UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~January 19,~~April 12, 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

San Diego, California 92123

(Address of principal executive offices)

Registrant’s telephone number, including area code (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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	þ	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 ~~February 14,~~May 8, 2020, ~~22,630,771~~22,671,849 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 (Loss) 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	2123
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3437
Item 4.	Controls and Procedures	3437
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	3538
Item 1A.	Risk Factors	3538
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3539
Item 3.	Defaults of Senior Securities	3639
Item 4.	Mine Safety Disclosures	3639
Item 5.	Other Information	3639
Item 6.	Exhibits	3740
	Signature	3841

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)


		January 19, 2020		September 29, 2019			April 12, 2020		September 29, 2019
ASSETS	ASSETS									ASSETS
Current assets:	Current assets:					Current assets:
Cash	Cash	$	19,914	$	125,536	Cash	$	132,161	$	125,536
Restricted cash	Restricted cash	18,372		26,025		Restricted cash	37,023		26,025
Accounts and other receivables, net	Accounts and other receivables, net	53,576		45,235		Accounts and other receivables, net	66,331		45,235
Inventories	Inventories	2,029		1,776		Inventories	1,821		1,776
Prepaid expenses	Prepaid expenses	13,665		9,015		Prepaid expenses	18,460		9,015
Current assets held for sale	Current assets held for sale	7,760		16,823		Current assets held for sale	6,186		16,823
Other current assets	Other current assets	3,037		2,718		Other current assets	3,970		2,718
Total current assets	Total current assets	118,353		227,128		Total current assets	265,952		227,128
Property and equipment:	Property and equipment:					Property and equipment:
Property and equipment, at cost	Property and equipment, at cost	1,155,356		1,176,241		Property and equipment, at cost	1,149,656		1,176,241
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(793,851)		(784,307)		Less accumulated depreciation and amortization	(793,435)		(784,307)
Property and equipment, net	Property and equipment, net	361,505		391,934		Property and equipment, net	356,221		391,934
Other assets:	Other assets:					Other assets:
Operating lease right-of-use assets	Operating lease right-of-use assets	884,213		—		Operating lease right-of-use assets	903,010		—
Intangible assets, net	Intangible assets, net	37		425		Intangible assets, net	294		425
Goodwill	Goodwill	46,747		46,747		Goodwill	47,161		46,747
Deferred tax assets	Deferred tax assets	66,675		85,564		Deferred tax assets	77,410		85,564
Other assets, net	Other assets, net	212,783		206,685		Other assets, net	211,205		206,685
Total other assets	Total other assets	1,210,455		339,421		Total other assets	1,239,080		339,421
		$	1,690,313	$	958,483		$	1,861,253	$	958,483
LIABILITIES AND STOCKHOLDERS’ DEFICIT	LIABILITIES AND STOCKHOLDERS’ DEFICIT									LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:	Current liabilities:					Current liabilities:
Current maturities of long-term debt	Current maturities of long-term debt	$	13,786	$	774	Current maturities of long-term debt	$	13,819	$	774
Current operating lease liabilities	Current operating lease liabilities	158,779		—		Current operating lease liabilities	163,077		—
Accounts payable	Accounts payable	23,467		37,066		Accounts payable	47,867		37,066
Accrued liabilities	Accrued liabilities	118,289		120,083		Accrued liabilities	120,949		120,083
Total current liabilities	Total current liabilities	314,321		157,923		Total current liabilities	345,712		157,923
Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Long-term debt, net of current maturities	Long-term debt, net of current maturities	1,262,737		1,274,374		Long-term debt, net of current maturities	1,368,446		1,274,374
Long-term operating lease liabilities, net of current portion	Long-term operating lease liabilities, net of current portion	767,819		—		Long-term operating lease liabilities, net of current portion	781,653		—
Other long-term liabilities	Other long-term liabilities	186,589		263,770		Other long-term liabilities	242,368		263,770
Total long-term liabilities	Total long-term liabilities	2,217,145		1,538,144		Total long-term liabilities	2,392,467		1,538,144
Stockholders’ deficit:	Stockholders’ deficit:					Stockholders’ deficit:
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	—		—		Preferred stock $0.01 par value, 15,000,000 shares authorized, NaN issued	—		—
Common stock $0.01 par value, 175,000,000 shares authorized, 82,255,912 and 82,159,002 issued, respectively		823		822
Common stock $0.01 par value, 175,000,000 shares authorized, 82,318,622 and 82,159,002 issued, respectively						Common stock $0.01 par value, 175,000,000 shares authorized, 82,318,622 and 82,159,002 issued, respectively	823		822
Capital in excess of par value	Capital in excess of par value	483,739		480,322		Capital in excess of par value	489,847		480,322
Retained earnings	Retained earnings	1,572,586		1,577,034		Retained earnings	1,574,930		1,577,034
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(88,995)		(140,006)		Accumulated other comprehensive loss	(133,220)		(140,006)
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)		Treasury stock, at cost, 59,646,773 and 57,760,573 shares, respectively	(2,809,306)		(2,655,756)
Total stockholders’ deficit	Total stockholders’ deficit	(841,153)		(737,584)		Total stockholders’ deficit	(876,926)		(737,584)
		$	1,690,313	$	958,483		$	1,861,253	$	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)


		Sixteen Weeks Ended							Quarter						Year-to-date
		January 19, 2020		January 20, 2019			April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Revenues:	Revenues:					Revenues:
Company restaurant sales	Company restaurant sales	$	105,364	$	102,832	Company restaurant sales	$	74,380	$	76,682	$	179,744	$	179,514
Franchise rental revenues	Franchise rental revenues	96,084		83,890		Franchise rental revenues	69,885		61,646		165,969		145,536
Franchise royalties and other	Franchise royalties and other	52,466		52,250		Franchise royalties and other	37,764		38,410		90,230		90,660
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	53,759		51,814		Franchise contributions for advertising and other services	34,128		38,989		87,887		90,803
		307,673		290,786			216,157		215,727		523,830		506,513
Operating costs and expenses, net:	Operating costs and expenses, net:					Operating costs and expenses, net:
Company restaurant costs (excluding depreciation and amortization):	Company restaurant costs (excluding depreciation and amortization):					Company restaurant costs (excluding depreciation and amortization):
Food and packaging	Food and packaging	31,348		29,616		Food and packaging	22,237		21,676		53,585		51,292
Payroll and employee benefits	Payroll and employee benefits	31,890		30,274		Payroll and employee benefits	24,261		22,768		56,151		53,042
Occupancy and other	Occupancy and other	15,958		16,013		Occupancy and other	12,570		11,100		28,528		27,113
Total company restaurant costs	Total company restaurant costs	79,196		75,903		Total company restaurant costs	59,068		55,544		138,264		131,447
Franchise occupancy expenses (excluding depreciation and amortization)	Franchise occupancy expenses (excluding depreciation and amortization)	64,517		50,713		Franchise occupancy expenses (excluding depreciation and amortization)	48,341		38,618		112,858		89,331
Franchise support and other costs	Franchise support and other costs	4,676		2,845		Franchise support and other costs	2,971		2,797		7,647		5,642
Franchise advertising and other services expenses	Franchise advertising and other services expenses	55,224		54,270		Franchise advertising and other services expenses	35,734		40,245		90,958		94,515
Selling, general and administrative expenses	Selling, general and administrative expenses	28,248		24,083		Selling, general and administrative expenses	24,203		17,585		52,451		41,668
Depreciation and amortization	Depreciation and amortization	16,728		17,169		Depreciation and amortization	12,282		12,690		29,010		29,859
Impairment and other charges, net	Impairment and other charges, net	(9,291)		7,698		Impairment and other charges, net	716		1,125		(8,575)		8,823
Gains on the sale of company-operated restaurants	Gains on the sale of company-operated restaurants	(1,575)		(219)		Gains on the sale of company-operated restaurants	—		—		(1,575)		(219)
		237,723		232,462			183,315		168,604		421,038		401,066
Earnings from operations	Earnings from operations	69,950		58,324		Earnings from operations	32,842		47,123		102,792		105,447
Other pension and post-retirement expenses, net	Other pension and post-retirement expenses, net	38,978		456		Other pension and post-retirement expenses, net	512		343		39,490		799
Interest expense, net	Interest expense, net	19,942		17,374		Interest expense, net	15,409		13,276		35,351		30,650
Earnings from continuing operations and before income taxes	Earnings from continuing operations and before income taxes	11,030		40,494		Earnings from continuing operations and before income taxes	16,921		33,504		27,951		73,998
Income tax expense	Income tax expense	3,133		9,373		Income tax expense	5,458		8,374		8,591		17,747
Earnings from continuing operations	Earnings from continuing operations	7,897		31,121		Earnings from continuing operations	11,463		25,130		19,360		56,251
Earnings from discontinued operations, net of income taxes		—		2,977
(Losses) earnings from discontinued operations, net of income taxes						(Losses) earnings from discontinued operations, net of income taxes	—		(41)		—		2,936
Net earnings	Net earnings	$	7,897	$	34,098	Net earnings	$	11,463	$	25,089	$	19,360	$	59,187

Net earnings per share - basic:	Net earnings per share - basic:					Net earnings per share - basic:
Earnings from continuing operations	Earnings from continuing operations	$	0.33	$	1.20	Earnings from continuing operations	$	0.50	$	0.97	$	0.83	$	2.17
Earnings from discontinued operations	Earnings from discontinued operations	—		0.11		Earnings from discontinued operations	—		—		—		0.11
Net earnings per share (1)	Net earnings per share (1)	$	0.33	$	1.32	Net earnings per share (1)	$	0.50	$	0.97	$	0.83	$	2.28
Net earnings per share - diluted:	Net earnings per share - diluted:					Net earnings per share - diluted:
Earnings from continuing operations	Earnings from continuing operations	$	0.33	$	1.19	Earnings from continuing operations	$	0.50	$	0.96	$	0.82	$	2.15
Earnings from discontinued operations	Earnings from discontinued operations	—		0.11		Earnings from discontinued operations	—		—		—		0.11
Net earnings per share (1)	Net earnings per share (1)	$	0.33	$	1.31	Net earnings per share (1)	$	0.50	$	0.96	$	0.82	$	2.26

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

____________________________

(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 (LOSS) INCOME

(In thousands)

(Unaudited)


		Sixteen Weeks Ended							Quarter						Year-to-date
		January 19, 2020		January 20, 2019			April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Net earnings	Net earnings	$	7,897	$	34,098	Net earnings	$	11,463	$	25,089	$	19,360	$	59,187
Cash flow hedges:	Cash flow hedges:					Cash flow hedges:
Net change in fair value of derivatives	Net change in fair value of derivatives	—		(7,167)		Net change in fair value of derivatives	—		(4,959)		—		(12,126)
Net loss reclassified to earnings	Net loss reclassified to earnings	—		479		Net loss reclassified to earnings	—		134		—		613
		—		(6,688)			—		(4,825)		—		(11,513)
Tax effect	Tax effect	—		1,723		Tax effect	—		1,244		—		2,967
		—		(4,965)			—		(3,581)		—		(8,546)
Unrecognized periodic benefit costs:	Unrecognized periodic benefit costs:					Unrecognized periodic benefit costs:
Actuarial gains arising during the period		28,583		—
Actuarial losses arising during the period						Actuarial losses arising during the period	(61,090)		—		(32,507)		—
Actuarial losses and prior service costs reclassified to earnings	Actuarial losses and prior service costs reclassified to earnings	40,310		1,205		Actuarial losses and prior service costs reclassified to earnings	1,362		904		41,672		2,109
		68,893		1,205			(59,728)		904		9,165		2,109
Tax effect	Tax effect	(17,882)		(311)		Tax effect	15,503		(234)		(2,379)		(545)
		51,011		894			(44,225)		670		6,786		1,564

Other comprehensive income (loss), net of taxes		51,011		(4,071)
Other comprehensive (loss) income, net of taxes						Other comprehensive (loss) income, net of taxes	(44,225)		(2,911)		6,786		(6,982)

Comprehensive income		$	58,908	$	30,027
Comprehensive (loss) income						Comprehensive (loss) income	$	(32,762)	$	22,178	$	26,146	$	52,205

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Sixteen Weeks Ended							Year-to-date
		January 19, 2020		January 20, 2019			April 12, 2020		April 14, 2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net earnings	Net earnings	$	7,897	$	34,098	Net earnings	$	19,360	$	59,187
Earnings from discontinued operations	Earnings from discontinued operations	—		2,977		Earnings from discontinued operations	—		2,936
Earnings from continuing operations	Earnings from continuing operations	7,897		31,121		Earnings from continuing operations	19,360		56,251
Adjustments to reconcile net earnings to net cash provided by operating activities:	Adjustments to reconcile net earnings to net cash provided by operating activities:					Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	16,728		17,169		Depreciation and amortization	29,010		29,859
Amortization of franchise tenant improvement allowances and other	Amortization of franchise tenant improvement allowances and other	1,151		530		Amortization of franchise tenant improvement allowances and other	1,765		1,137
Deferred finance cost amortization	Deferred finance cost amortization	1,755		704		Deferred finance cost amortization	3,046		1,224
Tax deficiency (excess tax benefit) from share-based compensation arrangements		196		(50)
Excess tax benefits from share-based compensation arrangements						Excess tax benefits from share-based compensation arrangements	(77)		(47)
Deferred income taxes	Deferred income taxes	2,010		(783)		Deferred income taxes	6,783		3,955
Share-based compensation expense	Share-based compensation expense	3,184		1,909		Share-based compensation expense	5,865		4,708
Pension and postretirement expense	Pension and postretirement expense	38,978		456		Pension and postretirement expense	39,490		799
(Gains) losses on cash surrender value of company-owned life insurance		(3,374)		2,863
Losses (gains) on cash surrender value of company-owned life insurance						Losses (gains) on cash surrender value of company-owned life insurance	3,150		(1,336)
Gains on the sale of company-operated restaurants	Gains on the sale of company-operated restaurants	(1,575)		(219)		Gains on the sale of company-operated restaurants	(1,575)		(219)
(Gains) losses on the disposition of property and equipment, net		(10,437)		635
Gains on the disposition of property and equipment, net						Gains on the disposition of property and equipment, net	(10,170)		(138)
Non-cash operating lease costs	Non-cash operating lease costs	(7,668)		—		Non-cash operating lease costs	(13,118)		—
Impairment charges and other	Impairment charges and other	—		387		Impairment charges and other	133		896
Changes in assets and liabilities, excluding dispositions:
Changes in assets and liabilities, excluding acquisitions:						Changes in assets and liabilities, excluding acquisitions:
Accounts and other receivables	Accounts and other receivables	(5,619)		(3,154)		Accounts and other receivables	(22,858)		(11,658)
Inventories	Inventories	(253)		(232)		Inventories	28		(91)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(4,957)		6,224		Prepaid expenses and other current assets	(10,350)		3,701
Accounts payable	Accounts payable	(7,984)		6,365		Accounts payable	20,660		(3,904)
Accrued liabilities	Accrued liabilities	(1,558)		(16,298)		Accrued liabilities	1,400		(6,532)
Pension and postretirement contributions	Pension and postretirement contributions	(2,025)		(2,111)		Pension and postretirement contributions	(3,582)		(3,671)
Franchise tenant improvement allowance distributions	Franchise tenant improvement allowance distributions	(3,682)		(3,247)		Franchise tenant improvement allowance distributions	(5,811)		(6,697)
Other	Other	(80)		(4,668)		Other	(4,222)		(7,421)
Cash flows provided by operating activities	Cash flows provided by operating activities	22,687		37,601		Cash flows provided by operating activities	58,927		60,816
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(7,202)		(11,183)		Purchases of property and equipment	(12,777)		(18,191)
Proceeds from the sale of property and equipment	Proceeds from the sale of property and equipment	20,618		270		Proceeds from the sale of property and equipment	22,394		1,479
Proceeds from the sale and leaseback of assets	Proceeds from the sale and leaseback of assets	17,373		—		Proceeds from the sale and leaseback of assets	17,373		1,944
Proceeds from the sale of company-operated restaurants	Proceeds from the sale of company-operated restaurants	1,575		133		Proceeds from the sale of company-operated restaurants	1,575		133
Collections on notes receivable	Collections on notes receivable	—		6,517		Collections on notes receivable	—		6,491

Other						Other	1,036		—
Cash flows provided by (used in) investing activities	Cash flows provided by (used in) investing activities	32,364		(4,263)		Cash flows provided by (used in) investing activities	29,601		(8,144)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings on revolving credit facilities	Borrowings on revolving credit facilities	—		114,298		Borrowings on revolving credit facilities	111,376		189,736
Repayments of borrowings on revolving credit facilities	Repayments of borrowings on revolving credit facilities	—		(117,300)		Repayments of borrowings on revolving credit facilities	(3,500)		(180,800)
Principal repayments on debt	Principal repayments on debt	(198)		(10,907)		Principal repayments on debt	(3,640)		(21,757)
Debt issuance costs	Debt issuance costs	(216)		(17)		Debt issuance costs	(216)		(3,615)
Dividends paid on common stock	Dividends paid on common stock	(9,412)		(10,305)		Dividends paid on common stock	(18,466)		(20,615)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	184		114		Proceeds from issuance of common stock	3,559		243
Repurchases of common stock	Repurchases of common stock	(155,576)		(14,362)		Repurchases of common stock	(155,576)		(14,362)
Change in book overdraft		—		9,234
Payroll tax payments for equity award issuances	Payroll tax payments for equity award issuances	(3,108)		(2,498)		Payroll tax payments for equity award issuances	(4,442)		(2,617)
Cash flows used in financing activities	Cash flows used in financing activities	(168,326)		(31,743)		Cash flows used in financing activities	(70,905)		(53,787)
Net (decrease) increase in cash and restricted cash		(113,275)		1,595
Net increase (decrease) in cash and restricted cash						Net increase (decrease) in cash and restricted cash	17,623		(1,115)
Cash and restricted cash at beginning of period	Cash and restricted cash at beginning of period	151,561		2,705		Cash and restricted cash at beginning of period	151,561		2,705
Cash and restricted cash at end of period	Cash and restricted cash at end of period	$	38,286	$	4,300	Cash and restricted cash at end of period	$	169,184	$	1,590

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

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:


		January 19, 2020	January 20, 2019		April 12, 2020	April 14, 2019
Company-operated	Company-operated	137	137	Company-operated	144	137
Franchise	Franchise	2,107	2,104	Franchise	2,102	2,103
Total system	Total system	2,244	2,241	Total system	2,246	2,240

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 29, 2019 (“2019 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2019 Form 10-K with the exception of the new lease accounting standard adopted in fiscal 2020, which is described below.

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 — The Company is comprised of 1 operating segment.

Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 2020 and 2019 include 52 weeks. Our first quarter includes 16-weeks and all other quarters include 12-weeks. All comparisons between 2020 and 2019 refer to the ~~16-weeks~~12-weeks (“quarter”) and 28-weeks (“year-to-date”) ended ~~January 19,~~April 12, 2020 and ~~January 20,~~April 14, 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 Company is subject to risks and uncertainties as a result of the rapidly spreading outbreak of a novel strain of coronavirus (“COVID-19”). The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the response to the pandemic varies by state and municipalities within states. In the last five weeks of the quarter we experienced 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 as have been mandated or encouraged by federal, state and local governments. During the COVID-19 impacted weeks, substantially all of our restaurants remained open, with dining rooms closed and all locations operating in an off-premise capacity, which represents close to 90% of the Company’s business historically, including drive-thru, third-party delivery, and carry-out.

Our operating results substantially depend upon our franchisees’ sales volumes, restaurant profitability, and financial stability. The financial impact of COVID-19 has had, and is expected to continue to have, an adverse effect on our franchisees’ liquidity and we are working closely with our franchisees to monitor and assist them with access to appropriate sources of liquidity in order to sustain their businesses throughout this crisis.

We cannot currently estimate the duration or future negative financial impact of the COVID-19 pandemic on our business. Ongoing material adverse effects of the COVID-19 pandemic on company-owned and franchised restaurants for an extended period could negatively affect our operating results, including reductions in revenue and cash flow and could impact our impairment assessments of accounts receivable, long-lived assets, operating lease 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 2020 and 2019, marketing fund contributions from franchise and company-operated restaurants were approximately 5.0% of gross ~~revenues.~~ revenues with the exception of our March and 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. April marketing fees will range from 2% to 4% based on annualized sales volumes, and these fees will be collected over three months beginning October 2020.

In 2019, incremental contributions made by the Company were $2.0 million. There have been no0 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 and for the quarter and year-to-date totaled ~~$5.3~~$3.5 million and ~~$7.2~~$8.9 million, respectively, in 2020 and $3.9 million and $11.1 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 cash reserves held by the trustee to be used for payments of principal, interest and commitments fees required for the Class A-2 Notes. As of April 12, 2020 and September 29, 2019, restricted cash balances were $37.0 million and $26.0 million, respectively. During the second quarter, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we voluntarily elected to reserve quarterly interest and principal payments due in August 2020.

Effect of new accounting pronouncements adopted in fiscal 2020 — We adopted ASU 2016-02, Leases (Topic 842) (“ASC 842”) in the first quarter of 2020. The new guidance requires the recognition of lease liabilities, representing future minimum lease payments on a discounted basis, and corresponding right-of-use (“ROU”) assets on the balance sheet for most leases. The Company adopted the new guidance in the first quarter of 2020 using the alternative transition method; therefore, the comparative period has not been restated and continues to reported under the previous lease guidance.

We elected the transition package of three practical expedients, which, among other items, permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also elected 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, and 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 lease component. We did not elect the use-of-hindsight practical expedient, and therefore continued to utilize lease terms determined under the existing lease guidance.

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

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

The adoption had a material impact on our consolidated balance sheet. As a result of the adoption, we recognized operating lease assets and liabilities of ~~$881~~$880.6 million and ~~$931~~$931.0 million, respectively, at the date of adoption. The ROU assets were adjusted for certain lease-related assets and 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 well as favorable lease assets of $0.4 million, which were previously reported in “Intangible assets, net” in our condensed consolidated balance sheet. We 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 derecognition of deferred gains and losses on sale-leaseback transactions upon transition to the new guidance.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The effects of the changes made to the Company's condensed consolidated balance sheet as of September 29, 2019 for the adoption of the new lease guidance were as follows (in thousands):


	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

The accounting guidance for lessors remains largely unchanged from previous guidance, 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 our condensed consolidated statements of earnings but are now presented gross upon adoption of the new guidance. As a result, we expect annual revenues and expenses reported in “Franchise rental revenues” and “Franchise occupancy expenses” to increase by approximately $37 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 of recognizing credit losses on financial instruments that is currently required with a methodology that estimates the expected credit loss on financial instruments and reflects the net amount expected to be collected on the financial instrument. Application of the new guidance may result in the earlier recognition of credit losses as the new methodology will require entities to consider forward-looking information in addition to historical and current information used in assessing incurred losses. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The Company will be required to adopt the new guidance on a modified retrospective basis. We are currently in the process of evaluating the effects of this pronouncement on our consolidated financial statements and do not expect there to be a material impact upon adoption.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and 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. ASU 2018-15 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Companies can choose to adopt the new guidance prospectively or retrospectively. We are currently in the process of evaluating the effects of this pronouncement on our consolidated financial statements and do not expect there to be a material impact upon adoption.

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.

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

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

Disaggregation of revenue — The following table disaggregates revenue by primary source (in thousands):

Sixteen Weeks Ended
January 19,
2020 January 20,
2019
Sources of revenue:
Company restaurant sales $ 105,364 $ 102,832
Franchise rental revenues 96,084 83,890
Franchise royalties 50,243 49,507
Marketing fees 48,835 47,863
Technology and sourcing fees 4,924 3,951
Franchise fees and other services 2,223 2,743
Total revenue $ 307,673 $ 290,786


	Quarter						Year-to-date
	April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Sources of revenue:
Company restaurant sales	$	74,380	$	76,682	$	179,744	$	179,514
Franchise rental revenues	69,885		61,646		165,969		145,536
Franchise royalties	36,049		37,148		86,292		86,655
Marketing fees	30,550		35,947		79,385		83,810
Technology and sourcing fees	3,578		3,042		8,502		6,993
Franchise fees and other services	1,715		1,262		3,938		4,005
Total revenue	$	216,157	$	215,727	$	523,830	$	506,513

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 “Accrued liabilities” and “Other long-term liabilities” in our condensed consolidated balance sheets.

A summary of significant changes in our contract liabilities is presented below (in thousands):

Sixteen Weeks Ended
January 19,
2020 January 20,
2019
Deferred franchise fees at beginning of period $ 46,273 $ 50,018
Revenue recognized during the period (1,632) (1,592)
Additions during the period 895 500
Deferred franchise fees at end of period $ 45,536 $ 48,926


	Year-to-date
	April 12, 2020		April 14, 2019
Deferred franchise fees at beginning of period	$	46,272	$	50,018
Revenue recognized	(3,061)		(2,745)
Additions	1,488		680
Deferred franchise fees at end of period	$	44,699	$	47,953

The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied as of ~~January 19,~~April 12, 2020 (in thousands):

Remainder of 2020 $ 3,411
2021 4,926
2022 4,726
2023 4,572
2024 4,379
Thereafter 23,522
$ 45,536


Remainder of 2020	$	2,267
2021	4,926
2022	4,724
2023	4,572
2024	4,379
Thereafter	23,831
	$	44,699

We have applied the optional exemption, as provided for under 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 — ~~Franchisees opened 11 new restaurants~~Through the second quarter in 2020 ~~compared to 9 in the prior year,~~ and ~~closed 10 restaurants in fiscal 2020, compared to 5 in 2019. In both comparative periods~~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 $1.6 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
	April 12, 2020	April 14, 2019	April 12, 2020	April 14, 2019

New restaurants opened by franchisees	5	2	16	11
Franchisee restaurants closed	(2)	(3)	(12)	(8)

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):


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

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

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

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 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 same as the lessee leases described above. Revenues from leasing arrangements with our franchisees are presented in “Franchise rental revenues” in the accompanying condensed consolidated statements of earnings, and the related expenses are presented in “Franchise occupancy expenses.”

Significant assumptions and judgements — We evaluate the contracts entered into by the Company to determine whether such contracts contain leases. A contract contains a lease if the contract conveys the right to control the use of 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 their terms.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The lease term and incremental borrowing rate for each lease requires judgement by management and can impact the classification of our leases as well as the 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 lease ROU asset and lease liability where the exercise is reasonably certain to 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 yield curve for the respective lease terms, in 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 and June until future periods and total approximately $13.4 million. We considered the FASB’s recent guidance regarding rent concessions related to the effects of the 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 will not remeasure our lease ROU assets and liabilities, and as of April 12, 2020 have bifurcated our operating lease liabilities into the portion that remains subject to accretion of $940.0 million, and the portion that is related to April rent deferrals of $4.8 million.

Rent Concessions as Lessor

We postponed collection of approximately 40% of April rents due from our franchisees totaling approximately $9.1 million, to be collected over three months beginning July 2020. Furthermore, we passed on to our franchisees approximately $10.4 million of the rent concessions secured from our landlords for April, May and June.

Company as Lessee

Leased assets and liabilities consisted of the following as of ~~January 19,~~April 12, 2020 (in thousands):


	~~January 19,~~April 12, 2020
Assets:
Operating lease ROU assets	$	~~884,213~~903,010
Finance lease ROU assets (1)	~~2,742~~2,689
Total ROU assets	$	~~886,955~~905,699
Liabilities:
Current operating lease liabilities	$	~~158,779~~163,077
Current finance lease liabilities (2)	~~786~~819
Long term operating lease liabilities	~~767,819~~781,653
Long-term finance lease liabilities (2)	~~2,609~~2,511
Total lease liabilities	$	~~929,993~~948,060

____________________________

(1)Included in “Property and equipment, net” on our condensed consolidated balance sheet.

(2)Included in “Current maturities of long-term debt” and “Long-term debt, net of current maturities” on our condensed consolidated balance sheet.

911

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the components of our lease ~~cost components and other supplemental information related to our leases~~costs (~~dollars~~ in thousands):


	~~Sixteen Weeks Ended~~
	January 19, 2020
~~Lease costs:~~
~~Finance lease cost:~~
~~Amortization of ROU assets (1)~~	$	~~234~~
~~Interest on lease liabilities (2)~~	33
~~Operating lease cost (3)~~	~~58,512~~
~~Short-term lease cost (3)~~	1
~~Variable lease cost (3)(4)~~	~~12,507~~
	$	~~71,287~~
~~Weighted-average remaining lease term (in years):~~
~~Finance leases~~	~~3.9~~
~~Operating leases~~	~~8.0~~
~~Weighted-average discount rate:~~
~~Finance leases~~	~~3.4~~		%
~~Operating leases~~	~~3.9~~		%


	Quarter		Year-to-date
	April 12, 2020		April 12, 2020
Lease costs:
Finance lease cost:
Amortization of ROU assets (1)	$	179	$	413
Interest on lease liabilities (2)	28		61
Operating lease cost (3)	43,891		102,403
Short-term lease cost (3)	102		103
Variable lease cost (3)(4)	9,316		21,823
	$	53,516	$	124,803

____________________________

(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 ~~$11.6~~$8.6 million in the quarter and $20.2 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:


	April 12, 2020
Weighted-average remaining lease term (in years):
Finance leases	3.6
Operating leases	8.2
Weighted-average discount rate:
Finance leases	3.5	%
Operating leases	4.0	%

The following table presents as of ~~January 19,~~April 12, 2020, ~~future minimum~~the annual maturities of our lease ~~payments for non-cancellable leases~~liabilities (in thousands):


		Finance Leases		Operating Leases			Finance Leases		Operating Leases
Fiscal year:	Fiscal year:					Fiscal year:
Remainder of 2020(1)	Remainder of 2020(1)	$	647	$	130,553	Remainder of 2020(1)	$	443	$	80,592
2021(1)	2021(1)	879		193,874		2021(1)	906		205,534
2022	2022	879		153,011		2022	906		158,823
2023	2023	866		124,843		2023	901		131,362
2024	2024	390		94,034		2024	408		100,021
Thereafter	Thereafter	40		386,822		Thereafter	54		449,077
Total minimum lease payments		$	3,701	$	1,083,137
Total future lease payments (2)						Total future lease payments (2)	$	3,618	$	1,125,409
Less: imputed interest	Less: imputed interest	(306)		(156,539)		Less: imputed interest	(288)		(180,679)
Present value of lease liability		$	3,395	$	926,598
Present value of lease liabilities						Present value of lease liabilities	$	3,330	$	944,730

____________________________

(1)The impact of rent concessions reduced 2020 operating leases maturities by $1.3 million and increased 2021 by $6.0 million.

(2)Total future lease payments include non-cancellable commitments of $3.6 million for finance leases and $1,090 million for operating leases.

1012

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):


	~~Sixteen Weeks Ended~~Year-to-date
	~~January 19,~~April 12, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	~~65,996~~115,376
Operating cash flows from financing leases	$	3361
Financing cash flows from financing leases	$	~~198~~390
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	~~51,311~~105,748
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, ~~during the quarter,~~ and is presented within “Impairment and other charges, net” in our condensed consolidated statement of earnings.

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

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

Company as Lessor

The following table presents rental income (in thousands):


		Sixteen Weeks Ended											Quarter								Year-to-date
		January 19, 2020											April 12, 2020								April 12, 2020
		Owned Properties		Leased Properties		Total			Owned Properties		Leased Properties		Total		Owned Properties		Leased Properties		Total
Operating lease income - franchise	Operating lease income - franchise	$	6,095	$	66,568	$	72,663	Operating lease income - franchise	$	4,572	$	50,123	$	54,695	$	10,667	$	116,692	$	127,359
Variable lease income - franchise	Variable lease income - franchise	2,716		20,704		23,420		Variable lease income - franchise	1,810		13,380		15,190		4,526		34,084		38,610
Franchise rental revenues	Franchise rental revenues	$	8,811	$	87,272	$	96,083	Franchise rental revenues	$	6,382	$	63,503	$	69,885	$	15,193	$	150,776	$	165,969
Operating lease income - closed restaurants and other (1)	Operating lease income - closed restaurants and other (1)	$	—	$	2,057	$	2,057	Operating lease income - closed restaurants and other (1)	$	—	$	1,470	$	1,470	$	—	$	3,527	$	3,527

____________________________

(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 ~~January 19,~~April 12, 2020, future minimum rental receipts for non-cancellable leases and subleases (in thousands):


		January 19, 2020			April 12, 2020
Fiscal year:	Fiscal year:			Fiscal year:
Remainder of 2020(2)	Remainder of 2020(2)	$	159,654	Remainder of 2020(2)	$	106,892
2021(2)	2021(2)	256,052		2021(2)	261,492
2022	2022	232,129		2022	232,748
2023	2023	225,488		2023	226,178
2024	2024	200,425		2024	201,003
Thereafter	Thereafter	1,237,167		Thereafter	1,250,834
Total minimum rental receipts	Total minimum rental receipts	$	2,310,915	Total minimum rental receipts	$	2,279,147

____________________________

(1)Includes $9.1 million of postponed April rents to be repaid over three months beginning July 2020.

(2)The impact of rent concessions passed on to franchisees reduced 2020 by $1.7 million and increased 2021 by $4.7 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 April 12, 2020 and September 29, 2019 consisted of the following (in thousands):


	April 12, 2020		September 29, 2019
Class A-2-I Notes	$	573,563	$	575,000
Class A-2-II Notes	274,313		275,000
Class A-2-III Notes	448,875		450,000
Class A-1 Variable Funding Notes	107,876		—
Finance lease obligations	3,330		3,594
Total debt	1,407,957		1,303,594
Less current maturities of long-term debt	(13,819)		(774)
Less unamortized debt issuance costs	(25,692)		(28,446)
Long-term debt	$	1,368,446	$	1,274,374

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.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of April 12, 2020 and September 29, 2019, $41.1 million and $45.6 million, respectively, of letters of credit were pledged 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, to secure our liquidity position and provide financial flexibility given the uncertain market conditions, we borrowed $107.9 million under the Variable Funding Notes. The Company may use the proceeds from the borrowings for working capital and general corporate purposes. As of April 12, 2020, remaining borrowing availability 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 (2) (Level 1)		Significant Other Observable Inputs (2) (Level 2)		Significant Unobservable Inputs (2) (Level 3)			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 January 19, 2020:
Fair value measurements as of April 12, 2020:										Fair value measurements as of April 12, 2020:
Non-qualified deferred compensation plan (1)	Non-qualified deferred compensation plan (1)	$	29,857	$	29,857	$	—	$	—	Non-qualified deferred compensation plan (1)	$	25,261	$	25,261	$	—	$	—
Total liabilities at fair value	Total liabilities at fair value	$	29,857	$	29,857	$	—	$	—	Total liabilities at fair value	$	25,261	$	25,261	$	—	$	—
Fair value measurements as of September 29, 2019:	Fair value measurements as of September 29, 2019:									Fair value measurements as of September 29, 2019:
Non-qualified deferred compensation plan (1)	Non-qualified deferred compensation plan (1)	$	30,104	$	30,104	$	—	$	—	Non-qualified deferred compensation plan (1)	$	30,104	$	30,104	$	—	$	—
Total liabilities at fair value	Total liabilities at fair value	$	30,104	$	30,104	$	—	$	—	Total liabilities at fair value	$	30,104	$	30,104	$	—	$	—

____________________________

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

~~At January 19, 2020,~~The following table presents the carrying value and estimated fair value of our Class A-2 Notes ~~was $1,300.0 million~~as of April 12, 2020 and ~~fair value was $1,332.0 million.~~ September 29, 2019 (in thousands):


	April 12, 2020						September 29, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Class A-2 Notes	$	1,296,751	$	1,170,896	$	1,300,000	$	1,344,300

The fair value of the Class A-2 Notes was estimated using Level 2 inputs based on quoted market prices in markets that are not considered active markets. The ~~estimated~~Company had $107.9 million of outstanding borrowings under its Variable Funding Notes. The fair ~~values~~value of ~~our finance lease obligations approximated their~~this loan approximates carrying ~~values as~~value due to the variable rate nature of ~~January 19, 2020.~~

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

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

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 2020, no material fair value adjustments were required. Refer to Note 7,8, Impairment and Other Charges, Net, for additional information regarding impairment charges.

6.7.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. Since they were effective in offsetting the variability of the hedged cash flows, changes in the fair values of the derivatives were not included in earnings, but 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 were made on our variable rate debt.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 in the fourth quarter of 2019. 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~~

~~Sixteen Weeks Ended~~

January 20,
2019

~~Loss recognized in OCI~~

~~N/A~~

~~(7,167)~~

~~Loss reclassified from accumulated OCI into net earnings~~

~~Interest expense, net~~

~~479~~


	Location in Income	Quarter			Year-to-date
				April 14, 2019			April 14, 2019
Loss recognized in OCI	N/A	$	(4,959)		$	(12,126)
Loss reclassified from accumulated OCI into net earnings	Interest expense, net	$	134		$	613

7.8.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):


		Sixteen Weeks Ended							Quarter						Year-to-date
		January 19, 2020		January 20, 2019			April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Restructuring costs	Restructuring costs	$	1,045	$	5,840	Restructuring costs	$	118	$	946	$	1,163	$	6,786
Costs of closed restaurants and other	Costs of closed restaurants and other	101		866		Costs of closed restaurants and other	331		383		432		1,249
Losses (gains) on disposition of property and equipment, net (1)						Losses (gains) on disposition of property and equipment, net (1)	267		(714)		(10,170)		(138)
Accelerated depreciation	Accelerated depreciation	—		416		Accelerated depreciation	—		510		—		926
(Gains) losses on disposition of property and equipment, net (1)		(10,437)		576
		$	(9,291)	$	7,698		$	716	$	1,125	$	(8,575)	$	8,823

____________________________

(1)In 2020, includes a $10.8 million gain related to the sale of one of our corporate office buildings. Refer to Note 4, Leases, for further information.

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.

~~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):


		Sixteen Weeks Ended							Quarter						Year-to-date
		January 19, 2020		January 20, 2019			April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Employee severance and related costs	Employee severance and related costs	$	1,045	$	4,506	Employee severance and related costs	$	118	$	642	$	1,163	$	5,148
Strategic Alternatives Evaluation (1)	Strategic Alternatives Evaluation (1)	—		1,334		Strategic Alternatives Evaluation (1)	—		304		—		1,638
		$	1,045	$	5,840		$	118	$	946	$	1,163	$	6,786

____________________________

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

We do not expect any significant severance and related costs for the remainder of fiscal 2020 related to these initiatives.

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 2020 (in thousands):


Balance as of September 29, 2019	$	2,100
Costs incurred	~~1,019~~1,163

Cash payments	~~(2,134)~~(3,010)
Balance as of ~~January 19,~~April 12, 2020	$	~~985~~253

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

8.9.INCOME TAXES

The income tax provisions reflect tax rates of ~~28.4%~~32.3% in ~~2020~~the second quarter and ~~23.1%~~30.7% year-to-date, compared with 25.0% and 24.0%, respectively, in fiscal year 2019. The major components of the ~~year- over-year~~year-over-year change in tax rates were a decrease in operating earnings before income tax, an ~~adjustment related to state taxes recorded~~increase in the ~~first quarter~~impact of ~~2019,~~non-deductible compensation for certain officers, an increase in ~~the tax deficiency on stock compensation, partially offset by an increase in gains~~losses from the market performance of insurance products used to fund certain non-qualified retirement plans which are excluded from taxable ~~income.~~income, and an increase in non-deductible legal settlements. 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~~ ~~(dollars in thousands)~~:

Sixteen Weeks Ended
January 19,
2020 January 20,
2019
Income tax expense at statutory rate $ 2,868 26.0 % $ 10,434 25.8 %
Stock compensation tax deficiency (excess tax benefit) 196 1.8 % (50) (0.1) %
Company-owned life insurance policies (99) (0.9) % 231 0.6 %
Adjustment to state tax provision — — % (1,027) (2.6) %
Other 168 1.5 % (215) (0.5) %
(1) $ 3,133 28.4 % $ 9,373 23.1 %

~~____________________________~~

~~(1)Percentages may not add due to rounding.~~Company’s financial results.

9.10.RETIREMENT PLANS

Defined benefit pension plans — We sponsor 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.

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

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

Routine lump sum payments made in the second quarter of fiscal 2020 resulted in a non-cash settlement charge of $0.3 million.

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

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


		Sixteen Weeks Ended							Quarter						Year-to-date
		January 19, 2020		January 20, 2019			April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Defined benefit pension plans:	Defined benefit pension plans:					Defined benefit pension plans:
Interest cost	Interest cost	$	5,076	$	7,048	Interest cost	$	3,669	$	5,286	$	8,745	$	12,334
Expected return on plan assets (1)	Expected return on plan assets (1)	(6,656)		(8,104)		Expected return on plan assets (1)	(4,706)		(6,077)		(11,362)		(14,181)
Pension settlement (2)		38,606		—
Actuarial loss (2)		1,672		1,219
Pension settlements (2)						Pension settlements (2)	321		—		38,927		—
Actuarial losses (2)						Actuarial losses (2)	1,019		913		2,691		2,132
Amortization of unrecognized prior service costs (2)	Amortization of unrecognized prior service costs (2)	26		35		Amortization of unrecognized prior service costs (2)	19		27		45		62
Net periodic benefit cost	Net periodic benefit cost	$	38,724	$	198	Net periodic benefit cost	$	322	$	149	$	39,046	$	347
Postretirement healthcare plans:	Postretirement healthcare plans:					Postretirement healthcare plans:
Interest cost	Interest cost	$	248	$	307	Interest cost	$	187	$	230	$	435	$	537
Actuarial loss (gain) (2)		6		(49)
Actuarial losses (gains) (2)						Actuarial losses (gains) (2)	3		(36)		9		(85)
Net periodic benefit cost	Net periodic benefit cost	$	254	$	258	Net periodic benefit cost	$	190	$	194	$	444	$	452

___________________________

(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 and 5.2% as of March 31, 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.”

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of January 1, 2019, the date of our last actuarial funding valuation, there was 0 minimum contribution funding requirement. Details regarding 2020 contributions are as follows (in thousands):

SERP Postretirement
Healthcare Plans
Net year-to-date contributions $ 1,639 $ 386
Remaining estimated net contributions during fiscal 2020 $ 3,732 $ 1,011


	SERP		Postretirement Healthcare Plans
Net year-to-date contributions	$	2,857	$	725
Remaining estimated net contributions during fiscal 2020	$	2,514	$	676

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 2020.

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

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

~~10.~~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):

Sixteen Weeks Ended
January 19,
2020 January 20,
2019
Balance at beginning of period $ (737,584) $ (591,699)
Shares issued under stock plans, including tax benefit 184 115
Share-based compensation 3,184 1,909
Dividends declared (9,425) (10,318)
Purchases of treasury stock (153,550) —
Net earnings 7,897 34,098
Other comprehensive income (loss), net of taxes 51,011 (4,071)
Cumulative-effect from a change in accounting principle (2,870) (37,330)
Balance at end of period $ (841,153) $ (607,296)


	Quarter						Year-to-date
	April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Balance at beginning of period	$	(841,153)	$	(607,296)	$	(737,584)	$	(591,699)
Shares issued under stock plans, including tax benefit	3,375		128		3,559		243
Share-based compensation expense	2,681		2,799		5,865		4,708
Dividends declared	(9,067)		(10,323)		(18,492)		(20,641)
Purchases of treasury stock	—		—		(153,550)		—
Net earnings	11,463		25,089		19,360		59,187
Other comprehensive income (loss), net of taxes	(44,225)		(2,911)		6,786		(6,982)
Cumulative-effect from a change in accounting principle	—		—		(2,870)		(37,330)
Balance at end of period	$	(876,926)	$	(592,514)	$	(876,926)	$	(592,514)

Repurchases of common stock — The Company repurchased 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. There were no repurchases of common stock in the second quarter of fiscal 2020. As of ~~January 19,~~April 12, 2020, this leaves approximately $122.2 million remaining under share repurchase programs authorized by the Board of Directors, consisting of $22.2 million that expires in November 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 2020 include $2.0 million related to repurchase transactions traded in the prior year but settled in 2020.

Dividends — During 2020, the Board of Directors declared a2 cash ~~dividend~~dividends of $0.40 per common share ~~totaling $9.4~~which were paid on March 17, 2020 and December 20, 2019 to shareholders of record as of the close of business on March 3, 2020 and December 5, 2019, respectively, and totaled $18.5 million. Future dividends are subject to approval by our Board of Directors.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~11.~~12.AVERAGE SHARES OUTSTANDING

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


		Sixteen Weeks Ended				Quarter			Year-to-date
		January 19, 2020	January 20, 2019		April 12, 2020	April 14, 2019	April 12, 2020	April 14, 2019
Weighted-average shares outstanding – basic	Weighted-average shares outstanding – basic	23,741	25,907	Weighted-average shares outstanding – basic	22,803	25,943	23,339	25,922
Effect of potentially dilutive securities:	Effect of potentially dilutive securities:			Effect of potentially dilutive securities:
Nonvested stock awards and units	Nonvested stock awards and units	181	208	Nonvested stock awards and units	85	190	144	203
Stock options	Stock options	7	11	Stock options	—	10	—	10
Performance share awards	Performance share awards	7	2	Performance share awards	7	2	7	2
Weighted-average shares outstanding – diluted	Weighted-average shares outstanding – diluted	23,936	26,128	Weighted-average shares outstanding – diluted	22,895	26,145	23,490	26,137
Excluded from diluted weighted-average shares outstanding:	Excluded from diluted weighted-average shares outstanding:			Excluded from diluted weighted-average shares outstanding:
Antidilutive	Antidilutive	224	186	Antidilutive	362	186	307	186
Performance conditions not satisfied at the end of the period	Performance conditions not satisfied at the end of the period	80	89	Performance conditions not satisfied at the end of the period	77	89	77	89

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

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

~~12.~~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 liability 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 April 12, 2020 and September 29, 2019, the Company had recorded aggregate liabilities of $14.2 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.

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 counsel reduced their earlier demand from $62.0 million to $42.0 million. In November 2019, the court issued a ruling on various dispositive motions, disallowing approximately $25.0 million in claimed damages. We have accrued an amount that is not material to our consolidated financial statements relating to claims for which we believe a loss is both probable and estimable. While we believe that additional losses beyond this accrual are reasonably possible, we cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond this accrual. The parties ~~are participating~~participated in a voluntary mediation on March 16, ~~2020. If~~2020, but the ~~case does~~matter did not ~~resolve at mediation, we~~settle. The plaintiff recently filed a motion for reconsideration of the court’s prior denial of class certification regarding meal and rest break claims. The Company has opposed the motion and will continue to vigorously defend against this lawsuit.

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 employment. On January 29, 2020, the parties participated in voluntary mediation and reached a tentative agreement to settle the case. The parties have executed a settlement agreement ~~is subject~~and submitted the settlement to ~~documentation and~~the court ~~approval. During the first quarter of 2020, commensurate with the anticipated settlement, we recorded an accrual~~ for ~~legal settlement of $3.8 million.~~final approval.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 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 plaintiff accepted the reduction. In October 2019, the plaintiff’s counsel filed a motion for attorney’s fees in the amount of $5.1 million. On January 9, 2020, the court issued its ruling awarding $3.9 million in attorney fees. As of ~~January 19,~~April 12, 2020, we have recorded an accrual for legal settlement of $7.3 million within “Accrued liabilities” and a litigation insurance recovery receivable of $7.3 million, which represents the expected payment of the settlement by the Company’s insurance carriers, within “Accounts and other receivable, net” in 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. 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.

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

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

~~13.~~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 ~~$3.7~~$1.9 million in the quarter and $5.6 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.

The following table presents Qdoba’s results of operations in periods which have been included in discontinued operations (in thousands, except per share data):


	~~Sixteen Weeks Ended~~
	January 20, 2019
~~Selling, general and administrative expenses~~	$	~~(302)~~
~~Loss on Qdoba Sale~~	85
~~Earnings from discontinued operations before income taxes~~	~~217~~
~~Income tax benefit (1)~~	~~2,760~~
~~Earnings from discontinued operations, net of income taxes~~	$	~~2,977~~

~~Basic and diluted earnings per share from discontinued operations:~~	$	~~0.11~~


	Quarter		Year-to-date
	April 14, 2019		April 14, 2019
Selling, general and administrative expenses	$	59	$	(243)
Loss on Qdoba Sale	—		85
(Losses) earnings from discontinued operations before income taxes	(59)		158
Income tax benefit (1)	18		2,778
(Losses) earnings from discontinued operations, net of income taxes	$	(41)	$	2,936

Basic and diluted earnings per share from discontinued operations:	$	—	$	0.11

____________________________

(1)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.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 (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 leases, the maximum amount we may be required to pay is approximately ~~$31.2~~$29.3 million as of ~~January 19,~~April 12, 2020. The lease terms extend for a maximum of approximately 16 more years as of ~~January 19,~~April 12, 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 Qdoba Purchase Agreement, including a requirement of the landlord to mitigate damages by re-letting the properties in default, and indemnity from the Buyer. ~~Qdoba continues~~As of April 12, 2020, 0 amounts have been accrued relating to ~~meet its obligations under~~ these ~~leases and there have~~guarantees as we do not ~~been~~believe any events that would indicate that Qdoba will not continue to meet the obligations of the leases. As such, we have not recorded a liability for the Guarantees as the likelihood of Qdoba defaulting on the assigned agreements was deemed to be less thanlosses are probable.

~~14.~~15.SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)


		Sixteen Weeks Ended							Year-to-date
		January 19, 2020		January 20, 2019			April 12, 2020		April 14, 2019
Non-cash investing and financing transactions:	Non-cash investing and financing transactions:					Non-cash investing and financing transactions:
Decrease in obligations for treasury stock repurchases	Decrease in obligations for treasury stock repurchases	$	2,025	$	14,362	Decrease in obligations for treasury stock repurchases	$	2,025	$	14,362
Decrease in obligations for purchases of property and equipment	Decrease in obligations for purchases of property and equipment	$	2,377	$	4,927	Decrease in obligations for purchases of property and equipment	$	1,247	$	5,368
Increase in dividends accrued or converted to common stock equivalents	Increase in dividends accrued or converted to common stock equivalents	$	63	$	58	Increase in dividends accrued or converted to common stock equivalents	$	65	$	121
Consideration for franchise acquisitions						Consideration for franchise acquisitions	$	859	$	—
Decrease in finance lease obligations from the termination of equipment and building leases	Decrease in finance lease obligations from the termination of equipment and building leases	$	—	$	7	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)

~~15.~~16.SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)


		January 19, 2020		September 29, 2019			April 12, 2020		September 29, 2019
Accounts and other receivables, net:	Accounts and other receivables, net:					Accounts and other receivables, net:
Trade	Trade	$	29,361	$	36,907	Trade	$	46,339	$	36,907
Notes receivable	Notes receivable	375		278		Notes receivable	9,589		278
Income tax receivable	Income tax receivable	1,279		160		Income tax receivable	1,279		160
Property taxes receivable		17,713		32
Other	Other	9,970		10,823		Other	14,410		10,855
Allowance for doubtful accounts	Allowance for doubtful accounts	(5,122)		(2,965)		Allowance for doubtful accounts	(5,286)		(2,965)
		$	53,576	$	45,235		$	66,331	$	45,235
Prepaid expenses:	Prepaid expenses:					Prepaid expenses:
Prepaid income taxes	Prepaid income taxes	$	7,470	$	579	Prepaid income taxes	$	12,965	$	579
Prepaid advertising	Prepaid advertising	32		1,838		Prepaid advertising	32		1,838
Other	Other	6,163		6,598		Other	5,463		6,598
		$	13,665	$	9,015		$	18,460	$	9,015
Other assets, net:	Other assets, net:					Other assets, net:
Company-owned life insurance policies	Company-owned life insurance policies	$	116,127	$	112,753	Company-owned life insurance policies	$	107,973	$	112,753
Deferred rent receivable	Deferred rent receivable	49,419		49,333		Deferred rent receivable	49,152		49,333
Franchise tenant improvement allowance	Franchise tenant improvement allowance	28,702		26,925		Franchise tenant improvement allowance	29,536		26,925
Other	Other	18,535		17,674		Other	24,544		17,674
		$	212,783	$	206,685		$	211,205	$	206,685
Accrued liabilities:	Accrued liabilities:					Accrued liabilities:
Insurance	Insurance	$	27,852	$	27,888	Insurance	$	27,972	$	27,888
Payroll and related taxes	Payroll and related taxes	24,375		31,095		Payroll and related taxes	20,808		31,095
Deferred franchise fees	Deferred franchise fees	4,970		4,978		Deferred franchise fees	4,951		4,978
Sales and property taxes	Sales and property taxes	8,731		4,268		Sales and property taxes	10,251		4,268
Gift card liability	Gift card liability	2,443		2,036		Gift card liability	2,196		2,036
Other	Other	49,918		49,818		Other	54,771		49,818
		$	118,289	$	120,083		$	120,949	$	120,083
Other long-term liabilities:	Other long-term liabilities:					Other long-term liabilities:
Defined benefit pension plans	Defined benefit pension plans	$	88,455	$	120,260	Defined benefit pension plans	$	147,295	$	120,260
Deferred franchise fees	Deferred franchise fees	40,566		41,295		Deferred franchise fees	39,748		41,295
Straight-line rent accrual	Straight-line rent accrual	—		29,537		Straight-line rent accrual	—		29,537
Other	Other	57,568		72,678		Other	55,325		72,678
		$	186,589	$	263,770		$	242,368	$	263,770

~~16.SUBSEQUENT EVENTS~~

~~Dividends~~—~~On February 18, 2020, the Board of Directors declared a cash dividend of $0.40 per common share, to be paid on March 17, 2020 to shareholders of record as of the close of business on March 3, 2020.~~

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

GENERAL

All comparisons between 2020 and 2019 refer to the ~~16-weeks~~12-weeks (“quarter”) and 28-weeks (“year-to-date”) ended ~~January 19,~~April 12, 2020 and ~~January 20,~~April 14, 2019, respectively, unless otherwise indicated.

For an understanding of the significant factors that influenced our performance during 2020 and 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 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, ~~sale of company-operated restaurants,~~ 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.

•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, 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

As of May 8, 2020, substantially all of our restaurants remain open, with dining rooms closed and all locations operating in an off-premise capacity, which represents close to 90% of the Company’s business historically, 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.

Our system same store sales decreased by 4.2% in the quarter; however, the outbreak did not materially impact the business until late in the quarter. Prior to the rise in “shelter-in-place” mandates and “social distancing” requirements across the country, same store sales increased 5.2% in the seven weeks ended March 8, 2020, compared to the 17.0% decrease in same store sales we experienced in the last five weeks of the quarter.

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 provided protective masks, gloves, sneeze guards and thermometers to all company-owned and franchised locations.

Given the level of volatility and uncertainty surrounding the future impact of COVID-19 on the broader US economy and specific impacts to our business, we have withdrawn our previously issued fiscal 2020 and long-term guidance. The Company will provide an update when it can reasonably estimate the impacts of the COVID-19 pandemic on business results.

OTHER RECENT DEVELOPMENTS

On April 16, 2020, we announced that Darin Harris has been appointed by our Board of Directors as Chief Executive Officer and will join the Board of Directors, both effective on the start of his employment no later than June 15, 2020. Our Board of Directors has also elected David Goebel to serve as non-executive Chairman of the Board, effective when Mr. Harris begins employment with the Company.

Mr. Harris takes over from Lenny Comma, who announced his intent to retire in December 2019 and has served as Chief Executive Officer and Chairman of the Board of Directors since 2014. Mr. Comma’s last day of employment will be effective upon Mr. Harris’ start date, at which time Mr. Comma will also leave the Board of Directors.

OVERVIEW

As of ~~January 19,~~April 12, 2020, we operated and franchised ~~2,244~~2,246 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 2020, and certain trends compared to a year ago:

•System same-store sales — System same-store sales ~~are up 1.7% year-to-date as compared with~~decreased by 4.2% in the ~~prior year primarily due to menu price increases,~~quarter and 0.8% year-to-date. Company same-store sales decreased 4.1% in the quarter, driven by a 10.5% decrease in transactions, partially offset by ~~changes~~average check growth of 6.4%. As previously disclosed, system-same store sales increased 5.2% in ~~product mix and a decline in transactions.~~the seven weeks ended March 8, 2020, prior to any impacts from the COVID-19 pandemic.

•Company restaurant operations — Company restaurant costs as a percentage of company restaurant sales increased in ~~2020~~the quarter to ~~75.2%~~79.4% from ~~73.8%~~72.4% a year ago primarily due to ~~higher costs for labor~~sales deleverage during COVID-19 impacted weeks and ~~commodities.~~wage and commodity inflation.

•~~Pension settlement —~~Franchise operations ~~As previously announced,~~— Excluding the impacts of ASC 842 described in ~~connection with~~ the ~~Company’s pension plan de-risking strategy,~~Financial Reporting section below, our franchise operating results were impacted by a decrease in royalties and rent margins in the ~~Company amended its pension plan~~quarter and year-to-date, primarily due to ~~offer~~lower franchise sales during COVID-19 impacted weeks, and a ~~limited time lump sum payment option~~$2.0 million year-to-date increase in franchisee bad debt expense compared to certain eligible participants. The transaction resulted in a non-cash settlement charge of $38.6 million presented within “Other Pension and Post-Retirement Expenses” in our condensed consolidated statement of earnings.the prior year.

•~~Sale of corporate office building~~Selling, general and administrative (“SG&A”) expenses - —~~During~~SG&A increased by $6.6 million for the quarter ~~we executed on our previously announced planned sale of one our corporate office buildings as we move forward with consolidating our corporate facilities. We recognized a~~and $10.8 million ~~gain~~year-to-date, largely due to unfavorable mark-to-market adjustments on investments supporting the ~~sale which is presented in “Impairment~~Company’s non-qualified retirement plans and ~~Other Costs” in our condensed consolidated statement of earnings.~~

•~~Return of cash~~higher costs related to ~~shareholders~~— ~~We returned cash~~litigation matters compared to ~~shareholders in~~ the form of share repurchases and cash dividends. We repurchased 1.9 million shares of our common stock at an average price of $81.41, totaling $153.5 million. We also declared a quarterly cash dividend of $0.40 per common share totaling $9.4 million.prior year.

•Adjusted EBITDA — Adjusted EBITDA decreased in 2020 to ~~$76.6~~$122.9 million from ~~$83.0~~$144.2 million in 2019.

FINANCIAL REPORTING

In fiscal 2020, we adopted Accounting Standards Codification Topic 842, Leases (“ASC 842”), effective at the beginning of our fiscal year on a modified retrospective basis using the effective date transition method. Our consolidated financial statements reflect the application of ASC 842 guidance beginning in 2020, while our consolidated financial statements for prior periods were prepared under the guidance of a previously applicable accounting standard.

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

•Our transition to ASC 842 resulted in the 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 accounting standard. Although there was no net impact to our consolidated statement of earnings from this change, the presentation resulted in total increases in “Franchise rental revenues” and “Franchise occupancy expenses” of ~~$11.6 million.~~$8.6 million in the quarter and $20.2 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 this change, franchise revenues and franchise occupancy expenses increased ~~$1.2~~by $0.9 million in the quarter and $2.1 million and ~~$1.7~~$2.6 million, respectively, ~~in 2020.~~year-to-date.

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


		Sixteen Weeks Ended							Quarter						Year-to-date
		January 19, 2020		January 20, 2019			April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Revenues:	Revenues:					Revenues:
Company restaurant sales	Company restaurant sales	34.2	%	35.4	%	Company restaurant sales	34.4	%	35.5	%	34.3	%	35.4	%
Franchise rental revenues	Franchise rental revenues	31.2	%	28.8	%	Franchise rental revenues	32.3	%	28.6	%	31.7	%	28.7	%
Franchise royalties and other	Franchise royalties and other	17.1	%	18.0	%	Franchise royalties and other	17.5	%	17.8	%	17.2	%	17.9	%
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	17.5	%	17.8	%	Franchise contributions for advertising and other services	15.8	%	18.1	%	16.8	%	17.9	%
Total revenues	Total revenues	100.0	%	100.0	%	Total revenues	100.0	%	100.0	%	100.0	%	100.0	%
Operating costs and expenses, net:	Operating costs and expenses, net:					Operating costs and expenses, net:
Company restaurant costs (excluding depreciation and amortization):	Company restaurant costs (excluding depreciation and amortization):					Company restaurant costs (excluding depreciation and amortization):
Food and packaging (1)	Food and packaging (1)	29.8	%	28.8	%	Food and packaging (1)	29.9	%	28.3	%	29.8	%	28.6	%
Payroll and employee benefits (1)	Payroll and employee benefits (1)	30.3	%	29.4	%	Payroll and employee benefits (1)	32.6	%	29.7	%	31.2	%	29.5	%
Occupancy and other (1)	Occupancy and other (1)	15.1	%	15.6	%	Occupancy and other (1)	16.9	%	14.5	%	15.9	%	15.1	%
Total company restaurant costs (1)	Total company restaurant costs (1)	75.2	%	73.8	%	Total company restaurant costs (1)	79.4	%	72.4	%	76.9	%	73.2	%
Franchise occupancy expenses (excluding depreciation and amortization) (2)		67.1	%	60.5	%
Franchise occupancy expenses (2)						Franchise occupancy expenses (2)	69.2	%	62.6	%	68.0	%	61.4	%
Franchise support and other costs (3)	Franchise support and other costs (3)	8.9	%	5.4	%	Franchise support and other costs (3)	7.9	%	7.3	%	8.5	%	6.2	%
Franchise advertising and other services expenses (4)	Franchise advertising and other services expenses (4)	102.7	%	104.7	%	Franchise advertising and other services expenses (4)	104.7	%	103.2	%	103.5	%	104.1	%
Selling, general and administrative expenses	Selling, general and administrative expenses	9.2	%	8.3	%	Selling, general and administrative expenses	11.2	%	8.2	%	10.0	%	8.2	%
Depreciation and amortization	Depreciation and amortization	5.4	%	5.9	%	Depreciation and amortization	5.7	%	5.9	%	5.5	%	5.9	%
Impairment and other charges, net	Impairment and other charges, net	(3.0)	%	2.6	%	Impairment and other charges, net	0.3	%	0.5	%	(1.6)	%	1.7	%
Gains on the sale of company-operated restaurants	Gains on the sale of company-operated restaurants	(0.5)	%	(0.1)	%	Gains on the sale of company-operated restaurants	—	%	—	%	(0.3)	%	—	%

Earnings from operations	Earnings from operations	22.7	%	20.1	%	Earnings from operations	15.2	%	21.8	%	19.6	%	20.8	%
Income tax rate (5)	Income tax rate (5)	28.4	%	23.1	%	Income tax rate (5)	32.3	%	25.0	%	30.7	%	24.0	%

____________________________

(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.

2326

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

Sixteen Weeks Ended
January 19, 2020 January 20, 2019
Company 2.9 % 0.5 %
Franchise 1.6 % (0.1) %
System 1.7 % (0.1) %


	Quarter						Year-to-date
	April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Company	(4.1)	%	0.6	%	(0.1)	%	0.5	%
Franchise	(4.2)	%	0.1	%	(0.9)	%	—	%
System	(4.2)	%	0.2	%	(0.8)	%	—	%

The following table summarizes changes in the number and mix of company and franchise restaurants:

2020 2019
Company Franchise Total Company Franchise Total
Beginning of year 137 2,106 2,243 137 2,100 2,237
New — 11 11 — 9 9
Closed — (10) (10) — (5) (5)
End of period 137 2,107 2,244 137 2,104 2,241
% of system 6 % 94 % 100 % 6 % 94 % 100 %


	2020										2019
	Company		Franchise		Total		Company		Franchise		Total
Beginning of year	137		2,106		2,243		137		2,100		2,237
New	—		16		16		—		11		11

Acquired from franchisees	8		(8)		—		—		—		—
Closed	(1)		(12)		(13)		—		(8)		(8)
End of period	144		2,102		2,246		137		2,103		2,240
% of system	6	%	94	%	100	%	6	%	94	%	100	%

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


		Sixteen Weeks Ended							Quarter						Year-to-date
		January 19, 2020		January 20, 2019			April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Company-owned restaurant sales	Company-owned restaurant sales	$	105,364	$	102,832	Company-owned restaurant sales	$	74,380	$	76,682	$	179,744	$	179,514
Franchised restaurant sales (1)	Franchised restaurant sales (1)	979,345		959,960		Franchised restaurant sales (1)	695,926		721,350		1,675,271		1,681,310
System sales (1)	System sales (1)	$	1,084,709	$	1,062,792	System sales (1)	$	770,306	$	798,032	$	1,855,015	$	1,860,824

____________________________

(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):


		Sixteen Weeks Ended							Quarter						Year-to-date
		January 19, 2020		January 20, 2019			April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Net earnings - GAAP	Net earnings - GAAP	$	7,897	$	34,098	Net earnings - GAAP	$	11,463	$	25,089	$	19,360	$	59,187
Earnings from discontinued operations, net of taxes		—		(2,977)
Losses (earnings) from discontinued operations, net of taxes						Losses (earnings) from discontinued operations, net of taxes	—		41		—		(2,936)
Income tax expense	Income tax expense	3,133		9,373		Income tax expense	5,458		8,374		8,591		17,747
Interest expense, net	Interest expense, net	19,942		17,374		Interest expense, net	15,409		13,276		35,351		30,650
Pension settlement charge		38,606		—
Pension settlement charges						Pension settlement charges	321		—		38,927		—
Gains on the sale of company-operated restaurants	Gains on the sale of company-operated restaurants	(1,575)		(219)		Gains on the sale of company-operated restaurants	—		—		(1,575)		(219)
Impairment and other charges, net	Impairment and other charges, net	(9,291)		7,698		Impairment and other charges, net	716		1,125		(8,575)		8,823
Depreciation and amortization	Depreciation and amortization	16,728		17,169		Depreciation and amortization	12,282		12,690		29,010		29,859
Amortization of franchise tenant improvement allowances and other	Amortization of franchise tenant improvement allowances and other	1,151		530		Amortization of franchise tenant improvement allowances and other	614		607		1,765		1,137
Adjusted EBITDA - Non-GAAP	Adjusted EBITDA - Non-GAAP	$	76,591	$	83,046	Adjusted EBITDA - Non-GAAP	$	46,263	$	61,202	$	122,854	$	144,248

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):

Sixteen Weeks Ended
January 19, 2020 January 20, 2019
Company restaurant sales $ 105,364 $ 102,832
Company restaurant costs:
Food and packaging 31,348 29.8 % 29,616 28.8 %
Payroll and employee benefits 31,890 30.3 % 30,274 29.4 %
Occupancy and other 15,958 15.1 % 16,013 15.6 %
Total company restaurant costs $ 79,196 75.2 % $ 75,903 73.8 %


	Quarter														Year-to-date
	April 12, 2020						April 14, 2019						April 12, 2020				April 14, 2019
Company restaurant sales	$	74,380			$	76,682			$	179,744			$	179,514
Company restaurant costs:
Food and packaging	22,237		29.9	%	21,676		28.3	%	53,585		29.8	%	51,292		28.6	%
Payroll and employee benefits	24,261		32.6	%	22,768		29.7	%	56,151		31.2	%	53,042		29.5	%
Occupancy and other	12,570		16.9	%	11,100		14.5	%	28,528		15.9	%	27,113		15.1	%
Total company restaurant costs	$	59,068	79.4	%	$	55,544	72.4	%	$	138,264	76.9	%	$	131,447	73.2	%

Company restaurant sales ~~increased $2.5~~decreased $2.3 million, or 3.0% in ~~2020 versus~~ the ~~prior year~~quarter due primarily ~~due~~ to ~~menu~~a decrease in traffic during COVID-19 impacted weeks, partially offset by changes in product mix, retail price increases and an increase in the number of company-operated restaurants related to the acquisition of eight restaurants from a franchisee during the quarter. Year-to-date, restaurant sales increased $0.2 million, or 0.1% versus a year ago due to an increase in the number of company-operated restaurants and retail price increases, which more than offset declines in traffic.

Same-store sales at company-operated restaurants ~~increased 2.9%~~decreased 4.1% in the quarter and 0.1% year-to-date compared to a year ago. The following table summarizes the change in company-operated same store-sales versus a year ago:


	~~Sixteen Weeks Ended~~
	January 19, 2020
~~Average check (1)~~	~~2.6~~	%
~~Transactions~~	~~0.3~~	%
~~Change in same-store sales~~	~~2.9~~	%


	Quarter						Year-to-date
	April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Average check (1)	6.4	%	2.8	%	4.2	%	3.4	%
Transactions	(10.5)	%	(2.2)	%	(4.3)	%	(2.9)	%
Change in same-store sales	(4.1)	%	0.6	%	(0.1)	%	0.5	%

____________________________

(1)~~Includes~~Amounts in 2020 include price increases of approximately 2.4% in the quarter and 2.6%. year-to-date. Amounts in 2019 include price increases of approximately 2.1% in the quarter and 2.3% year-to-date.

Food and packaging costs as a percentage of company restaurant sales increased to 29.9% in the quarter and 29.8% year-to-date in 2020 ~~from 28.8% a year ago~~compared to 28.3% in the quarter and 28.6% year-to-date in 2019, due primarily to higher costs for ingredients and changes in product mix, partially offset by menu price increases. Commodity costs ~~were up~~increased in the quarter and year-to-date by approximately ~~4.9%~~4.4% and 4.7%, respectively, due primarily to increases in beef, cheese and ~~cheese. Cheese increased most significantly by approximately 33% and beef, our most significant commodity, increased approximately 15% versus a year ago.~~beverages.

Payroll and employee benefit costs as a percentage of company restaurant sales increased to ~~30.3%~~32.6% in the quarter and 31.2% year-to-date in 2020 compared with ~~29.4% a year ago~~29.7% in the quarter and 29.5% year-to-date in 2019, due primarily to higher average wages resulting from wage inflation and a highly competitive labor ~~market.~~market, maintaining pre-COVID-19 staffing levels during the COVID-19 impacted weeks, and sales deleverage in the quarter, and was partially offset by lower costs for incentive compensation.

Occupancy and other costs as a percentage of company restaurant sales, ~~decreased~~increased to 16.9% in the quarter and 15.9% year-to-date in 2020 compared with 14.5% in the quarter and 15.1% ~~from 15.6% a year ago due primarily~~year-to-date in 2019. Sales deleverage contributed to the increase in the quarter. Furthermore, in the quarter and year-to-date, the acquisition of eight restaurants with lower ~~costs for maintenance~~than average sales volumes, and ~~repair expenses, partially offset by~~ higher costs for repairs and maintenance, third party delivery fees, and ~~utilities.~~utilities, drove occupancy and other costs higher as a percentage of company restaurant sales.

2528

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):

Sixteen Weeks Ended
January 19,
2020 January 20,
2019
Franchise rental revenues $ 96,084 $ 83,890
Royalties 50,243 49,507
Franchise fees and other 2,223 2,743
Franchise royalties and other 52,466 52,250
Franchise contributions for advertising and other services 53,759 51,814
Total franchise revenues $ 202,309 $ 187,954
Franchise occupancy expenses (excluding depreciation and amortization) $ 64,517 $ 50,713
Franchise support and other costs 4,676 2,845
Franchise advertising and other services expenses 55,224 54,270
Total franchise costs $ 124,416 $ 107,828
Franchise costs as a percentage of total franchise revenues 61.5 % 57.4 %
Average number of franchise restaurants 2,087 2,084
Increase (decrease) in franchise-operated same-store sales 1.6 % (0.1) %
Franchised restaurant sales $ 979,345 $ 959,960
Franchised restaurant AUVs $ 469 $ 461
Royalties as a percentage of total franchised restaurant sales 5.1 % 5.2 %


	Quarter									Year-to-date
	April 12, 2020			April 14, 2019			April 12, 2020			April 14, 2019
Franchise rental revenues	$	69,885		$	61,646		$	165,969		$	145,536

Royalties	36,049			37,148			86,292			86,655
Franchise fees and other	1,715			1,262			3,938			4,005
Franchise royalties and other	37,764			38,410			90,230			90,660
Franchise contributions for advertising and other services	34,128			38,989			87,887			90,803
Total franchise revenues	$	141,777		$	139,045		$	344,086		$	326,999

Franchise occupancy expenses (excluding depreciation and amortization)	$	48,341		$	38,618		$	112,858		$	89,331
Franchise support and other costs	2,971			2,797			7,647			5,642
Franchise advertising and other services expenses	35,734			40,245			90,958			94,515
Total franchise costs	$	87,046		$	81,660		$	211,463		$	189,488
Franchise costs as a percentage of total franchise revenues	61.4		%	58.7		%	61.5		%	57.9		%

Average number of franchise restaurants	2,085			2,085			2,086			2,085
Decrease in franchise-operated same-store sales	(4.2)		%				(0.9)		%
Franchised restaurant sales	$	695,926		$	721,350		$	1,675,271		$	1,681,310
Franchised restaurant AUVs	$	334		$	345		$	803		$	806
Royalties as a percentage of total franchised restaurant sales	5.2		%	5.1		%	5.2		%	5.2		%

Franchise rental revenues increased ~~$12.2~~$8.2 million, or ~~14.5%,~~13.4% in ~~2020~~the quarter and $20.4 million, or 14.0% year-to-date compared to the prior year, primarily from our adoption of ASC 842, which increased rental revenues ~~$12.8 million.~~$9.5 million in the quarter and $22.3 million year-to-date, partially offset by a decrease in percentage rent revenue from lower franchise restaurant sales.

Franchise royalties and other ~~increased $0.2~~decreased $0.6 million, or 1.7% in ~~2020~~the quarter and $0.4 million, or 0.5% year-to-date compared to the prior year, due primarily to ~~an increase~~a decrease in franchise same-store sales driving royalties ~~higher by approximately $1.7 million,~~lower, partially offset year-to-date by aan $0.8 million increase in franchise incentives recorded as a reduction of franchise ~~royalties and a $0.5 million decrease in franchise fees and other.~~royalties.

Franchise contributions for advertising and other services ~~increased $1.9~~decreased $4.9 million, or 12.5% in the quarter and $2.9 million, or 3.2% year-to-date compared to the prior year, primarily due to lower marketing contributions from our franchisees of $5.4 million in the quarter and $4.4 million year-to-date mainly as a result of a decrease in the contribution percentage and lower franchise restaurant sales, partially offset by an increase in technology fees charged to our ~~franchisees and an increase in franchisee contributions to our marketing fund which are based on a percentage of their restaurant sales.~~franchisees.

Franchise occupancy expenses, principally rents, increased ~~$13.8~~$9.7 million in ~~2020~~the quarter and $23.5 million year-to-date compared to the prior year, due primarily to the adoption of ASC 842, which increased franchise occupancy expenses by ~~$13.3 million.~~$9.5 million in the quarter and $22.8 million year-to-date.

Franchise support and other costs increased ~~$1.8~~$0.2 million in ~~2020~~the quarter and $2.0 million year-to-date compared to the prior year, ~~due~~ primarily toas a ~~$1.9 million~~result of an increase in franchisee bad debt expense.

Franchise advertising and other service expenses ~~increased $1.0~~decreased $4.5 million, or 11.2% in the quarter and $3.6 million, or 3.8% year-to-date compared to the prior year, due to a ~~$0.9 million increase~~decrease in marketing ~~fund~~ contributions from our ~~franchisees.~~franchisees of $5.4 million in the quarter and $4.4 million year-to-date, partially offset by an increase in information technology costs.

Depreciation and Amortization

Depreciation and amortization decreased by $0.4 million in ~~2020 as~~the quarter and $0.8 million year-to-date compared with the prior year, primarily due to our franchise building assets becoming fully depreciated in the current fiscal year.

2629

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

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


	~~Sixteen Weeks Ended~~
	January 19, 2020
~~Advertising~~	$	~~(1,873)~~
~~Incentive compensation (including share-based compensation and related payroll taxes)~~	~~3,014~~
~~Cash surrender value of COLI policies, net~~	~~(3,506)~~
~~Litigation matters~~	~~3,756~~
~~Other (includes transition services income and savings related to our restructuring plan)~~	~~2,774~~
	$	~~4,165~~


	Increase / (Decrease)
	Quarter		Year-to-date
Advertising	$	(349)	$	(2,222)
Incentive compensation (including share-based compensation and related payroll taxes)	(2,373)		641
Cash surrender value of COLI policies, net	7,221		3,715
Litigation matters	1,917		5,799
Other (includes transition services income and savings related to our restructuring plan)	202		2,850
	$	6,618	$	10,783

Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales. Advertising costs decreased ~~$1.9~~$0.3 million in ~~2020~~the quarter and $2.2 million year-to-date compared to the prior ~~year,~~year. In the quarter, the decrease was driven by a decrease in the contribution percentage and lower company-operated restaurant sales. Year-to-date the decrease was primarily due to a $2.0 million discretionary marketing fund contribution made by the Company in ~~2019.~~2019 that was non-recurring in 2020.

Incentive compensation ~~increased~~decreased by ~~$3.0~~$2.4 million in ~~2020 primarily due to an increase in performance-based stock compensation and annual incentives,~~the quarter mainly as a result of ~~higher~~lower achievement levels compared to the prior ~~year.~~year for performance-stock units and the Company’s annual incentive plan.

The cash surrender value of our company-owned life insurance (“COLI”) policies, net of changes in our non-qualified deferred compensation obligation supported by these policies, are subject to market fluctuations. The changes in market values had a ~~positive impact of $2.1 million in 2020, compared to a~~ negative impact of ~~$1.4~~$7.2 million in the quarter and $3.7 million year-to-date, compared to the prior year.

Litigation matters increased by ~~$3.8~~$1.9 million in the quarter and $5.8 million year-to-date, primarily due to costs accrued in 2020 ~~on the expected settlement of an employee~~for various employment litigation ~~matter.~~matters. Refer to Note ~~12,~~13, Contingencies and Legal Matters, of the notes to the condensed consolidated financial statements for additional information regarding these charges.

Impairment and Other Charges, Net

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


		Sixteen Weeks Ended							Quarter						Year-to-date
		January 19, 2020		January 20, 2019			April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Restructuring costs	Restructuring costs	$	1,045	$	5,840	Restructuring costs	$	118	$	946	$	1,163	$	6,786
Costs of closed restaurants and other	Costs of closed restaurants and other	101		866		Costs of closed restaurants and other	331		383		432		1,249
Losses (gains) on disposition of property and equipment, net						Losses (gains) on disposition of property and equipment, net	267		(714)		(10,170)		(138)
Accelerated depreciation	Accelerated depreciation	—		416		Accelerated depreciation	—		510		—		926
(Gains) losses on disposition of property and equipment, net		(10,437)		576
		$	(9,291)	$	7,698		$	716	$	1,125	$	(8,575)	$	8,823

~~Restructuring costs~~Impairment and other charges, net decreased by ~~$4.8~~$0.4 million in ~~2020~~the quarter compared to ~~the prior~~a year ~~primarily as~~ago, driven by a ~~result of lower severance expenses of $3.5~~$1.0 million ~~as well as $1.3 million lower costs related to~~increase in losses on the ~~strategic alternative evaluation that was concluded on in the third quarter of 2019.~~

~~Gains on~~ disposition of property and equipment due to an eminent domain gain in the prior year, partially offset by a decrease in restructuring costs as we conclude our restructuring initiative. Year-to-date, impairment and other charges, net ~~increased by $11.0~~decreased $17.4 million ~~primarily~~ due to a $10.8 million gain related to the sale of one of our corporate office buildings in ~~2020.~~first quarter of the 2020, as well as $5.6 million decrease in restructuring costs.

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 ~~were $1.6 million~~ in ~~2020 versus $0.2 million in the prior year. In~~ both ~~comparative~~ periods ~~the gains recognized~~ pertain to meeting certain contingent consideration provisions included in restaurants sold in previous years.

Other Pension and Post-Retirement Expenses, Net

Other pension and post-retirement expenses, net increased by ~~$38.5~~$0.2 million in ~~2020~~the quarter and $39.5 million year-to-date versus athe prior year, ~~ago,~~ primarily due to a non-cash pension settlement ~~charge of $38.6 million~~charges in 2020. Refer to Note 9,10, Retirement Plans, of the notes to the condensed consolidated financial statements for additional information regarding ~~this charge.~~these charges.

Interest Expense, Net

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

Sixteen Weeks Ended
January 19, 2020 January 20, 2019
Interest expense $ 20,419 $ 17,612
Interest income (477) (238)
Interest expense, net $ 19,942 $ 17,374


	Quarter						Year-to-date
	April 12, 2020		April 14, 2019		April 12, 2020		April 14, 2019
Interest expense	$	15,458	$	13,414	$	35,877	$	31,026
Interest income	(49)		(138)		(526)		(376)
Interest expense, net	$	15,409	$	13,276	$	35,351	$	30,650

Interest expense, net increased ~~$2.6~~$2.1 million in ~~2020 versus~~the quarter and $4.9 million year-to-date compared with a year ago, primarily due to a higher average borrowings ~~compared to prior year, as well an increase in loan fee amortization~~which contributed additional interest expense of ~~$1.1 million.~~approximately $2.8 million and $6.1 million, respectively; partially offset by lower average interest rates.

Income Taxes

The tax rate in 2020 was ~~28.4%~~32.3% in the quarter and 30.7% year-to-date, compared with ~~23.1% a~~25.0% and 24.0% respectively, in fiscal year ~~ago.~~2019. The major components of the change in tax rates were a decrease in operating earnings before income tax, an ~~adjustment related to state taxes recorded~~increase in the ~~first quarter~~impact of ~~fiscal year 2019,~~non-deductible compensation for certain officers, an increase in ~~the tax deficiency on 2020 stock compensation, partially offset by an increase in gains~~losses from the market performance of insurance products used to fund certain non-qualified retirement plans which are excluded from taxable ~~income.~~income, and an increase in non-deductible legal settlements. 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 8,~~ ~~Income Taxes, of the notes to the condensed consolidated financial statements for additional information regarding income taxes.~~

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, 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; 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 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 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, 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 second quarter, the Company had $169.2 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, we have suspended our quarterly cash dividend and all share repurchase activity, significantly reduced capital expenditures to essential spend only, and have negotiated rent concessions with our landlords, which were passed on to our franchisees. Additional measures we have taken to ensure the financial health of our franchise operators include deferring approximately 40% of April rents, reducing and deferring March and April marketing fees to give operators more cash, and delaying remodel requirements and development agreements for at least six months.

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):

Sixteen Weeks Ended
January 19, 2020 January 20, 2019
Total cash provided by (used in):
Operating activities $ 22,687 $ 37,601
Investing activities 32,364 (4,263)
Financing activities (168,326) (31,743)
Net cash flows $ (113,275) $ 1,595


	Year-to-date
	April 12, 2020		April 14, 2019
Total cash provided by (used in):
Operating activities	$	58,927	$	60,816
Investing activities	29,601		(8,144)
Financing activities	(70,905)		(53,787)
Net cash flows	$	17,623	$	(1,115)

Operating Activities. Operating cash flows ~~in the quarter~~ decreased ~~$14.9~~$1.9 million compared with a year ago, primarily due to ~~unfavorable changes in working capital of $9.0 million and~~ lower net income adjusted for non-cash items of ~~$5.9 million.~~$13.4 million, partially offset by favorable changes in working capital of $11.5 million, primarily due to an increase in payables from both timing of payments and extending payment terms during the period; partially offset by lower collections on receivables as a result of postponing collections on marketing and rent payments from our franchisees.

Pension and Postretirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, 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 2020. In 2020, we contributed ~~$2.0~~$3.6 million to our non-qualified pension plan and postretirement plans.

Investing Activities. Cash provided by investing activities increased by ~~$36.6~~$37.7 million compared with a year ago, primarily due to higher proceeds from the sale and leaseback of assets of ~~$17.4~~$15.4 million, higher proceeds from the sale of property and equipment of ~~$20.3~~$20.9 million, and ~~$4.0~~$5.4 million of lower capital expenditure spending, partially offset by $6.5 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):

Sixteen Weeks Ended
January 19, 2020 January 20, 2019
Jack in the Box:
Restaurant facility expenditures $ 3,500 $ 7,346
New restaurants — 1,301
Other, including information technology 1,552 2,525
5,052 11,172
Corporate Services:
Information technology 1,760 11
Other, including facility improvements 390 —
2,150 11
Total capital expenditures $ 7,202 $ 11,183


	Year-to-date
	April 12, 2020		April 14, 2019
Jack in the Box:
Restaurant facility expenditures	$	6,443	$	9,780
New restaurants	—		1,452
Other, including information technology	1,967		6,586
	8,410		17,818
Corporate Services:
Information technology	2,926		373
Other, including facility improvements	1,441		—
	4,367		373

Total capital expenditures	$	12,777	$	18,191

Our capital expenditure program includes, among other things, restaurant remodeling, information technology enhancements, and investments in new locations and equipment. Capital expenditures decreased by ~~$4.0~~$5.4 million compared to a year ago primarily due to lower facility expenditures from restaurant remodels and technology initiatives; partially offset by higher spending on certain corporate technology initiatives in 2020.

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. In 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. We received net proceeds ~~on the transaction~~ of $17.4 million during the ~~quarter.~~first quarter of 2020 on this 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~~facilities. We entered into a lease with the buyer to leaseback the property for up to a period of 18 months with an option ~~of the Company~~ to terminate ~~the lease,~~earlier without penalty, upon providing a 90-day notice. We received net proceeds ~~on the sale~~ of $20.6 million ~~during~~on the ~~quarter.~~sale.

Financing Activities. Cash flows used in financing activities increased by ~~$136.6~~$17.1 million compared with a year ago, primarily due to ana net increase in borrowings under our revolving credit facilities of $98.9 million, lower principal repayments of $18.1 million as a result of our debt recapitalization completed in the prior year, and lower payments for debt issuance costs of $3.4 million; partially offset by higher stock repurchases of $141.2 million.

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 ~~lower~~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 quarter.

Dividends — During 2020, the Board of Directors declared two quarterly cash ~~book overdrafts~~dividends of ~~$9.2 million, partially offset lower debt repayments~~$0.40 per common share totaling $18.5 million.

In addition to temporarily suspending our share repurchase program, on May 8, 2020, the Board of ~~$13.7 million.~~Directors approved our voluntary election to temporarily suspend quarterly dividend payments. We will continue to monitor and revisit our capital allocation policies throughout the third quarter with the goal of reinstating dividends and share repurchases once we have more clarity around the scope and duration of the disruption caused by COVID-19.

Class A-2 Notes — Interest and principal payments on the 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. ~~At January 19, 2020, the~~The Company’s actual leverage ratio exceeded 5.0x, and as a result, we ~~will be~~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 will be August 2023, August 2026 and August 2029, respectively (the “Anticipated Repayment Dates”). If the Master Issuer has not repaid or refinanced the Class A-2 Notes prior to the respective anticipated repayment date, additional interest will accrue pursuant to the Indenture. As of ~~January 19,~~April 12, 2020, ~~$1,300.0~~$1,296.8 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 April 12, 2020, the Master Issuer had restricted cash of $37.0 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-2 Notes. During the second quarter, as a cautionary measure, we voluntarily elected to reserve the third quarter’s principal and interest payments due in August 2020.

Variable Funding Notes — The Variable Funding Notes were issued under the Indenture and allow for drawings of up to $150.0 million on a revolving basis and the issuance of letters of credit. Depending on the type of borrowing under the Variable Funding Notes, 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 scaled commitment fee on the unused portion of the Variable Funding Notes facility of between 50 and 100 basis points. It is anticipated that the principal and interest on the Variable Funding Notes will be repaid in full on or prior to August 2024, subject to two one-year extensions at the 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 ~~January 19,~~April 12, 2020 ~~$42.1~~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 may use the proceeds from the borrowings for working capital and general corporate purposes. As of April 12, 2020, remaining borrowing availability under our Variable Funding Notes was $1.1 million.

3033

~~Variable Funding Notes, which relate primarily to interest reserves required under the Indenture. The Variable Funding Notes were undrawn at January 19, 2020.~~

Covenants and restrictions — The Class A-2 Notes and the Variable Funding Notes (collectively referred to as the “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 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 Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Notes are in stated ways defective or ineffective and (iv) covenants relating to recordkeeping, access to information and similar matters. The 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 Class A-2 Notes on the applicable scheduled maturity date. The 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 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. As of ~~January 19,~~April 12, 2020, we were in compliance with all of our debt covenant requirements and were not subject to any rapid amortization events.

In accordance with 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 January 19, 2020, the Master Issuer had restricted cash of $18.4 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 Notes.

~~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. This leaves approximately $122.2 million remaining under share repurchase programs authorized by its Board of Directors, consisting of $22.2 million remaining that expire in November 2020 and approximately $100.0 million remaining that expire in November 2021.

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.

~~Dividends~~ ~~— During 2020, the Board of Directors declared a quarterly cash dividends of $0.40 per common share totaling $9.4 million. Future dividends are subject to approval by our Board of Directors.~~

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 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.

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 29, 2019.

NEW ACCOUNTING PRONOUNCEMENTS

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

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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.

•Failure to receive scheduled deliveries of high quality food ingredients and other supplies could harm our operations 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.

•Inability to attract, train and retain top-performing personnel could adversely impact our financial results or 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.

•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.

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•We have a significant amount of debt 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 of certain of our subsidiaries to meet debt 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.~~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 dividends and 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.

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 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

~~There~~In connection with the securitized refinancing completed on July 8, 2019, we are only exposed to interest rate risk on borrowings under our $150.0 million variable funding notes. During the second quarter of 2020, we borrowed $107.9 million under the variable funding notes, which remains outstanding as of April 12, 2020 and are subject to variable interest rates.

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 ~~been no~~not experienced any material ~~changes~~disruptions in our ~~quantitative and qualitative market risks set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for~~supply chains as of the ~~fiscal year ended September 29, 2019.~~date of this report.

ITEM 4. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Management, under the oversight of the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive and principal financial officer, respectively), 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 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

During the fiscal quarter ended January 19, 2020, we adopted new guidance for lease accounting. We implemented internal controls to ensure we adequately evaluated leasing arrangements and properly assessed the impact of the new guidance to facilitate the adoption. Additionally, we implemented new business processes, internal controls, and modified information technology systems to assist in the ongoing application of the new guidance. There have been no ~~other~~ changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended ~~January 19,~~April 12, 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 ~~12,~~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 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 29, 2019, which we filed with the SEC on November 21, 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 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.

~~Inability~~The novel coronavirus (COVID-19) outbreak has disrupted and is expected to ~~attract, train~~continue to disrupt our business, which has affected and ~~retain top-performing personnel~~ could ~~adversely~~continue to materially affect our operations, financial condition and results of operations for an extended period of time.

The pandemic novel coronavirus (COVID-19) outbreak, federal, state and local government responses to COVID-19 and our responses to the 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 their homes. In response to the 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 safety procedures, including implementing heightened sanitation requirements, practicing employee social distancing, and adhering to glove and mask protocol for all patrons and workers.

Our operating results substantially depend upon our franchisees’ sales volumes, restaurant profitability, and financial stability. The financial impact ~~our financial results or business.~~

~~We believe that our continued success will depend, in part,~~of COVID-19 has had, and is expected to continue to have, an adverse effect on our ~~ability~~franchisees’ liquidity. To ensure financial 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.

As discussed in this report, we have a significant amount of debt outstanding and have recently drawn down on our Variable Funding Notes, which provided us $107.9 million of unrestricted cash, to ~~attract and retain the services of skilled personnel, from our senior management~~provide additional security to our ~~restaurant employees. The loss~~liquidity position and provide financial flexibility given uncertain market and economic conditions as a result of the ~~services~~COVID-19 pandemic. A material increase in our level of debt could have certain material adverse effects on us. If the 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 credit markets, and there can be no guarantee that 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 ~~inability~~franchisees to ~~attract~~quarantine some or all of a restaurant’s employees and ~~retain,~~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 connection with COVID-19, our results may be adversely impacted, potentially materially affecting our liquidity, financial condition, or results of operations.

Our suppliers could be adversely impacted by the COVID-19 outbreak. If our suppliers’ employees are unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, we could face cost increases and/or shortages of food items or other supplies across our restaurants and our results could be adversely impacted by such ~~personnel~~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 make in the future relating to the compensation of and benefit offerings for our company-operated restaurant team members could also have ~~a material~~an adverse effect on our business. We ~~believe good managers~~cannot predict the types of government regulations or legislation that may be passed relating to employee compensation as a result of the COVID-19 outbreak. We have implemented an emergency paid sick leave program at our company-operated restaurants and ~~crew are a key part of our success,~~taken other compensation and ~~we devote significant resources~~benefit actions to ~~recruiting and training~~support our restaurant ~~managers~~team members during the 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 crew. We aim to reduce turnover among our restaurant crews and managers in an effort to retain top performing employees and better realize our investment in training new employees. Any failure to do so may adversely impact our operating results by increasing training costs and making it more difficult to deliver outstanding customer service,find other employment during that interruption, which could ~~have a material adverse effect on~~materially adversely affect our ~~financial results.~~

On December 11, 2019, we announced that Lenny Comma, our Chief Executive Officer, intends to leave the Company and our Board has retained Spencer Stuart to assist us in identifying an individual to succeed Mr. Comma as Chairman and Chief Executive Officer. While our Board is confident in its ability to ~~identify~~properly staff and ~~attract a successor, there can be no assurances~~reopen our restaurants with experienced team members when the business interruptions caused by COVID-19 abate or end.

The COVID-19 outbreak also may have the effect of ~~when we will be able~~heightening other risks disclosed in the Risk Factors section including in our Form 10-K filed on November 21, 2019, including, but not limited to, ~~successfully attract~~those related to consumer confidence, increase in food and ~~retain a qualified candidate to serve as Chief Executive Officer. Our inability to identify, attract~~commodity costs, supply chain interruptions, labor availability and retain such a qualified candidate could impede the further implementation of our business strategy, which could have a material adverse effect on our business. In addition, we previously announced that other key members of executive management have leftcost, cybersecurity incidents, increased indebtedness, regulatory and ~~will be leaving the Company in early 2020. The loss of these key executives or any additional members of our executive management team or an inability to effectively plan for~~legal complexity, and ~~implement a succession plan for key management could negatively impact our business.~~governmental regulation.

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

Stock Repurchases — InWe did not repurchase any shares of our common stock in the ~~first~~second quarter of ~~2020 we repurchased 1.9 million shares at an aggregate cost of $153.5 million.~~2020. As of ~~January 19,~~April 12, 2020, there was approximately $22.2 million remaining under the Board-authorized stock buyback program which expires in November 2020 and approximately $100.0 million which expires in November 2021.

(a)
Total number of shares purchased (b)
Average price paid per share (c)
Total number of shares purchased as part of publicly announced programs (d)
Maximum dollar value that may yet be purchased under these programs
$ 275,702,860
September 30, 2019 - October 27, 2019 338,792 $ 88.47 338,792 $ 246,164,247
October 28, 2019 - November 24, 2019 978,035 $ 82.97 978,035 $ 166,866,944
November 25, 2019 - December 22, 2019 569,373 $ 78.45 569,373 $ 122,153,031
December 23, 2019 - January 19, 2020 — $ — — $ 122,153,031
Total 1,886,200 1,886,200

ITEM 3. DEFAULTS OF SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~Item 5.03. None.~~

Effective May 8, 2020, the Board of Directors approved the Amended and Restated Bylaws of the Company, which were updated to establish the roles and duties of the Chairman of the Board and Lead Director, and to provide that the Chairman of the Board, rather than the Chief Executive Officer, can call special meetings. 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 3.2, hereto and is hereby incorporated herein by reference. Interested parties should read the document in its entirety.

3639

ITEM 6. EXHIBITS

Number

Description

Form

Filed with SEC

10.2.11*3.1†

~~Mark Blankenship Separation~~Restated Certificate of Incorporation, dated March 6, 1992

10-Q

Filed herewith

3.2

Amende d and ~~Release~~ A ~~greement,~~Restated Bylaws, dated ~~January 3,~~May 8, 2020

10-Q

Filed herewith

10.2.12*10.2.14*

~~Paul Melancon~~Phillip Rudolph Separation and Release Agreement, dated March ~~January 3,~~2 , 2020

10-Q

Filed herewith

10.2.13*

~~Vanessa Fox Separation and Release Agreement, dated January 17, 2020~~

~~10-Q~~

~~Filed herewith~~

10.8.17*10.2.15*

Jack in the Box Inc. ~~Special Time-Vesting Restricted Stock Unit Award Agreement Under the 2004 Stock Incentive~~Severance Plan for Executive Officers, dated March 9, 2020

~~10-Q~~8-K

~~Filed herewith~~March 4, 2020

10.2.16*

Offer Letter by and between Darin Harris and Jack in the Box Inc., dated April 2, 2020

8-K

April 16, 2020

10.2.17*

Retention, Transition and Separation Agreement, by and between Leonard A. Comma and Jack in the Box Inc., dated April 16, 2020

8-K

April 16, 2020

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

† Originally filed as Exhibit 3.1 to the registrant’s Annual Report on Form 10-K filed on December 2, 1999

*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.

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

Date: ~~February 20,~~May 14, 2020

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Remainder of 2020	$	3,411
2021	4,926
2022	4,726
2023	4,572
2024	4,379
Thereafter	23,522
	$	45,536


	(a) Total number of shares purchased	(b) Average price paid per share		(c) Total number of shares purchased as part of publicly announced programs	(d) Maximum dollar value that may yet be purchased under these programs
					$	275,702,860
September 30, 2019 - October 27, 2019	338,792	$	88.47	338,792	$	246,164,247
October 28, 2019 - November 24, 2019	978,035	$	82.97	978,035	$	166,866,944
November 25, 2019 - December 22, 2019	569,373	$	78.45	569,373	$	122,153,031
December 23, 2019 - January 19, 2020	—	$	—	—	$	122,153,031
Total	1,886,200			1,886,200