Business Wire | Aug 5, 2020 04:06PM EDT

Jack in the Box Inc. Reports Third Quarter FY 2020 Earnings; Reinstates Quarterly Cash Dividend

Aug. 05, 2020

SAN DIEGO--(BUSINESS WIRE)--Aug. 05, 2020--Jack in the Box Inc. (NASDAQ: JACK) today reported financial results for the third quarter ended July 5, 2020.

Increase in same-store sales: 12 Weeks Ended 40 Weeks Ended

July 5, 2020 July 7, 2019 July 5, 2020 July 7, 2019

Company 4.1% 2.8% 1.2% 1.2%

Franchise 6.9% 2.7% 1.5% 0.8%

System 6.6% 2.7% 1.5% 0.8%

Jack in the Box(r) system same-store sales increased 6.6 percent for the quarter. Company same-store sales increased 4.1 percent in the third quarter driven by average check growth of 20.2 percent while transactions decreased 16.1 percent.

Darin Harris, chief executive officer, said, "In my first six weeks as CEO, I have witnessed the nimbleness and passion within this brand. I am proud of the way our franchisees, the teams in our restaurants, our employees, and our partners have responded swiftly to the changing occasions of our consumers amidst the pandemic. Our strong performance in the third quarter is a testament to this agile approach. Our focus on value combined with indulgent and flavorful products continues to drive overall performance for the brand.

This strong performance accelerated throughout the third quarter, and has continued thus far into the fourth quarter. I am excited about taking the learnings from this uncertain time and using them to fuel the remaining part of 2020 as well as our strategy into 2021."

Earnings from continuing operations were $32.2 million, or $1.40 per diluted share, for the third quarter of fiscal 2020 compared with $13.5 million, or $0.51 per diluted share, for the third quarter of fiscal 2019.

Operating Earnings Per Share(1), a non-GAAP measure, were $1.37 in the third quarter of fiscal 2020 compared with $1.07 in the prior year quarter. A reconciliation of non-GAAP Operating Earnings Per Share to GAAP results is provided below, with additional information included in the attachment to this release.

12 Weeks Ended 40 Weeks Ended

July 5, July 7, July 5, July 7, 2020 2019 2020 2019

Diluted earnings per share from $1.40 $0.51 $2.21 $2.67continuing operations - GAAP

Loss on early termination of interest - 0.56 - 0.56rate swaps

Restructuring charges - - 0.04 0.19

Gains on the sale of company-operated (0.03) - (0.08) (0.01)restaurants

Gain on sale of corporate office - - (0.33) -building

Pension settlement charges - - 1.20 -

Operating Earnings Per Share - $1.37 $1.07 $3.03 $3.41non-GAAP (1)

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

Adjusted EBITDA(2), a non-GAAP measure, was $72.9 million in the third quarter of fiscal 2020 compared with $57.8 million for the prior year quarter.

Results for the third quarter reflect the business and financial impacts of the COVID-19 pandemic, which include the following:

* Restaurant traffic declined substantially, although did improve versus the last five weeks of the second quarter. Check growth continued to drive overall same-store sales growth. * Higher costs for delivery fees and supplies related to COVID-19 increased Occupancy and Other as a percentage of company restaurant sales by 90 basis points. * Higher costs for a new emergency paid sick leave program increased Labor as a percentage of company restaurant sales by 30 basis points. * The company did not provide any additional relief to franchisees in the form of marketing fee reduction or postponement or rent postponement in the third quarter. The marketing fee reduction in April, however, did impact slightly over two weeks of the third quarter, resulting in lower Advertising costs by $0.1 million, and reduced Franchise Contributions for Advertising by approximately $2.9 million. * The company implemented a short-term cash preservation strategy, and as such, did not buy back any shares in the third quarter. The company also significantly reduced capital spending.

Restaurant-Level Margin(3), a non-GAAP measure, decreased by 160 basis points to 25.4 percent of company restaurant sales in the third quarter of fiscal 2020 from 27.0 percent a year ago. The decrease was due primarily to wage inflation as well as higher delivery fees and supply costs related to COVID-19. Food and packaging costs, as a percentage of company restaurant sales, decreased 20 basis points in the quarter driven by menu price increases and favorable mix shift, partially offset by increases in ingredient costs. Commodity costs increased 3.6 percent in the quarter as compared with the prior year, due primarily to increases in beef.

Franchise-Level Margin(3), a non-GAAP measure, increased by $5.4 million in the third quarter, primarily driven by higher royalties and rental revenues as franchise same-store sales increased. The company did not provide any additional relief to franchisees through postponements or reductions of rent or marketing in the third quarter.

Franchise-Level Margin(3), as a percentage of total franchise revenues, was 41.5 percent in the third quarter of fiscal 2020. The company adopted the new lease accounting standard, ASC 842, in fiscal 2020, which resulted in grossing up both franchise rental revenues and franchise occupancy expenses by approximately $9.7 million and $9.9 million respectively in the third quarter. Without these adjustments, Franchise-Level Margin(3) would have been 44.4 percent of total franchise revenues. This compares with 42.4 percent in the prior year.

As a percentage of system-wide sales, G&A was 1.1 percent in the third quarter of fiscal 2020 compared with 2.5 percent in the prior year quarter. The $10.6 million decrease in G&A, which excludes advertising, was primarily driven by:

* a decrease of $7.0 million in costs related to litigation matters versus prior year; * mark-to-market adjustments on investments supporting the company's non-qualified retirement plans resulting in a $2.6 million year-over-year decrease in G&A; and * a $2.5 million decrease in incentive compensation. * These increases were partially offset by a $2.6 million increase in insurance.

Advertising costs, which are included in SG&A, decreased $0.1 million in the third quarter due to the reduction in marketing fees for April. In the third quarter of fiscal 2020, SG&A expenses decreased by $10.7 million and were 5.6 percent of revenues compared with 11.0 percent in the prior year quarter.

Impairment and other charges, net, increased $4.0 million in the third quarter, driven by a $5.7 million gain on sale of a restaurant property in the prior year quarter.

Interest expense, net, decreased by $20.8 million in the third quarter driven by the termination of our interest rate swaps in the prior year quarter.

The effective tax rate for the third quarter of fiscal 2020 was 27.9 percent, an improvement versus the second quarter, primarily driven by the improvement in operating earnings before income tax and nontaxable gains from mark-to-market adjustments associated with investments supporting the company's non-qualified retirement plans.

Capital Allocation and Liquidity Position

The company did not repurchase any shares in the third quarter of fiscal 2020, and as announced on April 15, 2020, temporarily suspended its share repurchase program. This leaves approximately $122 million remaining under share repurchase programs authorized by its Board of Directors, consisting of $22 million remaining that expire in November 2020 and approximately $100 million remaining that expire in November 2021.

The company also announced today that on July 31, 2020, its Board of Directors declared a cash dividend of $0.40 per share on the company's common stock. The dividend is payable on September 3, 2020, to shareholders of record at the close of business on August 18, 2020. The reinstatement of the dividend reflects the strong financial health of the company and continued commitment to shareholders.

As of the end of the third quarter, the company had approximately $196.9 million in cash, of which $159.5 million was unrestricted cash.

Conference Call

The company will host a conference call for financial analysts and investors on Thursday, August 6, 2020, beginning at 8:30 a.m. PT (11:30 a.m. ET). The conference call will be broadcast live over the Internet via the Jack in the Box Inc. corporate website. To access the live call through the Internet, log onto the Investors section of the Jack in the Box Inc. website at

http://investors.jackinthebox.com at least 15 minutes prior to the event in order to download and install any necessary audio software. A replay of the call will be available through the Jack in the Box Inc. corporate website for 21 days, beginning at approximately 11:30 a.m. PT on August 6, 2020.

About Jack in the Box Inc.

Jack in the Box Inc. (NASDAQ: JACK), based in San Diego, is a restaurant company that operates and franchises Jack in the Box(r) restaurants, one of the nation's largest hamburger chains, with more than 2,200 restaurants in 21 states and Guam. For more information on Jack in the Box, including franchising opportunities, visit www.jackinthebox.com

(1) Operating Earnings Per Share represents diluted earnings per share fromcontinuing operations on a GAAP basis excluding gains or losses on the sale ofcompany-operated restaurants, restructuring charges, gain on sale of corporateoffice building, pension settlement charges, loss on early termination ofinterest rate, and the excess tax benefits from share-based compensationarrangements. See "Reconciliation of Non-GAAP Measurements to GAAP Results."

(2) Adjusted EBITDA represents net earnings on a GAAP basis excluding earningsor losses from discontinued operations, income taxes, interest expense, net,gains or losses on the sale of company-operated restaurants, impairment andother charges, net, depreciation and amortization, the amortization offranchise tenant improvement allowances and pension settlement charges. See"Reconciliation of Non-GAAP Measurements to GAAP Results."

(3) Restaurant-Level Margin and Franchise-Level Margin are non-GAAP measures.These non-GAAP measures are reconciled to earnings from operations, the mostcomparable GAAP measure, in the attachment to this release. See "Reconciliationof Non-GAAP Measurements to GAAP Results."

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may be identified by words such as "anticipate," "believe," "estimate," "expect," "forecast," "goals," "guidance," "intend," "plan," "project," "may," "will," "would" and similar expressions. These statements are based on management's current expectations, estimates, forecasts and projections about our business and the industry in which we operate. These estimates and assumptions involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause our actual results to differ materially from any forward-looking statements include, but are not limited to: the potential impacts to our business and operations resulting from the coronavirus COVID-19 pandemic, the success of new products, marketing initiatives and restaurant remodels and drive-thru enhancements; the impact of competition, unemployment, trends in consumer spending patterns and commodity costs; the company's ability to reduce G&A and operate efficiently; the company's ability to achieve and manage its planned growth, which is affected by the availability of a sufficient number of suitable new restaurant sites, the performance of new restaurants, risks relating to expansion into new markets and successful franchise development; the ability to attract, train and retain top-performing personnel, litigation risks; risks associated with disagreements with franchisees; supply chain disruption; food-safety incidents or negative publicity impacting the reputation of the company's brand; increased regulatory and legal complexities, including federal, state and local policies regarding mitigation strategies for controlling the coronavirus COVID-19 pandemic, risks associated with the amount and terms of the securitized debt issued by certain of our wholly owned subsidiaries; adverse investor response to the company's temporary suspension of its stock repurchase program; and stock market volatility. These and other factors are discussed in the company's annual report on Form 10-K and its periodic reports on Form 10-Q filed with the Securities and Exchange Commission, which are available online at http://investors.jackinthebox.com or in hard copy upon request. The company undertakes no obligation to update or revise any forward-looking statement, whether as the result of new information or otherwise.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

12 Weeks Ended 40 Weeks Ended

July 5, July 7, July 5, July 7, 2020 2019 2020 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 43,239 40,180 133,469 130,840 other

Franchise contributions foradvertising and other 40,571 40,386 128,458 131,189 services

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 25,085 23,121 81,236 76,163 benefits

Occupancy and other 12,334 11,052 40,862 38,165

Total company restaurant 61,496 57,231 199,760 188,678 costs

Franchise occupancy 48,612 38,371 161,470 127,702 expenses

Franchise support and other 2,692 2,695 10,339 8,337 costs

Franchise advertising and 42,176 41,882 133,134 136,397 other services expenses

Selling, general and 13,680 24,389 66,131 66,057 administrative expenses

Depreciation and 12,141 12,786 41,151 42,645 amortization

Impairment and other 738 (3,256) (7,837) 5,567 charges, net

Gains on the sale ofcompany-operated (1,050) - (2,625) (219) restaurants

180,485 174,098 601,523 575,164

Earnings from operations 61,790 48,261 164,582 153,708

Other pension andpost-retirement expenses, 1,482 342 40,972 1,141 net

Interest expense, net 15,700 36,494 51,051 67,144

Earnings from continuingoperations and before 44,608 11,425 72,559 85,423 income taxes

Income taxes 12,432 (2,048) 21,023 15,699

Earnings from continuing 32,176 13,473 51,536 69,724 operations

Earnings (losses) fromdiscontinued operations, 379 (284) 379 2,652 net of taxes

Net earnings $ 32,555 $ 13,189 $ 51,915 $ 72,376



Net earnings per share - basic:

Earnings from continuing $ 1.41 $ 0.52 $ 2.22 $ 2.69 operations

Earnings from discontinued 0.02 (0.01) 0.02 0.10 operations

Net earnings per share (1) $ 1.42 $ 0.51 $ 2.24 $ 2.79

Net earnings per share - diluted:

Earnings from continuing $ 1.40 $ 0.51 $ 2.21 $ 2.67 operations

Earnings from discontinued 0.02 (0.01) 0.02 0.10 operations

Net earnings per share (1) $ 1.42 $ 0.50 $ 2.23 $ 2.77

Weighted-average shares outstanding:

Basic 22,847 25,958 23,192 25,933

Diluted 22,916 26,176 23,322 26,150



Dividends declared per $ - $ 0.40 $ 0.80 $ 1.20 common share

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

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

July 5, September 29, 2020 2019

ASSETS

Current assets:

Cash $ 159,540 $ 125,536

Restricted cash 37,373 26,025

Accounts and other receivables, net 88,242 45,235

Inventories 1,835 1,776

Prepaid expenses 13,447 9,015

Current assets held for sale 6,191 16,823

Other current assets 3,504 2,718

Total current assets 310,132 227,128

Property and equipment:

Property and equipment, at cost 1,140,285 1,176,241

Less accumulated depreciation and amortization (796,159) (784,307)

Property and equipment, net 344,126 391,934

Other assets:

Operating lease right-of-use asset 902,858 -

Intangible assets, net 283 425

Goodwill 47,161 46,747

Deferred tax assets 66,132 85,564

Other assets, net 216,008 206,685

Total other assets 1,232,442 339,421

$ 1,886,700 $ 958,483

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

Current maturities of long-term debt $ 13,821 $ 774

Current operating lease liabilities 169,347 -

Accounts payable 26,339 37,066

Accrued liabilities 143,344 120,083

Total current liabilities 352,851 157,923

Long-term liabilities:

Long-term debt, net of current maturities 1,366,171 1,274,374

Long-term operating lease liabilities, net of 777,883 - current portion

Other long-term liabilities 216,752 263,770

Total long-term liabilities 2,360,806 1,538,144

Stockholders' deficit:

Preferred stock $0.01 par value, 15,000,000 - - shares authorized, none issued

Common stock $0.01 par value, 175,000,000 sharesauthorized, 82,320,270 and 82,159,002 issued, 823 822 respectively

Capital in excess of par value 491,594 480,322

Retained earnings 1,607,485 1,577,034

Accumulated other comprehensive loss (117,553) (140,006)

Treasury stock, at cost, 59,646,773 and (2,809,306) (2,655,756) 57,760,573 shares, respectively

Total stockholders' deficit (826,957) (737,584)

$ 1,886,700 $ 958,483

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

40 Weeks Ended

July 5, July 7, 2020 2019

Cash flows from operating activities:

Net earnings $ 51,915 $ 72,376

Earnings from discontinued operations 379 2,652

Earnings from continuing operations 51,536 69,724

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization 41,151 42,645

Amortization of franchise tenant improvement 2,383 1,524 allowances and other

Deferred finance cost amortization 4,337 1,903

Excess tax benefits from share-based compensation (71) (66) arrangements

Deferred income taxes 12,567 (1,745)

Share-based compensation expense 7,612 6,589

Pension and postretirement expense 40,972 1,141

Gains on cash surrender value of company-owned life (1,861) (3,117) insurance

Gains on the sale of company-operated restaurants (2,625) (219)

Gains on the disposition of property and equipment, (10,386) (5,756) net

Non-cash operating lease costs (5,689) -

Impairment charges and other 195 1,624

Changes in assets and liabilities, excluding acquisitions:

Accounts and other receivables (39,198) (3,555)

Inventories 14 (79)

Prepaid expenses and other current assets (5,034) 1,509

Accounts payable (4,620) 24,321

Accrued liabilities 15,755 9,363

Pension and postretirement contributions (4,921) (5,126)

Franchise tenant improvement allowance distributions (7,105) (7,875)

Other (4,844) (16,012)

Cash flows provided by operating activities 90,168 116,793

Cash flows from investing activities:

Purchases of property and equipment (16,736) (25,041)

Proceeds from the sale of property and equipment 22,790 7,563

Proceeds from the sale and leaseback of assets 19,828 3,056

Proceeds from the sale of company-operated 2,625 133 restaurants

Collections on notes receivable - 15,239

Other 1,036 -

Cash flows provided by investing activities 29,543 950

Cash flows from financing activities:

Borrowings on revolving credit facilities 111,376 229,798

Repayments of borrowings on revolving credit (3,500) (252,800) facilities

Principal repayments on debt (7,094) (32,611)

Debt issuance costs (216) (5,088)

Dividends paid on common stock (18,466) (30,929)

Proceeds from issuance of common stock 3,559 696

Repurchases of common stock (155,576) (14,362)

Payroll tax payments for equity award issuances (4,442) (2,705)

Cash flows used in financing activities (74,359) (108,001)

Net increase in cash and restricted cash 45,352 9,742

Cash and restricted cash at beginning of period 151,561 2,705

Cash and restricted cash at end of period $ 196,913 $ 12,447

JACK IN THE BOX INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION

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

(Unaudited)

12 Weeks Ended 40 Weeks Ended

July 5, July 7, July 5, July 7, 2020 2019 2020 2019

Revenues:

Company restaurant sales 34.0 % 35.3 % 34.2 % 35.4 %

Franchise rental revenues 31.4 % 28.5 % 31.6 % 28.7 %

Franchise royalties and other 17.8 % 18.1 % 17.4 % 18.0 %

Franchise contributions for advertising and 16.7 % 18.2 % 16.8 % 18.0 %other services

Total revenues 100.0 % 100.0 % 100.0 % 100.0 %

Operating costs and expenses, net:

Company restaurant costs:

Food and packaging (1) 29.2 % 29.4 % 29.6 % 28.8 %

Payroll and employee benefits (1) 30.4 % 29.5 % 31.0 % 29.5 %

Occupancy and other (1) 15.0 % 14.1 % 15.6 % 14.8 %

Total company restaurant costs (1) 74.6 % 73.0 % 76.2 % 73.1 %

Franchise occupancy expenses (2) 63.9 % 60.6 % 66.7 % 61.1 %

Franchise support and other costs (3) 6.2 % 6.7 % 7.7 % 6.4 %

Franchise advertising and other services 104.0 % 103.7 % 103.6 % 104.0 %expenses (4)

Selling, general and administrative 5.6 % 11.0 % 8.6 % 9.1 %expenses

Depreciation and amortization 5.0 % 5.8 % 5.4 % 5.9 %

Impairment and other charges, net 0.3 % (1.5) % (1.0) % 0.8 %

Gains on the sale of company-operated (0.4) % - % (0.3) % - %restaurants

Earnings from operations 25.5 % 21.7 % 21.5 % 21.1 %

Income tax rate (5) 27.9 % (17.9) % 29.0 % 18.4 %

(1) As a percentage of company restaurant sales.

(2) As a percentage of franchise rental revenues.

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

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

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

Jack in the Box system sales (in thousands):

12 Weeks Ended 40 Weeks Ended

July 5, July 7, July 5, July 7, 2020 2019 2020 2019

Company-owned restaurant $ 82,444 $ 78,434 $ 262,188 $ 257,948 sales

Franchised restaurant 804,791 747,398 2,480,062 2,428,708 sales (1)

System sales (1) $ 887,235 $ 825,832 $ 2,742,250 $ 2,686,656

(1) Franchised restaurant sales represent sales at franchised restaurants andare revenues of our franchisees. System sales include company and franchisedrestaurant sales. We do not record franchised sales as revenues; however, ourroyalty revenues, marketing fees and percentage rent revenues are calculatedbased on a percentage of franchised sales. We believe franchised and systemrestaurant sales information is useful to investors as they have a directeffect on the company's profitability.

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

SUPPLEMENTAL RESTAURANT ACTIVITY INFORMATION

(Unaudited)

2020 2019

Company Franchise Total Company Franchise Total



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

New - 20 20 - 16 16

Acquired from 8 (8) - - - - franchisees

Closed (1) (18) (19) - (11) (11)

End of period 144 2,100 2,244 137 2,105 2,242

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

JACK IN THE BOX INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS (Unaudited)

To supplement the consolidated financial statements, which are presented in accordance with GAAP, the company uses the following non-GAAP measures: Operating Earnings Per Share, Adjusted EBITDA, Restaurant-Level Margin and Franchise-Level Margin. Management believes that these measurements, when viewed with the company's results of operations in accordance with GAAP and the accompanying reconciliations in the tables below, provide useful information about operating performance and period-over-period changes, and provide additional information that is useful for evaluating the operating performance of the company's core business without regard to potential distortions.

Operating Earnings Per Share

Operating Earnings Per Share represents diluted earnings per share from continuing operations on a GAAP basis excluding gains or losses on the sale of company-operated restaurants, restructuring charges, the gain on sale of corporate office building, pension settlement charges, loss on early termination of interest rate, and the excess tax benefits from share-based compensation arrangements which are now recorded as a component of income tax expense versus equity prior to fiscal year 2019. Operating Earnings Per Share should be considered as a supplement to, not as a substitute for, analysis of results as reported under U.S. GAAP or other similarly titled measures of other companies. Management believes Operating Earnings Per Share provides investors with a meaningful supplement of the company's operating performance and period-over-period changes without regard to potential distortions.

Below is a reconciliation of non-GAAP Operating Earnings Per Share to the most directly comparable GAAP measure, diluted earnings per share from continuing operations. Figures may not add due to rounding.

12 Weeks Ended 40 Weeks Ended

July 5, July 7, July 5, July 7, 2020 2019 2020 2019

Diluted earnings per share from $1.40 $0.51 $2.21 $2.67continuing operations - GAAP

Loss on early termination of interest - 0.56 - 0.56rate swaps

Restructuring charges - - 0.04 0.19

Gains on the sale of company-operated (0.03) - (0.08) (0.01)restaurants

Gain on sale of corporate office - - (0.33) -building

Pension settlement charges - - 1.20 -

Operating Earnings Per Share - $1.37 $1.07 $3.03 $3.41non-GAAP (1)

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

Adjusted EBITDA

Adjusted EBITDA represents net earnings on a GAAP basis excluding earnings or losses from discontinued operations, income taxes, interest expense, net, pension settlement charges, gains or losses on the sale of company-operated restaurants, impairment and other charges, net, depreciation and amortization, and the amortization of franchise tenant improvement allowances and other. Adjusted EBITDA should be considered as a supplement to, not as a substitute for, analysis of results as reported under U.S. GAAP or other similarly titled measures of other companies. Management believes Adjusted EBITDA is useful to investors to gain an understanding of the factors and trends affecting the company's ongoing cash earnings, from which capital investments are made and debt is serviced.

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

12 Weeks Ended 40 Weeks Ended

July 5, July 7, July 5, July 7, 2020 2019 2020 2019

Net earnings - GAAP $ 32,555 $ 13,189 $ 51,915 $ 72,376

(Earnings) losses fromdiscontinued operations, (379) 284 (379) (2,652) net of taxes

Income taxes 12,432 (2,048) 21,023 15,699

Interest expense, net 15,700 36,494 51,051 67,144

Pension settlement charges 103 - 39,030 -

Gains on the sale ofcompany-operated (1,050) - (2,625) (219) restaurants

Impairment and other 738 (3,256) (7,837) 5,567 charges, net

Depreciation and 12,141 12,786 41,151 42,645 amortization

Amortization of franchisetenant improvement 618 387 2,383 1,524 allowances and other

Adjusted EBITDA - non-GAAP $ 72,858 $ 57,836 $ 195,712 $ 202,084

Restaurant-Level Margin

Restaurant-Level Margin is defined as company restaurant sales less restaurant operating costs (food and packaging, labor, and occupancy costs) and is neither required by, nor presented in accordance with GAAP. Restaurant-Level Margin excludes revenues and expenses of our franchise operations and certain costs, such as selling, general, and administrative expenses, depreciation and amortization, impairment and other charges, net, gains or losses on the sale of company-operated restaurants, and other costs that are considered normal operating costs. As such, Restaurant-Level Margin is not indicative of the overall results of the company and does not accrue directly to the benefit of shareholders because of the exclusion of corporate-level expenses. Restaurant-Level Margin should be considered as a supplement to, not as a substitute for, analysis of results as reported under GAAP or other similarly titled measures of other companies. The company is presenting Restaurant-Level Margin because it believes 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 utilizes Restaurant-Level Margin as a key performance indicator to evaluate the profitability of company-owned restaurants.

Below is a reconciliation of non-GAAP Restaurant-Level Margin to the most directly comparable GAAP measure, earnings from operations (in thousands):

12 Weeks Ended 40 Weeks Ended

July 5, July 7, July 5, July 7, 2020 2019 2020 2019

Earnings from operations $ 61,790 $ 48,261 $ 164,582 $ 153,708 - GAAP

Franchise rental revenues (76,021) (63,359) (241,990) (208,895)

Franchise royalties and (43,239) (40,180) (133,469) (130,840) other

Franchise contributionsfor advertising and other (40,571) (40,386) (128,458) (131,189) services

Franchise occupancy 48,612 38,371 161,470 127,702 expenses

Franchise support and 2,692 2,695 10,339 8,337 other costs

Franchise advertising and 42,176 41,882 133,134 136,397 other services expenses

Selling, general and 13,680 24,389 66,131 66,057 administrative expenses

Impairment and other 738 (3,256) (7,837) 5,567 charges, net

Gains on the sale ofcompany-operated (1,050) - (2,625) (219) restaurants

Depreciation and 12,141 12,786 41,151 42,645 amortization

Restaurant-Level Margin- $ 20,948 $ 21,203 $ 62,428 $ 69,270 Non-GAAP



Company restaurant sales $ 82,444 $ 78,434 $ 262,188 $ 257,948



Restaurant-Level Margin % 25.4 % 27.0 % 23.8 % 26.9 %- Non-GAAP

Franchise-Level Margin

Franchise-Level Margin is defined as franchise revenues less franchise operating costs (occupancy expenses, advertising contributions, and franchise support and other costs) and is neither required by, nor presented in accordance with GAAP. Franchise-Level Margin excludes revenue and expenses of our company-operated restaurants and certain costs, such as selling, general, and administrative expenses, depreciation and amortization, impairment and other charges, net, and other costs that are considered normal operating costs. As such, Franchise-Level Margin is not indicative of the overall results of the company and does not accrue directly to the benefit of shareholders because of the exclusion of corporate-level expenses. Franchise-Level Margin should be considered as a supplement to, not as a substitute for, analysis of results as reported under GAAP or other similarly titled measures of other companies. The company is presenting Franchise-Level Margin because it believes 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 utilizes Franchise-Level Margin as a key performance indicator to evaluate the profitability of our franchise operations.

Below is a reconciliation of non-GAAP Franchise-Level Margin to the most directly comparable GAAP measure, earnings from operations (in thousands):

12 Weeks Ended 40 Weeks Ended

July 5, July 7, July 5, July 7, 2020 2019 (1) 2020 2019 (1)

Earnings from operations $ 61,790 $ 48,261 $ 164,582 $ 153,708 - GAAP

Company restaurant sales (82,444) (78,434) (262,188) (257,948)

Food and packaging 24,077 23,058 77,662 74,350

Payroll and employee 25,085 23,121 81,236 76,163 benefits

Occupancy and other 12,334 11,052 40,862 38,165

Selling, general and 13,680 24,389 66,131 66,057 administrative expenses

Impairment and other 738 (3,256) (7,837) 5,567 charges, net

Gains on the sale ofcompany-operated (1,050) - (2,625) (219) restaurants

Depreciation and 12,141 12,786 41,151 42,645 amortization

Franchise-Level Margin - $ 66,351 $ 60,977 $ 198,974 $ 198,488 Non-GAAP



Franchise rental revenues $ 76,021 $ 63,359 $ 241,990 $ 208,895

Franchise royalties and 43,239 40,180 133,469 130,840 other

Franchise contributionsfor advertising and other 40,571 40,386 128,458 131,189 services

Total franchise revenues $ 159,831 $ 143,925 $ 503,917 $ 470,924



Franchise-Level Margin % 41.5 % 42.4 % 39.5 % 42.1 %- Non-GAAP

(1) During the first quarter of 2020, the Company changed its presentation ofNon-GAAP Franchise-Level Margin to include "amortization of franchise tenantimprovement allowances and other" in its definition thereof. The prior periodhas been recast to conform to current year presentation.

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CONTACT: Investor Contact: Rachel Webb, (858) 571-2683