DISCONTINUED OPERATIONS

Distribution business — During fiscal 2012, we entered into an agreement with a third party distribution service provider pursuant to a plan approved by our Board of Directors to sell our Jack in the Box distribution business. During fiscal 2013, we completed the transition of our distribution centers. The operations and cash flows of the business have been eliminated and the results are reported as discontinued operations for all periods presented. In 2018, 2017, and 2016 the results of discontinued operations related to our distribution business were immaterial to our consolidated results of operations.

Qdoba — On December 19, 2017, we entered into a stock purchase agreement (the “Qdoba Purchase Agreement”) with the Buyer to sell all issued and outstanding shares of Qdoba (the “Shares”). The Buyer completed the acquisition of Qdoba on March 21, 2018 (the “Qdoba Sale”) for an aggregate purchase price of approximately $298.5 million.

We also entered into a Transition Services Agreement with the Buyer pursuant to which the Buyer is receiving certain services (the “Services”) to enable it to operate the Qdoba business after the closing of the Qdoba Sale. The Services include information technology, finance and accounting, human resources, supply chain, and other corporate support services. Under the Transition Services Agreement, the Services are being provided at cost for a period of up to 12 months, with two 3-month extensions available for certain services. In fiscal 2018 we recorded $7.9 million related to the Services in 2018 as a reduction of selling, general, and administrative expenses in the consolidated statements of earnings.

Further, we entered into an Employee Agreement with the Buyer pursuant to which we will continue to employ all Qdoba employees who work for the Buyer (the “Qdoba Employees”) from the date of closing of the Qdoba Sale through the earlier of: (a) following 30 days written notice from the Buyer of termination of the Employee Agreement, or (b) nine months following the closing of the Qdoba Sale. Upon termination of the Employee Agreement, the Qdoba Employees will become employees of the Buyer. During the term of the Employee Agreement, we will pay all wages and benefits of the Qdoba Employees and will receive reimbursement of these costs from the Buyer. During fiscal 2018, we paid $86.7 million of Qdoba wages and benefits pursuant to the Employee Agreement.

As the Qdoba Sale represents a strategic shift that will have a major effect on our operations and financial results, the Qdoba results are classified as discontinued operations in our consolidated statements of earnings and our consolidated statements of cash flows for all periods presented. Prior year results have been recast to conform with the current year presentation.

The following table summarizes the Qdoba results for each period (in thousands, except per share data):



	2018			2017			2016
Company restaurant sales	$	192,620		$	436,558		$	415,495
Franchise revenues	9,337			20,065			21,578
Company restaurant costs (excluding depreciation and amortization)	(166,122		)	(357,370		)	(321,997		)
Franchise costs (excluding depreciation and amortization)	(2,338		)	(4,993		)	(4,478		)
Selling, general and administrative expenses	(19,286		)	(36,706		)	(43,063		)
Depreciation and amortization	(5,012		)	(21,500		)	(19,965		)
Impairment and other charges, net	(2,305		)	(15,061		)	(11,648		)
Interest expense, net	(4,787		)	(9,025		)	(7,448		)
Operating earnings from discontinued operations before income taxes	2,107			11,968			28,474
Gain on Qdoba Sale	30,717			—			—
Earnings from discontinued operations before income taxes	32,824			11,968			28,474
Income taxes	(15,726		)	(4,518		)	(10,605		)
Earnings from discontinued operations, net of income taxes	$	17,098		$	7,450		$	17,869

Net earnings per share from discontinued operations:
Basic	$	0.60		$	0.24		$	0.53
Diluted	$	0.59		$	0.24		$	0.52

Selling, general and administrative expenses presented in the table above include corporate costs directly in support of Qdoba operations. All other corporate costs were classified in results of continuing operations. Our credit facility required us to make a mandatory prepayment (“Qdoba Prepayment”) on our term loan upon the closing of the Qdoba Sale, which was $260.0 million. Interest expense associated with our credit facility was allocated to discontinued operations based on our estimate of the mandatory prepayment that was made upon closing of the Qdoba Sale. See Note 7, Indebtedness, of the notes to consolidated financial statements for additional information regarding the mandatory prepayment.

Assets sold and liabilities assumed by the Buyer in the Qdoba Sale included substantially all assets and liabilities associated with Qdoba, and were classified as held for sale on our consolidated balance sheets as of October 1, 2017. Prior year balances in our consolidated financial statements have been recast to conform with the current presentation. Upon classification of the Qdoba assets as held for sale, in accordance with the FASB authoritative guidance on financial statement presentation, the assets were no longer depreciated. The following table summarizes the major categories of assets and liabilities classified as held for sale in our consolidated balance sheet as of October 1, 2017 and acquired in the Qdoba Sale (in thousands):



	October 1, 2017
Cash	$	3,175
Accounts receivable, net	9,086
Inventories	3,202
Prepaid expenses and other current assets	8,802
Property and equipment, net	148,715
Intangible assets, net	12,660
Goodwill	117,636
Other assets, net	1,785
Total assets classified as held for sale (1)	$	305,061

Accounts payable	$	8,936
Accrued liabilities	25,251
Current maturities of long-term debt	158
Straight-line rent accrual	13,347
Deferred income tax liability (2)	6,421
Other long-term liabilities	12,310
Total liabilities classified as held for sale	$	66,423

____________________________


(1)	Current assets held for sale as of October 1, 2017 include Jack in the Box assets held for sale of $18.5 million.


(2)	Prior to held for sale presentation, Qdoba’s deferred income tax liability as of January 22, 2017 was netted against the Jack in the Box deferred income tax assets in other assets, net, on our condensed consolidated balance sheet.

The following is a reconciliation of the gain recorded for the Qdoba Sale (in thousands):



Net proceeds received from the Qdoba Sale (1)	$	298,474
Qdoba assets:
Cash	3,113
Accounts receivable, net	9,461
Inventories	3,112
Prepaid expenses and other current assets	5,007
Property and equipment, net	164,075
Intangible assets, net	12,518
Goodwill	117,636
Other assets, net	2,604
Total Qdoba assets	317,526
Qdoba liabilities:
Accounts payable	7,847
Accrued liabilities	19,891
Current maturities of long-term debt	180
Straight-line rent accrual	14,595
Deferred income tax liability	8,676
Other long-term liabilities	11,144
Total Qdoba liabilities	62,333
Other costs incurred as part of the Qdoba Sale (2)	12,564
Gain on Qdoba Sale before income taxes	$	30,717

____________________________


(1)	The proceeds received from the Qdoba Sale are net of the finalized working capital adjustment outlined in the Qdoba Purchase Agreement totaling $6.9 million, and the derecognition of foreign currency translation adjustments recorded in accumulated other comprehensive income of $0.1 million.


(2)	Costs directly incurred as a result of the Qdoba Sale, including investment bank fees, legal fees, professional fees, employee transaction awards, transfer taxes, and other costs.

Proceeds from the Qdoba Sale have been presented in the consolidated statement of cash flows within cash provided by discontinued operations in investing activities.

Lease guarantees — While all operating leases held in the name of Qdoba were part of the Qdoba Sale, some of the leases remain guaranteed by the Company pursuant to one or more written guarantees (the “Guarantees”). In the event Qdoba fails to meet its payment and performance obligations under such guaranteed leases, we may be required to make rent and other payments to the landlord under the requirements of the Guarantees. Should we, as guarantor of the lease obligations, be required to make any lease payments due for the remaining term of the subject lease(s) subsequent to March 21, 2018, the maximum amount we may be required to pay is approximately $38.7 million as of September 30, 2018. The lease terms extend for a maximum of approximately 17 more years as of September 30, 2018, and we would remain a guarantor of the leases in the event the leases are extended for any established renewal periods. In the event that we are obligated to make payments under the Guarantees, we believe the exposure is limited due to contractual protections and recourse available in the lease agreements, as well as the Qdoba Purchase Agreement, including a requirement of the landlord to mitigate damages by re-letting the properties in default, and indemnity from the Buyer. Qdoba continues to meet its obligations under these leases and there have not been any events that would indicate that Qdoba will not continue to meet the obligations of the leases. As such, we have not recorded a liability for the Guarantees as of September 30, 2018 as the likelihood of Qdoba defaulting on the assigned agreements was deemed to be less than probable.