What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2020-11-18 compared with 2019-11-21 · 151 added, 155 removed, 192 unchanged (61% of the section changed)

1 unchanged sentence

For an understanding of the significant factors that influenced our performance during the fiscal year, we believe our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related notes included in this annual report as indexed on page F-1.

Comparisons under this heading refer to the 52 -week period ended September 29, 2019 and September 30, 2018 for fiscal years 2019 and 2018 respectively, unless otherwise indicated.

Comparisons under this heading refer to the 52-week periods ended September 27, 2020 and September 29, 2019 for fiscal years 2020 and 2019, respectively.

A comparison of our results of operations and cash flows for fiscal 2019 compared to fiscal 2018 can be found under Part II, “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended September 29, 2019.

Our MD&A consists of the following sections:

2 unchanged sentences

• Results of operations — an analysis of our consolidated statements of earnings for fiscal 2020 compared to fiscal 2019.

For a comparison of our results of operations for the fiscal 2018 compared to fiscal 2017 can be found under “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 , filed with the SEC on November 21, 2018.

Liquidity and capital resources — an analysis of our cash flows including pension and postretirement health contributions, capital expenditures, sale of company-operated restaurants, franchise tenant improvement allowance distributions, long-term debt activities, share repurchase activity, dividends, known trends that may impact liquidity, and the impact of inflation, if applicable.

• Liquidity and capital resources — an analysis of our cash flows, including capital expenditures, share repurchase activity, dividends, and known trends that may impact liquidity, and the impact of inflation, if applicable.

• Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates.

8 unchanged sentences

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 gains or losses from discontinued operations, income taxes, interest expense, net, gains on the sale of company-operated restaurants, impairment and other charges, net, depreciation and amortization, and the amortization of tenant improvement allowances and other.

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

2 unchanged sentences

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

IMPACT OF COVID-19

Throughout the pandemic, substantially all of our restaurants have remained open, with dining rooms closed and all locations operating in an off-premise capacity, which has historically represented close to 90% of the Company’s business, including drive-thru, third-party delivery, and carry-out.

While we navigate through this time of uncertainty, Jack in the Box remains committed to operating our restaurants with integrity, providing great guest service, and most importantly, protecting the health and safety of our employees and guests.

In the last five weeks of the second quarter, upon the rise in “shelter-in-place” mandates and “social distancing” requirements across the country, system same-store sales decreased by 17.0%;

however, starting in our third quarter and continuing into our fourth quarter we have seen an acceleration of system same-store sales.

The acceleration of sales during the pandemic has been largely driven by average check growth while we have continued to experience a significant reduction in restaurant traffic.

Given the uncertainty associated with the COVID-19 pandemic, 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.

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 extended deadlines for remodel requirements and development agreements.

• 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.

As of September 27, 2020, we operated and franchised 2,241 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam.

We derive revenue from retail sales at Jack in the Box company-operated restaurants and rental revenue, royalties (based upon a percent of sales), franchise fees and contributions for advertising and other services from franchise restaurants.

In addition, we recognize gains or losses from the sale of company-operated restaurants to franchisees, which are included as a line item within operating costs and expenses, net, in the accompanying consolidated statements of earnings.

The following summarizes the most significant events occurring in fiscal 2019 , and certain trends compared to the prior year:

Same-Store and System Sales — System same-store sales increased 1.3% , and system sales increased $38.6 million , or 1.1% , compared with a year ago.

Menu price increases and favorable product mix more than offset a decrease in traffic at both company-operated and franchise-operated restaurants.

Company Restaurant Operations — Company restaurant costs as a percentage of company restaurant sales increased to 73.8% from 73.6% in the prior year primarily due to higher labor costs.

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

Securitized Refinancing Transaction — 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.

The following summarizes the most significant events occurring in fiscal 2020, and certain trends compared to fiscal 2019:

• System same-store sales — System same-store sales increased 4.0% in fiscal 2020 as a result of strong sales momentum in the second half of our fiscal year.

• Company restaurant operations — Company restaurant costs including food and packaging, payroll and employee benefits, and occupancy and other operating costs, as a percentage of sales increased to 75.4% from 73.8% in the prior year primarily due to wage inflation and increases in other operating costs.

• Franchise operations — Franchise restaurant sales increased 4.9% for the year, resulting in higher royalties and percentage rent for the Company.

• Corporate initiatives — During 2020, we executed on previously announced corporate initiatives, which included the sale of one of our corporate office buildings as we consolidated our corporate facilities, as well as completing a lump sum payment option in connection with the Company’s pension plan de-risking strategy.

• Return of cash to shareholders — We returned cash to shareholders in the form of share repurchases and quarterly cash dividends.

We repurchased 1.4 million shares of our common stock at an average price of $87.33 per share, totaling $125.3 million , including the cost of brokerage fees.

We also declared dividends of $1.60 per share totaling $41.4 million .

Restructuring Costs — In 2019, we have continued with our plan to reduce our general and administrative costs by revamping our organization and cost structures.

Additionally, in the first quarter of fiscal 2019, we undertook an evaluation of strategic alternatives for the Company (the “Strategic Alternatives Evaluation”) which was concluded on in the third quarter of fiscal 2019.

In connection with these activities, we have recorded $8.5 million of restructuring charges, which includes $7.2 million related to severance costs, and $1.3 million related to strategic alternatives.

These costs are included in “Impairment and other charges, net,” in the accompanying consolidated statements of earnings.

We repurchased 1.9 million shares of our common stock during fiscal 2020 at an aggregate cost of $153.5 million.

We declared dividends of $1.20 per share totaling $27.7 million.

• Adjusted EBITDA — Adjusted EBITDA increased in 2020 to $274.2 million from $269.0 million in 2019.

FINANCIAL REPORTING

In fiscal 2019, we adopted ASU 2014-09, Revenue Recognition - Revenue from Contracts with Customers (Topic 606) (“ASC 606”), using the modified retrospective method, whereby the cumulative effect of initially adopting the guidance was recognized as an adjustment to beginning retained earnings at October 1, 2018.

The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

In fiscal 2020, we adopted Accounting Standards Codification Topic 842, Leases (“ASC 842”), effective at the beginning of our fiscal year on a modified retrospective basis using the effective date transition method.

Our consolidated financial statements reflect the application of ASC 842 guidance beginning in 2020, while our consolidated financial statements for prior periods were prepared under the guidance of a previously applicable accounting standard.

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

Franchise fee revenue for franchise services will be recognized over the franchise term beginning in 2019 compared to upfront recognition under the previous revenue guidance.

Franchise contributions for advertising and other services are reflected on a gross basis in 2019 compared to a net basis in 2018.

Newly created captions “Franchise contributions for advertising and other services” and “Franchise advertising and other services expenses” include the gross-up of respective revenues and expenses;

however, the 2018 results have not been restated to conform to current year presentation.

• 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 $37.4 million.

• 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 $4.2 million and $4.8 million, respectively.

RESULTS OF OPERATIONS FOR FISCAL 2020 AND 2019

5 unchanged sentences

Franchise contributions for advertising and other services 17.0 % 18.0 %

Total revenues

100.0 % 100.0 %

Operating costs and expenses, net:

Company restaurant costs (excluding depreciation and amortization):

Food and packaging (1) 29.4 % 29.0 %

1 unchanged sentence

Occupancy and other (1) 15.5 % 15.0 %

Total company restaurant costs (excluding depreciation and amortization) (1)

Franchise occupancy expenses (excluding depreciation and amortization) (2) 65.5 % 61.1 %

14 unchanged sentences

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

Company 3.1 % 1.7 %

Franchise 4.0 % 1.3 %

System 4.0 % 1.3 %

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

Company Franchise Total Company Franchise Total

Beginning of year 137 2,106 2,243 137 2,100 2,237

New — 27 27 — 19 19

Acquired from franchisees 8 (8) — — — —

Closed (1) (28) (29) — (13) (13)

End of year 144 2,097 2,241 137 2,106 2,243

% of system 6 % 94 % 100 % 6 % 94 % 100 %

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

11 unchanged sentences

Earnings from discontinued operations, net of income taxes (370) (2,690)

Income taxes 32,727 24,025

Interest expense, net 66,743 84,967

Pension settlement charges 39,218 —

Gains on the sale of company-operated restaurants (3,261) (1,366)

4 unchanged sentences

Company Restaurant Operations

The following table presents company restaurant sales, costs, and restaurant costs as a percentage of the related sales in each fiscal year.

The following table presents company restaurant sales and costs as a percentage of the related sales in each fiscal year.

Percentages may not add due to rounding (dollars in thousands) :

4 unchanged sentences

Occupancy and other $ 54,157 15.5 % $ 50,613 15.0 %

Total company restaurant costs

Company restaurant sales decreased $111.3 million in 2019 as compared with the prior year.

In 2019 , the decrease was primarily driven by a decrease in the average number of company restaurants resulting from the execution of our refranchising strategy and, to a lesser extent, a decrease in traffic, which was more than offset by menu price increases and favorable changes in product mix.

The following table presents the approximate impact of these (decreases) increases on company restaurant sales ( in millions ):

Decrease in the average number of restaurants

Total decrease in company restaurant sales

Same-store sales at company-operated restaurants increased 1.7% in 2019 compared with 2018 primarily due to menu price increases and favorable product mix, partially offset by a decline in transactions.

Company restaurant sales increased $12.2 million in 2020 as compared with the prior year.

In 2020, the increase was primarily driven by an increase in the number of company-operated restaurants related to the acquisition of eight restaurants from a franchisee during the year which resulted in additional sales of $6.1 million, average check growth, and menu price increases, and were partially offset by a decline in traffic during COVID-19 impacted weeks.

Same-store sales at company-operated restaurants increased 3.1% in 2020 compared to a year ago.

The following table summarizes the increases (decreases) in company-operated same-store sales:

Transactions (8.9) %

Average check (1) 12.0 %

2 unchanged sentences

(1) Includes price increases of approximately 2.6% in 2020.

Food and packaging costs as a percentage of company restaurant sales increased to 29.0% in 2019 from 28.8% a year ago due primarily to changes in product mix and higher costs for ingredients, partially offset by menu price increases.

Commodity costs increased by approximately 2% compared to a year ago, due to increases across the majority of our ingredient costs.

Payroll and employee benefit costs as a percentage of company restaurant sales increased to 29.7% in 2019 compared with 28.8% a year ago due primarily to higher average wages resulting from wage inflation and a highly competitive labor market, and a change in the mix of restaurants due to refranchising.

Occupancy and other costs decreased $21.2 million in 2019 compared to the prior year primarily driven by a decrease in the average number of restaurants impacting occupancy and other costs by approximately $23.0 million.

As a percentage of company restaurant sales, occupancy and other costs decreased to 15.0% from 16.0% a year ago due primarily to refranchising and a decrease in maintenance and repair expenses, partially offset by higher costs for insurance, information technology, and delivery fees at the restaurants we continue to operate.

Food and packaging costs as a percentage of company restaurant sales increased to 29.4% in 2020 from 29.0% a year ago due primarily to higher costs for ingredients and changes in product mix, partially offset by menu price increases.

Commodity costs increased by 3.5% for the year due primarily to increases in beef and cheese.

Beef, our most significant commodity, increased 14.9% compared to a year ago.

Payroll and employee benefit costs as a percentage of company restaurant sales increased to 30.5% in 2020 compared with 29.7% a year ago due primarily to higher average wages resulting from wage inflation and a highly competitive labor market, and higher incentive compensation costs during the year;

partially offset by higher sales leverage.

Occupancy and other costs as a percentage of company restaurant sales increased to 15.5% in 2020 from 15.0% a year ago due primarily to higher costs for delivery fees as we grow our delivery sales mix, supplies primarily related to COVID-19, and the acquisition in 2020 of eight restaurants with lower than average sales volumes;

partially offset by leverage from higher same-store sales.

Franchise Operations

1 unchanged sentence

Franchise rental revenues $ 320,647 $ 272,815

Royalties 171,407 163,047

Franchise fees and other 6,912 6,764

2 unchanged sentences

Total franchise revenues $ 672,519 $ 613,300

Franchise occupancy expenses (excluding depreciation and amortization)

Franchise occupancy expenses $ 210,038 $ 166,584

Franchise support and other costs 13,059 12,110

1 unchanged sentence

Total franchise costs $ 403,891 $ 356,787

Franchise costs as a % of total franchise revenues

Franchise costs as a percentage of total franchise revenues 60.1 % 58.2 %

Average number of franchise restaurants 2,084 2,081

3 unchanged sentences

Royalties as a percentage of total franchise restaurant sales 5.2 % 5.1 %

Franchise rental revenues increased $13.8 million , or 5.3% , in 2019 versus a year ago due primarily to an increase in the number of franchised restaurants and, to a lesser extent, an increase in franchise same-store sales.

The increase in the number of restaurants leased or subleased from the Company due to our refranchising strategy, contributed additional rental revenues of $12.4 million in 2019.

Franchise royalties and other increased $7.2 million , or 4.4% , in 2019 compared with the prior year due to an increase in the number of franchised restaurants contributing additional royalties of $7.2 million and, to a lesser extent, an increase in franchise same-store sales.

These increases were partially offset by $0.8 million related to quarterly franchise sales incentives provided in the current year and recorded as a reduction of franchise royalties.

Upon adoption of ASC 606 in 2019, franchise fees are now recognized over the franchise term compared to upfront recognition in the prior year.

In years prior to 2019, franchise contributions for advertising and other services were shown net with the related disbursements within “Selling, general, and administrative expenses” in our consolidated statement of earnings.

In the first quarter of 2019, we adopted ASC 606, which requires these revenues and expenses to be presented gross on our consolidated statement of earnings.

Excluding this presentation change, franchise costs as a percentage of total franchise revenues in 2019 would have been 40.4% , compared to 58.2% reported under ASC 606.

Refer to Note 1, Nature of Operations and Summary of Significant Accounting Policies, for additional information related to the adoption of this new accounting standard.

Franchise occupancy expenses increased $8.3 million in 2019 versus a year ago due primarily to a net increase in the average number of franchise-operated restaurants resulting from our refranchising strategy.

Restaurants refranchised in the prior year contributed additional costs of approximately $7.0 million in 2019.

Franchise support and other costs increased $0.5 million due primarily to an increase of $1.3 million in bad debt expense, partially offset by a $0.9 million decrease in costs associated with franchise remodels.

Franchise rental revenues increased $47.8 million, or 17.5%, in 2020 versus a year ago due primarily to our adoption of ASC 842, which increased our rental revenues $41.6 million for the year, as well as higher percentage rent driven by higher franchise restaurant sales.

Franchise royalties and other increased $8.5 million, or 5.0%, in 2020 compared with the prior year due primarily to an increase in franchise restaurant sales driving royalties higher.

Franchise contributions for advertising and other services increased $2.9 million, or 1.7% in 2020 versus a year ago primarily due to a $2.6 million increase in technology and sourcing fees primarily as a result of an increase in technology fees in July 2019.

Marketing contributions were $0.3 million higher than last year due to higher franchise restaurant sales which more than offset the impact of a $7.9 million decrease in marketing fee contribution percentages for March and April.

Franchise occupancy expenses increased $43.5 million in 2020 versus a year ago due primarily to the adoption of ASC 842, which increased franchise occupancy expenses by $42.2 million for the year.

Franchise support and other costs increased $0.9 million in 2020 versus a year ago due primarily to 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 $2.7 million, or 1.5% in 2020 versus a year ago primarily as a result of higher technology and sourcing costs of $2.4 million for the year.

Depreciation and Amortization

Depreciation and amortization decreased $4.2 million in 2019 as compared with the prior year, primarily due to a decrease in equipment depreciation driven by a decrease in the average number of company-operated restaurants resulting from our refranchising activities in 2018.

A decline in depreciation resulting from our franchise building assets becoming fully depreciated also contributed to the decrease.

Depreciation and amortization decreased $2.4 million in 2020 as 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 increase (decrease) in SG&A expenses in 2020 compared with the prior year ( in thousands ):

Technology fees

Advertising $ (1,888)

Incentive compensation (including share-based compensation and related payroll taxes) (2,277)

Cash surrender value of COLI policies, net 401

Region administration

Litigation matters 1,500

Insurance 2,216

Other (includes transition services income and savings related to our restructuring plan) 4,533

Advertising costs represent company contributions to our marketing fund and are generally determined as a percentage of company-operated restaurant sales.

Advertising costs in 2019 decreased primarily due to a decrease in the number of company-operated restaurants resulting from our refranchising efforts.

Additionally, discretionary marketing fund contributions decreased by $4.2 million compared to the prior year.

Upon adoption of ASC 606 in 2019, technology fees and costs are recorded on a gross basis within our consolidated statements of earnings within “Franchise contributions for advertising and other services” and “Franchise advertising and other services expenses.”

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

Advertising costs in 2020 decreased $1.9 million versus a year ago primarily due to a $2.0 million discretionary marketing fund contribution made by the Company in 2019 that was not made in 2020.

Incentive compensation decreased by $2.3 million in 2020 versus a year ago primarily due to a decrease in share-based compensation of $3.7 million, resulting from the departures of our former Chief Executive Officer and Chief Financial Officer in 2020, partially offset by an increase in annual incentives of $1.4 million as a result of higher achievement levels.

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 $3.3 million and was not material in 2018.

Region administration costs decreased in 2019 primarily to workforce reductions related to our refranchising efforts.

The changes in market values had a negative impact of $0.4 million versus the prior year.

Litigation matters increased by $1.5 million in 2020 versus a year ago primarily due to a California Private Attorney General Act lawsuit settled for $3.8 million in the current year and litigation costs accrued for various other pending legal matters, partially offset by a $3.8 million settlement in our favor from a class action lawsuit related to credit card interchange fees.

Insurance costs increased $2.2 million in 2020 versus the prior year primarily due to less favorable development factors related to workers’ compensation and general liability claims compared to the prior year.

Impairment and Other Charges, Net

2 unchanged sentences

Costs of closed restaurants and other 1,872 8,628

(Gains) losses on disposition of property and equipment, net

Gains on disposition of property and equipment, net (9,768) (6,244)

Accelerated depreciation 235 1,616

Operating restaurant impairment charges

Restructuring costs decreased by $2.2 million as a result of lower severance expenses, as our general and administrative cost reduction initiative came to its conclusion as planned.

Costs of closed restaurants and other increased by $3.8 million , primarily due to a $3.5 million charge recorded in 2019 related to the write-off of software development costs associated with a discontinued technology project.

Gains on disposition of property and equipment, net, increased by $7.9 million , primarily due to a $5.7 million gain related to a sale of property and a $0.8 million gain related to an eminent domain transaction in 2019.

$ (6,493) $ 12,455

Impairment and other charges, net decreased $18.9 million in 2020 versus the prior year primarily from higher gains on the sale of property and equipment of $3.5 million, primarily due to a $10.8 million gain recognized on the sale of one of our corporate office buildings in fiscal 2020 compared to a $5.7 million gain on the sale of a restaurant property in the prior year, and from lower restructuring costs of $7.3 million, as our general and administrative cost reduction initiative came to its conclusion as planned.

Additionally, costs of closed restaurants and other decreased by $6.8 million due primarily to the write-off of software development costs associated with a discontinued technology project in the prior year and higher canceled project costs for the prior year.

Refer to Note 9, Impairment and Other Charges, Net, of the notes to the consolidated financial statements for additional information regarding these charges.

Gains on the Sale of Company-Operated Restaurants

The following table presents the gains on the sale of company-operated restaurants to franchisees, net, in each fiscal year ( dollars in thousands ):

Number of restaurants sold to Jack in the Box franchisees

Gains on the sale of company-operated restaurants

Gains and losses are impacted by the number of restaurants sold and changes in average gains or losses recognized, which relate to specific sales and cash flows of those restaurants.

In 2019 , gains on the sale of company-operated restaurants were related to the extension of the underlying franchise and lease agreements from restaurants sold in prior years.

Refer to Note 3, S ummary of Refranchisings, Franchisee Development and Acquisitions , of the notes to our consolidated financial statements for further information regarding these gains.

In 2020 and 2019, no company-operated restaurants were sold to franchisees.

Gains on the sale of company-operated restaurants in both periods pertain to meeting certain contingent consideration provisions included in restaurants sold in previous years.

Refer to Note 3, S ummary of Refranchisings and Franchise Acquisitions , of the notes to our consolidated financial statements for further information regarding these gains.

Other Pension and Post-Retirement Expenses, Net

Other pension and post-retirement expenses, net increased by $40.2 million in 2020 versus the prior year, primarily due to non-cash pension settlement charges of $39.2 million in fiscal 2020.

Refer to Note 12, Retirement Plans , of the notes to the consolidated financial statements for additional information regarding these charges.

Interest Expense, Net

3 unchanged sentences

Interest expense, net $ 66,743 $ 84,967

Interest expense, net, increased $39.4 million in 2019 as compared to a year ago primarily due to a charge of $23.6 million from the early termination of our interest rate swaps, as well as an increase in average interest rates and outstanding borrowings, resulting in higher interest costs of approximately $8.4 million and $3.1 million, respectively.

Additionally, as a result of our retirement of our credit facility in 2019 , we recorded a $2.8 million loss on early extinguishment of debt, primarily consisting of the write-off of unamortized deferred financing costs.

Refer to Note 7, Indebtedness , of the notes to our consolidated financial statements for further information regarding our refinancing transaction.

Our tax rate for our fiscal year ended September 29, 2019 was impacted by the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted into law on December 22, 2017.

As a fiscal year taxpayer, the corporate federal rate reduction from 35% to 21% was phased in, resulting in a statutory federal tax rate of 24.5% for our fiscal year ended September 30, 2018, and 21.0% for our fiscal year ended September 29, 2019 and subsequent fiscal years.

The income tax provisions reflect effective tax rates of 20.8% and 43.9% of pretax earnings from continuing operations in 2019 and 2018, respectively.

In 2019, the major components of the year-over-year change in tax rates were the one-time, non-cash impact of the enactment of the Tax Act in fiscal year 2018, a decrease in the federal statutory tax rate, the impact of the termination of interest rate swap agreements, and the release of a federal tax liability due to expiration of statute of limitations.

Interest expense, net, decreased $18.2 million in 2020 as compared to a year ago primarily due to a charge of $23.6 million from the early termination of our interest rate swaps in the prior year.

Excluding this impact, interest expense increased by $5.3 million, primarily as a result of higher average debt balances.

The income tax provisions reflect effective tax rates of 26.8% and 20.8% in fiscal years 2020 and 2019, respectively.

The major components of the year-over-year change in tax rates were the impact of nonrecurring activities in fiscal year 2019 including the termination of interest rate swap agreements and the release of a federal tax liability due to expiration of statute of limitations, and a current year increase in deduction limitations on officers' compensation and nondeductible costs resulting from a California Private Attorney General Act lawsuit settled in the current year.

Earnings from Discontinued Operations, Net

As described in Note 10, Discontinued Operations , of the notes to our consolidated financial statements, the results of operations from Qdoba have been reported as discontinued operations for all periods presented.

As described in Note 10, Discontinued Operations , in the notes to our consolidated financial statements, the results of operations from Qdoba have been reported as discontinued operations for all periods presented.

Refer to Note 10 for additional information regarding discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

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 as further described below.

We generally reinvest available cash flows from operations to enhance existing restaurants, to reduce debt, to repurchase shares of our common stock, and to pay cash dividends.

Our cash requirements consist principally of:

working capital;

capital expenditures;

income tax payments;

debt service requirements;

franchise tenant improvement allowance distributions;

obligations related to our benefit plans.

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

As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories, and our vendors grant trade credit for purchases such as food and supplies.

As is common in the restaurant industry, we generally maintain relatively low levels of accounts receivable and inventories, and our vendors grant trade credit for purchases such as food and supplies.

We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital.

As a result, we may at times maintain current liabilities in excess of current assets, which results in a working capital deficit.

We generally reinvest available cash flows from operations to enhance existing restaurants, to reduce debt, to repurchase shares of our common stock, and to pay cash dividends.

Our cash requirements consist principally of working capital, capital expenditures, income tax payments, debt service requirements, franchise tenant improvement allowance distributions, dividend payments, and obligations related to our benefit plans.

Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available financing in place.

On July 8, 2019, we completed a refinancing of our existing senior credit facility with a new securitized financing facility, comprised of $1.3 billion of senior fixed-rate term notes and $150.0 million of variable funding notes.

During the second quarter of fiscal 2020, to enhance our liquidity position and provide financial flexibility given the uncertain market conditions, we fully drew down on our Variable Funding Notes, which provided us $107.9 million of unrestricted cash.

As of September 27, 2020, the Company had $236.9 million of cash and restricted cash on its balance sheet.

In the context of an unprecedented global pandemic, we believe it is prudent to maintain maximum financial flexibility by preserving our capital and maintaining the Company’s healthy liquidity position.

As a result, beginning in the second quarter, we temporarily suspended all repurchase activity and significantly reduced capital expenditures to essential spend only.

The Company also temporarily suspended its dividend payments for the second quarter, which were reinstated the following quarter.

The reinstatement of the dividend reflects the strong financial health of the Company and our continued commitment to shareholders.

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

The table below summarizes our cash flows from continuing operations activities for each of the last two fiscal years ( in thousands ):

Total cash provided by (used in) continuing operations:

Total cash provided by (used in):

Operating activities $ 143,525 $ 168,405

1 unchanged sentence

Financing activities (87,289) (5,730)

Net increase (decrease) in cash from continuing operations

Net increase in cash from continuing operations $ 85,359 $ 148,856

Operating Activities .

Operating cash flows increased $64.4 million in 2019 compared with 2018 primarily due to favorable changes in working capital of $37.0 million , primarily due to lower income tax payments of $41.3 million , and higher net income adjusted for non-cash items of $27.3 million .

Operating cash flows decreased $24.9 million in 2020 compared to prior year primarily due to lower collections of $19.0 million from rent and marketing deferrals we provided to our franchisees and an increase in cash paid for interest and income taxes of $22.4 million and $14.5 million, respectively.

These unfavorable changes were partially offset by lower rent payments of $7.2 million from payment deferrals we received from our landlords, lower marketing payments due to timing and an increase in our marketing fund surplus of $8.0 million, and lower severance payments of $7.0 million.

Pension and Postretirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law.

As of January 1, 2020, the date of our last actuarial funding valuation for our qualified pension plan, there was no minimum contribution funding requirement.

In 2019 and 2018, we contributed $6.2 million and $5.5 million , respectively, to our pension and postretirement plans.

In both 2020 and 2019, we contributed $6.2 million to our pension and postretirement plans.

We do not anticipate making any contributions to our qualified defined benefit pension plan in fiscal 2021.

1 unchanged sentence

Investing Activities .

Cash flows (used in) provided by investing activities changed from a source of $65.7 million in 2018 to a use of $13.8 million in 2019 .

This change of $79.5 million primarily resulted from a decrease of $62.9 million in cash proceeds from the sale of company-operated restaurants, including repayments of notes issued in connection with 2018 refranchising transactions, and an increase of $9.8 million in capital expenditures.

Cash flows provided by investing activities increased $42.9 million in 2020 compared to 2019, primarily due to a decrease of $28.1 million in capital expenditures, an increase of $28.4 million in proceeds received on the sale or sale and leaseback of property and equipment;

partially offset by a decrease of $16.8 million in repayments of notes receivable issued in connection with 2018 refranchising transactions.

Capital Expenditures — The composition of capital expenditures in each fiscal year is summarized in the table below ( in thousands ):

3 unchanged sentences

Other, including information technology 4,857 3,597

14,353 35,840

Corporate Services:

3 unchanged sentences

Our capital expenditure program includes, among other things, restaurant remodeling, information technology enhancements, and investments in new locations and equipment.

In 2019 , capital expenditures increased by $9.8 million primarily due to an increase of $16.2 million in purchases of assets intended for sale or sale and leaseback, partially offset by a $8.7 million decrease in restaurant capital maintenance and facility improvement spending mainly from a decrease in the average number of company-operated restaurants compared to the prior year.

The increase in purchases of assets intended for sale or sale and leaseback was primarily due to the Company’s purchase of a commercial property in Los Angeles, California, on which an existing company restaurant and another retail tenant are located.

The purchase price was $17.3 million , and we currently intend to sell the entire property and lease back the parcel on which our company operated restaurant is located within the next 12 months.

We use sale and leaseback financing to lower the initial cash investment in our restaurants to the cost of the equipment, whenever possible.

In addition to the purchase described above, during 2019 and 2018 we exercised our right of first refusal related to four and two leased properties, respectively, which we intend to sell and leaseback within the next 12 months.

The following table summarizes the cash flow activity related to these transactions in each fiscal year ( dollars in thousands ):

Number of restaurants sold and leased back

Proceeds from sale and leaseback of assets

Purchases of assets intended for sale or sale and leaseback

In 2020, capital expenditures decreased compared to a year ago primarily due to the Company reducing capital expenditures to essential spend only to provide additional liquidity and financial flexibility given this year’s uncertainty surrounding the pandemic.

In addition, purchases of assets intended for sale and leaseback decreased by $21.2 million, primarily due to the Company’s purchase of a $17.3 million multi-tenant commercial property during the fourth quarter of 2019.

The Company completed the sale and leaseback of the company-operated restaurant parcel during the first quarter of 2020 and received net proceeds of $17.4 million.

Financing Activities .

Cash used in financing activities decreased $439.8 million in 2019 compared with 2018 , primarily due to higher net borrowings of $303.6 million , primarily due to net proceeds of $255.4 million received in our securitized refinancing transaction, and lower stock repurchases of $188.0 million .

These cash proceeds were partially offset by a $23.6 million payment upon the termination of our interest rate swap agreements as a result of the retirement of our senior credit facility.

Securitized financing transaction - On July 8, 2019, Jack in the Box Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of the Company, completed its securitization transaction and issued $575.0 million of its Series 2019-1 3.982% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”), $275.0 million of its Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”) and $450.0 million of its Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes”) and together with the Class A-2-I Notes and 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.

Cash flows used in financing activities increased by $81.6 million in 2020 compared to 2019, mainly due to lower net borrowings of $101.2 million as a result of net proceeds received in the prior year from our refinancing transaction, partially offset by borrowings on our variable funding notes in the current year, and an increase in stock repurchases of $17.9 million.

These unfavorable changes were partially offset by a lower cash used for dividends payments of $13.6 million as a result of temporarily suspending our quarterly dividend for the second quarter of fiscal 2020 which we reinstated the following quarter, and interest rate swap termination payments of $23.6 million made in the prior year a result of the retirement of our senior credit facility.

Long-Term Debt

As of September 27, 2020, our long-term debt consists of $1,290.3 million of total principal outstanding on the Class A-2 Notes (as defined below).

During the second quarter of 2020, the Company borrowed $107.9 million under our $150.0 million Variable Funding Notes (as defined below) as a precautionary measure given the uncertainty surrounding the pandemic.

As of September 27, 2020, borrowing availability under our Variable Funding Notes was $2.7 million and $39.5 million of letters of credit were outstanding.

On July 8, 2019, Jack in the Box Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of the Company, completed its securitization transaction and issued $575.0 million of its Series 2019-1 3.982% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”), $275.0 million of its Series 2019-1 4.476% Fixed Rate Senior Secured Notes, Class A-2-II (the “Class A-2-II Notes”) and $450.0 million of its Series 2019-1 4.970% Fixed Rate Senior Secured Notes, Class A-2-III (the “Class A-2-III Notes”) and together with the Class A-2-I Notes and 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.”

The Notes were issued in a privately placed securitization transaction pursuant to which certain of the Company’s revenue-generating assets, consisting principally of franchise-related agreements, real estate assets, and intellectual property and license agreements for the use of intellectual property, are held by the Master Issuer and certain other limited-purpose, bankruptcy remote, wholly owned indirect subsidiaries of the Company that act as Guarantors (as defined below) of the Notes and that have pledged substantially all of their assets, excluding certain real estate assets and subject to certain limitations, to secure the Notes.

The net proceeds of the sale of the Class A-2 Notes were used to retire the Company’s existing senior credit facility and to pay transaction costs related to the transaction.

The Company intends to use remaining proceeds for working capital purposes and general corporate purposes, including a return of capital to our equity holders.

Class A-2 Notes - Interest and principal payments on the Class A-2 Notes are payable on a quarterly basis.

In general, no principal payments will be required if a specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as defined in the Indenture), is less than or equal to 5.0x.

As of September 29, 2019, the Company’s actual leverage ratio was under 5.0x;

accordingly, no principal payment on the Class A-2 Notes was required.

Interest and principal payments on the Class A-2 Notes are payable on a quarterly basis.

The quarterly principal payment of $3.25 million on the Class A-2 Notes may be 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.

Exceeding the leverage ratio of 5.0x does not violate any covenant related to the Class A-2 Notes.

We made three principal payments of $3.25 million each during 2020.

As of September 27, 2020, the Company’s actual leverage ratio was under 5.0x, and as a result, quarterly principal payments are 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.

The Class A-2 Notes are secured by the collateral described below under “Guarantees and Collateral.”

Variable Funding Notes - The Variable Funding Notes were issued under the Indenture and allow for drawings 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 September 29, 2019, $45.6 million of letters of credit were outstanding against the Variable Funding Notes, which relate primarily to interest reserves required under the Indenture.

The Variable Funding Notes were undrawn at September 29, 2019.

Guarantees and collateral - Pursuant to the Guarantee and Collateral Agreement, dated July 8, 2019 (the “Guarantee and Collateral Agreement”), among the Guarantors, in favor of the trustee, the Guarantors guarantee the obligations of the Master Issuer under the Indenture and related documents and secure the guarantee by granting a security interest in substantially all of their assets.

The Notes are secured by a security interest in substantially all of the assets of the Master Issuer and the Guarantors (collectively, the “Securitization Entities”).

The assets of the Securitization Entities include most of the revenue-generating assets of the Company and its subsidiaries, which principally consist of franchise-related agreements, certain company-operated restaurants, intellectual property and license agreements for the use of intellectual property.

Upon certain trigger events, mortgages will be required to be prepared and recorded on the real estate assets.

Covenants and restrictions - 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.

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 September 27, 2020, the Master Issuer had restricted cash of $37.3 million, which primarily represented cash collections and cash reserves held by the trustee to be used for payments of interest and commitment fees required for the Class A-1 and A-2 Notes.

During fiscal 2020, with uncertainty surrounding COVID-19 events, and as a cautionary measure, we voluntarily elected to fund quarterly interest payments due in February 2021.

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 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 September 27, 2020, we were in compliance with all of our debt covenant requirements and were not subject to any rapid amortization events.

In accordance with the Indenture, certain cash accounts have been established with the Indenture trustee for the benefit of the note holders, and are restricted in their use.

As of September 29, 2019, the Master Issuer had restricted cash of $26.0 million, which primarily represented cash collections and cash reserves held by the trustee to be used for payments of principal, interest and commitment fees required for the Notes.

Amended credit facility — On May 1, 2019, we entered into the Fifth Amendment to the Credit Agreement (the “Fifth Amendment”).

The Fifth Amendment extended the maturity date of both our term loan and revolving credit facility from March 19, 2020 to March 19, 2021.

Fees of $1.3 million were paid to third parties in connection with the Fifth Amendment.

Capital Allocation

Repurchases of Common Stock — During fiscal 2020, we repurchased 1.9 million shares at an aggregate cost of $153.5 million.

As of September 29, 2019 , there was approximately $175.7 million remaining under a stock buyback program, which expires in November 2020 .

Repurchases of common stock included in our consolidated statement of cash flows for fiscal 2019 includes $14.4 million related to repurchase transactions traded in the prior fiscal year that settled in 2019 and excludes $2.0 million that will be settled in 2020.

For additional information, refer to Note 14, Stockholders’ Deficit , of the notes to the consolidated financial statements and Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, of this Report.

Dividends — In fiscal 2019 and 2018 , the Board of Directors declared four cash dividends of $0.40 per share totaling $41.4 million and $45.7 million , respectively.

Repurchases of common stock included in our consolidated statement of cash flows for fiscal 2020 include $2.0 million related to repurchase transactions traded in fiscal 2019 but settled in fiscal 2020.

As of September 27, 2020, there was approximately $122.2 million remaining under Board-authorized stock buyback programs, consisting of $22.2 million which expires in November 2020 and $100.0 million that expires in November 2021.

On November 13, 2020, the Board of Directors authorized an additional $100.0 million share repurchase program to more than offset the $22.2 million authorization that was set to expire at the end of November 2020.

This brings the total remaining under share repurchase programs to $200.0 million, consisting of $100.0 million which expires in November 2021 and $100.0 million which expires in November 2022.

Dividends — In fiscal 2020, the Board of Directors declared three cash dividends of $0.40 per share totaling $27.7 million.

In fiscal 2019, the Board of Directors declared four cash dividends of $0.40 per share totaling $41.4 million.

Future dividends are subject to approval by our Board of Directors.

2 unchanged sentences

generally accepted accounting principles.

The off-balance sheet arrangements that will have a material impact on our future results from operations are disclosed in the Contractual Obligations and Commitments table below.

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.

2 unchanged sentences

Payments Due by Fiscal Year

After 5 years

Total Less than

1 year 1-3 years 3-5 years After 5 years

Contractual Obligations:

Long-term debt obligations (1) $ 1,398,127 $ — $ 570,688 $ — $ 827,439

Capital lease obligations

Interest payments on debt obligations 355,624 59,566 119,132 73,682 103,244

Finance lease obligations 3,171 917 1,810 424 20

Operating lease obligations 1,149,301 215,039 308,502 207,910 417,850

5 unchanged sentences

________________________

Includes mandatory principal and interest payments on our Class A-2 Notes.

(1) Includes mandatory principal payments on our Class A-1 and Class A-2 Notes.

Amounts are reflected through the anticipated repayment dates as described further above in “Liquidity and capital resources.”

Includes purchase commitments for food, beverage, and packaging items to support system-wide restaurant operations.

(2) Includes non-cancelable purchase commitments related to information technology agreements and volume commitments for beverage products.

(3) Includes expected payments associated with our non-qualified defined benefit plan, postretirement healthcare plans and our non-qualified deferred compensation plan through fiscal 2029.

8 unchanged sentences

Information regarding our other significant accounting estimates and policies are disclosed in Note 1, Nature of Operations and Summary of Significant Accounting Policies , of the notes to the consolidated financial statements.

Long-lived Assets — Property, equipment, and certain other assets, including amortized intangible assets, are reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

This review generally includes a restaurant-level analysis, except when we are actively selling a group of restaurants, in which case we perform our impairment evaluations at the group level.

Impairment evaluations for individual restaurants take into consideration a restaurant’s operating cash flows, the period of time since a restaurant has been opened or remodeled, refranchising expectations, and the maturity of the related market.

Impairment evaluations for a group of restaurants take into consideration the group’s expected future cash flows and sales proceeds from bids received, if any, or fair market value based on, among other considerations, the specific sales and cash flows of those restaurants.

If the assets of a restaurant or group of restaurants subject to our impairment evaluation are not recoverable based upon the forecasted, undiscounted cash flows, we recognize an impairment loss as the amount by which the carrying value of the assets exceeds fair value.

Our estimates of cash flows used to assess impairment are subject to a high degree of judgment and may differ from actual cash flows due to, among other things, economic conditions or changes in operating performance.

Long-lived Assets — We evaluate long-lived assets, such as property and equipment and operating lease right-of-use assets, for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

Factors that we consider important individually or in combination trigger an impairment review include, but are not limited to, bankruptcy proceedings or other significant financial distress of a lessee, significant underperformance relative to historical or projected operating results, significant changes in our business and/or negative industry or economic trends, or our expectation to dispose of long-lived assets before the end of their estimated useful lives.

Long-lived assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.

For company-operated restaurants, the impairment test is performed at the individual-restaurant level.

The impairment test for long-lived assets requires us to assess the recoverability of long-lived assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with and arising from our use and eventual disposition of the assets.

If the carrying amount of a long-lived asset group exceeds the sum of related undiscounted future cash flows, we recognize an impairment loss by the amount that the carrying value of the assets exceeds fair value.

Our estimates of cash flows used to assess impairment are subject to a high degree of judgment and may differ from actual cash flows due to, among other things, changes in our business plans, operating performance, and economic conditions.

Self-Insurance — We are self-insured for a portion of our losses related to workers’ compensation, general liability and other legal claims, and health benefits.

10 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis