quarter and ~~$33.1~~$16.1 million year-to-date ~~in 2019~~ compared with a year ago, primarily due to a charge of $23.6 million ~~from~~for the early termination of our interest rate swaps ~~as well as higher average interest rates which contributed to higher~~in the prior year quarter. Excluding this impact, interest expense ~~of approximately $1.4~~increased by $2.8 million ~~and $8.5 million, respectively.~~

~~Income Tax (Benefit) Expense~~

~~The tax rate in 2019 was (17.9)%~~ in the quarter and ~~18.4%~~$7.5 million year-to-date, primarily as a result of higher average debt balances.

Income Tax Expense (Benefit)

The income tax provisions reflect tax rates of 27.9% in the quarter and 29.0% year-to-date, compared ~~with 26.5%~~to (17.9%) and ~~46.9%~~18.4%, respectively, in ~~2018.~~fiscal year 2019. The major components of the year-over-year change in tax rates were the ~~non-cash~~ impact of non-recurring activity in fiscal year 2019 including the ~~enactment~~termination of ~~the Tax Act in 2018, a decrease in the statutory tax rate, the impact of our~~ interest rate swap ~~termination,~~agreements, the release of valuation reserves on state tax credits and losses, and the release of a federal tax liability due to expiration of ~~the~~ statute of ~~limitations. We expect~~limitations, and an increase in nondeductible costs resulting from a California Private Attorney General Act lawsuit settled in the ~~fiscal year tax rate to be approximately 20.0%.~~current year. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2020 rate could differ from our current estimates. ~~Refer to Note 9,~~ ~~Income Taxes, of the notes to the condensed consolidated financial statements for additional information regarding income taxes.~~

Earnings (Losses) ~~Earnings~~ from Discontinued Operations, Net

As described in Note 3,14, Discontinued ~~Operations~~Operation,s, in the notes to condensed consolidated financial statements, the results of operations from our ~~distribution~~former Qdoba business ~~and Qdoba have~~has been reported as discontinued operations for all periods presented. Refer to Note 314 for additional information regarding discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

General

We generally reinvest available cash flows from operations to enhance existing restaurants, to reduce debt, to repurchase shares of our common stock, to pay cash dividends, and to develop new restaurants. Our cash requirements consist principally of:

~~working capital;~~

~~capital expenditures for restaurant renovations;~~

~~income tax payments;~~

~~debt service requirements;~~

~~franchise tenant improvement allowance distributions; and~~

~~obligations related to our benefit plans.~~

Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with our new securitized financing facility including our variable funding notes, will be sufficient to meet our capital expenditure, working capital and debt service requirements for at least the next twelve months and the foreseeable future.

As is common in the restaurant industry, we generally maintain relatively low levels of accounts receivable and inventories, and our vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. As a result, we may at times maintain current liabilities in excess of current assets, which results in a working capital deficit. We generally reinvest available cash flows from operations to enhance existing restaurants, to reduce debt, to repurchase shares of our common stock, and to pay cash dividends. Our cash requirements consist principally of working capital, capital expenditures, income tax payments, debt service requirements, franchise tenant improvement allowance distributions, dividend payments, and obligations related to our benefit plans.

Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available financing in place. On July 8, 2019, we completed a refinancing of our existing senior credit facility with a new securitized financing facility, comprised of $1.3 billion of senior fixed-rate term notes and $150.0 million of variable funding notes. During the second quarter of fiscal 2020, to secure our liquidity position and provide financial flexibility given the uncertain market conditions, we drew down on our Variable Funding Notes, which provided us $107.9 million of unrestricted cash. As of the end of our third quarter, the Company had $196.9 million of cash and restricted cash on its balance sheet.

In the context of an unprecedented global pandemic, we believe it is prudent to maintain maximum financial flexibility by preserving our capital and maintaining the Company’s healthy liquidity position. As a result, beginning in the second quarter, we have temporarily suspended all repurchase activity and significantly reduced capital expenditures to essential spend only. We also temporarily suspended our dividend payments beginning in the last quarter, which was subsequently reinstated. The reinstatement of the dividend reflects the strong financial health of the Company and our continued commitment to shareholders.

We believe that our cash on hand, cash flow from operations, and the actions taken to mitigate the effects of the COVID-19 pandemic discussed above will provide us with adequate liquidity for the next twelve months and the foreseeable future.

Cash Flows

The table below summarizes our cash flows from continuing operations (in thousands):


	Year-to-date							Year-to-date
	July 7, 2019			July 8, 2018				July 5, 2020		July 7, 2019
Total cash provided by (used in):							Total cash provided by (used in):
Operating activities	$	116,793		$	59,368		Operating activities	$	90,168	$	116,793
Investing activities	950			40,793			Investing activities	29,543		950
Financing activities	(108,001		)	(386,405		)	Financing activities	(74,359)		(108,001)
Net cash flows	$	9,742		$	(286,244	)	Net cash flows	$	45,352	$	9,742

Operating ~~Activities~~Activities.. Operating cash flows ~~in 2019 increased $57.4~~decreased $26.6 million compared with a year ago, ~~due to favorable changes in working capital of $83.1 million,~~ primarily due to ~~the timing~~lower collections of ~~payments~~$23.6 million from rent and ~~spending for advertising expenses ($32.2 million)~~marketing payment deferrals we provided to our franchisees and ~~lower~~higher income tax and interest payments ~~($40.5 million),~~of $6.7 million and $8.4 million, respectively. These decreases were partially offset by lower ~~net income adjusted for non-cash items~~rent payments of ~~$25.6 million.~~$12.7 million from payment deferrals we received from our landlords.

Pension and Postretirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, ~~2018,~~2019, the date of our last actuarial funding valuation, there was no minimum contribution funding requirement for our qualified pension plan. 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 ~~2019.~~2020. In ~~2019,~~2020, we contributed ~~$5.1~~$4.9 million to our non-qualified pension plan and postretirement plans.

Investing Activities. Cash provided by investing activities ~~decreased~~increased by ~~$39.8~~$28.6 million compared with a year ago, primarily due to ~~lower~~higher proceeds ~~received~~ from the sale and leaseback of ~~company-operated restaurants~~assets of ~~$42.4~~$16.8 million, ~~including repayments of notes issued in connection with 2018 refranchising transactions, partially offset by~~ higher proceeds from the sale of property and equipment of ~~$3.8 million.~~$15.2 million, and $8.3 million of lower capital expenditure spending, partially offset by $15.2 million of lower repayments received on notes issued in connection with 2018 refranchising transactions.

Capital Expenditures — The composition of capital expenditures in each period follows (in thousands):


	Year-to-date
	July 5, 2020		July 7, 2019
Jack in the Box:
Restaurant facility expenditures	$	8,385	$	10,734
Purchases of assets intended for sale or sale and leaseback	417		4,236
New restaurants	—		701
Other, including information technology	3,775		4,438
	12,577		20,109
Corporate Services:
Information technology	3,370		4,247
Other, including facility improvements	789		685
	4,159		4,932

Total capital expenditures	$	16,736	$	25,041

Year-to-date
July 7, 2019 July 8, 2018
Jack in the Box:
Restaurant facility expenditures $ 14,970
$ 16,343
New restaurants 701
723
Other, including information technology 8,565
5,770
24,236
22,836
Corporate Services:
Information technology 120
2,773
Other, including facility improvements 685
121
805
2,894

Total capital expenditures $ 25,041
$ 25,730

~~We expect fiscal 2019~~Our capital expenditure program includes, among other things, restaurant remodeling, information technology enhancements, and investments in new locations and equipment. Capital expenditures decreased by $8.3 million compared to a year ago primarily as a result of the Company reducing capital expenditures to ~~be approximately $30.0 million~~essential spend only to ~~$35.0 million, excluding purchases of assets held for sale or leaseback.~~provide additional liquidity and financial flexibility given the current uncertainty surrounding the pandemic.

Sale leaseback transactions — We use sale and leaseback financing to lower the initial cash investment in our restaurants to the cost of the equipment, whenever possible. ~~On July 25, 2019, the Company~~In 2020, we completed a ~~$17.3 million purchase~~sale leaseback transaction of a multi-tenant commercial property ~~on which a company operated restaurant is located. We currently intend to sell this property~~in Los Angeles, California and ~~lease~~leased back the parcel on which ~~our~~a company-operated restaurant is ~~located within~~located. We received net proceeds of $17.4 million during the ~~next 12 months. Refer to Note 16,~~ ~~Subsequent Events, for further details~~first quarter of 2020 on this ~~acquisition.~~transaction.

In 2020, we also completed the sale of one of our corporate office buildings as we move forward with our previously announced consolidation of our corporate facilities. We entered into a lease with the buyer to leaseback the property for up to a period of 18 months with an option to terminate earlier without penalty, upon providing a 90-day notice. We received net proceeds of $20.6 million on the sale.

Financing Activities. Cash flows used in financing activities decreased ~~$278.4~~by $33.6 million compared with a year ago, primarily due to a net increase in borrowings under our revolving credit facilities of $130.9 million, lower principal repayments of $25.5 million as a result of our debt recapitalization completed in the prior year, lower dividends paid on common stock of$12.5 million, and lower payments for debt issuance costs of $4.9 million; partially offset by higher stock repurchases of ~~$185.6 million and lower net borrowings of $89.4 million on our senior credit facility.~~$141.2 million.

~~Securitized Refinancing Transaction~~Repurchases of Common Stock — The Company repurchased approximately 1.9 million shares of its common stock in the first quarter of fiscal 2020 at an average price of $81.41 per share for an aggregate cost of $153.5 million. Repurchases of common stock included in our condensed consolidated statement of cash flows for fiscal 2020 includes $2.0 million related to repurchase transactions traded in the prior year that settled in 2020.

This leaves approximately $122.2 million remaining under share repurchase programs authorized by the Company’s Board of Directors, consisting of $22.2 million that expires in November 2020 and approximately $100.0 million that expires in November 2021. As previously announced, we have temporarily paused our share repurchase program and did not buy back any shares in the second or third quarter of 2020.

Dividends — During 2020, the Board of Directors declared two quarterly cash dividends of $0.40 per common share totaling $18.5 million.

Following our second quarter, we announced that our dividend would be temporarily suspended as a result of uncertainty caused by the pandemic. On July ~~8, 2019,~~31, 2020, our Board of Directors declared a quarterly cash dividend of $0.40 per common share, to be paid on September 3, 2020 to shareholders of record as of the ~~Company announced that one~~close of business on August 18, 2020. Future dividends are subject to approval by our ~~indirect, limited-purpose subsidiaries (the “Master Issuer”) has completed the sale~~Board of ~~$575 million of its Series 2019-1 3.982% Fixed Rate Senior Secured~~Directors.

Class A-2 Notes ~~Class A-2-I (the “Class A-2-I Notes”), $275 million of its Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”),~~ — Interest and $450 million of its Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes” and, together with the Class A-2-I Notes and Class A-2-II Notes, the “2019 Notes”). Interestprincipal payments on the ~~2019~~Class A-2 Notes are payable on a quarterly basis. In general, no principal payments will be required if a specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as defined in the Indenture), is less than or equal to 5.0x. The Company’s actual leverage ratio exceeded 5.0x, and as a result, we are required to make quarterly principal payments of $3.25 million. The Company anticipates that we will be required to make quarterly principal payments on the Class A-2 Notes for the foreseeable future.

The legal final maturity date of the Class A-2 Notes is in August 2049, but it is expected that, unless earlier prepaid to the extent permitted under the Indenture, the anticipated repayment dates of the Class A-2-I Notes, the Class A-2-II Notes and the Class A-2-III Notes ~~are~~will be August 2023, August 2026 and August 2029, respectively ~~unless earlier prepaid to the extent permitted under the indenture that governs the 2019 Notes. The 2019 Notes were issued by~~(the “Anticipated Repayment Dates”). If the Master Issuer ~~in a privately placed securitization transaction.~~

~~The net proceeds of~~has not repaid or refinanced the sale of the 2019 Notes were used to retire the existing senior credit facility and to repay transaction costs related to the transaction. The Company intends to use remaining proceeds for working capital purposes and general corporate purposes, which may include a return of capital to the Company’s equity holders.

~~In connection with the issuance of the Series 2019-1~~ Class A-2 Notes prior to the respective anticipated repayment date, additional interest will accrue pursuant to the Indenture. As of July 5, 2020, $1,293.5 million of borrowings were outstanding on the Class A-2 Notes.

Restricted Cash — In accordance with the terms of the Indenture, certain cash accounts have been established with the Indenture trustee for the benefit of the note holders and are restricted in their use. As of July 5, 2020, the Master Issuer ~~also entered into a revolving financing facility~~had restricted cash of ~~Series 2019-1 Variable Funding Senior Secured Notes,~~$37.4 million, which primarily represented cash collections and cash reserves held by the trustee to be used for payments of principal, interest and commitment fees required for the Class A-1 ~~(the “Series 2019-1 Class A-1 Notes”~~ and ~~together~~A-2 Notes. During the third quarter, with ~~the Series 2019-1 Class A-2 Notes, the “Series 2019-1 Senior Notes”), which allows~~uncertainty surrounding COVID-19 events, and as a cautionary measure, we continued to voluntarily elect to fund cash held in trust for ~~the drawing of up to $150 million under the~~ quarterly interest and principal payments due in November 2020.

Variable Funding Notes ~~which includes a letter of credit facility.~~— The ~~Series 2019-1 Class A-1~~Variable Funding Notes were issued under the Indenture and allow for drawings of up to $150.0 million on a revolving ~~basis.~~

~~The Series 2019-1 Senior~~basis and the issuance of letters of credit. Depending on the type of borrowing under the Variable Funding Notes, ~~were issued~~interest on the Variable Funding Notes will be based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the London interbank offered rate for U.S. Dollars or (iv) the lenders’ commercial paper funding rate plus any applicable margin, as set forth in the Variable Funding Note Purchase Agreement. There is a ~~privately placed securitization transaction pursuant to which most~~scaled commitment fee on the unused portion of the ~~Company’s revenue-generating assets, consisting principally~~Variable Funding Notes facility of ~~franchise-related agreements, real estate assets,~~between 50 and ~~intellectual property~~100 basis points. It is anticipated that the principal and ~~license agreements for~~interest on the ~~use of intellectual property, were contributed~~Variable Funding Notes will be repaid in full on or ~~otherwise transferred~~prior to August 2024, subject to two one-year extensions at the ~~Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries~~option of the Company. Following the anticipated repayment date (and any extensions thereof), additional interest will accrue equal to 5.00% per annum. As of July 5, 2020 and September 29, 2019, $41.1 million and $45.6 million, respectively, of letters of credit were outstanding against the Variable Funding Notes. As of September 29, 2019, we had no outstanding borrowings under our Variable Funding Notes. During the second quarter of 2020, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we borrowed $107.9 million under the Variable Funding Notes. The Company ~~that act as guarantors (the “Guarantors”)~~may use the proceeds from the borrowings for working capital and general corporate purposes. As of ~~the Series 2019-1 Senior~~July 5, 2020, remaining borrowing availability under our Variable Funding Notes was $1.1 million. As of July 5, 2020, $107.9 million of borrowings were outstanding under our Variable Funding Notes at a weighted average interest rate of 2.3%.

Covenants and restrictions —The Class A-2 Notes and ~~that have pledged substantially all of their assets (excluding certain real estate assets)~~the Variable Funding Notes (collectively referred to ~~secure~~as the ~~Series 2019-1 Senior Notes.~~

~~The Series 2019-1 Senior Notes~~“Notes”) are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the ~~Series 2019-1 Senior~~ Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the ~~Series 2019-1~~ Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the ~~Series 2019-1 Senior~~ Notes are in stated ways defective or ineffective and (iv) covenants relating to recordkeeping, access to information and similar matters. The ~~Series 2019-1 Senior~~ Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of global gross sales for specified restaurants being below certain levels on certain measurement dates, certain manager termination events, an event of default, and the failure to repay or refinance the ~~Series 2019-1~~ Class A-2 Notes on the applicable scheduled maturity date. The ~~Series 2019-1 Senior~~ Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the ~~Series 2019-1 Senior~~ Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments.

~~Repurchases of Common Stock~~— ~~We did not repurchase any common shares during 2019.~~ As of July ~~7, 2019, there was approximately $101.0 million remaining under Board-authorized stock-buyback programs which expires~~5, 2020, we were in ~~November 2019. Repurchases~~compliance with all of ~~common stock included in~~ our ~~condensed consolidated statement of cash flows for fiscal 2019 includes $14.4 million related to repurchase transactions traded in the prior fiscal year that settled in 2019.~~

~~Dividends~~ ~~— During 2019, the Board of Directors declared three cash dividends of $0.40 per common share totaling $31.2 million. Future dividends are~~debt covenant requirements and were not subject to ~~approval by our Board of Directors.~~any rapid amortization events.

Off-Balance Sheet Arrangements

We have entered into certain off-balance sheet contractual obligations and commitments in the ordinary course of business, which are recognized in our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles. There has been no material change in these arrangements as disclosed in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September ~~30, 2018.~~29, 2019. We are not a party to any other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

~~Contractual Obligations~~

Due to the refinancing of our long-term debt on July 8, 2019, our contractual obligations have changed materially from those previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. The following is a summary of future principal and interest payments under our new securitized debt as of July 8, 2019 (~~in thousands~~):

Payments Due by Fiscal Year
Total
Less than
1 year
1-3 years 3-5 years After 5 years
Contractual Obligations:
Principal payments $ 1,300,000
$ 9,750
$ 26,000
$ 573,688
$ 690,562
Interest payments $ 393,387
$ 50,586
$ 113,270
$ 94,524
$ 135,007

~~There have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed above.~~

DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those that we believe are most important for the portrayal of the Company’s financial condition and results, and that require management’s most subjective and complex judgments. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September ~~30, 2018.~~29, 2019.

NEW ACCOUNTING PRONOUNCEMENTS

Refer to Note 1, Basis of Presentation, of the notes to condensed consolidated financial statements.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the federal securities ~~laws.~~laws, including further impacts that COVID-19 pandemic may have on our future operations. Any statements contained herein that are not historical facts may be deemed to be forward-looking statements. Forward-looking statements may be identified by words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “will,” “would”, “should” and similar expressions. These statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate. These estimates and assumptions involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause our actual results to differ materially from any forward-looking statements include, but are not limited to:

•The potential impacts to our business and operations resulting from the coronavirus COVID-19 pandemic.

•We face significant competition in the food service industry and our inability to compete may adversely affect our business.

•Changes in demographic trends and in customer tastes and preferences could cause sales and the royalties we receive from franchisees to decline.

•Changes in consumer confidence and declines in general economic conditions could negatively impact our financial results.

•Increases in food and commodity costs could decrease our profit margins or result in a modified menu, which could adversely affect our financial results.

~~Changes in the structure or management of our distribution organization, or failure of our restaurants~~•Failure to receive scheduled deliveries of high quality food ingredients and other supplies ~~at favorable costs could negatively impact the financial success of our franchise and company restaurants, and~~ could harm our operations ~~promotions~~ and reputation.

•We have a limited number of suppliers for our major products and rely on a distribution network with a limited number of distribution partners for the majority of our national distribution program in the United States. If our suppliers or distributors are unable to fulfill their obligations under their contracts, it could harm our operations.

•Food safety and food-borne illness concerns may have an adverse effect on our business by reducing demand and increasing costs.

•Negative publicity relating to our business or industry could adversely impact our reputation.

•Our business could be adversely affected by increased labor ~~costs~~costs.

•Inability to attract, train and retain top-performing personnel could adversely impact our financial results or ~~difficulties in finding and retaining top-performing personnel.~~business.

•We may not have the same resources as our competitors for marketing, advertising and promotion.

•We may be adversely impacted by severe weather conditions, natural disasters, terrorist acts or civil unrest that could result in property damage, injury to employees and staff, and lost restaurant sales.

~~Our business is subject to seasonal fluctuations.~~

•We may not achieve our development goals.

•Our highly franchised business model presents a number of risks, and the failure of our franchisees to operate successful and profitable restaurants could negatively impact our business.

•We are subject to financial and regulatory risks associated with our owned and leased properties and real estate development projects.

•Changes to estimates related to our property, fixtures, and equipment or operating results that are lower than our current estimates at certain restaurant locations may cause us to incur impairment charges on certain long-lived assets, which may adversely affect our results of operations.

•Our tax provision may fluctuate due to changes in expected earnings.

•Activities related to our sale of Qdoba, and our refranchising, restructuring, and cost savings initiatives entail various risks and may negatively impact our financial results.

•We are subject to the risk of cybersecurity breaches, intrusions, data loss, or other data security incidents.

•If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, the Company’s stockholders could lose confidence in our financial results, which would harm our business and the value of the Company’s common shares.

•We may not be able to adequately protect our intellectual property, which could harm the value of our brands and adversely affect our business.

•Jack in the Box may be subject to risk associated with disagreements with key stakeholders, such as franchisees.

•The securitized debt instruments issued by certain of our wholly-owned subsidiaries have restrictive terms, and any failure to comply with such terms could result in default, which could harm the value of our brand and adversely affect our business.

•We have a significant amount of debt ~~outstanding that,~~outstanding. Such indebtedness, along with the other contractual commitments of our Company or its subsidiaries, could adversely affect our business, financial condition and results of operations, as well as the ability ~~or that~~ of certain of our subsidiaries to meet debt ~~obligations, or could otherwise adversely affect our business.~~payment obligations.

•The securitization transaction documents impose certain restrictions on our activities or the activities of our subsidiaries, and the failure to comply with such restrictions could adversely affect our business.

•Changes in accounting standards may negatively impact our results of operations.

•We are subject to increasing legal complexity and may be subject to claims or lawsuits that are costly to defend and could result in our payment of substantial damages or settlement costs.

•Unionization activities or labor disputes may disrupt our operations and affect our profitability.

•Increasing regulatory and legal complexity may adversely affect restaurant operations and our financial results; including federal, state, and local policies regarding mitigation strategies for controlling the coronavirus COVID-19 pandemic.

•Our insurance may not provide adequate levels of coverage against claims.

•Our quarterly results and, as a result, the price of our common stock, may fluctuate significantly and could fall below the expectations of securities analysts and investors due to various factors.

•The price of our common stock may be adversely affected by investor response to our temporary suspension of our stock repurchase program.

•Activities of activist stockholders could cause us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business.

•Governmental regulation may adversely affect our existing and future operations and results, including by harming our ability to profitably operate our restaurants.

•The proliferation of federal, state, and local regulations increases our compliance risks, which in turn could adversely affect our business.

•Legislation and regulations regarding our products and ingredients, including the nutritional content of our products, could impact customer preferences and negatively impact our financial results.

•Failure to obtain and maintain required licenses and permits or to comply with food control regulations could lead to the loss of our food service licenses and, thereby, harm our business.

~~Jack in the Box may be subject to risk associated with disagreements with key stakeholders, such as franchisees.~~

These and other factors are identified and described in more detail in our filings with the Securities and Exchange Commission, including, but not limited to: the “Discussion of Critical Accounting Estimates,” and other sections in this Form 10-Q and the “Risk Factors” section of our most recent Annual Report on Form 10-K for the fiscal year ended September ~~30, 2018~~29, 2019 (“Form 10-K”). These documents may be read free of charge on the SEC’s website at www.sec.gov. Potential investors are urged to consider these factors, more fully described in our Form 10-K, carefully in evaluating any forward-looking statements, and are cautioned not to place undue reliance on the forward-looking statements. All forward-looking statements are made only as of the date issued, and we do not undertake any obligation to update any forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~In connection with the securitized refinancing completed on July 8, 2019, we~~We are only exposed to interest rate risk on borrowings under our ~~$150.0~~Class A-1 Variable Funding Notes, a revolving credit facility, borrowings from which are subject to variable interest rates. In the second quarter of 2020, we borrowed $107.9 million under the variable funding ~~notes. As~~notes, which remains outstanding as of July ~~8, 2019, we had no~~5, 2020. Based on outstanding borrowings ~~under our variable funding notes. Our fixed rate securitized debt exposes the Company to changes~~as of July 5, 2020, an increase or decrease of 100 basis points in ~~market~~ interest rates ~~reflected in the fair value of the debt and to the risk that the Company may need to refinance maturing debt with new debt at a higher rate.~~would impact our interest expense by approximately $1.1 million on an annualized basis.

We are also exposed to the impact of commodity and utility price fluctuations. Many of the ingredients we use are commodities or ingredients that are affected by the price of other commodities, weather, seasonality, production, availability and various other factors outside our control. In order to minimize the impact of fluctuations in price and availability, we monitor the primary commodities we purchase and may enter into purchasing contracts and pricing arrangements when considered to be advantageous. However, certain commodities remain subject to price fluctuations. We are exposed to the impact of utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs for commodities and utilities through higher prices is limited by the competitive environment in which we operate. We also could experience shortages of key ingredients if our suppliers need to close or restrict operations due to the impact of the COVID-19 pandemic. We have not experienced any material disruptions in our supply chains as of the date of this report.

ITEM 4. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

~~Based on an evaluation~~Management, under the oversight of the Company’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s quarter ended July 7, 2019, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive ~~officer~~ and principal financial officer, respectively) ~~have concluded that~~, evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13-1-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by the Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were ~~effective.~~

not effective due to a material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended September 29, 2019.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended July ~~7, 2019~~5, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Remediation of Material Weakness

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended September 29, 2019, we began implementing a remediation plan to address the material weakness mentioned above. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

PART II. OTHER INFORMATION

There is no information required to be reported for any items under Part II, except as follows:

ITEM 1. LEGAL PROCEEDINGS

See Note 13, Contingencies and Legal Matters, of the notes to the condensed consolidated financial statements for a discussion of our contingencies and legal matters.

ITEM 1A. RISK FACTORS

The risk factors set forth below contain material changes to the risk factors previously disclosed and included in our Annual Report on Form 10-K for the fiscal year ended September ~~30, 2018.~~29, 2019. When evaluating our business and our prospects, you should consider the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended September ~~30, 2018,~~29, 2019, which we filed with the SEC on November 21, ~~2018,~~2019, as updated in this Item 1A. You should also consider the risks and uncertainties discussed under the heading “Cautionary Statements Regarding Forward-Looking Statements” in Item 2 of this Quarterly Report on Form 10-Q. You should also refer to the other information set forth in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended September ~~30, 2018,~~29, 2019, including our financial statements and the related notes. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the risks or uncertainties actually occurs, our business and financial results could be harmed. In that case, the market price of our common stock could decline.

~~Jack in the Box may be subject~~The COVID-19 pandemic has disrupted and is expected to ~~risk associated with disagreements with key stakeholders, such as franchisees.~~continue to disrupt our business, which has affected and could continue to materially affect our operations, financial condition and results of operations for an extended period of time.

~~In addition~~The COVID-19 pandemic outbreak, federal, state and local government responses to ~~its shareholders, Jack in the Box has several key stakeholders, including its independent franchise operators. Third parties such as franchisees are not subject~~COVID-19 and our responses to the ~~control~~outbreak have all disrupted and will continue to disrupt our business. In the United States, individuals are being encouraged to practice social distancing, restricted from gathering in groups, and in some areas, placed on complete restriction from non-essential movements outside of ~~the Company and may take actions or behave in ways that are adverse~~their homes. In response to the ~~Company. Because the ultimate interests~~COVID-19 outbreak and these changing conditions, we previously announced that all company-owned and franchise-operated restaurants are operating in an off-premise capacity, including drive-thru, third-party delivery and carry-out. We have implemented a number of ~~franchisees~~safety procedures, including implementing heightened sanitation requirements, practicing employee social distancing, and ~~the Company are largely aligned around maximizing~~adhering to glove and mask protocol for all patrons and workers.

Our operating results substantially depend upon our franchisees’ sales volumes, restaurant ~~profits, the Company does not believe that any areas~~profitability, and financial stability. The financial impact of ~~disagreement between the company~~COVID-19 has had, and ~~franchisees are likely~~is expected to ~~create material risk~~continue to ~~the Company or its shareholders. Nevertheless, it is possible that conflict and disagreements with these or other critical stakeholders could~~ have, ~~a material adverse effect on the Company’s business.~~

The securitized debt instruments issued by certain of our wholly-owned subsidiaries have restrictive terms, and any failure to comply with such terms could result in default, which could harm the value of our brand and adversely affect our business.

The Series 2019-1 Senior Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Series 2019-1 Senior Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Series 2019-1 Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Series 2019-1 Senior Notes are in stated ways defective or ineffective and (iv) covenants relating to recordkeeping, access to information and similar matters. The Series 2019-1 Senior Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of global gross sales for specified restaurants being below certain levels on certain measurement dates, certain manager termination events, an event of default, and the failure to repay or refinance the Series 2019-1 Class A-2 Notes on the applicable scheduled maturity date. The Series 2019-1 Senior Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the Series 2019-1 Senior Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments.

In the event that a rapid amortization event occurs under the Indenture (including, without limitation, upon an event of default under the Indenture or the failure to repay the securitized debt at the end of the applicable term) which would require repayment of the Series 2019-1 Senior Notes, the funds available to us would be reduced or eliminated, which would in turn reduce our ability to operate and/or grow our business. If our subsidiaries are not able to generate sufficient cash flow to service their debt obligations, they may need to refinance or restructure debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If our subsidiaries are unable to implement one or more of these alternatives, they may not be able to meet debt payment and other obligations which could have a material adverse effect on our franchisees’ liquidity. To ensure financial ~~condition.~~health of our valued franchise operators, we have reduced marketing fees and postponed collection of these marketing fees, postponed the collection of certain franchisee rental payments and delayed all fiscal 2020 franchise development agreements by at least six months and suspended other required capital investments. To the extent our franchisees experience financial distress, our operating results may be adversely impacted, potentially materially affecting our liquidity, financial condition, or results of operations.

WeAs discussed in this report, we have a significant amount of debt ~~outstanding. Such indebtedness, along with~~outstanding and have recently drawn down on our Variable Funding Notes, which provided us $107.9 million of unrestricted cash, to provide additional security to our liquidity position and provide financial flexibility given uncertain market and economic conditions as a result of the ~~other contractual commitments of~~COVID-19 pandemic. A material increase in our ~~Company or its subsidiaries, could adversely affect our business, financial condition and results of operations, as well as the ability of certain of our subsidiaries to meet debt payment obligations.~~

Under the Indenture, the Master Issuer has $1.3 billion of outstanding debt as of August 7, 2019. Additionally, the Master Issuer has the ability to borrow amounts from time to time on a revolving basis, up to an aggregate principal amount of $150.0 million pursuant to the Series 2019-1 Class A-1 Notes. Under the prior credit facility that was terminated on July 8, 2019, we had outstanding borrowings of $304.4 million under the term loan, $707.4 million under the revolving credit facility, and unused borrowing capacity of $162.7.

~~This~~ level of debt could have certain material adverse effects on us. If the ~~Company, including but not limited to:~~

~~our available cash flow~~business interruptions caused by COVID-19 last longer than we expect, we may need to seek other sources of liquidity. The COVID-19 outbreak is adversely affecting the availability of liquidity generally in the future to fund working capital, capital expenditures, acquisitions, and general corporate or other purposes could be impaired, and our ability to obtain additional financing for such purposes is limited;

~~a substantial portion of our cash flows could be required for debt service and, as a result, might not be available for our operations or other purposes;~~

any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or could force us to modify our operations or sell assets;

~~our ability to operate our business and our ability to repurchase stock or pay cash dividends to our stockholders may be restricted by the financial and other covenants set forth in the Indenture;~~

~~the variable interest rate on the $150 million of Series 2019-1 Class A-1 Notes subjects us to an increased sensitivity to interest rate increases on indebtedness;~~

~~our ability to withstand competitive pressures may be decreased; and~~

~~our level of indebtedness may make us more vulnerable to economic downturns and reduce our flexibility in responding to changing business, regulatory, and economic conditions.~~

The ability to meet payment and other obligations under the debt instruments of our subsidiaries depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control as described in our Annual Report on Form 10-K. Our business may not generate cash flow from operations,credit markets, and there can be no ~~assurances~~guarantee that ~~future borrowings~~additional liquidity will be readily available or available on favorable terms, especially the longer the COVID-19 outbreak lasts.

Our business could be further disrupted if any of our company or franchised restaurant employees are diagnosed with COVID-19 since this could require us or our franchisees to usquarantine some or all of a restaurant’s employees and disinfect the restaurants facilities. If a significant percentage of our or our franchisees’ workforce is unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in ~~an amount sufficient to enable~~connection with COVID-19, our ~~subsidiaries to meet~~results may be adversely impacted, potentially materially affecting our ~~debt payment obligations and to fund other~~ liquidity, ~~needs.~~financial condition, or results of operations.

Our suppliers could be adversely impacted by the COVID-19 outbreak. If our subsidiaries are not able to generate sufficient cash flow to service our debt obligations, our subsidiaries may need to refinance or restructure debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If our subsidiariessuppliers’ employees are unable to ~~implement one~~work, whether because of illness, quarantine, limitations on travel or ~~more~~other government restrictions in connection with COVID-19, we could face cost increases and/or shortages of ~~these alternatives, they~~food items or other supplies across our restaurants and our results could be adversely impacted by such supply interruptions.

The equity markets in the United States have been extremely volatile due to the COVID-19 outbreak and our stock price has fluctuated significantly.

Additional government regulations or legislation as a result of COVID-19 in addition to decisions we have made and may ~~not be able~~make in the future relating to ~~meet debt payment~~the compensation of and ~~other obligations, which~~benefit offerings for our company-operated restaurant team members could also have ~~a material~~an adverse effect on our ~~financial condition.~~

~~In addition, we~~business. We cannot predict the types of government regulations or legislation that may ~~incur additional indebtedness in~~be passed relating to employee compensation as a result of the ~~future. If new debt or~~COVID-19 outbreak. We have implemented an emergency paid sick leave program at our company-operated restaurants and taken other ~~liabilities are added~~compensation and benefit actions to support our ~~current consolidated debt levels,~~restaurant team members during the ~~related risks~~COVID-19 business interruption, but those actions may not be sufficient to compensate our team members for the entire duration of any business interruption resulting from COVID-19. Those team members might seek and find other employment during that ~~it now faces~~interruption, which could ~~intensify.~~

~~The securitization transaction documents impose certain restrictions on our activities or the activities of our subsidiaries, and the failure to comply with such restrictions could~~materially adversely affect our ~~business.~~ability to properly staff and reopen our restaurants with experienced team members when the business interruptions caused by COVID-19 abate or end.

The ~~Indenture and~~COVID-19 outbreak also may have the ~~management agreement entered into between certain~~effect of our subsidiaries and the Indenture trustee (the “Management Agreement”) contain various covenants that limit our and our subsidiaries’ ability to engage in specified types of transactions. For example, the Indenture and the Management Agreement contain covenants that, amongheightening other ~~things, restrict, subject to certain exceptions, the ability of certain subsidiaries to:~~

~~incur or guarantee additional indebtedness;~~

~~sell certain assets;~~

~~alter the business conducted by our subsidiaries;~~

~~create or incur liens on certain assets to secure indebtedness; or~~

~~consolidate, merge, sell or otherwise dispose of all or substantially all of the assets held within the securitization entities.~~

~~As a result of these restrictions, we may not have adequate resources or the flexibility to continue to manage the business and provide for growth of the Jack~~risks disclosed in the ~~Box system,~~Risk Factors section including ~~product development~~in our Form 10-K filed on November 21, 2019, including, but not limited to, those related to consumer confidence, increase in food and ~~marketing for the Jack in the Box brand, which could adversely affect our future growth prospects, financial condition, results of operations~~commodity costs, supply chain interruptions, labor availability and ~~liquidity.~~cost, cybersecurity incidents, increased indebtedness, regulatory and legal complexity, and governmental regulation.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock Repurchases — We ~~have~~did not ~~repurchased~~repurchase any shares of our common stock in ~~2019.~~the third quarter of 2020. As of July ~~7, 2019,~~5, 2020, there was approximately ~~$101.0~~$22.2 million remaining under the Board-authorized ~~stock-buyback programs~~stock buyback program which ~~expire~~expires in November ~~2019.~~2020 and approximately $100.0 million which expires in November 2021.

ITEM 3. DEFAULTS ~~UPON~~OF SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Effective, August 2, 2019, the Board of Directors approved the Amended and Restated Bylaws of the Company, which were updated to provide for gender-neutral references and to clarify the roles and responsibilities of the position of the President of the Company in the event that the company shall designate a President of the Company.Item 5.03. None.

The foregoing summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the complete copy of the Amended and Restated Bylaws, which has been filed as Exhibit 3.1, hereto and is hereby incorporated herein by reference. Interested parties should read the document in its entirety.

ITEM 6. EXHIBITS

Number

Description

Form

Filed with SEC

~~3.1~~10.2.18*

~~Amended and Restated Bylaws,~~Lance Tucker Retention Agreement, dated ~~August 2, 2019.~~May 5, 2020

—10-Q

Filed herewith

~~4.1~~31.1

~~Base Indenture, dated as of July 8, 2019, by and between Jack in the Box Funding, LLC, as Master Issuer, and Citibank, N.A., as Trustee and Securities Intermediary.~~

~~8-K~~

~~7/8/2019~~

~~4.2~~

Series 2019-1 Supplement to Base Indenture, dated as of July 8, 2019, by and between Jack in the Box Funding, LLC, as Master Issuer of the Series 2019-1 fixed rate senior secured notes, Class A-2, and Series 2019-1 variable funding senior notes, Class A-1, and Citibank, N.A., as Trustee and Series 2019-1 Securities Intermediary.

~~8-K~~

~~7/8/2019~~

~~10.1~~

Class A-1 Note Purchase Agreement, dated as of July 8, 2019, by and among Jack in the Box Funding, LLC, as Master Issuer, each of Different Rules, LLC, Jack in the Box Properties, LLC and Jack in the Box SPV Guarantor, LLC, as Guarantors, Jack in the Box Inc. as Manager, the conduit investors party thereto, the financial institutions party thereto, certain funding agents, and Coöperatieve Rabobank, U.A., New York Branch, as L/C Provider, Swingline Lender and Administrative Agent.

~~8-K~~

~~7/8/2019~~

~~10.1.19~~

Fifth Amendment, dated as of May 1, 2019, by and among Jack in the Box Inc., the Guarantors party thereto, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto

~~8-K~~

~~5/2/2019~~

~~10.2~~

The Guarantee and Collateral Agreement, dated July 8, 2019, by and among Jack in the Box SPV Guarantor, LLC, Different Rules, LLC, and Jack in the Box Properties, LLC, each as a Guarantor and Citibank, N.A., as Trustee.

~~8-K~~

~~7/8/2019~~

~~10.3~~

Management Agreement, dated as of July 8, 2019, by and among Jack in the Box Funding, LLC, as Master Issuer, certain subsidiaries of Jack in the Box Funding, LLC party thereto, Jack in the Box Inc., as Manager, and Citibank, N.A., as Trustee.

~~8-K~~

~~7/8/2019~~

~~31.1~~

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

—

Filed herewith

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

—

Filed herewith

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

—

Filed herewith

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

—

Filed herewith

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

* Management contract or compensatory plan

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		JACK IN THE BOX INC.

		~~JACK IN THE BOX INC.~~

By:	/S/ LANCE TUCKER
			Lance Tucker
			Executive Vice President and Chief Financial Officer (principal financial officer) (Duly Authorized Signatory)

Date: August ~~8, 2019~~5, 2020



				Adjustments
	As Reported			Franchise Fees			Marketing and Sourcing Fees			Technology Support Fees			Balances without Adoption
Condensed Consolidated Statements of Earnings
12-Weeks Ended July 7, 2019
Franchise royalties and other	$	40,180		$	(918	)	$	—		$	—		$	39,262
Franchise contributions for advertising and other services	$	40,386		$	—		$	(38,133	)	$	(2,253	)	$	—
Total revenues	$	222,359		$	(918	)	$	(38,133	)	$	(2,253	)	$	181,055
Franchise advertising and other services expenses	$	41,882		$	—		$	(38,133	)	$	(3,749	)	$	—
Selling, general and administrative expenses	$	24,389		$	—		$	—		$	1,496		$	25,885
Total operating costs and expenses, net	$	174,098		$	—		$	(38,133	)	$	(2,253	)	$	133,712
Earnings from operations	$	48,261		$	(918	)	$	—		$	—		$	47,343
Earnings from continuing operations and before income taxes	$	11,425		$	(918	)	$	—		$	—		$	10,507
Income tax (benefit) expense	$	(2,048	)	$	(237	)	$	—		$	—		$	(2,285	)
Earnings from continuing operations	$	13,473		$	(681	)	$	—		$	—		$	12,792
Net earnings	$	13,189		$	(681	)	$	—		$	—		$	12,508

40-Weeks Ended July 7, 2019
Franchise royalties and other	$	130,840		$	(2,983	)	$	—		$	—		$	127,857
Franchise contributions for advertising and other services	$	131,189		$	—		$	(124,187	)	$	(7,002	)	$	—
Total revenues	$	728,872		$	(2,983	)	$	(124,187	)	$	(7,002	)	$	594,700
Franchise advertising and other services expenses	$	136,397		$	—		$	(124,187	)	$	(12,210	)	$	—
Selling, general and administrative expenses	$	66,057		$	—		$	—		$	5,208		$	71,265
Total operating costs and expenses, net	$	575,164		$	—		$	(124,187	)	$	(7,002	)	$	443,975
Earnings from operations	$	153,708		$	(2,983	)	$	—		$	—		$	150,725
Earnings from continuing operations and before income taxes	$	85,423		$	(2,983	)	$	—		$	—		$	82,440
Income tax (benefit) expense	$	15,699		$	(769	)	$	—		$	—		$	14,930
Earnings from continuing operations	$	69,724		$	(2,214	)	$	—		$	—		$	67,510
Net earnings	$	72,376		$	(2,214	)	$	—		$	—		$	70,162

Condensed Consolidated Balance Sheet
July 7, 2019
Prepaid expenses	$	17,484		$	769		$	—		$	—		$	18,253
Total current assets	$	105,997		$	769		$	—		$	—		$	106,766
Deferred tax assets	$	72,903		$	(12,958	)	$	—		$	—		$	59,945
Other assets, net	$	215,234		$	269		$	—		$	—		$	215,503
Total other assets	$	335,335		$	(12,689	)	$	—		$	—		$	322,646
Total assets	$	831,270		$	(11,920	)	$	—		$	—		$	819,350
Accrued liabilities	$	124,823		$	(4,968	)	$	—		$	—		$	119,855
Total current liabilities	$	218,849		$	(4,968	)	$	—		$	—		$	213,881
Other long-term liabilities	$	221,219		$	(42,067	)	$	—		$	—		$	179,152
Total long-term liabilities	$	1,192,982		$	(42,067	)	$	—		$	—		$	1,150,915
Retained earnings	$	1,565,287		$	35,114		$	—		$	—		$	1,600,401
Total stockholders’ deficit	$	(580,561	)	$	35,114		$	—		$	—		$	(545,447	)
Total liabilities and stockholders’ deficit	$	831,270		$	(11,921	)	$	—		$	—		$	819,349



	Deferred Franchise Fees
Deferred franchise fees at October 1, 2018	$	50,018
Revenue recognized during the period	(3,953		)
Additions during the period	970
Deferred franchise fees at July 7, 2019	$	47,035



2019 (1)	$	1,145
2020	4,878
2021	4,856
2022	4,656
2023	4,501
Thereafter	26,999
	$	47,035



	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 7, 2019:
Non-qualified deferred compensation plan (1)	$	31,012	$	31,012	$	—	$	—
Total liabilities at fair value	$	31,012	$	31,012	$	—	$	—
Fair value measurements as of September 30, 2018:
Non-qualified deferred compensation plan (1)	$	37,447	$	37,447	$	—	$	—
Interest rate swaps (Note 7) (2)	703		—		703		—
Total liabilities at fair value	$	38,150	$	37,447	$	703	$	—



	Balance Sheet Location	Fair Value
	Balance Sheet Location	July 7, 2019		September 30, 2018
Derivatives designated as hedging instruments:
Interest rate swaps	Accrued liabilities	$	—	$	(26	)
Interest rate swaps	Other long-term liabilities	—		(1,266		)
Interest rate swaps	Other assets, net	—		589
Total derivatives		$	—	$	(703	)



Balance as of September 30, 2018	$	5,309
Costs incurred	5,946
Accruals released	(605		)
Cash payments	(8,167		)
Balance as of July 7, 2019	$	2,483



Balance as of September 30, 2018	$	3,534
Additions	—
Adjustments (1)	572
Interest expense	1,094
Cash payments	(3,156		)
Balance as of July 7, 2019 (2) (3)	$	2,044



	Quarter			Year-to-date
Decrease in the average number of restaurants	$	(11.0	)	$	(116.3	)
AUV increase	1.9			3.1
Total change in company restaurant sales	$	(9.1	)	$	(113.2	)



	Payments Due by Fiscal Year
	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
Contractual Obligations:
Principal payments	$	1,300,000	$	9,750	$	26,000	$	573,688	$	690,562
Interest payments	$	393,387	$	50,586	$	113,270	$	94,524	$	135,007