UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~July 5, 2020~~January 17, 2021

☐ 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.)

9357 Spectrum Center Blvd.

San Diego, California 92123

(Address of principal executive offices)

~~9330 Balboa Avenue~~

~~San Diego, California 92123~~

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

Registrant’s telephone number, including area code (858) 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 ~~July 30, 2020, 22,677,817~~February 12, 2021, 22,827,870 shares of the registrant’s common stock were outstanding.

JACK IN THE BOX INC. AND SUBSIDIARIES

INDEX


		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Earnings	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2314
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3727
Item 4.	Controls and Procedures	3727
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	3828
Item 1A.	Risk Factors	3828
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3928
Item 3.	Defaults of Senior Securities	3928
Item 4.	Mine Safety Disclosures	3928
Item 5.	Other Information	3928
Item 6.	Exhibits	4029
	Signature	4130

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


		July 5, 2020		September 29, 2019			January 17, 2021		September 27, 2020
ASSETS	ASSETS									ASSETS
Current assets:	Current assets:					Current assets:
Cash	Cash	$	159,540	$	125,536	Cash	$	251,324	$	199,662
Restricted cash	Restricted cash	37,373		26,025		Restricted cash	37,251		37,258
Accounts and other receivables, net	Accounts and other receivables, net	88,242		45,235		Accounts and other receivables, net	54,702		78,417
Inventories	Inventories	1,835		1,776		Inventories	2,003		1,808
Prepaid expenses	Prepaid expenses	13,447		9,015		Prepaid expenses	7,686		10,114
Current assets held for sale	Current assets held for sale	6,191		16,823		Current assets held for sale	3,315		4,598
Other current assets	Other current assets	3,504		2,718		Other current assets	3,556		3,724
Total current assets	Total current assets	310,132		227,128		Total current assets	359,837		335,581
Property and equipment:	Property and equipment:					Property and equipment:
Property and equipment, at cost	Property and equipment, at cost	1,140,285		1,176,241		Property and equipment, at cost	1,135,562		1,132,430
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(796,159)		(784,307)		Less accumulated depreciation and amortization	(807,381)		(796,448)
Property and equipment, net	Property and equipment, net	344,126		391,934		Property and equipment, net	328,181		335,982
Other assets:	Other assets:					Other assets:
Operating lease right-of-use assets	Operating lease right-of-use assets	902,858		—		Operating lease right-of-use assets	897,352		904,548
Intangible assets, net	Intangible assets, net	283		425		Intangible assets, net	268		277
Goodwill	Goodwill	47,161		46,747		Goodwill	47,161		47,161
Deferred tax assets	Deferred tax assets	66,132		85,564		Deferred tax assets	68,982		72,322
Other assets, net	Other assets, net	216,008		206,685		Other assets, net	211,793		210,623
Total other assets	Total other assets	1,232,442		339,421		Total other assets	1,225,556		1,234,931
		$	1,886,700	$	958,483		$	1,913,574	$	1,906,494
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	$	13,821	$	774	Current maturities of long-term debt	$	843	$	818
Current operating lease liabilities	Current operating lease liabilities	169,347		—		Current operating lease liabilities	154,893		179,000
Accounts payable	Accounts payable	26,339		37,066		Accounts payable	16,049		31,105
Accrued liabilities	Accrued liabilities	143,344		120,083		Accrued liabilities	125,344		129,431
Total current liabilities	Total current liabilities	352,851		157,923		Total current liabilities	297,129		340,354
Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Long-term debt, net of current maturities	Long-term debt, net of current maturities	1,366,171		1,274,374		Long-term debt, net of current maturities	1,378,317		1,376,913
Long-term operating lease liabilities, net of current portion	Long-term operating lease liabilities, net of current portion	777,883		—		Long-term operating lease liabilities, net of current portion	778,709		776,094
Other long-term liabilities	Other long-term liabilities	216,752		263,770		Other long-term liabilities	208,542		206,494
Total long-term liabilities	Total long-term liabilities	2,360,806		1,538,144		Total long-term liabilities	2,365,568		2,359,501
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	0		0
Common stock $0.01 par value, 175,000,000 shares authorized, 82,320,270 and 82,159,002 issued, respectively		823		822
Common stock $0.01 par value, 175,000,000 shares authorized, 82,393,899 and 82,369,714 issued, respectively						Common stock $0.01 par value, 175,000,000 shares authorized, 82,393,899 and 82,369,714 issued, respectively	824		824
Capital in excess of par value	Capital in excess of par value	491,594		480,322		Capital in excess of par value	490,913		489,515
Retained earnings	Retained earnings	1,607,485		1,577,034		Retained earnings	1,677,928		1,636,211
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(117,553)		(140,006)		Accumulated other comprehensive loss	(109,482)		(110,605)
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 shares						Treasury stock, at cost, 59,646,773 shares	(2,809,306)		(2,809,306)
Total stockholders’ deficit	Total stockholders’ deficit	(826,957)		(737,584)		Total stockholders’ deficit	(749,123)		(793,361)
		$	1,886,700	$	958,483		$	1,913,574	$	1,906,494

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

Quarter Year-to-date
July 5,
2020 July 7,
2019 July 5,
2020 July 7,
2019
Revenues:
Company restaurant sales $ 82,444 $ 78,434 $ 262,188 $ 257,948
Franchise rental revenues 76,021 63,359 241,990 208,895
Franchise royalties and other 43,239 40,180 133,469 130,840
Franchise contributions for advertising and other services 40,571 40,386 128,458 131,189
242,275 222,359 766,105 728,872
Operating costs and expenses, net:
Company restaurant costs (excluding depreciation and amortization):
Food and packaging 24,077 23,058 77,662 74,350
Payroll and employee benefits 25,085 23,121 81,236 76,163
Occupancy and other 12,334 11,052 40,862 38,165
Total company restaurant costs 61,496 57,231 199,760 188,678
Franchise occupancy expenses (excluding depreciation and amortization) 48,612 38,371 161,470 127,702
Franchise support and other costs 2,692 2,695 10,339 8,337
Franchise advertising and other services expenses 42,176 41,882 133,134 136,397
Selling, general and administrative expenses 13,680 24,389 66,131 66,057
Depreciation and amortization 12,141 12,786 41,151 42,645
Impairment and other charges, net 738 (3,256) (7,837) 5,567
Gains on the sale of company-operated restaurants (1,050) — (2,625) (219)
180,485 174,098 601,523 575,164
Earnings from operations 61,790 48,261 164,582 153,708
Other pension and post-retirement expenses, net 1,482 342 40,972 1,141
Interest expense, net 15,700 36,494 51,051 67,144
Earnings from continuing operations and before income taxes 44,608 11,425 72,559 85,423
Income tax expense (benefit) 12,432 (2,048) 21,023 15,699
Earnings from continuing operations 32,176 13,473 51,536 69,724
Earnings (losses) from discontinued operations, net of income taxes 379 (284) 379 2,652
Net earnings $ 32,555 $ 13,189 $ 51,915 $ 72,376
Net earnings per share - basic:
Earnings from continuing operations $ 1.41 $ 0.52 $ 2.22 $ 2.69
Earnings (losses) from discontinued operations 0.02 (0.01) 0.02 0.10
Net earnings per share (1) $ 1.42 $ 0.51 $ 2.24 $ 2.79
Net earnings per share - diluted:
Earnings from continuing operations $ 1.40 $ 0.51 $ 2.21 $ 2.67
Earnings (losses) from discontinued operations 0.02 (0.01) 0.02 0.10
Net earnings per share (1) $ 1.42 $ 0.50 $ 2.23 $ 2.77
Cash dividends declared per common share $ — $ 0.40 $ 0.80 $ 1.20

~~____________________________~~


	Sixteen Weeks Ended
	January 17, 2021		January 19, 2020
Revenues:
Company restaurant sales	$	114,278	$	105,364
Franchise rental revenues	103,749		96,084
Franchise royalties and other	59,648		52,466
Franchise contributions for advertising and other services	60,866		53,759
	338,541		307,673
Operating costs and expenses, net:
Food and packaging	32,377		31,348
Payroll and employee benefits	34,931		31,890
Occupancy and other	17,835		15,958
Franchise occupancy expenses	65,169		64,517
Franchise support and other costs	3,273		4,676
Franchise advertising and other services expenses	62,695		55,224
Selling, general and administrative expenses	20,499		28,248
Depreciation and amortization	14,571		16,728
Impairment and other gains, net	(452)		(9,291)
Gains on the sale of company-operated restaurants	(1,283)		(1,575)
	249,615		237,723
Earnings from operations	88,926		69,950
Other pension and post-retirement expenses, net	271		38,978
Interest expense, net	20,735		19,942
Earnings before income taxes	67,920		11,030
Income taxes	17,061		3,133


Net earnings	$	50,859	$	7,897

Earnings per share:
Basic	$	2.21	$	0.33
Diluted	$	2.21	$	0.33






Cash dividends declared per common share	$	0.40	$	0.40

~~(1)~~

~~Earnings per share may not add due to rounding.~~

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


		Quarter						Year-to-date							Sixteen Weeks Ended
		July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Net earnings	Net earnings	$	32,555	$	13,189	$	51,915	$	72,376	Net earnings	$	50,859	$	7,897
Cash flow hedges:
Net change in fair value of derivatives		—		(11,499)		—		(23,625)
Net loss reclassified to earnings		—		23,715		—		24,328
		—		12,216		—		703
Tax effect		—		(6,132)		—		(3,165)
		—		6,084		—		(2,462)
Unrecognized periodic benefit costs:	Unrecognized periodic benefit costs:									Unrecognized periodic benefit costs:
Actuarial income (losses) arising during the period		19,666		—		(12,841)		—
Actuarial gains arising during the period										Actuarial gains arising during the period	0		28,583
Actuarial losses and prior service costs reclassified to earnings	Actuarial losses and prior service costs reclassified to earnings	1,494		904		43,166		3,013		Actuarial losses and prior service costs reclassified to earnings	1,517		40,310
		21,160		904		30,325		3,013			1,517		68,893
Tax effect	Tax effect	(5,493)		(232)		(7,872)		(777)		Tax effect	(394)		(17,882)
		15,667		672		22,453		2,236			1,123		51,011

Other comprehensive income (loss), net of taxes		15,667		6,756		22,453		(226)
Other comprehensive income, net of taxes										Other comprehensive income, net of taxes	1,123		51,011

Comprehensive income	Comprehensive income	$	48,222	$	19,945	$	74,368	$	72,150	Comprehensive income	$	51,982	$	58,908

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Year-to-date							Sixteen Weeks Ended
		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net earnings	Net earnings	$	51,915	$	72,376	Net earnings	$	50,859	$	7,897
Earnings from discontinued operations		379		2,652
Earnings from continuing operations		51,536		69,724
Adjustments to reconcile net earnings to net cash provided by operating activities:	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	41,151		42,645		Depreciation and amortization	14,571		16,728
Amortization of franchise tenant improvement allowances and other	Amortization of franchise tenant improvement allowances and other	2,383		1,524		Amortization of franchise tenant improvement allowances and other	861		1,151
Deferred finance cost amortization	Deferred finance cost amortization	4,337		1,903		Deferred finance cost amortization	1,722		1,755
Excess tax benefits from share-based compensation arrangements		(71)		(66)
(Excess tax benefit) tax deficiency from share-based compensation arrangements						(Excess tax benefit) tax deficiency from share-based compensation arrangements	(58)		196
Deferred income taxes	Deferred income taxes	12,567		(1,745)		Deferred income taxes	2,452		2,010
Share-based compensation expense	Share-based compensation expense	7,612		6,589		Share-based compensation expense	1,231		3,184
Pension and postretirement expense		40,972		1,141
Pension and post-retirement expense						Pension and post-retirement expense	271		38,978
Gains on cash surrender value of company-owned life insurance	Gains on cash surrender value of company-owned life insurance	(1,861)		(3,117)		Gains on cash surrender value of company-owned life insurance	(7,042)		(3,374)
Gains on the sale of company-operated restaurants	Gains on the sale of company-operated restaurants	(2,625)		(219)		Gains on the sale of company-operated restaurants	(1,283)		(1,575)
Gains on the disposition of property and equipment, net	Gains on the disposition of property and equipment, net	(10,386)		(5,756)		Gains on the disposition of property and equipment, net	(2,160)		(10,437)
Non-cash operating lease costs	Non-cash operating lease costs	(5,689)		—		Non-cash operating lease costs	(7,296)		(7,668)
Impairment charges and other	Impairment charges and other	195		1,624		Impairment charges and other	546		0
Changes in assets and liabilities, excluding acquisitions:	Changes in assets and liabilities, excluding acquisitions:					Changes in assets and liabilities, excluding acquisitions:
Accounts and other receivables	Accounts and other receivables	(39,198)		(3,555)		Accounts and other receivables	24,663		(5,619)
Inventories	Inventories	14		(79)		Inventories	(133)		(253)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(5,034)		1,509		Prepaid expenses and other current assets	2,595		(4,957)
Accounts payable	Accounts payable	(4,620)		24,321		Accounts payable	(22,643)		(7,984)
Accrued liabilities	Accrued liabilities	15,755		9,363		Accrued liabilities	8,791		(1,558)
Pension and postretirement contributions		(4,921)		(5,126)
Franchise tenant improvement allowance distributions		(7,105)		(7,875)
Pension and post-retirement contributions						Pension and post-retirement contributions	(2,061)		(2,025)
Franchise tenant improvement allowance disbursements						Franchise tenant improvement allowance disbursements	(251)		(3,682)
Other	Other	(4,844)		(16,012)		Other	(3,384)		(80)
Cash flows provided by operating activities	Cash flows provided by operating activities	90,168		116,793		Cash flows provided by operating activities	62,251		22,687
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	(16,736)		(25,041)		Purchases of property and equipment	(7,076)		(7,202)
Proceeds from the sale of property and equipment	Proceeds from the sale of property and equipment	22,790		7,563		Proceeds from the sale of property and equipment	3,629		20,618
Proceeds from the sale and leaseback of assets	Proceeds from the sale and leaseback of assets	19,828		3,056		Proceeds from the sale and leaseback of assets	0		17,373
Proceeds from the sale of company-operated restaurants	Proceeds from the sale of company-operated restaurants	2,625		133		Proceeds from the sale of company-operated restaurants	133		1,575
Collections on notes receivable		—		15,239
Other	Other	1,036		—		Other	2,677		0
Cash flows provided by investing activities		29,543		950
Cash flows (used in) provided by investing activities						Cash flows (used in) provided by investing activities	(637)		32,364
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings on revolving credit facilities		111,376		229,798
Repayments of borrowings on revolving credit facilities		(3,500)		(252,800)
Principal repayments on debt	Principal repayments on debt	(7,094)		(32,611)		Principal repayments on debt	(211)		(198)
Debt issuance costs	Debt issuance costs	(216)		(5,088)		Debt issuance costs	0		(216)
Dividends paid on common stock	Dividends paid on common stock	(18,466)		(30,929)		Dividends paid on common stock	(9,089)		(9,412)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	3,559		696		Proceeds from issuance of common stock	114		184
Repurchases of common stock	Repurchases of common stock	(155,576)		(14,362)		Repurchases of common stock	0		(155,576)
Payroll tax payments for equity award issuances	Payroll tax payments for equity award issuances	(4,442)		(2,705)		Payroll tax payments for equity award issuances	(773)		(3,108)
Cash flows used in financing activities	Cash flows used in financing activities	(74,359)		(108,001)		Cash flows used in financing activities	(9,959)		(168,326)
Net increase in cash and restricted cash		45,352		9,742
Net increase (decrease) in cash and restricted cash						Net increase (decrease) in cash and restricted cash	51,655		(113,275)
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	236,920		151,561
Cash and restricted cash at end of period	Cash and restricted cash at end of period	$	196,913	$	12,447	Cash and restricted cash at end of period	$	288,575	$	38,286

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:


		July 5, 2020	July 7, 2019		January 17, 2021	January 19, 2020
Company-operated	Company-operated	144	137	Company-operated	148	137
Franchise	Franchise	2,100	2,105	Franchise	2,089	2,107
Total system	Total system	2,244	2,242	Total system	2,237	2,244

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~~27, 2020 (“~~2019~~2020 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our ~~2019~~2020 Form 10-K with the exception of the ~~new lease~~ accounting ~~standard~~standards adopted in fiscal ~~2020,~~2021, which isare 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 2021 and 2020 include 53 and ~~2019 include~~ 52 ~~weeks.~~weeks, respectively. Our first quarter includes ~~16-weeks~~16 weeks and all other quarters include ~~12-weeks.~~12 weeks, with the exception of the fourth quarter of fiscal 2021, which includes 13 weeks. All comparisons between ~~2020~~2021 and ~~2019~~2020 refer to the ~~12-weeks~~16 weeks (“quarter”) ended January 17, 2021 and ~~40-weeks (“year-to-date”) ended July 5,~~January 19, 2020, ~~and July 7, 2019,~~ respectively, unless otherwise indicated.

Use of estimates — In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates.

~~Risks and uncertainties~~COVID-19 Pandemic — The ~~novel coronavirus (“COVID-19”)~~COVID-19 pandemic has ~~disrupted and is expected~~continued to ~~continue to disrupt~~have varying degrees of disruption on our business. While sales have accelerated in the third quarter of 2020, we continue to see a significant reduction in guest traffic at our restaurants due to changes in consumer behavior as social distancing practices, dining room closures, and other restrictions have been mandated or encouraged by federal, state, and local governments. Throughout the pandemic, substantiallySubstantially all of our restaurants ~~have remained~~continue to remain open, with dining rooms closed and locations operating in an off-premise ~~capacity, which has historically represented close~~model, leveraging our drive-thru, carryout and delivery capabilities. We continue to ~~90%~~prioritize the health and safety of ~~the Company’s business, including drive-thru, third-party delivery,~~team members and ~~carry-out.~~guests through adhering to all safety procedures that were implemented last year.

~~The Company is closely monitoring~~Our operating results substantially depend upon our franchisees’ sales volumes, restaurant profitability, and financial stability. In the ~~impact~~second quarter of ~~the pandemic on all aspects of its business and is unable~~2020, to predict the continued financial impact of the COVID-19 pandemic on our business due to numerous uncertainties. We cannot predict how or when the social impacts resulting from the pandemic may change, or how any such change will impact our business. Ongoing material adverse effects on our company-owned restaurants or theensure financial health of our ~~franchisees~~valued franchise operators, we reduced March and April marketing fees and postponed collection of these marketing fees and the collection of certain franchisee rental payments. In 2021, with the exception of March 2020 marketing fees which we postponed collection over 24 months, all rent and marketing deferrals have been repaid. As of January 17, 2021, postponed marketing fees which remain uncollected were $6.6 million, of which $4.4 million is included within “Accounts and other receivable, net” and $2.2 million is included within “Other assets, net” in our condensed consolidated balance sheet.

At this time, the ultimate impact of COVID-19 cannot be reasonably estimated due to the uncertainty about the extent and duration of the spread of the virus. A lack of containment could ~~negatively affect~~lead to further restrictions, temporary restaurant closures, disruptions in our ~~operating results, including reductions~~supply chain and restaurant staffing which could adversely impact our financial statements.

Advertising costs — We administer a marketing fund which includes contractual contributions. In 2021 and 2020, marketing fund contributions from franchise and company-operated restaurants were approximately 5.0% of gross revenues.

Total contributions made by the Company are included in ~~revenue~~“Selling, general, and ~~cash flow~~administrative expenses” in the accompanying condensed consolidated statements of earnings and ~~could impact~~for the ~~recoverability of our accounts receivable, long-lived assets, and/or goodwill.~~

quarter totaled $5.8 million and $5.3 million in 2021 and 2020, respectively.

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 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 starting in October 2020. April marketing fees ranged from 2% to 4% based on annualized sales volumes, and these fees will be collected over three months beginning October 2020. As of July 5, 2020, postponed marketing fees which remain uncollected were $16.2 million, of which $10.3 million is included within “Accounts and other receivable, net” and $5.9 million is included within “Other assets, net” in our condensed consolidated balance sheet.

In 2019, incremental contributions made by the Company were $2.0 million. There have been 0 incremental contributions made in 2020. Total contributions made by the Company, including incremental contributions, are included in “Selling, general, and administrative expenses” in the accompanying condensed consolidated statements of earnings and for the quarter and year-to-date totaled $3.9 million and $12.8 million, respectively, in 2020 and $4.0 million and $15.0 million, respectively, in 2019.

Restricted cash — In accordance with the terms of our securitized financing facility, certain cash balances are required to be held in trust. Such restricted cash primarily represents cash collections and cash reserves held by the trustee to be used for payments of ~~principal,~~quarterly interest and commitments fees required for the Class A-1 and Class A-2 Notes. As of ~~July 5, 2020~~January 17, 2021 and September ~~29, 2019,~~27, 2020, restricted cash balances were $37.4 million and $26.0 million, respectively. During the third quarter, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we continued to voluntarily elect to fund cash held in trust for quarterly interest and principal payments due in November 2020.$37.3 million.

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 be 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.

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 $880.6 million and $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 $37.7 million in fiscal 2020. Refer to Note 4, ~~Leases, for further information on our leases and the impact on the Company’s accounting policies.~~

~~Effect of new accounting pronouncements to be adopted in future periods~~2021 — In ~~June 2016,~~August 2018, the Financial Accounting Standards Board (“FASB”) issued ~~ASU 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,~~ which will replace the incurred loss methodology that is currently required with a methodology that instead reflects a current estimate of all expected credit losses on financial assets, including receivables. The guidance requires that an entity measure and recognize expected credit losses at the time the asset is recorded, while considering a broader range of information to estimate credit losses, including macroeconomic conditions that correlate with historical loss experience, delinquency trends, and aging behavior of receivables, among others. The standard is effective for the Company beginning with our 2021 fiscal year. We do not anticipate the adoption of this standard will have a material impact to our consolidated financial statements.

~~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. The Company adopted the standard ~~is effective for~~in the ~~Company beginning with our 2021 fiscal year. We do not anticipate the~~first quarter of 2021. The adoption of this standard ~~will~~did not have a material impact to our consolidated financial statements.

In June 2016, the FASB issued guidance replacing the incurred loss impairment methodology with a new methodology that reflects current expected losses on financial assets, including trade accounts receivables. The new methodology requires entities to estimate and recognize credit losses each reporting period. The Company adopted the new guidance in the first quarter of 2021 using the modified retrospective method. The adoption did not have a material impact to our consolidated financial statements.

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

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

The Company closely monitors the financial condition of our franchisees and estimates the allowance for credit losses based on the lifetime expected loss on receivables. These estimates are based on historical collection experience with our franchisees as well as other factors, including current market conditions and events. Credit quality is monitored through the timing of payments compared to predefined aging criteria and known facts regarding the financial condition of the franchisee or customer. Account balances are charged off against the allowance after recovery efforts have ceased. The Company’s allowance for receivables have not historically been material.

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.

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


		Quarter						Year-to-date					Sixteen Weeks Ended
		July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Sources of revenue:	Sources of revenue:									Sources of revenue:
Company restaurant sales	Company restaurant sales	$	82,444	$	78,434	$	262,188	$	257,948	Company restaurant sales	$	114,278	$	105,364
Franchise rental revenues	Franchise rental revenues	76,021		63,359		241,990		208,895		Franchise rental revenues	103,749		96,084
Franchise royalties	Franchise royalties	41,537		38,752		127,829		125,407		Franchise royalties	57,343		50,243
Marketing fees	Marketing fees	36,757		37,269		116,142		121,078		Marketing fees	55,776		48,835
Technology and sourcing fees	Technology and sourcing fees	3,814		3,117		12,316		10,111		Technology and sourcing fees	5,090		4,924
Franchise fees and other services	Franchise fees and other services	1,702		1,428		5,640		5,433		Franchise fees and other services	2,305		2,223
Total revenue	Total revenue	$	242,275	$	222,359	$	766,105	$	728,872	Total revenue	$	338,541	$	307,673

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):


		Year-to-date							Sixteen Weeks Ended
		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Deferred franchise fees at beginning of period	Deferred franchise fees at beginning of period	$	46,272	$	50,018	Deferred franchise fees at beginning of period	$	43,541	$	46,273
Revenue recognized	Revenue recognized	(4,249)		(3,953)		Revenue recognized	(1,779)		(1,632)
Additions	Additions	1,923		970		Additions	428		895
Deferred franchise fees at end of period	Deferred franchise fees at end of period	$	43,946	$	47,035	Deferred franchise fees at end of period	$	42,190	$	45,536

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied as of ~~July 5, 2020~~January 17, 2021 (in thousands):


Remainder of 2020		$	1,136
2021		4,947
Remainder of 2021				Remainder of 2021	$	3,504
2022	2022	4,742		2022	4,786
2023	2023	4,590		2023	4,635
2024	2024	4,398		2024	4,445
2025				2025	4,215
Thereafter	Thereafter	24,133		Thereafter	20,605
		$	43,946		$	42,190

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~~FRANCHISE ACQUISITIONS

Refranchisings ~~and franchisee development/closures~~ — ~~Through the third quarter in~~In 2021 and 2020, ~~and 2019,~~ 0 company-operated restaurants were sold to franchisees. ~~In 2020 and 2019, amounts presented~~Amounts included in “Gains on the sale of company-operated restaurants” in both periods related to resolutions of ~~$2.6 million and $0.2 million, respectively, pertain to meeting~~ certain ~~contingent consideration provisions included in~~contingencies from the sale of restaurants in ~~previous~~prior years. ~~The following table summarizes the number of restaurants developed and closed by franchisees.~~

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

Franchise acquisitions — ~~During the second quarter of 2020,~~In fiscal 2021, we acquired 84 franchise restaurants ~~as a result~~in connection with exercising our right 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.~~

first refusal. 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~~not material to ~~the fair value of assets acquired and liabilities assumed for the restaurants acquired (~~our condensed consolidated financial statements.~~in thousands):~~


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

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, June, and July until future periods and total approximately $15.5 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 did not remeasure our lease ROU assets and liabilities, and we have not bifurcated our operating lease liabilities into the portion that remains subject to accretion of $934.5 million, and the portion that is related to the rent deferrals of $12.7 million.

~~Rent Concessions as 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 $5.6 million of the rent concessions secured from our landlords for April, May, June, and July. As of the end of the third quarter, $6.2 million of the postponed April rent has been repaid and the franchisees have chosen to pay according to the original lease terms on approximately half of the rent concessions that we offered.

~~Company as Lessee~~

~~Leased assets and liabilities consisted of the~~ following ~~as of July 5, 2020~~table presents rental income (in thousands):


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


	Sixteen Weeks Ended
	January 17, 2021		January 19, 2020
Operating lease income - franchise	$	72,242	$	72,663
Variable lease income - franchise	31,507		23,421
Franchise rental revenues	$	103,749	$	96,084
Operating lease income - closed restaurants and other (1)	$	1,865	$	2,057

____________________________

(1)~~Included~~Primarily relates to closed restaurant properties included in ~~“Property~~“Impairment and ~~equipment,~~other gains, net” onin our condensed consolidated ~~balance sheet.~~

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

118

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~The following table presents the components of our lease costs (in thousands~~):

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

~~____________________________~~

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

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

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

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

~~The following table presents supplemental information related to leases:~~


	July 5, 2020
~~Weighted-average remaining lease term (in years):~~
~~Finance leases~~	~~3.5~~
~~Operating leases~~	~~8.3~~
~~Weighted-average discount rate:~~
~~Finance leases~~	~~3.6~~	%
~~Operating leases~~	~~4.2~~	%

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

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

~~____________________________~~

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

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

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

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

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

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

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


	~~Year-to-date~~
	July 5, 2020
~~Cash paid for amounts included in the measurement of lease liabilities:~~
~~Operating cash flows from operating leases~~	$	~~151,981~~
~~Operating cash flows from financing leases~~	$	88
~~Financing cash flows from financing leases~~	$	~~593~~
~~Right-of-use assets obtained in exchange for lease obligations:~~
~~Operating leases~~	$	~~143,604~~
~~Financing leases~~	$	~~132~~

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

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

~~Company as Lessor~~

~~The following table presents rental income (in thousands~~):

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

~~____________________________~~

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

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

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

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

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

~~____________________________~~

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

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

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

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

5.~~INDEBTEDNESS~~

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

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

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

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

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

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

6.FAIR VALUE MEASUREMENTS

Financial assets and liabilities — The following table presents our financial assets and liabilities measured at fair value on a recurring basis (in thousands):


		Total		Quoted Prices in Active Markets for Identical Assets (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 July 5, 2020:
Fair value measurements as of January 17, 2021:										Fair value measurements as of January 17, 2021:
Non-qualified deferred compensation plan (1)	Non-qualified deferred compensation plan (1)	$	26,638	$	26,638	$	—	$	—	Non-qualified deferred compensation plan (1)	$	21,926	$	21,926	$	0	$	0
Total liabilities at fair value	Total liabilities at fair value	$	26,638	$	26,638	$	—	$	—	Total liabilities at fair value	$	21,926	$	21,926	$	0	$	0
Fair value measurements as of September 29, 2019:
Fair value measurements as of September 27, 2020:										Fair value measurements as of September 27, 2020:
Non-qualified deferred compensation plan (1)	Non-qualified deferred compensation plan (1)	$	30,104	$	30,104	$	—	$	—	Non-qualified deferred compensation plan (1)	$	25,071	$	25,071	$	0	$	0
Total liabilities at fair value	Total liabilities at fair value	$	30,104	$	30,104	$	—	$	—	Total liabilities at fair value	$	25,071	$	25,071	$	0	$	0

____________________________

(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.

The following table presents the carrying value and estimated fair value of our Class A-2 Notes as of ~~July 5, 2020~~January 17, 2021 and September ~~29, 2019~~27, 2020 (in thousands):

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


	January 17, 2021				September 27, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Class A-2 Notes	$	1,290,251	$	1,354,188	$	1,290,251	$	1,354,241

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 Company had $107.9 million of outstanding borrowings under its Variable Funding Notes. The fair value of this loan approximates carrying value due to the variable rate nature of 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,~~2021, no material fair value adjustments were required. ~~Refer to Note 8,~~ ~~Impairment and Other Charges, Net, for additional information regarding impairment charges.~~

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

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

7.~~DERIVATIVE INSTRUMENTS~~

~~Interest rate swaps~~ — We have used interest rate swaps to mitigate interest rate volatility with regard to variable rate borrowings under our senior credit facility. In June 2015, we entered into forward-starting interest rate swap agreements that effectively converted $500.0 million of our variable rate borrowings to a fixed rate from October 2018 through October 2022. These agreements were designated as cash flow hedges under the terms of the FASB authoritative guidance for derivatives and hedging. 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.

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. The fair value of the interest rate swaps at the termination date was $23.6 million, which was paid on July 8, 2019. As a result of the decision to extinguish the senior credit facility, forecasted cash flows associated with the variable-rate debt interest payments were no longer considered to be probable. Consequently, unrealized losses in other comprehensive income at the termination date were immediately reclassified to “Interest expense, net” in the condensed consolidated statement of earnings.

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

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

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

8.6.IMPAIRMENT AND OTHER ~~CHARGES,~~GAINS, NET

Impairment and other ~~charges,~~gains, net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):


		Quarter						Year-to-date							Sixteen Weeks Ended
		July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Restructuring costs	Restructuring costs	$	2	$	(64)	$	1,165	$	6,722	Restructuring costs	$	6	$	1,045
Costs of closed restaurants and other	Costs of closed restaurants and other	890		2,010		1,322		3,259		Costs of closed restaurants and other	1,023		101
Gains on disposition of property and equipment, net (1)	Gains on disposition of property and equipment, net (1)	(216)		(5,618)		(10,386)		(5,756)		Gains on disposition of property and equipment, net (1)	(2,160)		(10,437)
Accelerated depreciation	Accelerated depreciation	62		416		62		1,342		Accelerated depreciation	679		0
		$	738	$	(3,256)	$	(7,837)	$	5,567		$	(452)	$	(9,291)

____________________________

(1)In 2021, includes gains on the sale of two real estate properties. In 2020, ~~year-to-date~~ includes a $10.8 million gain related to the sale of one of our corporate office buildings. ~~In 2019, includes a $5.7 million gain related to a sale of property recognized in the third quarter.~~

~~Restructuring~~Costs of closed restaurants and other — Costs of closed restaurants include impairment charges as a result of our decision to close restaurants, ongoing 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,associated with closed restaurants, and a plan that management initiated to reduce our general and administrative costs, which was completed in the third quarter of 2020. We do not expect any future severance and related costs under these initiatives.canceled project costs.

169

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~The following~~Accelerated depreciation — When a long-lived asset will be replaced or otherwise disposed of prior to the end of its estimated useful life, the useful life of the asset is ~~a summary of our restructuring costs~~ ~~(in thousands)~~:

Quarter Year-to-date
July 5,
2020 July 7,
2019 July 5,
2020 July 7,
2019
Employee severance and related costs $ 2 $ 287 $ 1,165 $ 5,436
Strategic Alternatives Evaluation (1) — (351) — 1,286
$ 2 $ (64) $ 1,165 $ 6,722

~~____________________________~~

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

~~Total accrued severance costs related to our restructuring activities are included in “Accrued liabilities”~~adjusted based on ~~our condensed consolidated balance sheets,~~the estimated disposal date and ~~changed as follows during 2020~~ accelerated depreciation is recognized.~~(in thousands)~~:


~~Balance as of September 29, 2019~~	$	~~2,100~~
~~Costs incurred~~	~~1,165~~

~~Cash payments~~	~~(3,265)~~
~~Balance as of July 5, 2020~~	$	—

9.7.INCOME TAXES

The income tax provisions reflect tax rates ~~of 27.9%~~of 25.1% in ~~the quarter~~2021 and ~~29.0% year-to-date, compared with (17.9%) and 18.4%, respectively,~~28.4% in ~~fiscal year 2019.~~2020. The major components of the year-over-year change in tax rates were an increase in operating earnings before income tax, a decrease in the impact of non-recurring activity in fiscal year 2019 including the termination of interest rate swap agreements, the release of valuation reserves on state tax credits and losses, and the release of a federal tax liability due to expiration of statute of limitations,non-deductible compensation for certain officers, and an increase in ~~nondeductible costs resulting from a California Private Attorney General Act lawsuit settled in~~ the ~~current year. The final annual~~impact of excess tax ~~rate cannot be determined until the end of the fiscal year; therefore, the actual 2020 rate could differ from our current estimates.~~

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

~~10.~~8.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. ~~Routine lump sum payments made in the second and third quarters of fiscal 2020 resulted in non-cash settlement charges of $0.3 million and $0.1 million, respectively.~~

~~Postretirement~~Post-retirement healthcare plans — We also sponsor 2 healthcare plans, closed to new participants, that provide ~~postretirement~~post-retirement 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.

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

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

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


		Quarter						Year-to-date					Sixteen Weeks Ended
		July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Defined benefit pension plans:	Defined benefit pension plans:									Defined benefit pension plans:
Interest cost	Interest cost	$	3,581	$	5,286	$	12,326	$	17,619	Interest cost	$	4,532	$	5,076
Expected return on plan assets ~~(1)~~	Expected return on plan assets ~~(1)~~	(3,779)		(6,077)		(15,141)		(20,257)		Expected return on plan assets ~~(1)~~	(5,951)		(6,656)
Pension settlements (2)		103		—		39,030		—
Pension settlement charge (1)										Pension settlement charge (1)	0		38,606
Actuarial losses ~~(2)~~(1)	Actuarial losses ~~(2)~~(1)	1,367		914		4,058		3,046		Actuarial losses ~~(2)~~(1)	1,616		1,672
Amortization of unrecognized prior service costs ~~(2)~~(1)	Amortization of unrecognized prior service costs ~~(2)~~(1)	20		27		65		89		Amortization of unrecognized prior service costs ~~(2)~~(1)	6		26
Net periodic benefit cost	Net periodic benefit cost	$	1,292	$	150	$	40,338	$	497	Net periodic benefit cost	$	203	$	38,724
Postretirement healthcare plans:
Post-retirement healthcare plans:										Post-retirement healthcare plans:
Interest cost	Interest cost	$	186	$	229	$	621	$	766	Interest cost	$	173	$	248
Actuarial losses (gains) (2)		4		(37)		13		(122)
Actuarial (gains) losses (1)										Actuarial (gains) losses (1)	(105)		6
Net periodic benefit cost	Net periodic benefit cost	$	190	$	192	$	634	$	644	Net periodic benefit cost	$	68	$	254

___________________________

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

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

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,~~2020, the date of our last actuarial funding valuation, there was 0 minimum contribution funding ~~requirement.~~requirement for the Qualified Plan. Details regarding ~~2020~~2021 contributions are as follows (in thousands):


		SERP		Postretirement Healthcare Plans			SERP		Post-Retirement Healthcare Plans
Net year-to-date contributions	Net year-to-date contributions	$	4,070	$	851	Net year-to-date contributions	$	1,749	$	312
Remaining estimated net contributions during fiscal 2020		$	1,301	$	550
Remaining estimated net contributions during fiscal 2021						Remaining estimated net contributions during fiscal 2021	$	3,474	$	948

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.~~2021.

~~11.~~9.STOCKHOLDERS’ DEFICIT

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

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

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

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


	Sixteen Weeks Ended
		January 17, 2021		January 19, 2020
Balance at beginning of period		$	(793,361)	$	(737,584)
Shares issued under stock plans, including tax benefit		114		184
Share-based compensation expense		1,231		3,184
Dividends declared		(9,089)		(9,425)
Purchases of treasury stock		0		(153,550)
Net earnings		50,859		7,897
Other comprehensive income, net of taxes		1,123		51,011
Cumulative-effect from a change in accounting principle		0		(2,870)
Balance at end of period		$	(749,123)	$	(841,153)

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 0 repurchases of common stock in the ~~second or third~~first quarter of fiscal ~~2020.~~2021. As of ~~July 5, 2020,~~January 17, 2021, this leaves ~~approximately $122.2~~$200.0 million remaining under share repurchase programs authorized by the Board of Directors, consisting of ~~$22.2~~$100.0 million that expires in November ~~2020~~2021 and $100.0 million that expires in November ~~2021.~~2022.

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,~~2021, the Board of Directors declared 2a cash ~~dividends~~dividend of $0.40 per common ~~share 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~~totaling $9.1 million. Future dividends are subject to approval by our Board of Directors.

~~12.~~10.AVERAGE SHARES OUTSTANDING

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


		Quarter			Year-to-date			Sixteen Weeks Ended
		July 5, 2020	July 7, 2019	July 5, 2020	July 7, 2019		January 17, 2021	January 19, 2020
Weighted-average shares outstanding – basic	Weighted-average shares outstanding – basic	22,847	25,958	23,192	25,933	Weighted-average shares outstanding – basic	22,968	23,741
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	62	206	123	205	Nonvested stock awards and units	54	181
Stock options	Stock options	—	10	—	10	Stock options	5	7
Performance share awards	Performance share awards	7	2	7	2	Performance share awards	2	7
Weighted-average shares outstanding – diluted	Weighted-average shares outstanding – diluted	22,916	26,176	23,322	26,150	Weighted-average shares outstanding – diluted	23,029	23,936
Excluded from diluted weighted-average shares outstanding:	Excluded from diluted weighted-average shares outstanding:					Excluded from diluted weighted-average shares outstanding:
Antidilutive	Antidilutive	344	186	334	186	Antidilutive	99	224
Performance conditions not satisfied at the end of the period	Performance conditions not satisfied at the end of the period	77	89	77	89	Performance conditions not satisfied at the end of the period	29	80

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~13.~~11.~~CONTINGENCIES~~COMMITMENTS AND ~~LEGAL MATTERS~~CONTINGENCIES

Legal matters — We assess contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability ~~is adverse to the Company~~has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates. As of ~~July 5, 2020~~January 17, 2021 and September ~~29, 2019,~~27, 2020, the Company had recorded aggregate liabilities of ~~$14.9~~$3.8 million ~~and $10.0 million, respectively,~~ within “Accrued liabilities” on our condensed consolidated balance sheets, for all matters including those described below, that were probable and reasonably estimable. While we believe that additional losses beyond these accruals are reasonably possible, we cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond these accruals.

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

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

Gessele v. Jack in the Box Inc. — In August 2010, ~~five~~5 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, plaintiffs’ 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~~a portion of plaintiffs’ claimed damages. The parties participated in a voluntary mediation on March 16, 2020, but the matter did not settle. The plaintiffs recently filed a motion for reconsideration of the court’s prior denial of class certification regarding meal and rest break claims which was denied by the court. The plaintiffs ~~have now filed a motion requesting~~requested permission to ~~appeal~~seek appellate review of that decision, but that request was rejected by the Ninth Circuit. The parties were recently advised that the trial of this ~~ruling.~~ matter would be reassigned to a new judge.The Company ~~has opposed~~continues to dispute liability and the ~~motion~~plaintiffs’ damage calculations and will continue to vigorously defend against ~~this~~the 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 and submitted the settlement to the court for final approval. The settlement was approved on July 1, 2020.

~~Ramirez v. Jack in the Box Inc.~~ — On June 11, 2019, an unfavorable jury verdict was delivered in a wrongful termination lawsuit against the Company in Los Angeles Superior Court. Plaintiff in the case was a restaurant employee who was terminated in 2013. The jury’s verdict included $5.4 million in compensatory damages and $10.0 million in punitive damages. The Company 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 $4.1 million in attorney fees and costs. As of July 5, 2020, we have recorded an accrual for legal settlement of $7.3 million within “Accrued liabilities” and a 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 ~~obligations.~~obligation. 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.

~~14.~~Lease guarantees —~~DISCONTINUED OPERATIONS~~

We remain contingently liable for certain leases relating to our former Qdoba ~~— In December 2017,~~business which 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~~sold in fiscal 2018. Under 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~~Purchase Agreement, the ~~Services were provided at cost for a period~~buyer has indemnified the Company of upall claims related to ~~12 months, with 2 3-month extensions available for certain services.~~these guarantees. As of September 21, 2019, we are no longer providing transition services to Qdoba. In 2019, we recorded $0.9 million in the quarter and $6.5 million year-to-date, in income related to the Services as a reduction of “Selling, general and administrative expenses” in the condensed consolidated statements of earnings.

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

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

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

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

~~____________________________~~

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

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

~~Lease guarantees —~~ ~~While all operating leases held in the name of Qdoba~~were part of the Qdoba Sale, some of the leases remain guaranteed by the Company pursuant to one or more written guarantees (the “Guarantees”). In the event Qdoba fails to meet its payment and performance obligations under such guaranteed leases, we may be required to make rent and other payments to the landlord under the requirements of the Guarantees. Should we, as guarantor of the lease obligations, be required to make any lease payments due for the remaining term of the subject leases,January 17, 2021, the maximum ~~amount we may be required to pay~~potential liability of future undiscounted payments under these leases is approximately ~~$29.3 million as of July 5, 2020.~~$27.5 million. The lease terms extend for a maximum of approximately 15 more years ~~as of July 5, 2020,~~ and we would remain a guarantor of the leases in the event the leases are extended for any established renewal periods. In the event ~~that we are obligated to make payments under the Guarantees,~~of default, 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. ~~As of July 5, 2020, 0 amounts have been accrued relating to~~The Company has not recorded a liability for these guarantees as we ~~do not~~ believe the likelihood of making any ~~losses are probable.~~future payments is remote.

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

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

2112

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~16.~~12.SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)


	Sixteen Weeks Ended
	January 17, 2021		January 19, 2020
Non-cash investing and financing transactions:
Decrease in obligations for treasury stock repurchases	$	0	$	2,025
Decrease in obligations for purchases of property and equipment	$	74	$	2,377
Increase in dividends accrued or converted to common stock equivalents	$	53	$	63

Right-of use assets obtained in exchange for operating lease obligations	$	40,266	$	51,311
Right-of use assets obtained in exchange for finance lease obligations	$	65	$	0

13.SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)


		July 5, 2020		September 29, 2019			January 17, 2021		September 27, 2020
Accounts and other receivables, net:	Accounts and other receivables, net:					Accounts and other receivables, net:
Trade	Trade	$	82,132	$	36,907	Trade	$	53,623	$	77,082
Notes receivable	Notes receivable	505		278		Notes receivable	1,368		1,193
Income tax receivable	Income tax receivable	1,172		160		Income tax receivable	1,258		1,591
Other	Other	10,273		10,855		Other	3,972		4,092
Allowance for doubtful accounts	Allowance for doubtful accounts	(5,840)		(2,965)		Allowance for doubtful accounts	(5,519)		(5,541)
		$	88,242	$	45,235		$	54,702	$	78,417
Prepaid expenses:
Prepaid income taxes		$	6,881	$	579
Prepaid advertising		32		1,838
Other		6,534		6,598

		$	13,447	$	9,015
Other assets, net:	Other assets, net:					Other assets, net:
Company-owned life insurance policies	Company-owned life insurance policies	$	112,984	$	112,753	Company-owned life insurance policies	$	117,855	$	113,767
Deferred rent receivable	Deferred rent receivable	48,832		49,333		Deferred rent receivable	47,894		48,604
Franchise tenant improvement allowance	Franchise tenant improvement allowance	29,967		26,925		Franchise tenant improvement allowance	28,782		29,437
Other	Other	24,225		17,674		Other	17,262		18,815
		$	216,008	$	206,685		$	211,793	$	210,623
Accrued liabilities:	Accrued liabilities:					Accrued liabilities:
Payroll and related taxes						Payroll and related taxes	$	28,628	$	34,475
Insurance	Insurance	$	25,605	$	27,888	Insurance	25,482		25,310
Payroll and related taxes		30,214		31,095
Sales and property taxes						Sales and property taxes	19,287		22,038
Deferred franchise fees	Deferred franchise fees	4,934		4,978		Deferred franchise fees	4,987		4,934
Sales and property taxes		15,428		4,268
Gift card liability	Gift card liability	2,214		2,036		Gift card liability	2,601		2,195
Deferred rent income		17,347		915
Other	Other	47,602		48,903		Other	44,359		40,479
		$	143,344	$	120,083		$	125,344	$	129,431
Other long-term liabilities:	Other long-term liabilities:					Other long-term liabilities:
Defined benefit pension plans	Defined benefit pension plans	$	126,217	$	120,260	Defined benefit pension plans	$	117,644	$	120,811
Deferred franchise fees	Deferred franchise fees	39,012		41,295		Deferred franchise fees	37,203		38,607
Straight-line rent accrual		—		29,537
Other	Other	51,523		72,678		Other	53,695		47,076
		$	216,752	$	263,770		$	208,542	$	206,494

~~17.~~14.SUBSEQUENT EVENTS

On ~~July 31, 2020,~~January 21, 2021 and January 25, 2021, through 2 separate payments totaling $107.9 million, the Company repaid the full amount of outstanding borrowings on its Variable Funding Notes.

On February 12, 2021, the Board of Directors declared a cash dividend of $0.40 per common share, to be paid on ~~September 3, 2020~~March 16, 2021, to shareholders of record as of the close of business on ~~August 18, 2020.~~March 3, 2021.

2213

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

GENERAL

All comparisons between ~~2020~~2021 and ~~2019~~2020 refer to the ~~12-weeks~~16 weeks (“quarter”) ended January 17, 2021 and ~~40-weeks (“year-to-date”) ended July 5,~~January 19, 2020, ~~and July 7, 2019,~~ respectively, unless otherwise indicated.

For an understanding of the significant factors that influenced our performance during ~~2020~~2021 and ~~2019,~~2020, 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.~~27, 2020.

Our MD&A consists of the following sections:

•Overview — a general description of our business and ~~2020~~2021 highlights.

•~~Financial reporting~~ ~~— a discussion of changes in presentation, if any.~~

•Results of operations — an analysis of our condensed consolidated statements of earnings for the periods presented in our condensed consolidated financial statements.

•Liquidity and capital resources — an analysis of our cash flows, including ~~pension and postretirement health contributions,~~ capital expenditures, ~~franchise tenant improvement allowance distributions,~~ share repurchase activity, dividends, and known known trends that may impact ~~liquidity and the impact of inflation, if applicable.~~liquidity.

•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,~~gains, 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.

2314

IMPACT OF COVID-19

The COVID-19 pandemic has continued to have varying degrees of disruption on our business. Throughout the pandemic substantially all of our restaurants ~~remain~~have remained open, with dining rooms closed and ~~all~~ locations operating in an off-premise capacity, ~~which has historically represented close~~leveraging our drive-thru, carryout and delivery capability. We have continued to ~~90%~~follow the guidance of ~~the Company’s business, including drive-thru, third-party delivery, and carry-out. While we navigate through this time of uncertainty, Jack in the Box remains committed~~expert health authorities to ~~operating our restaurants with integrity, providing great guest service, and most importantly, protecting~~ensure precautionary steps are taken to protect the health and safety of our employees and guests.

In fiscal 2020 during the last five weeks of the second quarter, upon the rise in “shelter-in-place” mandates and “social distancing” requirements across the country, system same-store sales decreased by 17.0%; however, ~~during~~starting in the third quarter ~~our~~and carrying into fiscal 2021, we have seen a significant acceleration of system same-store sales. The acceleration of sales ~~have accelerated, increasing~~during the last three quarters has been largely driven by ~~6.6%.~~ average check growth while experiencing a significant decline in traffic. It remains uncertain whether restaurant traffic will return to levels prior to the outbreak of COVID-19.

Given the ~~level of volatility and~~ongoing uncertainty surrounding the future impact of COVID-19 on the ~~broader United States~~ economy and ~~specific~~our business, the Company has not provided any guidance for fiscal 2021 at this time, but will evaluate on a quarterly basis, with the intent to return to providing guidance once the visibility into sustained trends becomes more clear.

OTHER RECENT DEVELOPMENTS

On February 16, 2021, a franchisee that operates 68 restaurants filed for Chapter 11 bankruptcy. Of these restaurants, the Company subleases 50 of the locations to the franchisee and owns the land and building for the remaining 18 locations. Through the bankruptcy proceedings, a number of these leases may get rejected, resulting in potential impairment costs related to future lease obligations. As of the date of this report, the franchisee’s restaurants continue to operate and the franchisee has remained current with their obligations to us, except for certain obligations that were not yet due as of the bankruptcy filing date which were not material to our consolidated financial statements. However, the Company could see negative impacts to our ~~business, in the second quarter~~results as we ~~withdrew our previously issued fiscal 2020 and long-term guidance. We will provide an update when we can reasonably estimate the impacts of the COVID-19 pandemic on business results.~~

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

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

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

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

OVERVIEW

As of ~~July 5, 2020,~~January 17, 2021, we operated and franchised ~~2,244~~2,237 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 in ~~the third quarter of 2020,~~2021, and certain trends compared to a year ago:

•System same-store sales — System same-store sales increased by ~~6.6%~~12.5% in the first quarter, ~~and 1.5% year-to-date. Company same-store~~continuing the strong sales ~~increased 4.1% in~~momentum from the ~~quarter, driven by a 20.2% increase in average check growth, partially offset by a 16.1% decrease in transactions.~~second half of fiscal 2020.

•Company restaurant operations — Company restaurant costs including food and packaging, payroll and employee benefits, and occupancy and other operating costs, as a percentage of ~~company restaurant~~ sales ~~increased~~decreased from 75.2% to 74.5% in the quarter, ~~to 74.6% from 73.0% a year ago~~ primarily due to ~~wage inflation~~favorable changes in product mix and ~~increases in other operating costs.~~leverage from higher same-store sales.

•Franchise operations — Franchise same-store sales increased by ~~6.9%~~13.0% in the quarter, ~~resulting in~~driving higher ~~royalties~~royalty and ~~percentage~~ rent ~~for the Company during the quarter.~~revenues of $7.1 million and $7.7 million, respectively.

•Selling, general and administrative (“SG&A”) expenses - —SG&A decreased by ~~$10.7~~$7.7 million in the quarter, primarily due to lower litigation-related ~~matters~~charges and favorable mark-to-market adjustments on investments supporting the Company’s non-qualified retirement plans.

•Adjusted EBITDA — Adjusted EBITDA increased to ~~$72.9~~$102.4 million ~~in the quarter~~ from ~~$57.8~~$76.6 million in the prior year.

~~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.

2415

~~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 $8.6 million in the quarter and $28.8 million year-to-date.

•ASC 842 also changed how lessees account for leases subleased at a loss. Under ASC 842, sublease income and lessee rent expense are recorded as franchise rent revenue and franchise occupancy costs as earned or incurred. As a result of this change, franchise revenues and franchise occupancy expenses increased by $1.1 million and $1.3 million, respectively, in the quarter and $3.2 million and $3.9 million 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


		Quarter						Year-to-date							Sixteen Weeks Ended
		July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Revenues:	Revenues:									Revenues:
Company restaurant sales	Company restaurant sales	34.0	%	35.3	%	34.2	%	35.4	%	Company restaurant sales	33.8	%	34.2	%
Franchise rental revenues	Franchise rental revenues	31.4	%	28.5	%	31.6	%	28.7	%	Franchise rental revenues	30.6	%	31.2	%
Franchise royalties and other	Franchise royalties and other	17.8	%	18.1	%	17.4	%	18.0	%	Franchise royalties and other	17.6	%	17.1	%
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	16.7	%	18.2	%	16.8	%	18.0	%	Franchise contributions for advertising and other services	18.0	%	17.5	%
Total revenues		100.0	%	100.0	%	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):
Food and packaging (1)	Food and packaging (1)	29.2	%	29.4	%	29.6	%	28.8	%	Food and packaging (1)	28.3	%	29.8	%
Payroll and employee benefits (1)	Payroll and employee benefits (1)	30.4	%	29.5	%	31.0	%	29.5	%	Payroll and employee benefits (1)	30.6	%	30.3	%
Occupancy and other (1)	Occupancy and other (1)	15.0	%	14.1	%	15.6	%	14.8	%	Occupancy and other (1)	15.6	%	15.1	%
Total company restaurant costs (1)		74.6	%	73.0	%	76.2	%	73.1	%
Franchise occupancy expenses (2)	Franchise occupancy expenses (2)	63.9	%	60.6	%	66.7	%	61.1	%	Franchise occupancy expenses (2)	62.8	%	67.1	%
Franchise support and other costs (3)	Franchise support and other costs (3)	6.2	%	6.7	%	7.7	%	6.4	%	Franchise support and other costs (3)	5.5	%	8.9	%
Franchise advertising and other services expenses (4)	Franchise advertising and other services expenses (4)	104.0	%	103.7	%	103.6	%	104.0	%	Franchise advertising and other services expenses (4)	103.0	%	102.7	%
Selling, general and administrative expenses	Selling, general and administrative expenses	5.6	%	11.0	%	8.6	%	9.1	%	Selling, general and administrative expenses	6.1	%	9.2	%
Depreciation and amortization	Depreciation and amortization	5.0	%	5.8	%	5.4	%	5.9	%	Depreciation and amortization	4.3	%	5.4	%
Impairment and other charges, net		0.3	%	(1.5)	%	(1.0)	%	0.8	%
Impairment and other gains, net										Impairment and other gains, net	(0.1)	%	(3.0)	%
Gains on the sale of company-operated restaurants	Gains on the sale of company-operated restaurants	(0.4)	%	—	%	(0.3)	%	—	%	Gains on the sale of company-operated restaurants	(0.4)	%	(0.5)	%

Earnings from operations	Earnings from operations	25.5	%	21.7	%	21.5	%	21.1	%	Earnings from operations	26.3	%	22.7	%
Income tax rate (5)	Income tax rate (5)	27.9	%	(17.9)	%	29.0	%	18.4	%	Income tax rate (5)	25.1	%	28.4	%

____________________________

(1)As a percentage of company restaurant sales.

(2)As a percentage of franchise rental revenues.

(3)As a percentage of franchise royalties and other.

(4)As a percentage of franchise contributions for advertising and other services.

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

2516

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


		Quarter						Year-to-date					Sixteen Weeks Ended
		July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Company	Company	4.1	%	2.8	%	1.2	%	1.2	%	Company	7.5	%	2.9	%
Franchise	Franchise	6.9	%	2.7	%	1.5	%	0.8	%	Franchise	13.0	%	1.6	%
System	System	6.6	%	2.7	%	1.5	%	0.8	%	System	12.5	%	1.7	%

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


		2020										2019											2021				2020
		Company		Franchise		Total		Company		Franchise		Total			Company		Franchise		Total		Company		Franchise		Total
Beginning of year	Beginning of year	137		2,106		2,243		137		2,100		2,237		Beginning of year	144		2,097		2,241		137		2,106		2,243
New	New	—		20		20		—		16		16		New	—		3		3		—		11		11

Acquired from franchisees	Acquired from franchisees	8		(8)		—		—		—		—		Acquired from franchisees	4		(4)		—		—		—		—
Closed	Closed	(1)		(18)		(19)		—		(11)		(11)		Closed	—		(7)		(7)		—		(10)		(10)
End of period	End of period	144		2,100		2,244		137		2,105		2,242		End of period	148		2,089		2,237		137		2,107		2,244
% of system	% of system	6	%	94	%	100	%	6	%	94	%	100	%	% of system	7	%	93	%	100	%	6	%	94	%	100	%

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


		Quarter						Year-to-date							Sixteen Weeks Ended
		July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Company-owned restaurant sales	Company-owned restaurant sales	$	82,444	$	78,434	$	262,188	$	257,948	Company-owned restaurant sales	$	114,278	$	105,364
Franchised restaurant sales (1)	Franchised restaurant sales (1)	804,791		747,398		2,480,062		2,428,708		Franchised restaurant sales (1)	1,115,826		979,345
System sales (1)	System sales (1)	$	887,235	$	825,832	$	2,742,250	$	2,686,656	System sales (1)	$	1,230,104	$	1,084,709

____________________________

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

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


		Quarter						Year-to-date					Sixteen Weeks Ended
		July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Net earnings - GAAP	Net earnings - GAAP	$	32,555	$	13,189	$	51,915	$	72,376	Net earnings - GAAP	$	50,859	$	7,897
(Earnings) losses from discontinued operations, net of taxes		(379)		284		(379)		(2,652)
Income tax expense (benefit)		12,432		(2,048)		21,023		15,699

Income tax expense										Income tax expense	17,061		3,133
Interest expense, net	Interest expense, net	15,700		36,494		51,051		67,144		Interest expense, net	20,735		19,942
Pension settlement charges	Pension settlement charges	103		—		39,030		—		Pension settlement charges	—		38,606
Gains on the sale of company-operated restaurants	Gains on the sale of company-operated restaurants	(1,050)		—		(2,625)		(219)		Gains on the sale of company-operated restaurants	(1,283)		(1,575)
Impairment and other charges, net		738		(3,256)		(7,837)		5,567
Impairment and other gains, net										Impairment and other gains, net	(452)		(9,291)
Depreciation and amortization	Depreciation and amortization	12,141		12,786		41,151		42,645		Depreciation and amortization	14,571		16,728
Amortization of franchise tenant improvement allowances and other	Amortization of franchise tenant improvement allowances and other	618		387		2,383		1,524		Amortization of franchise tenant improvement allowances and other	861		1,151
Adjusted EBITDA - Non-GAAP	Adjusted EBITDA - Non-GAAP	$	72,858	$	57,836	$	195,712	$	202,084	Adjusted EBITDA - Non-GAAP	$	102,352	$	76,591

2617

Company Restaurant Operations

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


		Quarter														Year-to-date										Sixteen Weeks Ended
		July 5, 2020						July 7, 2019						July 5, 2020					July 7, 2019					January 17, 2021				January 19, 2020
Company restaurant sales	Company restaurant sales	$	82,444			$	78,434			$	262,188			$	257,948			Company restaurant sales		$	114,278			$	105,364
Company restaurant costs:	Company restaurant costs:																	Company restaurant costs:
Food and packaging	Food and packaging	24,077		29.2	%	23,058		29.4	%	77,662		29.6	%	74,350		28.8	%	Food and packaging		$	32,377	28.3	%	$	31,348	29.8	%
Payroll and employee benefits	Payroll and employee benefits	25,085		30.4	%	23,121		29.5	%	81,236		31.0	%	76,163		29.5	%	Payroll and employee benefits		$	34,931	30.6	%	$	31,890	30.3	%
Occupancy and other	Occupancy and other	12,334		15.0	%	11,052		14.1	%	40,862		15.6	%	38,165		14.8	%	Occupancy and other		$	17,835	15.6	%	$	15,958	15.1	%
Total company restaurant costs		$	61,496	74.6	%	$	57,231	73.0	%	$	199,760	76.2	%	$	188,678	73.1	%

Company restaurant sales increased ~~$4.0~~$8.9 million or ~~5.1% in~~8.5% compared to the ~~quarter and $4.2 million, or 1.6% versus a~~prior year, ~~ago~~primarily due ~~primarily~~ to ~~increases in the~~ average check growth, menu ~~pricing,~~price increases, and an increase in the number of company-operated ~~restaurants related to the acquisition of eight restaurants from a franchisee during the second quarter, and were~~restaurants; partially offset by a decline in traffic. The following table presents the approximate impact of these items on company restaurant sales (in millions):


	Sixteen Weeks Ended
		January 17, 2021
Increase in the average number of restaurants		$	2.2
AUV increase		6.7
Total change in company restaurant sales		$	8.9

Same-store sales at company-operated restaurants increased ~~4.1% in the quarter and 1.2% year-to-date~~7.5% compared to a year ago. The following table summarizes the change in company-operated same store-sales versus a year ago:

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


	Sixteen Weeks Ended
		January 17, 2021
Average check (1)		21.2	%
Transactions		(13.7)	%
Change in same-store sales		7.5	%

____________________________

(1)~~Amounts in 2020 include~~Includes price increases of approximately ~~3.0% in the quarter and 2.7% year-to-date. Amounts in 2019 include price increases of approximately 2.3% in the quarter and year-to-date.~~3.1%.

Food and packaging costs as a percentage of company restaurant sales decreased to ~~29.2%~~28.3% in 2021 compared to 29.8% in the ~~quarter and increased~~prior year due primarily to ~~29.6% year-to-date in 2020 compared to 29.4% in the quarter and 28.8% year-to-date in 2019. In the quarter, menu price increases and~~ favorable changes in product mix ~~were~~as well as menu price increases, partially offset by higher ~~costs for ingredients. Year to date, the impact of higher costs for ingredients and changes in product mix were partially offset by menu price increases.~~ingredient costs. Commodity costs increased approximately 1.6% in ~~the quarter and year-to-date by 3.6% and 4.4%, respectively,~~2021 primarily due ~~primarily~~ to increases in ~~beef in both periods~~produce, oil, and ~~cheese year-to-date. Beef, our most significant commodity, increased 27% in the quarter and 18% year-to-date.~~pork.

Payroll and employee benefit costs as a percentage of company restaurant sales increased to ~~30.4%~~30.6% in 2021 compared with 30.3% in the ~~quarter and 31.0% year-to-date in 2020 compared with 29.5% in the quarter and year-to-date in 2019,~~prior year due primarily to higher average wages resulting from wage inflation and a highly competitive labor market, and higher incentive compensation ~~in the quarter, as well as higher costs related to our new emergency paid sick leave program implemented in response to COVID-19.~~costs.

Occupancy and other costs, as a percentage of company restaurant sales, increased to ~~15.0%~~15.6% in ~~the quarter and 15.6% year-to-date in 2020~~2021 compared with ~~14.1% in the quarter and 14.8% year-to-date in 2019 driven by~~15.1% a year ago due primarily to higher costs for delivery fees as we continue to grow our delivery sales mix, partially offset by leverage from higher same-store sales and lower costs for ~~supplies related to COVID-19,~~maintenance and ~~the acquisition in 2020 of eight restaurants with lower than average sales volumes.~~repairs.

2718

Franchise Operations

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


		Quarter									Year-to-date						Sixteen Weeks Ended
		July 5, 2020			July 7, 2019			July 5, 2020			July 7, 2019				January 17, 2021		January 19, 2020
Franchise rental revenues	Franchise rental revenues	$	76,021		$	63,359		$	241,990		$	208,895		Franchise rental revenues	$	103,749	$	96,084

Royalties	Royalties	41,537			38,752			127,829			125,407			Royalties	57,343		50,243
Franchise fees and other	Franchise fees and other	1,702			1,428			5,640			5,433			Franchise fees and other	2,305		2,223
Franchise royalties and other	Franchise royalties and other	43,239			40,180			133,469			130,840			Franchise royalties and other	59,648		52,466
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	40,571			40,386			128,458			131,189			Franchise contributions for advertising and other services	60,866		53,759
Total franchise revenues	Total franchise revenues	$	159,831		$	143,925		$	503,917		$	470,924		Total franchise revenues	$	224,263	$	202,309

Franchise occupancy expenses (excluding depreciation and amortization)		$	48,612		$	38,371		$	161,470		$	127,702
Franchise occupancy expenses														Franchise occupancy expenses	$	65,169	$	64,517
Franchise support and other costs	Franchise support and other costs	2,692			2,695			10,339			8,337			Franchise support and other costs	3,273		4,676
Franchise advertising and other services expenses	Franchise advertising and other services expenses	42,176			41,882			133,134			136,397			Franchise advertising and other services expenses	62,695		55,224
Total franchise costs	Total franchise costs	$	93,480		$	82,948		$	304,943		$	272,436		Total franchise costs	$	131,137	$	124,416
Franchise costs as a percentage of total franchise revenues	Franchise costs as a percentage of total franchise revenues	58.5		%	57.6		%	60.5		%	57.9		%	Franchise costs as a percentage of total franchise revenues	58.5%		61.5%

Average number of franchise restaurants	Average number of franchise restaurants	2,079			2,081			2,084			2,084			Average number of franchise restaurants	2,078		2,087
Increase in franchise-operated same-store sales		6.9		%				1.5		%
Franchised restaurant sales	Franchised restaurant sales	$	804,791		$	747,398		$	2,480,062		$	2,428,708		Franchised restaurant sales	$	1,115,826	$	979,345
Franchised restaurant AUVs	Franchised restaurant AUVs	$	387		$	359		$	1,190		$	1,166		Franchised restaurant AUVs	$	537	$	469
Royalties as a percentage of total franchised restaurant sales	Royalties as a percentage of total franchised restaurant sales	5.2		%	5.2		%	5.2		%	5.2		%	Royalties as a percentage of total franchised restaurant sales	5.1%		5.1%

Franchise rental revenues increased ~~$12.7~~$7.7 million, or ~~20.0%~~8.0% in ~~the quarter and $33.1 million, or 15.8% year-to-date~~2021 compared to the prior year, primarily ~~from our adoption of ASC 842, which increased our rental revenues $9.7 million in the quarter and $32.0 million year-to-date, as well as~~due to higher percentage rent ~~revenues due to an increase in~~driven by higher franchise restaurant sales.

Franchise royalties and other increased ~~$3.1~~$7.2 million, or ~~7.6%~~13.7% in ~~the quarter and $2.6 million, or 2.0% year-to-date~~2021 compared to the prior year due primarily to an increase in franchise ~~same-store~~restaurant sales driving royalties higher.

Franchise contributions for advertising and other services revenues increased ~~$0.2~~$7.1 million, or ~~0.5%~~13.2% in 2021 compared to the ~~quarter as a result of $0.7 million higher technology and sourcing fees, partially offset by $0.5 million lower marketing contributions. Marketing contributions were lower~~prior year, due to ~~a reduction in April marketing fees and was largely offset by~~ an increase of $6.9 million in marketing contributions due to higher franchise restaurant sales compared with a year ago. Year-to-date, franchise contributions for advertising and other services revenues decreased $2.7 million, or 2.1%, as a result of $4.9 million lower marketing contributions driven by a decrease in the contribution percentages; partially offset by $2.2 million higher technology and sourcing fees as a result of an increase in technology fees in July 2019.sales.

Franchise occupancy expenses, ~~principally rents,~~primarily rent, increased ~~$10.2~~$0.7 million, or 1.0% in 2021 compared to the prior year, primarily due to annual rent increases and higher costs for percentage rent expense.

Franchise support and other costs decreased $1.4 million in 2021 compared to the ~~quarter~~prior year, primarily due to a decrease in franchisee bad debt expense from specific franchise situations that occurred in the prior year.

Franchise advertising and ~~$33.8~~other service expenses increased $7.5 million, ~~year-to-date~~or 13.5% in 2021 compared to the prior year due primarily to ~~the adoption of ASC 842, which increased franchise occupancy expenses by $9.9~~a $6.9 million increase in marketing fund contributions from our franchisees in the ~~quarter and $32.7 million year-to-date.~~

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

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

current year.

Depreciation and Amortization

Depreciation and amortization decreased by ~~$0.6~~$2.2 million in ~~the quarter and $1.5 million year-to-date~~2021 compared with the prior year, primarily due to certain ~~of our~~ franchise building assets becoming fully depreciated in the current fiscal year.

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):

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


	Sixteen Weeks Ended
	January 17, 2021
Advertising	$	451
Incentive compensation (including share-based compensation and related payroll taxes)	291
Cash surrender value of COLI policies, net	(2,664)
Litigation matters	(3,931)

Other	(1,896)
	$	(7,749)

Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales. Advertising costs ~~decreased $0.1~~increased $0.5 million ~~in the quarter and $2.3 million year-to-date~~ compared to the prior ~~year. In the quarter, the decrease was driven by a decrease in the contribution percentage, largely offset by higher company-operated restaurant sales. Year-to-date, the decrease was~~year primarily due to ~~a $2.0 million discretionary marketing fund contribution made by the Company in 2019 that was non-recurring in 2020.~~higher sales.

Incentive compensation ~~decreased~~increased by ~~$2.5~~$0.3 million compared to the prior year due to a $2.2 million increase in the ~~quarter and $2.1 million year-to-date primarily~~annual incentives mainly as a result of ~~lower~~higher achievement levels compared to the prior year, ~~for~~partially offset by a $2.0 million decrease in stock-based compensation primarily related to turnover at the ~~Company’s annual incentive plan.~~executive level.

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 ~~$2.6~~$2.7 million ~~in the quarter and a negative impact of $1.1 million year-to-date,~~ compared to the prior year.

Litigation matters decreased by ~~$7.0~~$3.9 million indue primarily to the ~~quarter and $1.2 million year-to-date, primarily due to lower costs on certain~~settlement of an employee litigation ~~matters. Refer to Note 13,~~ ~~Contingencies and Legal Matters,~~ ~~of the notes to the condensed consolidated financial statements for additional information regarding these charges.~~

~~Insurance costs increased by $2.6 million~~matter in ~~the quarter and $1.8 million year-to-date, primarily due to less favorable development factors related to workers’ compensation and general liability claims compared to~~ the prior year.

Impairment and Other ~~Charges,~~Gains, Net

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


		Quarter						Year-to-date					Sixteen Weeks Ended
		July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Restructuring costs	Restructuring costs	$	2	$	(64)	$	1,165	$	6,722	Restructuring costs	$	6	$	1,045
Costs of closed restaurants and other	Costs of closed restaurants and other	890		2,010		1,322		3,259		Costs of closed restaurants and other	1,023		101
Gains on disposition of property and equipment, net	Gains on disposition of property and equipment, net	(216)		(5,618)		(10,386)		(5,756)		Gains on disposition of property and equipment, net	(2,160)		(10,437)
Accelerated depreciation	Accelerated depreciation	62		416		62		1,342		Accelerated depreciation	679		—
		$	738	$	(3,256)	$	(7,837)	$	5,567		$	(452)	$	(9,291)

Impairment and other ~~charges, net increased by $4.0 million in the quarter compared to a year ago, driven by a gain on sale of a restaurant property in the prior year. Impairment and other charges,~~gains, net decreased ~~year-to-date~~ by ~~$13.4~~$8.8 million, ~~as a result of~~primarily due to a $10.8 million gain related to the sale of one of our corporate office buildings in 2020, partially offset by a $2.2 million gain on the ~~first quarter~~sale of ~~2020 and lower restructuring costs of $5.6 million.~~

two real estate properties in 2021.

Gains on the Sale of Company-Operated Restaurants

In ~~2020~~2021 and ~~2019,~~2020, no company-operated restaurants were sold to franchisees. ~~Gains~~Amounts included in “Gains on the sale of company-operated ~~restaurants~~restaurants” in both periods ~~pertain~~related to ~~meeting~~resolutions of certain ~~contingent consideration provisions included~~contingencies from the sale of restaurants in ~~restaurants sold in previous~~prior years.

Other Pension and Post-Retirement Expenses, Net

Other pension and post-retirement expenses, net ~~increased~~decreased by ~~$1.1~~$38.7 million due to a non-cash pension settlement charge of $38.6 million in the first quarter ~~and $39.8 million year-to-date versus~~of the prior ~~year, primarily due to non-cash pension settlement charges of $0.1 million in the quarter and $39.0 million year-to-date.~~year. Refer to Note ~~10,~~8, Retirement Plans, of the notes to the condensed consolidated financial statements for additional ~~information regarding these charges.~~information.

Interest Expense, Net

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


		Quarter						Year-to-date					Sixteen Weeks Ended
		July 5, 2020		July 7, 2019		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Interest expense	Interest expense	$	15,703	$	36,561	$	51,580	$	67,587	Interest expense	$	20,739	$	20,419
Interest income	Interest income	(3)		(67)		(529)		(443)		Interest income	(4)		(477)
Interest expense, net	Interest expense, net	$	15,700	$	36,494	$	51,051	$	67,144	Interest expense, net	$	20,735	$	19,942

Interest expense, net ~~decreased $20.8~~increased by $0.8 million ~~in the quarter and $16.1 million year-to-date compared with a year ago,~~ primarily due to ~~a charge of $23.6 million for the early termination of our interest rate swaps in~~higher average borrowings compared to the prior year, ~~quarter. Excluding this impact,~~as well as a decrease in interest ~~expense increased by $2.8 million in the quarter and $7.5 million year-to-date, primarily~~income as a result of ~~higher average debt balances.~~lower interest rates.

Income Tax Expense ~~(Benefit)~~

The income tax provisions reflect tax rates ~~of 27.9%~~of 25.1% in ~~the quarter~~2021 and ~~29.0% year-to-date, compared to (17.9%) and 18.4%, respectively,~~28.4% in ~~fiscal year 2019.~~2020. The major components of the year-over-year change in tax rates were an increase in operating earnings before income tax, a decrease in the impact of non-recurring activity in fiscal year 2019 including the termination of interest rate swap agreements, the release of valuation reserves on state tax credits and losses, and the release of a federal tax liability due to expiration of statute of limitations,non-deductible compensation for certain officers, and an increase in ~~nondeductible costs resulting from a California Private Attorney General Act lawsuit settled in~~ the ~~current year. The final annual~~impact of excess tax ~~rate cannot be determined until~~benefit on stock compensation as opposed to the ~~end of the fiscal year; therefore, the actual 2020 rate could differ from our current estimates.~~

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

~~As described in Note 14,~~ ~~Discontinued Operation~~s, in the notes to condensed consolidated financial statements, the results of operations from our former Qdoba business has been reported as discontinued operations for all periods presented. Refer to Note 14 for additional information regarding discontinued operations.prior year’s tax deficiency.

LIQUIDITY AND CAPITAL RESOURCES

General

~~As is common in the restaurant industry, we generally maintain relatively low levels~~Our primary sources of ~~accounts receivable~~liquidity 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, whichcapital resources 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~~and borrowings available under our ~~common stock, and to pay cash dividends.~~securitized financing facility. Our cash requirements consist principally of working capital, general corporate needs, capital expenditures, income tax payments, debt service requirements, franchise tenant improvement allowance distributions, dividend payments, and obligations related to our benefit plans. We generally reinvest available cash flows from operations to invest in our business, service our debt obligations, pay dividends and repurchase shares of our common stock.

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 onborrowings under our Variable Funding ~~Notes, which provided us $107.9 million of unrestricted cash.~~Notes. As of ~~the end of our third quarter,~~January 17, 2021, the Company had ~~$196.9~~$288.6 million of cash and restricted cash on its balance sheet.

In Subsequent to the ~~context~~end of ~~an unprecedented global pandemic, we believe it is prudent to maintain maximum financial flexibility by preserving our capital~~the quarter, the Company repaid $107.9 million on its Variable Funding Notes, and ~~maintaining the Company’s healthy liquidity position. As a result, beginning~~anticipates resuming share repurchases in the second quarter of 2021.

Based upon current levels of operations and anticipated growth, we have temporarily suspended all repurchase activity and significantly reduced capital expenditures to essential spend only. We also temporarily suspended our dividend payments beginning in the last quarter, which was subsequently reinstated. The reinstatement of the dividend reflects the strong financial health of the Company and our continued commitment to shareholders.

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

Cash Flows

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


		Year-to-date							Sixteen Weeks Ended
		July 5, 2020		July 7, 2019			January 17, 2021		January 19, 2020
Total cash provided by (used in):	Total cash provided by (used in):					Total cash provided by (used in):
Operating activities	Operating activities	$	90,168	$	116,793	Operating activities	$	62,251	$	22,687
Investing activities	Investing activities	29,543		950		Investing activities	(637)		32,364
Financing activities	Financing activities	(74,359)		(108,001)		Financing activities	(9,959)		(168,326)
Net cash flows	Net cash flows	$	45,352	$	9,742	Net cash flows	$	51,655	$	(113,275)

Operating Activities. Operating cash flows ~~decreased $26.6~~increased $39.6 million compared with a year ago, primarily due to ~~lower~~favorable changes in working capital of $33.7 million and higher net income adjusted for non-cash items of $5.8 million. Favorable changes in working capital were due to higher collections and favorable timing on receivables of ~~$23.6~~$30.3 million, ~~from~~impacted by collections on marketing and rent ~~and marketing payment~~ deferrals we provided to our franchisees ~~and higher income tax and~~in the prior year, lower cash paid for interest ~~payments~~ of ~~$6.7 million and $8.4 million, respectively. These decreases were~~$7.5 million; partially offset by ~~lower~~unfavorable changes in payables of $10.3 million, impacted by our repayment of rent ~~payments of $12.7 million from payment~~ deferrals ~~we received from~~provided by our ~~landlords.~~landlords in the prior year.

Pension and ~~Postretirement~~Post-Retirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, ~~2019,~~2020, 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,~~2021, we contributed ~~$4.9~~$2.1 million to our non-qualified pension plan and ~~postretirement~~post-retirement plans.

Investing Activities. Cash provided by investing activities ~~increased~~decreased by ~~$28.6~~$33.0 million compared with a year ago, primarily due to ~~higher~~$17.4 million of proceeds ~~from~~received in the prior year as a result of a sale and partial leaseback of ~~assets of $16.8~~a multi-tenant property, and $17.0 million ~~higher~~lower proceeds ~~from~~received on the sale of property and equipment, ~~of $15.2 million, and $8.3 million of lower capital expenditure spending, partially offset by $15.2 million of lower repayments~~primarily due to proceeds received on ~~notes issued~~the sale of a corporate office building in ~~connection with 2018 refranchising transactions.~~the prior year.

3122

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

Year-to-date
July 5,
2020 July 7,
2019
Jack in the Box:
Restaurant facility expenditures $ 8,385 $ 10,734
Purchases of assets intended for sale or sale and leaseback 417 4,236
New restaurants — 701
Other, including information technology 3,775 4,438
12,577 20,109
Corporate Services:
Information technology 3,370 4,247
Other, including facility improvements 789 685
4,159 4,932
Total capital expenditures $ 16,736 $ 25,041

Our capital expenditure program includes, among other things, restaurant remodeling, information technology enhancements, and investments in new locations and equipment. Capital expenditures decreased by $8.3 million compared to a year ago primarily as a result of the Company reducing capital expenditures to essential spend only to provide additional liquidity and financial flexibility given the current uncertainty surrounding the pandemic.

~~Sale leaseback transactions —~~ We use sale and leaseback financing to lower the initial cash investment in our restaurants to the cost of the equipment, whenever possible. 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 of $17.4 million during the 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. We entered into a lease with the buyer to leaseback the property for up to a period of 18 months with an option to terminate earlier without penalty, upon providing a 90-day notice. We received net proceeds of $20.6 million on the sale.


	Sixteen Weeks Ended
	January 17, 2021		January 19, 2020
Restaurants:
Restaurant facility expenditures	$	5,319	$	3,500
Other, including information technology	407		1,552
	5,726		5,052
Corporate Services:
Information technology	466		1,760
Other, including facility improvements	884		390
	1,350		2,150

Total capital expenditures	$	7,076	$	7,202

Financing Activities. Cash flows used in financing activities decreased by ~~$33.6~~$158.4 million compared with a year ago, primarily due to a ~~net increase~~decrease in borrowings under our revolving credit facilities of $130.9 million, lower principal repayments of $25.5 million as a result of our debt recapitalization completed in the prior year, lower dividends paid on common stock ~~of$12.5 million, and lower payments for debt issuance costs of $4.9 million; partially offset by higher stock repurchases of $141.2 million.~~repurchases.

Repurchases of Common Stock — The Company ~~repurchased approximately 1.9 million~~did not repurchase any shares ~~of its common stock~~ in the first quarter of ~~fiscal~~2021, and as announced on April 15, 2020, ~~at an average price~~temporarily suspended its share repurchase program. As 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~~January 17, 2021, this leaves ~~approximately $122.2~~$200.0 million remaining under share repurchase programs authorized by the ~~Company’s~~ Board of Directors, consisting of ~~$22.2 million that expires in November 2020 and approximately~~ $100.0 million that expires in November ~~2021. As previously announced, we have temporarily paused our~~2021 and $100.0 million that expires in November 2022. The Company anticipates resuming share ~~repurchase program and did not buy back any shares~~repurchases in the second ~~or third~~ quarter of ~~2020.~~2021.

Dividends — During ~~2020,~~2021, the Board of Directors declared ~~two quarterly cash dividends of $0.40 per common share totaling $18.5 million.~~

~~Following our second quarter, we announced that our dividend would be temporarily suspended as~~ a ~~result of uncertainty caused by the pandemic. On July 31, 2020, our Board of Directors declared a quarterly~~ cash dividend of $0.40 per common share totaling $9.1 million.

Long-Term Debt — As of January 17, 2021, we had $1.4 billion of outstanding borrowings under our securitized financing facility, which includes $1,290.3 million of total principal outstanding on the Class A-2 Notes (as defined below) and $107.9 million drawn on our $150.0 million Variable Funding Notes (as defined below). Subsequent to bethe first quarter of 2021, the Company fully paid down its outstanding borrowings on ~~September 3, 2020 to shareholders of record as~~the Variable Funding Notes.

On July 8, 2019, Jack in the Box Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of the ~~close~~Company, completed its securitization transaction and issued $575.0 million of ~~business on August 18, 2020. Future dividends are subject to approval by our Board~~its Series 2019-1 3.982% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”), $275.0 million of ~~Directors.~~

its Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”) and $450.0 million of its Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes”) and together with the Class A-2-I Notes and the Class A-2-II Notes, (the “Class A-2 Notes”), in an offering exempt from registration under the Securities Act of 1933, as amended. In connection with the issuance of the Class A-2 Notes, — the Master Issuer also 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. The Class A-2 Notes and the Variable Funding Notes are referred to collectively as the “Notes.”

Interest and principal payments on the Class A-2 Notes are payable on a quarterly basis. ~~In general, no~~The quarterly principal ~~payments will~~payment of $3.25 million on the Class A-2 Notes may be ~~required if a~~suspended when the specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as defined in the Indenture), is less than or equal to 5.0x. ~~The~~Exceeding the leverage ratio of 5.0x does not violate any covenant related to the Class A-2 Notes. As of September 27, 2020 and January 17, 2021, the Company’s actual leverage ratio ~~exceeded~~was under 5.0x, and as a result, ~~we are required to make~~ quarterly principal payments ~~of $3.25 million. The Company anticipates that we will be required to make quarterly principal payments on the Class A-2 Notes for the foreseeable future.~~were not required.

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 July 5, 2020, $1,293.5 million of borrowings were outstanding on the Class A-2 Notes.~~

Restricted Cash —— In accordance with the terms of the Indenture, certain cash accounts have been established with the Indenture trustee for the benefit of the note holders and are restricted in their use. As of ~~July 5, 2020,~~January 17, 2021, the Master Issuer had restricted cash of ~~$37.4~~$37.3 million, which primarily represented cash collections and cash reserves held by the trustee to be used for payments of ~~principal,~~ interest and commitment fees required for the Class A-1 and A-2 Notes. ~~During the third quarter, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we continued to voluntarily elect to fund cash held~~Beginning in ~~trust for quarterly interest and principal payments due in November 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 July 5, 2020 and September 29, 2019, $41.1 million and $45.6 million, respectively, of letters of credit were outstanding against the Variable Funding Notes. As of September 29, 2019, we had no outstanding borrowings under our Variable Funding Notes. During the second quarter of 2020, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we ~~borrowed $107.9 million under~~voluntarily elected to fund cash held in trust for an additional quarterly payment of interest and commitment fees. Subsequent to the ~~Variable Funding Notes. The Company may use the proceeds from the~~first quarter of 2021, upon repaying outstanding borrowings ~~for working capital and general corporate purposes. As of July 5, 2020, remaining borrowing availability under~~on our Variable Funding Notes, ~~was $1.1 million. As of July 5, 2020, $107.9 million of borrowings were outstanding under our Variable Funding Notes at a weighted average interest rate of 2.3%.~~we do not expect to make this voluntary election in the foreseeable future.

Covenants and ~~restrictions~~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 ~~July 5, 2020,~~January 17, 2021, we were in compliance with all of our debt covenant requirements and were not subject to any rapid amortization events.

Off-Balance Sheet Arrangements

We have entered into certain off-balance sheet contractual obligations and commitments in the ordinary course of business, which are recognized in our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles. There has been no material change in these arrangements as disclosed in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September ~~29, 2019.~~27, 2020. 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.~~27, 2020.

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, 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~~COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which has affected and could continue to materially affect our operations, ~~resulting from the coronavirus COVID-19 pandemic.~~financial condition, and results of operations for an extended period of time.

•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~~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.~~program. 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.

•We are subject to risks associated with our increasing dependence on digital commerce platforms and technologies to maintain and grow sales, and we cannot predict the impact that these digital commerce platforms and technologies, other new or improved technologies or alternative methods of delivery may have on consumer behavior and our financial results.

•We are dependent on information technology and digital service providers and any material failure, misuse, or interruption of our computer systems, supporting infrastructure, consumer-facing digital capabilities or social media platforms could adversely affect our business.

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

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

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

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

•We have a significant amount of debt outstanding. 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; including federal, state, and local policies regarding mitigation strategies for controlling the coronavirus COVID-19 pandemic.~~results.

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

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

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

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

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

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

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

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

•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.

•Actions of activist stockholders could cause us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on 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~~27, 2020 (“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.

3626

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are only exposed to interest rate risk on borrowings under our Class A-1 Variable Funding Notes, a revolving credit facility, borrowings from which are subject to variable interest rates. In the second quarter of 2020, we borrowed $107.9 million under the variable funding notes, which remains outstanding as of July 5, 2020. Based on outstanding borrowings as of July 5, 2020, an increase or decrease of 100 basis points in interest rates would impact our interest expense by approximately $1.1 million on an annualized basis.

We are also exposed to the impact of commodity and utility price fluctuations. Many of the ingredients we use are commodities or ingredients that are affected by the price of other commodities, weather, seasonality, production, availability and various other factors outside our control. In order to minimize the impact of fluctuations in price and availability, we monitor the primary commodities we purchase and may enter into purchasing contracts and pricing arrangements when considered to be advantageous. However, certain commodities remain subject to price fluctuations. We are exposed to the impact of utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs for commodities and utilities through higher prices is limited by the competitive environment in which we operate. We also could experience shortages of key ingredients if our suppliers need to close or restrict operations due to the impact of the COVID-19 pandemic. WeThere have ~~not experienced any~~been no material ~~disruptions~~changes in our ~~supply chains as of~~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 the ~~date of this report.~~fiscal year ended September 27, 2020.

ITEM 4. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

~~Management, under~~Based on an evaluation of the ~~oversight~~Company’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s quarter ended January 17, 2021, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively)~~, evaluated the effectiveness of~~ have concluded that 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.~~effective.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended ~~July 5, 2020~~January 17, 2021 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.

3727

PART II. OTHER INFORMATION

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

ITEM 1. LEGAL PROCEEDINGS

See Note ~~13,~~11, ~~Contingencies~~Commitments and ~~Legal Matters~~Contingencies, 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,~~27, 2020, which we filed with the SEC on November ~~21, 2019,~~18, 2020, 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,~~27, 2020, 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.

The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which has affected and could continue to materially affect our operations, financial condition and results of operations for an extended period of time.

The COVID-19 pandemic 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 of COVID-19 has had, and is expected to continue to have, an adverse effect on our 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 provide additional security to our liquidity position and provide financial flexibility given uncertain market and economic conditions as a result of the 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 franchisees to quarantine some or all of a restaurant’s employees and disinfect the restaurants facilities. If a significant percentage of our or our franchisees’ workforce is unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in 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 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 an adverse effect on our business. We 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 taken other compensation and benefit actions to support our restaurant 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 find other employment during that interruption, which could materially adversely affect our ability to properly staff and 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 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, those related to consumer confidence, increase in food and commodity costs, supply chain interruptions, labor availability and cost, cybersecurity incidents, increased indebtedness, regulatory and legal complexity, and governmental regulation.

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

Stock Repurchases — We did not repurchase any shares of our common stock in the ~~third~~first quarter of ~~2020.~~2021. As of ~~July 5, 2020,~~January 17, 2021, there was ~~approximately $22.2~~$100.0 million remaining under the Board-authorized stock buyback program which expires in November ~~2020~~2021 and ~~approximately~~ $100.0 million which expires in November ~~2021.~~2022.

ITEM 3. DEFAULTS OF SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Item 5.03. None.

3928

ITEM 6. EXHIBITS

Number

Description

Form

Filed with SEC

10.2.18*10.2.20*

~~Lance Tucker Retention Agreement,~~Offer Letter by and between Tim Mullany and Jack in the Box Inc., dated ~~May 5,~~December 11, 2020

~~10-Q~~8-K

12/17/2020

10.2.21*

Offer Letter by and between Ryan Ostrom and Jack in the Box Inc., dated December 30, 2020

—

Filed herewith

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~~iXBRL Instance Document

101.SCH

~~XBRL~~iXBRL Taxonomy Extension Schema Document

101.CAL

~~XBRL~~iXBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

~~XBRL~~iXBRL Taxonomy Extension Definition Linkbase Document

101.LAB

~~XBRL~~iXBRL Taxonomy Extension Label Linkbase Document

101.PRE

~~XBRL~~iXBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File formatted in iXBRL

* Management contract or compensatory plan

4029

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~~TIM MULLANY
						~~Lance Tucker~~Tim Mullany
						Executive Vice President and Chief Financial Officer (principal financial officer) (Duly Authorized Signatory)

Date: ~~August 5, 2020~~February 17, 2021

4130


	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


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


	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


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


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


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


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


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