JACK IN THE BOX INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES a. Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13(a)-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s fiscal year ended September 27, 2020, the Company’s Chief Executive Officer and Controller (its principal executive officer and principal financial officer, respectively) have concluded that the Company’s disclosure controls and procedures were effective. b. Changes in Internal Control Over Financial Reporting Except for the changes in connection with our implementation of the remediation plan described below, there have been no significant changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended September 27, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. c. Management’s Report on Internal Control Over Financial Reporting Management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with U.S. GAAP and includes those policies and procedures that: • Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions; • Provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made in accordance with appropriate authorizations; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management, under the oversight of our principal executive officer, principal financial officer, and Audit Committee, assessed the effectiveness of the Company’s internal control over financial reporting as of September 27, 2020. In making this assessment, management used the criteria set forth in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended September 29, 2019, during the fourth quarter of 2019, management concluded that the Company’s internal control over financial reporting was not effective because of the effect of the material weakness described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement will not be prevented or detected on a timely basis. Management identified the following deficiencies in our internal control over financial reporting. • We did not maintain effective risk assessment, oversight and monitoring controls over changes in the Company’s information technology (“IT”) environment in connection with the restructuring and outsourcing of certain IT support functions to third party contractors. • We were overly dependent on the knowledge and actions of certain individuals with IT expertise without providing sufficient training and documentation to support other personnel with control responsibilities. • As a consequence, the Company did not maintain effective controls over IT change management for systems that support the Company’s financial reporting process to ensure that program and data changes were tested, approved and implemented appropriately. Automated process-level controls and manual controls dependent upon the accuracy and completeness of information derived from IT systems were also rendered ineffective. 39 During 2020, we implemented our previously disclosed remediation plan that included: (i) developing enhanced risk assessment procedures and controls related to changes in IT systems; (ii) enhancing governance by management of significant and/or unusual changes to the IT environment; (iii) developing and conducting a mandatory annual program addressing IT general controls and policies, including educating control owners concerning the principles and requirements of each control, with a focus on those related to change-management over IT systems; and (iv) implementing an annual requirement for IT personnel to review and acknowledge their understanding of change control policies and procedures. During the fourth quarter of 2020, we completed our testing of the operating effectiveness of the implemented controls and found them to be effective. As a result, we have concluded that the material weakness has been remediated as of September 27, 2020. 40 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Jack in the Box Inc.: Opinion on Internal Control Over Financial Reporting We have audited Jack in the Box Inc. and subsidiaries’ (the Company) internal control over financial reporting as of September 27, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 27, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 27, 2020 and September 29, 2019, the related consolidated statements of earnings, comprehensive income, stockholders’ deficit, and cash flows for each of the fifty-two week periods ended September 27, 2020, September 29, 2019, and September 30, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated November 18, 2020 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP San Diego, California November 18, 2020 41 ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE That portion of our definitive Proxy Statement appearing under the captions “Election of Directors,” “Director Qualifications and Biographical Information,” “Committees of the Board,” and “Section 16(a) Beneficial Ownership Reporting Compliance” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2020 and to be used in connection with our 2021 Annual Meeting of Stockholders is hereby incorporated by reference. Information regarding our executive officers is set forth in Part I of this Report under the caption “Information about our Executive Officers.” That portion of our definitive Proxy Statement appearing under the caption “Committees of the Board - Audit Committee,” relating to the members of the Company’s Audit Committee and the members of the Audit Committee who qualify as financial experts, is also incorporated herein by reference. That portion of our definitive Proxy Statement appearing under the caption “Stockholder Recommendations and Board Nominations,” relating to the procedures by which stockholders may recommend candidates for director to the Nominating and Governance Committee of the Board of Directors, is also incorporated herein by reference. We have adopted a Code of Ethics, which applies to all Jack in the Box Inc. directors, officers, and employees, including the Chief Executive Officer, Chief Financial Officer, Controller, and all of the financial team. The Code of Ethics is posted on the Company’s corporate website, www.jackintheboxinc.com (under the “Investors — Corporate Governance — Code of Conduct” caption) and is available in print free of charge to any stockholder upon request. We intend to satisfy the disclosure requirement regarding any amendment to, or waiver of, a provision of the Code of Ethics for the Chief Executive Officer, Chief Financial Officer, and Controller or persons performing similar functions, by posting such information on our corporate website. No such waivers have been issued during fiscal 2020. We have also adopted a set of Corporate Governance Principles and Practices for our Board of Directors and charters for all of our Board Committees, including the Audit, Compensation, and Nominating and Governance Committees. The Corporate Governance Principles and Practices and committee charters are available on our corporate website at www.jackintheboxinc.com and in print free of charge to any shareholder who requests them. Written requests for our Code of Business Conduct and Ethics, Corporate Governance Principles and Practices and committee charters should be addressed to Jack in the Box Inc., 9357 Spectrum Center Blvd., San Diego, California 92123, Attention: Corporate Secretary. ITEM 11. EXECUTIVE COMPENSATION That portion of our definitive Proxy Statement appearing under the caption “Executive Compensation,” “Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2020 and to be used in connection with our 2021 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS That portion of our definitive Proxy Statement appearing under the caption “Security Ownership of Certain Beneficial Owners and Management” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2020 and to be used in connection with our 2021 Annual Meeting of Stockholders is hereby incorporated by reference. Information regarding equity compensation plans under which Company common stock may be issued as of September 27, 2020 is set forth in Item 5 of this Report. 42 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE That portion of our definitive Proxy Statement appearing under the caption “Certain Relationships and Related Transactions” and “Directors’ Independence,” if any, to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2020 and to be used in connection with our 2021 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES That portion of our definitive Proxy Statement appearing under the caption “Independent Registered Public Accounting Fees and Services” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2020 and to be used in connection with our 2021 Annual Meeting of Stockholders is hereby incorporated by reference. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ITEM 15(a) (1) Financial Statements. See Index to Consolidated Financial Statements on page F-1 of this Report. ITEM 15(a) (2) Financial Statement Schedules. None. ITEM 15(a) (3) Exhibits . Number Description Form Filed with SEC 3.1 Certificate of Amendment of Restated Certificate of Incorporation dated September 21, 2007 8-K 9/24/2007 3.1.1 Restated Certificate of Incorporation, dated March 6, 1992 10-Q 5/14/2020 3.2 Amended and Restated Bylaws dated August 2, 2019 10-Q 8/8/2019 3.3 Amended and Restated Bylaws, dated May 8, 2020 10-Q 5/14/2020 4.1 Base Indenture, dated as of July 8, 2019, by and between Jack in the Box Funding, LLC, as Master Issuer, and Citibank, N.A., as Trustee and Securities Intermediary. 8-K 7/8/2019 4.2 Series 2019-1 Supplement to Base Indenture, dated as of July 8, 2019, by and between Jack in the Box Funding, LLC, as Master Issuer of the Series 2019-1 fixed rate senior secured notes, Class A-2, and Series 2019-1 variable funding senior notes, Class A-1, and Citibank, N.A., as Trustee and Series 2019-1 Securities Intermediary. 8-K 7/8/2019 10.1.20 Class A-1 Note Purchase Agreement, dated as of July 8, 2019, by and among Jack in the Box Funding, LLC, as Master Issuer, each of Different Rules, LLC, Jack in the Box Properties, LLC and Jack in the Box SPV Guarantor, LLC, as Guarantors, Jack in the Box Inc. as Manager, the conduit investors party thereto, the financial institutions party thereto, certain funding agents, and Coöperatieve Rabobank, U.A., New York Branch, as L/C Provider, Swingline Lender and Administrative Agent 8-K 7/8/2019 10.1.21 The Guarantee and Collateral Agreement, dated July 8, 2019, by and among Jack in the Box SPV Guarantor, LLC, Different Rules, LLC, and Jack in the Box Properties, LLC, each as a Guarantor and Citibank, N.A., as Trustee. 8-K 7/8/2019 10.1.22 Management Agreement, dated as of July 8, 2019, by and among Jack in the Box Funding, LLC, as Master Issuer, certain subsidiaries of Jack in the Box Funding, LLC party thereto, Jack in the Box Inc., as Manager, and Citibank, N.A., as Trustee. 8-K 7/8/2019 10.2* Form of Compensation and Benefits Assurance Agreement for Executives 10-Q 2/20/2008 10.2.1* Form of Revised Compensation and Benefits Assurance Agreement for certain officers 10-Q 5/17/2012 10.2.2* Form of Revised Compensation and Benefits Assurance Agreement for certain officers, dated May 8, 2014 10-K 11/21/2014 10.2.3* Form of Revised Compensation and Benefits Assurance Agreement for certain officers, dated June 15, 2020 10-K Filed herewith 10.2.11* Mark Blankenship Separation and Release Agreement, dated January 3, 2020 10-Q 2/20/2020 10.2.12* Paul Melancon Separation and Release Agreement, dated January 3, 2020 10-Q 2/20/2020 10.2.13* Vanessa Fox Separation and Release Agreement, dated January 17, 2020 10-Q 2/20/2020 43 Number Description Form Filed with SEC 10.2.14* Phillip Rudolph Separation and Release Agreement, dated March 2, 2020 10-Q 5/14/2020 10.2.15* Jack in the Box Inc. Severance Plan for Executive Officers, dated March 9, 2020 (as amended) 10-K Filed herewith 10.2.16* Offer Letter by and between Darin Harris and Jack in the Box Inc., dated April 2, 2020 8-K 4/16/2020 10.2.17* Retention, Transition and Separation Agreement, by and between Leonard A. Comma and Jack in the Box Inc., dated April 16, 2020 8-K 4/16/2020 10.2.18* Lance Tucker Retention Agreement, dated May 5, 2020 10-Q 8/5/2020 10.2.19* Jennifer Kennedy Separation and Release Agreement, dated November 13, 2020 10-K Filed herewith 10.3* Amended and Restated Supplemental Executive Retirement Plan 10-Q 2/18/2009 10.3.1 * First Amendment to Jack in the Box Inc. Supplemental Executive Retirement Plan, As Amended and Restated Effective January 1, 2009 8-K 9/22/2015 10.4* Amended and Restated Executive Deferred Compensation Plan 10-Q 2/18/2009 10.4.1 * Jack in the Box Inc. Executive Deferred Compensation Plan, As Amended and Restated Effective January 1, 2016 8-K 9/22/2015 10.5* Amended and Restated Deferred Compensation Plan for Non-Management Directors 10-K 11/22/2006 10.8* Jack in the Box Inc. 2004 Stock Incentive Plan, Amended and Restated Effective February 17, 2012 DEF 14A 1/25/2017 10.8.1* Form of Restricted Stock Award for officers and certain members of management under the 2004 Stock Incentive Plan 10-Q 8/5/2009 10.8.3* Jack in the Box Inc. Non-Employee Director Stock Option Award Agreement under the 2004 Stock Incentive Plan 8-K 11/15/2005 10.8.4* Form of Restricted Stock Unit Award Agreement for Non-Employee Director under the 2004 Stock Incentive Plan 10-K 11/20/2009 10.8.6* Form of Restricted Stock Unit Grant Agreement for Non-Employee Directors under the 2004 Stock Incentive Plan 10-Q 5/14/2015 10.8.9* Form of Stock Option and Performance Share Awards Agreement under the 2004 Stock Incentive Plan 10-K 11/22/2013 10.8.10* Form of Time-Vested Restricted Stock Unit Award Agreement under the 2004 Stock Incentive Plan 10-K 11/22/2013 10.8.11* Form of Time-Vesting Restricted Stock Unit Award Agreement under the 2004 Stock Incentive Plan 10-Q 2/19/2015 10.8.12* Form of Stock Option and Performance Share Award Agreement under the 2004 Stock Incentive Plan 10-Q 2/19/2015 10.8.13* Form of Time-Vesting Restricted Stock Unit Award Agreement under the 2004 Stock Incentive Plan 10-Q 2/18/2016 10.8.14* Form of Stock Option and Performance Share Award Agreement under the 2004 Stock Incentive Plan 10-Q 2/18/2016 10.8.15* Form of Restricted Stock Unit Grant Agreement for Non-Employee Directors under the 2004 Stock Incentive Plan 10-Q 5/12/2016 10.8.16* Form of Time-Vesting Restricted Stock Unit Award Agreement under the 2004 Stock Incentive Plan 10-Q 2/21/2019 10.8.17* Jack in the Box Inc. Special Time-Vesting Restricted Stock Unit Award Agreement Under the 2004 Stock Incentive Plan 10-Q 2/20/2020 10.10.2* Jack in the Box Inc. Performance Incentive Plan, Effective February 13, 2016 DEF 14A 1/11/2016 10.11* Form of Amended and Restated Indemnification Agreement between the registrant and individual directors, officers and key employees 10-Q 8/10/2012 21.1 Subsidiaries of the Registrant _____ Filed herewith 23.1 Consent of Independent Registered Public Accounting Firm _____ Filed herewith 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 _____ Filed herewith 31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 _____ Filed herewith 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 _____ Filed herewith 44 Number Description Form Filed with SEC 32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 _____ Filed herewith 101.INS iXBRL Instance Document 101.SCH iXBRL Taxonomy Extension Schema Document 101.CAL iXBRL Taxonomy Extension Calculation Linkbase Document 101.DEF iXBRL Taxonomy Extension Definition Linkbase Document 101.LAB iXBRL Taxonomy Extension Label Linkbase Document 101.PRE iXBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File formatted in iXBRL * Management contract or compensatory plan. ITEM 15(b) All required exhibits are filed herein or incorporated by reference as described in Item 15(a)(3). ITEM 15(c) All schedules have been omitted as the required information is inapplicable, immaterial or the information is presented in the consolidated financial statements or related notes. ITEM 16. FORM 10-K SUMMARY Not applicable. 45 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JACK IN THE BOX INC. By: /s/ DAWN HOOPER Dawn Hooper Vice President, Controller (principal financial officer) November 18, 2020 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below constitutes and appoints Darin Harris and Dawn Hooper, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. Signature Title Date /s/ DARIN HARRIS Chief Executive Officer and Director (principal executive officer) November 18, 2020 Darin Harris /s/ DAWN HOOPER Vice President, Controller (principal financial officer) November 18, 2020 Dawn Hooper /s/ DAVID L. GOEBEL Director and Chairman of the Board November 18, 2020 David L. Goebel /s/ JEAN M. BIRCH Director November 18, 2020 Jean M. Birch /s/ JOHN P. GAINOR Director November 18, 2020 John P. Gainor /s/ SHARON P. JOHN Director November 18, 2020 Sharon P. John /s/ MADELEINE A. KLEINER Director November 18, 2020 Madeleine A. Kleiner /s/ MICHAEL W. MURPHY Director November 18, 2020 Michael W. Murphy /s/ JAMES M. MYERS Director November 18, 2020 James M. Myers /s/ DAVID M. TEHLE Director November 18, 2020 David M. Tehle /s/ VIVIEN M. YEUNG Director November 18, 2020 Vivien M. Yeung 46 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets F- 4 Consolidated Statements of Earnings F- 5 Consolidated Statements of Comprehensive Income F- 6 Consolidated Statements of Cash Flows F- 7 Consolidated Statements of Stockholders’ Deficit F- 8 Notes to Consolidated Financial Statements F- 9 Schedules not filed: All schedules have been omitted as the required information is inapplicable, immaterial, or the information is presented in the consolidated financial statements or related notes. F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Jack in the Box Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Jack in the Box Inc. and subsidiaries (the Company) as of September 27, 2020 and September 29, 2019, the related consolidated statements of earnings, comprehensive income, stockholders’ deficit, and cash flows for each of the fifty-two week periods ended September 27, 2020, September 29, 2019, and September 30, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 27, 2020 and September 29, 2019, and the results of its operations and its cash flows for each of the fifty-two week periods ended September 27, 2020, September 29, 2019, and September 30, 2018, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 27, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated November 18, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principles As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases as of September 30, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases, and changed its method of accounting for revenue as of October 1, 2018 due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers . Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Assessment of self-insurance liabilities related to workers’ compensation and general liability As discussed in Note 1 to the consolidated financial statements, the Company establishes its undiscounted insurance liability and reserves using independent actuarial estimates of expected losses based on a statistical analysis of historical claims data. As of September 27, 2020, the Company has recorded an estimated self-insurance liability of $25.0 million. F-2 We identified the assessment of self-insurance liabilities related to workers’ compensation and general liability as a critical audit matter. Evaluating the Company’s judgments regarding the use of actuarial estimates and assumptions related to the loss development factors and the expected loss rates involved a high degree of complex and subjective auditor judgment. Changes in the loss development factors and expected loss rates could have a significant impact on the liability recognized. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to develop the estimate of self-insurance liabilities, with the involvement of actuarial professionals when appropriate. This included a control related to the review of the loss development factors and expected loss rates applied in the actuarial report and controls related to the completeness and accuracy of claims data. We tested the claims paid and claims reported (not paid) data used in the actuarial models for consistency with the actual claims paid and claims reported (not paid) records of the Company, which is used in the development of the loss development factors and expected loss rates. We involved actuarial professionals with specialized skills and knowledge, who assisted in evaluating the Company’s actuarial estimates and assumptions related to the loss development factors and expected loss rates, by comparing them to generally accepted actuarial methodologies and the Company’s historical data. /s/ KPMG LLP We have served as the Company’s auditor since 1986. San Diego, California November 18, 2020 F-3 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) September 27, 2020 September 29, 2019 ASSETS Current assets: Cash $ 199,662 $ 125,536 Restricted cash 37,258 26,025 Accounts and other receivables, net 78,417 45,235 Inventories 1,808 1,776 Prepaid expenses 10,114 9,015 Current assets held for sale 4,598 16,823 Other current assets 3,724 2,718 Total current assets 335,581 227,128 Property and equipment, at cost: Land 100,460 116,070 Buildings 914,311 927,337 Restaurant and other equipment 112,675 125,176 Construction in progress 4,984 7,658 1,132,430 1,176,241 Less accumulated depreciation and amortization ( 796,448 ) ( 784,307 ) Property and equipment, net 335,982 391,934 Other assets: Operating lease right-of-use assets 904,548 — Intangible assets, net 277 425 Goodwill 47,161 46,747 Deferred tax assets 72,322 85,564 Other assets, net 210,623 206,685 Total other assets 1,234,931 339,421 $ 1,906,494 $ 958,483 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Current maturities of long-term debt $ 818 $ 774 Current operating lease liabilities 179,000 — Accounts payable 31,105 37,066 Accrued liabilities 129,431 120,083 Total current liabilities 340,354 157,923 Long-term liabilities: Long-term debt, net of current maturities 1,376,913 1,274,374 Long-term operating lease liabilities, net of current portion 776,094 — Other long-term liabilities 206,494 263,770 Total long-term liabilities 2,359,501 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 shares authorized, 82,369,714 and 82,159,002 issued, respectively 824 822 Capital in excess of par value 489,515 480,322 Retained earnings 1,636,211 1,577,034 Accumulated other comprehensive loss ( 110,605 ) ( 140,006 ) Treasury stock, at cost, 59,646,773 and 57,760,573 shares, respectively ( 2,809,306 ) ( 2,655,756 ) Total stockholders’ deficit ( 793,361 ) ( 737,584 ) $ 1,906,494 $ 958,483 See accompanying notes to consolidated financial statements. F-4 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) Fiscal Year 2020 2019 2018 Revenues: Company restaurant sales $ 348,987 $ 336,807 $ 448,058 Franchise rental revenues 320,647 272,815 259,047 Franchise royalties and other 178,319 169,811 162,585 Franchise contributions for advertising and other services 173,553 170,674 — 1,021,506 950,107 869,690 Operating costs and expenses, net: Food and packaging 102,449 97,699 128,947 Payroll and employee benefits 106,540 100,158 129,089 Occupancy and other 54,157 50,613 71,803 Franchise occupancy expenses 210,038 166,584 158,319 Franchise support and other costs 13,059 12,110 11,593 Franchise advertising and other services expenses 180,794 178,093 — Selling, general, and administrative expenses 80,841 76,357 104,816 Depreciation and amortization 52,798 55,181 59,422 Impairment and other charges, net ( 6,493 ) 12,455 18,418 Gains on the sale of company-operated restaurants ( 3,261 ) ( 1,366 ) ( 46,164 ) 790,922 747,884 636,243 Earnings from operations 230,584 202,223 233,447 Other pension and post-retirement expenses, net 41,720 1,484 1,833 Interest expense, net 66,743 84,967 45,547 Earnings from continuing operations and before income taxes 122,121 115,772 186,067 Income taxes 32,727 24,025 81,728 Earnings from continuing operations 89,394 91,747 104,339 Earnings from discontinued operations, net of income taxes 370 2,690 17,032 Net earnings $ 89,764 $ 94,437 $ 121,371 Net earnings per share — basic: Earnings from continuing operations $ 3.87 $ 3.55 $ 3.66 Earnings from discontinued operations 0.02 0.10 0.60 Net earnings per share (1) $ 3.88 $ 3.66 $ 4.26 Net earnings per share — diluted: Earnings from continuing operations $ 3.84 $ 3.52 $ 3.62 Earnings from discontinued operations 0.02 0.10 0.59 Net earnings per share (1) $ 3.86 $ 3.62 $ 4.21 Cash dividends declared per common share $ 1.20 $ 1.60 $ 1.60 ________________________ (1) Earnings per share may not add due to rounding. See accompanying notes to consolidated financial statements. F-5 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Fiscal Year 2020 2019 2018 Net earnings $ 89,764 $ 94,437 $ 121,371 Cash flow hedges: Net change in fair value of derivatives — ( 23,625 ) 18,769 Net loss reclassified to earnings — 24,328 3,455 — 703 22,224 Tax effect — ( 3,165 ) ( 5,725 ) — ( 2,462 ) 16,499 Unrecognized periodic benefit costs: Actuarial gains (losses) arising during the period ( 4,875 ) ( 62,377 ) 31,478 Actuarial losses and prior service cost reclassified to earnings 44,616 3,917 4,988 39,741 ( 58,460 ) 36,466 Tax effect ( 10,340 ) 15,176 ( 9,544 ) 29,401 ( 43,284 ) 26,922 Other: Foreign currency translation adjustments — — 6 Tax effect — — ( 2 ) Derecognition of foreign currency translation adjustments due to sale — — 76 — — 80 Other comprehensive income (loss), net of taxes 29,401 ( 45,746 ) 43,501 Comprehensive income $ 119,165 $ 48,691 $ 164,872 See accompanying notes to consolidated financial statements. F-6 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Fiscal Year 2020 2019 2018 Cash flows from operating activities: Net earnings $ 89,764 $ 94,437 $ 121,371 Earnings from discontinued operations 370 2,690 17,032 Earnings from continuing operations 89,394 91,747 104,339 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 52,798 55,181 59,422 Franchise tenant improvement allowance amortization and other 3,028 1,983 862 Amortization of debt issuance costs 5,628 3,121 2,803 Loss on extinguishment of debt — 2,757 — Loss on interest rate swap termination — 23,551 — Excess tax benefits from share-based compensation arrangements ( 449 ) ( 113 ) ( 2,031 ) Deferred income taxes 5,162 4,100 25,352 Share-based compensation expense 4,394 8,074 9,146 Pension and postretirement expense 41,720 1,484 2,324 Gains on cash surrender value of company-owned life insurance ( 4,262 ) ( 4,475 ) ( 2,280 ) Gains on the sale of company-operated restaurants ( 3,261 ) ( 1,366 ) ( 46,164 ) (Gains) losses on the disposition of property and equipment ( 9,768 ) ( 6,244 ) 1,627 Non-cash operating lease costs 490 — — Impairment charges and other 322 5,414 2,505 Changes in assets and liabilities, excluding acquisitions and dispositions: Accounts and other receivables ( 28,724 ) 3,504 24,220 Inventories 41 82 1,587 Prepaid expenses and other current assets ( 2,780 ) 8,728 ( 9,432 ) Accounts payable 154 4,524 4,890 Accrued liabilities 4,222 ( 7,505 ) ( 38,329 ) Pension and postretirement contributions ( 6,243 ) ( 6,194 ) ( 5,467 ) Franchise tenant improvement allowance disbursements ( 7,516 ) ( 10,593 ) ( 14,893 ) Other ( 825 ) ( 9,355 ) ( 16,426 ) Cash flows provided by operating activities 143,525 168,405 104,055 Cash flows from investing activities: Purchases of property and equipment ( 19,528 ) ( 47,649 ) ( 37,842 ) Proceeds from the sale and leaseback of assets 19,828 4,447 9,336 Proceeds from the sale of company-operated restaurants 3,395 1,280 26,486 Collections on notes receivable — 16,759 54,453 Proceeds from the sale of property and equipment 22,774 9,714 10,259 Other 2,654 1,630 2,969 Cash flows provided by (used in) investing activities 29,123 ( 13,819 ) 65,661 Cash flows from financing activities: Borrowings on revolving credit facilities 114,376 229,798 757,100 Repayments of borrowings on revolving credit facilities ( 6,500 ) ( 960,220 ) ( 523,700 ) Proceeds from issuance of debt — 1,300,000 — Principal repayments on debt ( 10,536 ) ( 337,150 ) ( 304,607 ) Debt issuance costs ( 216 ) ( 34,122 ) ( 1,366 ) Payments related to termination of interest rate swaps — ( 23,551 ) — Dividends paid on common stock ( 27,538 ) ( 41,179 ) ( 45,412 ) Proceeds from issuance of common stock 4,647 1,231 7,959 Repurchases of common stock ( 155,576 ) ( 137,654 ) ( 325,634 ) Payroll tax payments for equity award issuances ( 5,946 ) ( 2,883 ) ( 7,719 ) Change in book overdraft — — ( 2,150 ) Cash flows used in financing activities ( 87,289 ) ( 5,730 ) ( 445,529 ) Cash flows provided by (used in) continuing operations 85,359 148,856 ( 275,813 ) Net cash provided by operating activities of discontinued operations — — 4,823 Net cash provided by investing activities of discontinued operations — — 266,125 Net cash used in financing activities of discontinued operations — — ( 78 ) Net cash provided by discontinued operations — — 270,870 Effect of exchange rate changes on cash — — 6 Cash and restricted cash at beginning of year 151,561 2,705 7,642 Cash and restricted cash at end of year $ 236,920 $ 151,561 $ 2,705 See accompanying notes to consolidated financial statements. F-7 JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (Dollars in thousands) Number of Shares Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balance at October 1, 2017 81,843,483 $ 818 $ 453,432 $ 1,485,820 $ ( 137,761 ) $ ( 2,190,439 ) $ ( 388,130 ) Shares issued under stock plans, including tax benefit 218,178 3 8,204 — — — 8,207 Share-based compensation — — 9,017 — — — 9,017 Dividends declared — — 173 ( 45,687 ) — — ( 45,514 ) Purchases of treasury stock — — — — — ( 340,000 ) ( 340,000 ) Net earnings — — — 121,371 — — 121,371 Foreign currency translation adjustment — — — — 80 — 80 Effect of interest rate swaps, net — — — — 16,499 — 16,499 Effect of actuarial gains and prior service cost, net — — — — 26,922 — 26,922 Other — — — ( 151 ) — — ( 151 ) Balance at September 30, 2018 82,061,661 821 470,826 1,561,353 ( 94,260 ) ( 2,530,439 ) ( 591,699 ) Shares issued under stock plans, including tax benefit 97,341 1 1,231 — — — 1,232 Share-based compensation — — 8,074 — — — 8,074 Dividends declared — — 191 ( 41,426 ) — — ( 41,235 ) Purchases of treasury stock — — — — — ( 125,317 ) ( 125,317 ) Net earnings — — — 94,437 — — 94,437 Effect of interest rate swaps, net — — — — ( 2,462 ) — ( 2,462 ) Effect of actuarial losses and prior service cost, net — — — — ( 43,284 ) — ( 43,284 ) Cumulative-effect from a change in accounting principle — — — ( 37,330 ) — — ( 37,330 ) Balance at September 29, 2019 82,159,002 822 480,322 1,577,034 ( 140,006 ) ( 2,655,756 ) ( 737,584 ) Shares issued under stock plans, including tax benefit 210,712 2 4,645 — — — 4,647 Share-based compensation — — 4,394 — — — 4,394 Dividends declared — — 154 ( 27,717 ) — — ( 27,563 ) Purchases of treasury stock — — — — — ( 153,550 ) ( 153,550 ) Net earnings — — — 89,764 — — 89,764 Effect of actuarial gains and prior service cost, net — — — — 29,401 — 29,401 Cumulative-effect from a change in accounting principle — — — ( 2,870 ) — — ( 2,870 ) Balance at September 27, 2020 82,369,714 $ 824 $ 489,515 $ 1,636,211 $ ( 110,605 ) $ ( 2,809,306 ) $ ( 793,361 ) See accompanying notes to consolidated financial statements. F-8 JACK IN THE BOX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of operations — Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box ® quick-service restaurants. The Company operates as a single segment for reporting purposes. The following table summarizes the number of restaurants as of the end of each fiscal year: 2020 2019 2018 Company-operated 144 137 137 Franchise 2,097 2,106 2,100 Total system 2,241 2,243 2,237 References to the Company throughout these notes to the consolidated financial statements are made using the first-person notations of “we,” “us,” and “our.” Basis of presentation — The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). On December 19, 2017, we entered into a definitive agreement to sell Qdoba Restaurant Corporation (“Qdoba”), a wholly owned subsidiary of the Company, to certain funds managed by affiliates of Apollo Global Management, LLC (the “Buyer”). The sale was completed on March 21, 2018, and operating results for Qdoba are included under the caption “Earnings from discontinued operations, net of income taxes” for all periods presented. Refer to Note 10, Discontinued Operations , for additional information. Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Comparisons throughout these notes to the consolidated financial statements refer to the 52 -week periods ended September 27, 2020, September 29, 2019 and September 30, 2018 for fiscal years 2020, 2019, and 2018, respectively . Principles of consolidation — The accompanying consolidated financial statements include the accounts of Jack in the Box Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation. Use of estimates — In preparing the consolidated financial statements in conformity with U.S. GAAP, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates. Risks and uncertaintie s — In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) outbreak to be a global pandemic, which continues to spread throughout the United States. The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business. While sales have accelerated in the second half of fiscal 2020, we continue to see a significant reduction in guest traffic at our restaurants due to changes in consumer behavior as social distancing practices, dining room closures, and other restrictions have been mandated or encouraged by federal, state, and local governments. Substantially all of our restaurants have remained open, with dining rooms closed and 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. The Company is closely monitoring the impact of the pandemic on all aspects of its business and is unable to predict the continued financial impact of the COVID-19 pandemic on our business due to numerous uncertainties. We cannot predict how or when the social impacts resulting from the pandemic may change, or how any such change will impact our business. Ongoing material adverse effects on our company-owned restaurants or the financial health of our franchisees could negatively affect our operating results, including reductions in revenue and cash flow and could impact the recoverability of our accounts receivable, long-lived assets, and/or goodwill. Restricted cash — In accordance with the terms of our securitized financing facility, certain cash balances are required to be held in trust and are restricted in their use. Such restricted cash primarily represents cash collections and cash reserves held by the trustee to be used for payments of interest and commitment fees for the Class A-1 and Class A-2 Notes due on a quarterly basis. With uncertainty surrounding COVID-19 events and as a cautionary measure, we have voluntarily elected to fund cash held in trust for quarterly interest and commitment fees due in February 2021. F-9 Accounts and other receivables, net, — Our accounts and other receivable, net is primarily comprised of receivables from franchisees, tenants, insurance receivables and credit card processors. Franchisee receivables primarily include rents, property taxes, royalties, marketing, sourcing and technology support fees associated with lease and franchise agreements, and notes from certain of our franchisees. Tenant receivables relate to subleased properties where we are on the master lease agreement. We accrue interest on notes receivable based on the contractual terms. The allowance for doubtful accounts is based on historical experience and a review of existing receivables. Inventories — Our inventories consist principally of food, packaging, and supplies, and are valued at the lower of cost or market on a first-in, first-out basis. Assets held for sale — Our assets held for sale typically includes property we plan to sell within the next year. If the determination is made that we no longer expect to sell an asset within the next year, the asset is reclassified out of assets held for sale. Long-lived assets that meet the held for sale criteria are reported at the lower of their carrying value or fair value, less estimated costs to sell. Property and equipment, net — Expenditures for new facilities and equipment, and those that substantially increase the useful lives of the property, are capitalized. Facilities leased under finance leases are stated at the present value of minimum lease payments at the beginning of the lease term, not to exceed fair value. Maintenance and repairs are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and gains or losses on the dispositions are included in “Impairment and other charges, net” in the accompanying consolidated statements of earnings. Buildings, equipment and leasehold improvements are generally depreciated using the straight-line method based on the estimated useful lives of the assets, over the initial lease term for certain assets acquired in conjunction with the lease commencement for leased properties, or the remaining lease term for certain assets acquired after the commencement of the lease for leased properties. In certain situations, one or more option periods may be used in determining the depreciable life of assets related to leased properties if we deem that an economic penalty would be incurred otherwise. In either circumstance, our policy requires lease term consistency when calculating the depreciation period, in classifying the lease and in computing straight-line rent expense. Building, leasehold improvement assets and equipment are assigned lives that range from 1 to 35 years. Depreciation expense related to property and equipment was $ 52.8 million, $ 55.2 million, and $ 59.4 million in fiscal year 2020, 2019, and 2018, respectively. Impairment of 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. 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. Refer to Note 9, Impairment and Other Charges, Net , for additional information. Goodwill and intangible assets — Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired, if any. We generally record goodwill in connection with the acquisition of restaurants from franchisees. Likewise, upon the sale of restaurants to franchisees, goodwill is decremented. The amount of goodwill written-off is determined as the fair value of the business disposed of as a percentage of the fair value of the reporting unit retained. If the business disposed of was never fully integrated into the reporting unit after its acquisition, and thus the benefits of the acquired goodwill were never realized, the current carrying amount of the acquired goodwill is written off. Goodwill is evaluated for impairment annually during the fourth quarter, or more frequently if indicators of impairment are present. We first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit or indefinite-lived asset is less than its carrying amount. If the qualitative factors indicate that it is more likely than not that the fair value is less than the carrying amount, we perform a single-step impairment test. To perform our impairment analysis, we estimate the fair value of the reporting unit and compare it to the carrying value. If the carrying value exceeds the fair value, an impairment loss is recognized equal to the excess. Refer to Note 4, Goodwill , for additional information. F-10 Reacquired franchise rights are recorded in connection with our acquisition of franchised restaurants and are amortized over the remaining contractual period of the franchise contract in which the right was granted. As of September 27, 2020 and September 29, 2019, the carrying value of our intangible assets was $ 0.3 million and $ 0.4 million, respectively, and are included in “Intangible assets, net” in the accompanying consolidated balance sheets. Company-owned life insurance — We have purchased company-owned life insurance (“COLI”) policies to support our non-qualified benefit plans. The cash surrender values of these policies were $ 113.8 million and $ 112.8 million as of September 27, 2020 and September 29, 2019, respectively, and are included in “Other assets, net”, in the accompanying consolidated balance sheets. Changes in cash surrender values are included in “Selling, general and administrative expenses” in the accompanying consolidated statements of earnings. These policies reside in an umbrella trust for use only to pay plan benefits to participants or to pay creditors if the Company becomes insolvent. Leases — We evaluate the contracts entered into by the Company to determine whether such contracts contain leases. A contract contains a lease if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. At commencement, contracts containing a lease are further evaluated for classification as an operating or finance lease where the Company is a lessee, or as an operating, sales-type or direct financing lease where the Company is a lessor, based on their terms. The lease term and incremental borrowing rate for each lease requires judgement by management and can impact the classification of our leases as well as the value of our lease assets and liabilities. When determining the lease term, we consider option periods available, and include option periods in the measurement of the lease right-of-use (“ROU”) asset and lease liability where the exercise is reasonably certain to occur. As our leases do not provide an implicit discount rate, we have determined it is appropriate to use our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, in calculating our lease liabilities. Revenue recognition — “Company restaurant sales” include revenue recognized upon delivery of food and beverages to the customer at company-operated restaurants, which is when our obligation to perform is satisfied. Company restaurant sales exclude taxes collected from the Company’s customers. Gift cards, upon customer purchase, are recorded as deferred income and are recognized in revenue as they are redeemed. “Franchise rental revenues” received from franchised restaurants based on fixed rental payments are recognized as revenue over the term of the lease. Rental revenue from properties owned and leased by the Company and leased or subleased to franchisees is recognized on a straight-line basis over the respective term of the lease. Certain franchise rents, which are contingent upon sales levels, are recognized in the period in which the contingency is met. “Franchise royalties and other” primarily includes royalties and franchise fees received from our franchisees. Royalties are based upon a percentage of sales of the franchised restaurant and are recognized as earned. Franchise royalties are billed on a monthly basis. Franchise fees when a new restaurant opens or at the start of a new franchise term are recorded as deferred revenue when received and recognized as revenue over the term of the franchise agreement. “Franchise contributions for advertising and other services” includes franchisee contributions to our marketing fund billed on a monthly basis and sourcing and technology fees, as required under the franchise agreements. Contributions to our marketing fund are based on a percentage of sales and recognized as earned. Sourcing and technology services are recognized when the goods or services are transferred to the franchisee. Gift cards — We sell gift cards to our customers in our restaurants and through selected third parties. The gift cards sold to our customers have no stated expiration dates and are subject to actual or potential escheatment rights in several of the jurisdictions in which we operate. We recognize income from gift cards when redeemed by the customer. While we will continue to honor all gift cards presented for payment, we may determine the likelihood of redemption to be remote for certain card balances due to, among other things, long periods of inactivity. In these circumstances, to the extent we determine there is no requirement for remitting balances to government agencies under unclaimed property laws, card balances may be recognized as income in our statement of earnings. Amounts recognized on unredeemed gift card balances were $ 0.5 million, $ 0.5 million, and $ 0.6 million in fiscal 2020, 2019, and 2018, respectively. Self-insurance — We are self-insured for a portion of our workers’ compensation, general liability, employee medical and dental, and automotive claims. We utilize a paid-loss plan for our workers’ compensation, general liability, and automotive programs, which have predetermined loss limits per occurrence and in the aggregate. We establish our insurance liability (undiscounted) and reserves using independent actuarial estimates of expected losses for determining reported claims and as the basis for estimating claims incurred, but not reported. As of September 27, 2020 and September 29, 2019, our estimated liability for general liability and workers’ compensation claims exceeded our self-insurance retention limits by $ 1.9 million and $ 3.6 million, respectively, which we expect our insurance providers to pay on our behalf in accordance with the contractual terms of our insurance policies. F-11 Advertising costs — We administer a marketing fund that includes contractual contributions. In fiscal 2020, 2019 and 2018, the marketing fund contributions from franchise and company-operated restaurants were approximately 5.0 % of gross revenues with the exception of our March and April 2020 marketing fees. In response to the economic burden associated with the COVID-19 pandemic, the Company reduced March marketing fees to 4.0 % and postponed the collection of these fees over the course of 24 months starting in October 2020. April marketing fees ranged from 2 % to 4 % based on annualized sales volumes, and these fees will be collected over three months beginning October 2020. As of September 27, 2020, postponed marketing fees which remain uncollected were $ 16.1 million, of which $ 12.6 million is included within “Accounts and other receivable, net” and $ 3.5 million is included within “Other assets, net” in our consolidated balance sheet. Production costs of commercials, programming, and other marketing activities are charged to the marketing funds when the advertising is first used for its intended purpose, and the costs of advertising are charged to operations as incurred. When contributions to the marketing fund exceed the related advertising expenses, advertising costs are accrued up to the amount of revenues on an annual basis since we are contractually obligated to spend these funds. As of September 27, 2020 and September 29, 2019, additional amounts accrued were $ 8.3 million and $ 0.3 million, respectively, for this requirement. There have been no incremental contributions to the marketing fund made in 2020. In fiscal 2019 and 2018, incremental contributions to the marketing fund were $ 2.0 million and $ 6.2 million, respectively. Total contributions made by the Company, including incremental contributions, are included in “Selling, general, and administrative expenses” in the accompanying consolidated statements of earnings. In fiscal 2020, 2019, and 2018 advertising costs were $ 17.1 million, $ 19.0 million, and $ 28.8 million, respectively. Share-based compensation — We account for our share-based compensation under the FASB authoritative guidance on stock compensation , which generally requires, among other things, that all employee share-based compensation be measured using a fair value method and that the resulting compensation cost be recognized in the financial statements. Compensation expense for our share-based compensation awards is generally recognized on a straight-line basis over the shorter of the vesting period or the period from the date of grant to the date the employee becomes eligible to retire. Refer to Note 13, Share-based Employee Compensation , for additional information. Income taxes — Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize interest and, when applicable, penalties related to unrecognized tax benefits as a component of our income tax provision. Authoritative guidance issued by the FASB prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Refer to Note 11, Income Taxes , for additional information. Derivative instruments — We have historically used interest rate swaps to hedge interest rate volatility under our senior credit facility. On July 2, 2019, we terminated all interest rate swap agreements in anticipation of the securitization transaction. Prior to terminating the agreements, a ll derivatives were recognized on the consolidated balance sheets at fair value based upon quoted market prices. Changes in the fair values of derivatives were recorded in earnings or other comprehensive income (“OCI”), based on whether or not the instrument is designated as a hedge transaction. Gains or losses on derivative instruments that qualify for hedge designation were reported in OCI and reclassified to earnings in the period the hedged item affected earnings. When the underlying hedge transaction ceased to exist, the associated amount reported in OCI was reclassified to earnings at that time. Refer to Note 6, Derivative Instruments, for additional information . Contingencies — We recognize liabilities for contingencies when we have an exposure that indicates it is probable that an asset has been impaired or that a liability has been incurred and the amount of impairment or loss can be reasonably estimated. Our ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates. When the reasonable estimate is a range, the recorded loss will be the best estimate within the range. We record legal settlement costs when those costs are probable and reasonably estimable. Refer to Note 16, Commitments and Contingencies , for additional information. Effect of new accounting pronouncements adopted in fiscal 2020 — We adopted ASU 2016-02, Leases (Topic 842) (“ASC 842”) in the first quarter of 2020. The new guidance requires the recognition of lease liabilities, representing future minimum lease payments on a discounted basis, and corresponding right-of-use (“ROU”) assets on the balance sheet for most leases. The Company adopted the new guidance in the first quarter of 2020 using the alternative transition method; therefore, the comparative period has not been restated and continues to be reported under the previous lease guidance. F-12 We elected the transition package of three practical expedients, which, among other items, permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs. We also elected the short-term lease recognition exemption for all leases that qualify, permitting us to not apply the recognition requirements of this standard to leases with a term of 12 months or less, and an accounting policy to not separate lease and non-lease components for underlying assets subject to real estate leases. As lessor, we elected for all classes of underlying leased assets to account for lease and non-lease components, primarily property taxes and maintenance, as a single lease component. We did not elect the use-of-hindsight practical expedient, and therefore continued to utilize lease terms determined under the existing lease guidance. The adoption had a material impact on our consolidated balance sheet. As a result of the adoption, we recognized operating lease assets and liabilities of $ 880.6 million and $ 931.0 million, respectively, at the date of adoption. The ROU assets were adjusted for certain lease-related assets and liabilities at adoption, primarily comprised of straight-line rent accruals of $ 29.0 million, incentives and unfavorable lease liabilities of $ 2.1 million, sublease loss and exit-related lease liabilities of $ 19.4 million, which were previously reported in “Accrued liabilities” and “Other long-term liabilities”, as well as favorable lease assets of $ 0.4 million, which were previously reported in “Intangible assets, net” in our consolidated balance sheet. We also recorded a cumulative adjustment to opening retained earnings of $ 2.9 million, net of tax, as a result of the impairment of certain newly recognized ROU assets and derecognition of deferred gains and losses on sale-leaseback transactions upon transition to the new guidance. The effects of the changes made to the Company's consolidated balance sheet as of September 29, 2019 for the adoption of the new lease guidance were as follows (in thousands) : Balance at September 29, 2019 Adjustments due to ASC 842 adoption Balance at September 30, 2019 Assets Other assets: Operating lease ROU assets $ — $ 880,564 $ 880,564 Intangible assets, net $ 425 $ ( 386 ) $ 39 Deferred tax assets $ 85,564 $ 1,006 $ 86,570 Liabilities and Stockholders’ Deficit Current liabilities: Current operating lease liabilities $ — $ 159,821 $ 159,821 Accrued liabilities $ 120,083 $ ( 4,702 ) $ 115,381 Long-term liabilities: Long-term operating lease liabilities, net of current portion $ — $ 770,818 $ 770,818 Other long-term liabilities $ 263,770 $ ( 41,883 ) $ 221,887 Stockholders’ deficit: Retained earnings $ 1,577,034 $ ( 2,870 ) $ 1,574,164 The accounting guidance for lessors remains largely unchanged from previous guidance, except for the presentation of certain lease costs that the Company passes through to lessees, including but not limited to, property taxes and maintenance. These costs are generally paid by the Company and reimbursed by the lessee. Historically, these costs have been recorded on a net basis in our consolidated statements of earnings but are now presented gross upon adoption of the new guidance. As a result, annual revenues and expenses reported in “Franchise rental revenues” and “Franchise occupancy expenses” increased by approximately $ 37.4 million in fiscal 2020. Refer to Note 8, Leases , for further information on our leases and the impact on the Company’s accounting policies. Effect of new accounting pronouncements to be adopted in future periods — In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , that requires measurement and recognition of expected versus incurred credit losses for financial assets held, including trade receivables. This standard is effective for the Company in our first quarter of fiscal 2021 and we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. F-13 In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This standard is effective for the Company in our first quarter of fiscal 2021 and we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our consolidated financial statements. 2. REVENUE Nature of products and services — We derive revenue from retail sales at Jack in the Box company-operated restaurants and rental revenue, royalties, advertising, and franchise and other fees from franchise-operated restaurants. Our franchise arrangements generally provide for an initial franchise fee of $ 50,000 per restaurant and generally require that franchisees pay royalty and marketing fees at 5 % of gross sales. The agreement also requires franchisees to pay sourcing, technology support and other miscellaneous fees. Disaggregation of revenue — The following table disaggregates revenue by primary source for the fiscal years ended September 27, 2020 and September 29, 2019 (in thousands) : 2020 2019 Sources of revenue: Company restaurant sales $ 348,987 $ 336,807 Franchise rental revenues 320,647 272,815 Franchise royalties 171,407 163,047 Marketing fees 158,258 157,969 Technology and sourcing fees 15,295 12,705 Franchise fees and other services 6,912 6,764 Total revenue $ 1,021,506 $ 950,107 Contract liabilities — Our contract liabilities consist of deferred revenue resulting from initial fees received from franchisees for new restaurant openings or new franchise terms, which are generally recognized over the franchise term. We classify these contract liabilities within “Accrued liabilities” and “Other long-term liabilities” in our consolidated balance sheets. A summary of significant changes in our contract liabilities is presented below (in thousands) : 2020 2019 Deferred franchise fees at beginning of period $ 46,273 $ 50,018 Revenue recognized during the period ( 5,440 ) ( 5,173 ) Additions during the period 2,708 1,428 Deferred franchise fees at end of period $ 43,541 $ 46,273 The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period (in thousands) : 2021 $ 4,934 2022 4,828 2023 4,628 2024 4,436 2025 4,208 Thereafter 20,507 $ 43,541 We have applied the optional exemption, as provided for under ASC Topic 606, Revenue from Contracts with Customers , which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty. F-14 3. SUMMARY OF REFRANCHISINGS AND FRANCHISE ACQUISITIONS Refranchisings — The following table summarizes the number of restaurants sold to franchisees and gains recognized in each fiscal year ( dollars in thousands ): 2020 2019 2018 Restaurants sold to franchisees — — 135 Proceeds from the sale of company-operated restaurants: Cash (1) $ 3,395 $ 1,280 $ 26,486 Notes receivable — — 70,461 $ 3,395 $ 1,280 $ 96,947 Net assets sold (primarily property and equipment) $ — $ — $ ( 21,329 ) Goodwill related to the sale of company-operated restaurants — ( 2 ) ( 4,663 ) Other (2) ( 134 ) 88 ( 24,791 ) Gains on the sale of company-operated restaurants $ 3,261 $ 1,366 $ 46,164 ________________________ (1) Amounts in 2020, 2019, and 2018 include additional proceeds of $ 3.4 million, $ 1.3 million, and $ 1.4 million, respectively, related to the extension of the underlying franchise and lease agreements from the sale of restaurants in prior years. (2) Amounts in 2018 primarily represent $ 9.2 million of costs related to franchise remodel incentives, $ 8.7 million reduction of gains related to the modification of certain 2017 refranchising transactions, $ 2.3 million of maintenance and repair expenses and $ 3.7 million of other miscellaneous non-capital charges. Franchise acquisitions — During the second quarter of 2020, we acquired eight franchise restaurants as a result of a legal action filed in October 2019 against a franchisee in which we obtained a judgment in January 2020 granting us the possession of the restaurants. In 2019 and 2018 we did no t acquire any franchise restaurants. We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). The goodwill recorded primarily relates to the sales growth potential of the market acquired and is expected to be deductible for income tax purposes. Total consideration on the fiscal 2020 acquisition was $ 0.9 million, comprised of receivables that were eliminated in acquisition accounting. The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for the restaurants acquired ( in thousand s): Inventory $ 73 Property and equipment 903 Intangible assets 263 Other assets 6 Goodwill 414 Liabilities assumed ( 800 ) Total consideration $ 859 4. GOODWILL The changes in the carrying amount of goodwill during fiscal 2020 and 2019 were as follows ( in thousands ): Balance at September 30, 2018 $ 46,749 Sale of company-operated restaurants to franchisees ( 2 ) Balance at September 29, 2019 46,747 Acquisition of franchise-operated restaurants 414 Balance at September 27, 2020 $ 47,161 F-15 5. FAIR VALUE MEASUREMENTS Financial assets and liabilities — The following table presents the financial assets and liabilities measured at fair value on a recurring basis ( in thousands ): Total Quoted Prices in Active Markets for Identical Assets (2) (Level 1) Significant Other Observable Inputs (2) (Level 2) Significant Unobservable Inputs (2) (Level 3) Fair value measurements as of September 27, 2020: Non-qualified deferred compensation plan (1) $ 25,071 $ 25,071 $ — $ — Total liabilities at fair value $ 25,071 $ 25,071 $ — $ — Fair value measurements as of September 29, 2019: Non-qualified deferred compensation plan (1) $ 30,104 $ 30,104 $ — $ — Total liabilities at fair value $ 30,104 $ 30,104 $ — $ — ________________________ (1) We maintain an unfunded defined contribution plan for key executives and other members of management. The fair value of this obligation is based on the closing market prices of the participants’ elected investments. The obligation is included in “Accrued liabilities” and “Other long-term liabilities” on our consolidated balance sheets. (2) We did not have any transfers in or out of Level 1, 2, or 3 . The following table presents the carrying value and estimated fair value of our Class A-2 Notes as of September 27, 2020 and September 29, 2019 ( in thousands ): September 27, 2020 September 29, 2019 Carrying Amount Fair Value Carrying Amount Fair Value Class A-2 Notes $ 1,290,251 $ 1,354,241 $ 1,300,000 $ 1,344,300 The fair value of the Class A-2 Notes was estimated using Level 2 inputs based on quoted market prices in markets that are not considered active markets. The Company had $ 107.9 million of outstanding borrowings under its Variable Funding Notes as of September 27, 2020. The fair value of this loan approximates carrying value due to the variable rate nature of these borrowings. Non-financial assets and liabilities — Our non-financial instruments, which primarily consist of property and equipment, operating lease right-of-use assets, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on an annual basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial instruments are assessed for impairment. If applicable, the carrying values are written down to fair value. In connection with our impairment reviews performed during 2020, no material fair value adjustments were required. 6. DERIVATIVE INSTRUMENTS Interest rate swaps — We have used interest rate swaps to mitigate interest rate volatility with regard to variable rate borrowings under our senior credit facility. In June 2015, we entered into forward-starting interest rate swap agreements that effectively converted $ 500.0 million of our variable rate borrowings to a fixed rate from October 2018 through October 2022. These agreements were designated as cash flow hedges under the terms of the FASB authoritative guidance for derivatives and hedging. Since they were effective in offsetting the variability of the hedged cash flows, changes in the fair values of the derivatives are not included in earnings but were included in OCI. These changes in fair value were subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments were made on our variable rate debt. Effective July 2, 2019, the Company terminated all interest rate swap agreements in anticipation of the securitization transaction and related retirement of our senior credit facility. The fair value of the interest rate swaps at the termination date was $ 23.6 million, which was required to be paid in full on July 8, 2019. As a result of the decision to extinguish the senior credit facility, forecasted cash flows associated with the variable-rate debt interest payments were no longer considered to be probable. Consequently, unrealized losses in other comprehensive income at the termination date were immediately reclassified to “Interest expense, net” in the accompanying consolidated statement of earnings. F-16 Financial performance — The following table summarizes the OCI activity related to our interest rate swap derivative instruments and the amounts reclassified from accumulated OCI ( in thousands ): Location in Income 2019 2018 (Loss) gain recognized in OCI N/A $ ( 23,625 ) $ 18,769 Loss reclassified from accumulated OCI into net earnings Interest expense, net $ 24,328 $ 3,455 Amounts reclassified from accumulated OCI into interest expense represent payments made to the counterparty for the effective portions of the interest rate swaps. During the fiscal years presented, our interest rate swaps had no hedge ineffectiveness. 7. INDEBTEDNESS The detail of our long-term debt at the end of each fiscal year is as follows ( in thousands ): 2020 2019 Class A-2-I Notes $ 570,688 $ 575,000 Class A-2-II Notes 272,938 275,000 Class A-2-III Notes 446,625 450,000 Class A-1 Variable Funding Notes 107,876 — Finance lease obligations 2,934 3,594 Total debt 1,401,061 1,303,594 Less current maturities of long-term debt ( 818 ) ( 774 ) Less unamortized debt issuance costs ( 23,330 ) ( 28,446 ) Long-term debt $ 1,376,913 $ 1,274,374 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. 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 proceeds from the issuance of the Class A-2 Notes, were used to repay the remaining principal outstanding on the term loans and revolving credit facility. As a result, a loss on early extinguishment of debt of $ 2.8 million was recorded in fiscal 2019, primarily consisting of the write-off of unamortized deferred financing costs related to the Credit Agreement, and is reflected in “Interest expense, net” in the consolidated statement of earnings. Class A-2 Notes — 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 5.0 x. Exceeding the leverage ratio of 5.0 x does not violate any covenant related to the Class A-2 Notes. As of September 27, 2020, the Company’s actual leverage ratio was under 5.0 x, and as a result, quarterly principal payments are not required. Accordingly, the entire outstanding balance of the Class A-2 Notes has been classified as long-term debt. F-17 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 27, 2020 and September 29, 2019, $ 39.5 million and $ 45.6 million of letters of credit, respectively, were outstanding against the Variable Funding Notes, which relate primarily to interest reserves required under the Indenture. During the second quarter of 2020, to secure our liquidity position and provide financial flexibility given the uncertain market conditions, we borrowed $ 107.9 million under the Variable Funding Notes. As of September 27, 2020, unused borrowing capacity under our Variable Funding Notes was $ 2.7 million. 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 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 in full by the applicable anticipated repayment 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. Deferred financing costs — In 2019, the Company incurred costs of approximately $ 33.0 million in connection with the securitization transaction. The costs related to our Class A-2 Notes are presented as a reduction in “Long-term debt, net of current maturities” and are being amortized over the Anticipated Repayment Dates, utilizing the effective interest rate method. The costs related to our Variable Funding Notes are presented within “Other assets, net” and are being amortized over the Anticipated Repayment Date of August 2026 using the straight-line method. As of September 27, 2020, the effective interest rates, including the amortization of debt issuance costs, were 4.544 %, 4.800 %, and 5.197 % for the Class A-2-I Notes, Class A-2-II, Notes and Class A-2-III Notes, respectively. F-18 Maturities of long-term debt — Assuming repayment by the Anticipated Repayment Dates and based on the leverage ratio as of September 27, 2020, principal payments on our long-term debt outstanding at September 27, 2020 for each of the next five fiscal years and thereafter are as follows ( in thousands ): 2021 $ 818 2022 844 2023 571,558 2024 351 2025 28 Thereafter 827,462 $ 1,401,061 8. LEASES Nature of leases — We own restaurant sites and we also lease restaurant sites from third parties. Some of these owned or leased sites are leased and/or subleased to franchisees. Initial terms of our real estate leases are generally 20 years, exclusive of options to renew, which are generally exercisable at our sole discretion for 1 to 20 years. In some instances, our leases have provisions for contingent rentals based upon a percentage of defined revenues. Many of our restaurants also have rent escalation clauses and require the payment of property taxes, insurance, and maintenance costs. Variable lease costs include contingent rent, cost-of-living index adjustments, and payments for additional rent such as real estate taxes, insurance and common area maintenance, which are excluded from the measurement of the lease liability. We also lease certain restaurant and office equipment with initial terms generally ranging from 3 to 8 years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees subsequent to refranchising transactions. The lease descriptions, terms, variable lease payments and renewal options are generally the same as the lessee leases described above. Revenues from leasing arrangements with our franchisees are presented in “Franchise rental revenues” in the accompanying consolidated statements of earnings, and the related expenses are presented in “Franchise occupancy expenses.” Rent concessions as lessee — In response to the pandemic, certain landlords have agreed to temporary rent concessions. These concessions generally relate to the deferral of certain rent payments for April, May, June, and July 2020 until future periods and total approximately $ 15.5 million. We considered the FASB’s recent guidance regarding rent concessions related to the effects of the COVID-19 pandemic and have elected to apply the temporary practical expedient to account for rent concessions as though enforceable rights and obligations for those concessions existed in the lease agreements. Therefore, we did not remeasure our lease ROU assets and liabilities, and we have not bifurcated our operating lease liabilities into the portion that remains subject to accretion of $ 947.8 million, and the portion that is related to the rent deferrals of $ 7.2 million as of September 27, 2020. Rent concessions as lessor — We postponed collection of approximately 40 % of April 2020 rents due from our franchisees totaling approximately $ 9.1 million, to be collected over three months beginning July 2020. Furthermore, we passed on to our franchisees approximately $ 5.6 million of the rent concessions secured from our landlords for April, May, June, and July 2020. As of September 27, 2020, all of the postponed April rent has been repaid and the franchisees have chosen to pay according to the original lease terms on approximately half of the rent concessions that we offered. As of September 27, 2020, rent concessions which remain uncollected were $ 2.6 million and are included within “Accounts and other receivable, net” in our consolidated balance sheets. F-19 Company as lessee — Leased assets and liabilities consisted of the following as of September 27, 2020 (in thousands) : September 27, 2020 Assets: Operating lease ROU assets $ 904,548 Finance lease ROU assets (1) 2,333 Total ROU assets $ 906,881 Liabilities: Current operating lease liabilities $ 179,000 Current finance lease liabilities (2) 818 Long term operating lease liabilities 776,094 Long-term finance lease liabilities (2) 2,116 Total lease liabilities $ 958,028 ________________________ (1) Included in “Property and equipment, net” on our consolidated balance sheet. (2) Included in “Current maturities of long-term debt” and “Long-term debt, net of current maturities” on our consolidated balance sheet. The following table presents the components of our lease costs in fiscal 2020 ( in thousands ): 2020 Lease costs: Finance lease cost: Amortization of ROU assets (1) $ 767 Interest on lease liabilities (2) 110 Operating lease cost (3) 190,461 Short-term lease cost (3) 175 Variable lease cost (3)(4) 40,798 $ 232,311 ________________________ (1) Included in “Depreciation and amortization” in our consolidated statement of earnings. (2) Included in “Interest expense, net” in our consolidated statement of earnings. (3) Operating lease, short-term and variable lease costs associated with franchisees and company-operated restaurants are included in “Franchise occupancy expenses” and “Occupancy and other,” respectively, in our consolidated statement of earnings. For our closed restaurants, these costs are included in “Impairment and other, net” and all other costs are included in “Selling, general and administrative expenses.” (4) Includes $ 37.4 million of property taxes and common area maintenance costs which are reimbursed by sub-lessees. The following table summarizes the components of rent expense in fiscal 2019 and 2018, as accounted for under previous guidance ( in thousands ): 2019 2018 Minimum rentals 184,587 184,106 Contingent rentals 2,255 2,221 Total rent expense 186,842 186,327 The following table presents supplemental information related to leases: September 27, 2020 Weighted-average remaining lease term (in years): Finance leases 3.3 Operating leases 8.3 Weighted-average discount rate: Finance leases 3.5 % Operating leases 4.2 % F-20 The following table presents as of September 27, 2020, the annual maturities of our lease liabilities ( in thousands ): Finance Leases Operating Leases Fiscal year: 2021 (1) $ 917 $ 215,039 2022 906 167,926 2023 904 140,576 2024 400 108,576 2025 24 99,334 Thereafter 20 417,850 Total future lease payments (2) $ 3,171 $ 1,149,301 Less: imputed interest ( 237 ) ( 194,207 ) Present value of lease liabilities $ 2,934 $ 955,094 Less current portion ( 818 ) ( 179,000 ) Long-term lease obligations $ 2,116 $ 776,094 ________________________ (1) The impact of rent concessions increased 2021 operating leases maturities by $ 7.2 million. (2) Total future lease payments include non-cancellable commitments of $ 3.2 million for finance leases and $ 1,076.9 million for operating leases. The following table presents as of September 29, 2019, future minimum lease payments for non-cancellable leases ( in thousands ): Capital Leases Operating Leases Fiscal year: 2020 $ 879 $ 193,313 2021 879 186,226 2022 879 145,794 2023 864 117,753 2024 396 87,420 Thereafter 40 363,505 Total minimum lease payments $ 3,937 $ 1,094,011 Less: imputed interest ( 343 ) Present value of lease liability $ 3,594 Less current portion ( 774 ) Long-term lease obligations $ 2,820 Assets recorded under finance leases are included in property and equipment, and consisted of the following at each fiscal year-end ( in thousands ): 2020 2019 Buildings 1,342 1,342 Equipment 5,631 5,538 Less accumulated amortization ( 4,640 ) ( 3,904 ) 2,333 2,976 F-21 The following table includes supplemental cash flow and non-cash information related to our lessee leases ( in thousands ): 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 190,303 Operating cash flows from financing leases $ 110 Financing cash flows from financing leases $ 785 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 181,532 Financing leases $ 132 Sale leaseback transactions — In fiscal 2020, we completed two sale-leaseback transactions of our restaurant properties with one occurring during the first quarter of 2020 and the other occurring during the third quarter of 2020. In the first quarter of 2020, we completed a sale leaseback transaction of a multi-tenant commercial property in Los Angeles, California and leased back the parcel on which a company-operated restaurant is located. The Company received net proceeds of $ 17.4 million and recognized a $ 0.2 million loss on the sale. The initial term on the lease is 20 years and the lease has been accounted for as an operating lease. Under the other arrangement, we received net proceeds of $ 2.4 million on a restaurant property sold and recognized a loss of less than $ 0.1 million on the sale. The initial term of the lease is 17 years and the lease has been accounted for as an operating lease. In fiscal 2020, we also completed the sale of one of our corporate office buildings as we move forward with our previously announced consolidation of our headquarters. We entered into a lease with the buyer to leaseback the property for up to 18 months with an option to terminate earlier without penalty, upon providing a 90 -day notice. The net proceeds received on the sale were $ 20.6 million and the lease has been accounted for as an operating lease. A gain on the sale of $ 10.8 million was recognized, and is presented within “Impairment and other charges, net” in our consolidated statement of earnings. Company as lessor — The following table presents rental income ( in thousands ): 2020 Owned Properties Leased Properties Total Operating lease income - franchise $ 19,785 $ 216,015 $ 235,800 Variable lease income - franchise 9,960 74,887 84,847 Franchise rental revenues $ 29,745 $ 290,902 $ 320,647 Operating lease income - closed restaurants and other (1) $ — $ 6,370 $ 6,370 ________________________ (1) Primarily relates to closed restaurant properties included in “Impairment and other, net” in our consolidated statement of earnings. The following table summarizes rents received in fiscal 2019 and 2018, as accounted for under previous guidance ( in thousands ): 2019 2018 Total rental income (1) $ 277,623 $ 264,432 Contingent rentals $ 38,506 $ 35,148 ________________________ (1) Includes contingent rentals. F-22 The following table presents as of September 27, 2020, future minimum rental receipts for non-cancellable leases and subleases ( in thousands ): September 27, 2020 Fiscal year: 2021 (1) $ 261,388 2022 234,545 2023 227,976 2024 202,636 2025 211,320 Thereafter 1,067,624 Total minimum rental receipts $ 2,205,489 ________________________ (1) The impact of rent concessions passed on to franchisees increased 2021 by $ 2.6 million. The following table presents as of September 29, 2019, future minimum rental receipts for non-cancellable leases and subleases ( in thousands ): September 29, 2019 Fiscal year: 2020 $ 239,219 2021 255,315 2022 231,394 2023 224,605 2024 199,442 Thereafter 1,215,811 Total minimum rental receipts $ 2,365,786 Assets held for lease and included in property and equipment consisted of the following at each fiscal year-end ( in thousands ): September 27, 2020 September 29, 2019 Land $ 88,187 $ 91,130 Buildings 801,730 817,400 Equipment 589 537 890,506 909,067 Less accumulated depreciation ( 650,812 ) ( 632,197 ) $ 239,694 $ 276,870 9. IMPAIRMENT AND OTHER CHARGES, NET Impairment and other charges, net, in the accompanying consolidated statements of earnings is comprised of the following in each fiscal year ( in thousands ): 2020 2019 2018 Restructuring costs $ 1,168 $ 8,455 $ 10,647 Costs of closed restaurants and other 1,872 8,628 4,803 (Gains) losses on disposition of property and equipment, net (1) ( 9,768 ) ( 6,244 ) 1,627 Accelerated depreciation 235 1,616 1,130 Operating restaurant impairment charges — — 211 $ ( 6,493 ) $ 12,455 $ 18,418 ________________________ (1) In 2020, includes a $ 10.8 million gain related to the sale of one of our corporate office buildings. In 2019, includes a $ 5.7 million gain related to the sale of property. F-23 Restructuring costs — Restructuring costs in fiscal 2020, 2019, and 2018 include charges resulting from a plan that management initiated to reduce our general and administrative costs, which was completed in the third quarter of 2020. In fiscal 2019, charges also include costs resulting from the exploration of strategic alternatives (the “Strategic Alternatives Evaluation”), which was concluded in the third quarter of 2019. In fiscal 2018, charges also include costs related to the evaluation of potential alternatives with respect to the Qdoba brand (the “Qdoba Evaluation”), which resulted in the sale of Qdoba. The following is a summary of the costs incurred in connection with these activities during each fiscal year ( in thousands ): 2020 2019 2018 Employee severance and related costs $ 1,168 $ 7,169 $ 7,845 Strategic Alternatives Evaluation (1) — 1,286 — Qdoba Evaluation (2) — — 2,211 Other — — 591 $ 1,168 $ 8,455 $ 10,647 ________________________ (1) Strategic Alternatives Evaluation costs are primarily related to third party advisory services. (2) Qdoba Evaluation costs are primarily related to third party advisory services and retention compensation. Total accrued severance costs related to our restructuring activities are included in “Accrued liabilities” and changed as follows during fiscal 2020 (in thousands) : Balance as of September 29, 2019 $ 2,100 Costs incurred 1,168 Cash payments ( 3,268 ) Balance as of September 27, 2020 $ — Costs of closed restaurants and other — Costs of closed restaurants include impairment charges as a result of our decision to close restaurants, ongoing costs associated with closed restaurants, and canceled project costs. During 2019, the Company recorded a charge of $ 3.5 million related to the write-off of software development costs as a result of management’s decision to discontinue a technology project. 10. DISCONTINUED OPERATIONS Qdoba — In December 2017, we entered into a stock purchase agreement (the “Qdoba Purchase Agreement”) with the Buyer to sell all issued and outstanding shares of Qdoba. The Buyer completed the acquisition of Qdoba on March 21, 2018 (the “Qdoba Sale”) 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 received certain services (the “Services”) to enable it to operate the Qdoba business after the closing of the Qdoba Sale. The Services included information technology, finance and accounting, human resources, supply chain and other corporate support services. Under the Agreement, the Services were provided at cost for a period of up to 12 months, with two 3 -month extensions available for certain services. As of September 21, 2019, we are no longer providing transition services to Qdoba. In fiscal 2019 and 2018 we recorded $ 7.0 million and $ 7.9 million, respectively, related to the Services as a reduction of “Selling, general, and administrative expenses” in the consolidated statements of earnings. Further, in 2018, we entered into an Employee Agreement with the Buyer pursuant to which we continued to employ all Qdoba employees who work for the Buyer (the “Qdoba Employees”) from the date of closing of the Qdoba Sale through December 31, 2018. During the term of the Employee Agreement, we paid all wages and benefits of the Qdoba Employees and received reimbursement of these costs from the Buyer. From October 1, 2018 to December 31, 2018, we paid $ 35.4 million of Qdoba wages and benefits pursuant to the Employee Agreement. As the Qdoba Sale represented a strategic shift that had a major effect on our operations and financial results, in accordance with the provisions of FASB authoritative guidance on the presentation of financial statements, Qdoba results are classified as discontinued operations in our consolidated statements of earnings and our consolidated statements of cash flows for all periods presented. F-24 The following table summarizes results of operations in periods that have included discontinued operations ( in thousands, except per share data ): 2020 2019 2018 Company restaurant sales $ — $ — $ 192,620 Franchise revenues — — 9,337 Company restaurant costs (excluding depreciation and amortization) — — ( 166,122 ) Franchise costs (excluding depreciation and amortization) — — ( 2,338 ) Selling, general and administrative expenses (1) 244 174 ( 19,286 ) Depreciation and amortization — — ( 5,012 ) Impairment and other charges, net (1) 270 ( 262 ) ( 2,305 ) Interest expense, net (2) — — ( 4,787 ) Operating earnings (loss) from discontinued operations before income taxes 514 ( 88 ) 2,107 (Loss) gain on Qdoba Sale — ( 85 ) 30,717 Earnings (loss) from discontinued operations before income taxes 514 ( 173 ) 32,824 Income tax (expense) benefit (3) ( 144 ) 2,863 ( 15,726 ) Earnings from discontinued operations, net of income taxes $ 370 $ 2,690 $ 17,098 Net earnings per share from discontinued operations: Basic $ 0.02 $ 0.10 $ 0.60 Diluted $ 0.02 $ 0.10 $ 0.59 ________________________ (1) In fiscal 2018, selling, general and administrative expenses include corporate costs directly in support of Qdoba operations. All other corporate costs were classified in continuing operations. Amounts in 2020 and 2019 include resolutions of certain contingencies that existed at the date of sale which were insignificant in nature. (2) 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. (3) In fiscal 2019, the Company entered into a bilateral California election with Quidditch Acquisition, Inc. to retroactively treat the divestment of Qdoba Restaurant Corporation on March 21, 2018 as a sale of assets instead of a stock sale for income tax purposes. This election reduced the Company’s fiscal year 2018 California tax liability on the divestment by $ 2.8 million. Lease guarantees — While all operating leases held in the name of Qdoba were part of the Qdoba Sale, some of the leases remain guaranteed by the Company pursuant to one or more written guarantees (the “Guarantees”). In the event Qdoba fails to meet its payment and performance obligations under such guaranteed leases, we may be required to make rent and other payments to the landlord under the requirements of the Guarantees. Should we, as guarantor of the lease obligations, be required to make any lease payments due for the remaining term of the subject leases, the maximum amount we may be required to pay is approximately $ 29.8 million as of September 27, 2020. The lease terms extend for a maximum of approximately 15 more years as of September 27, 2020, and we would remain a guarantor of the leases in the event the leases are extended for any established renewal periods. In the event that we are obligated to make payments under the Guarantees, we believe the exposure is limited due to contractual protections and recourse available in the lease agreements, as well as the Qdoba Purchase Agreement, including a requirement of the landlord to mitigate damages by re-letting the properties in default, and indemnity from the Buyer. As of September 27, 2020, no amounts have been accrued relating to these guarantees as we do not believe any losses are probable. F-25 11. INCOME TAXES Income taxes consist of the following in each fiscal year ( in thousands ): 2020 2019 2018 Current: Federal $ 19,721 $ 14,683 $ 51,454 State 7,844 5,242 4,922 27,565 19,925 56,376 Deferred: Federal 4,625 3,750 23,462 State 537 350 1,890 5,162 4,100 25,352 Income tax expense from continuing operations $ 32,727 $ 24,025 $ 81,728 Income tax expense (benefit) from discontinued operations $ 144 $ ( 2,863 ) $ 15,700 A reconciliation of the federal statutory income tax rate to our effective tax rate for continuing operations is as follows: 2020 2019 2018 Income tax expense at federal statutory rate 21.0 % 21.0 % 24.5 % State income taxes, net of federal tax benefit 5.3 % 5.3 % 4.7 % One-time, non-cash impact of the Tax Cuts and Jobs Act — % — % 17.5 % Stock compensation excess tax benefit ( 0.4 ) % ( 0.1 ) % ( 1.1 ) % Benefit of jobs tax credits, net of valuation allowance ( 0.5 ) % ( 0.3 ) % ( 0.4 ) % Release of federal tax liability — % ( 0.6 ) % — % Adjustment to state tax provision — % ( 0.9 ) % — % Benefit related to COLIs ( 0.9 ) % ( 1.0 ) % ( 0.4 ) % Termination of interest rate swaps — % ( 2.6 ) % — % Officers’ compensation limitation 2.2 % 1.1 % 0.4 % Other, net 0.1 % ( 1.1 ) % ( 1.3 ) % 26.8 % 20.8 % 43.9 % F-26 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at each fiscal year-end are presented below ( in thousands ): 2020 2019 Deferred tax assets: Operating and finance lease liabilities $ 234,926 $ — Accrued defined benefit pension and postretirement benefits 44,436 46,918 Deferred income 12,921 13,803 Impairment 8,895 9,981 Accrued insurance 6,500 7,133 Tax loss and tax credit carryforwards 4,273 5,327 Share-based compensation 4,143 5,415 Accrued incentive compensation 2,585 2,617 Other reserves and allowances 2,440 2,965 Accrued compensation expense 672 1,092 Lease commitments related to closed or refranchised locations — 3,786 Deferred interest deduction — 3,188 Other, net 2,364 868 Total gross deferred tax assets 324,155 103,093 Valuation allowance ( 2,104 ) ( 2,485 ) Total net deferred tax assets 322,051 100,608 Deferred tax liabilities: Operating and finance lease ROU assets ( 235,373 ) ( 3,822 ) Intangible assets ( 11,437 ) ( 10,520 ) Property and equipment, principally due to differences in depreciation ( 1,781 ) ( 128 ) Other ( 1,138 ) ( 574 ) Total gross deferred tax liabilities ( 249,729 ) ( 15,044 ) Net deferred tax assets $ 72,322 $ 85,564 Deferred tax assets as of September 27, 2020 include state net operating loss carry-forwards of approximately $ 20.1 million expiring at various times between 2021 and 2038. At September 27, 2020, we recorded a valuation allowance of $ 2.1 million related to losses and state tax credits, which decreased from the $ 2.5 million at September 29, 2019 primarily due to the release of the valuation allowance on California Enterprise Zone Credits. We believe it is more likely than not that these net operating loss and credit carry-forwards will not be realized and that all other deferred tax assets will be realized through future taxable income or alternative tax strategies. The major jurisdictions in which the Company files income tax returns include the United States and states in which we operate that impose an income tax. The federal statutes of limitations have not expired for fiscal years 2017 and forward. The statutes of limitations for California and Texas, which constitute the Company’s major state tax jurisdictions, have not expired for fiscal years 2016 and forward. 12. RETIREMENT PLANS We sponsor programs that provide retirement benefits to our employees. These programs include defined contribution plans, defined benefit pension plans, and postretirement healthcare plans. Defined contribution plans — We maintain a qualified savings plan pursuant to Section 401(k) of the Internal Revenue Code (“IRC”). The plan allows all employees who have satisfied the service requirements and reached age 21 to defer a percentage of their pay on a pre-tax basis. Beginning January 1, 2016, we match 100 % of the first 4 % of compensation deferred by the participant. A participant’s right to Company contributions vest immediately. Our contributions under this plan were $ 1.6 million in fiscal 2020, and $ 1.7 million and $ 2.2 million in fiscal 2019 and 2018, respectively. F-27 We also maintain an unfunded, non-qualified deferred compensation plan for key executives and other members of management whose compensation deferrals or company matching contributions to the qualified savings plan are limited due to IRC rules. Effective January 1, 2016, this non-qualified plan was amended to replace the company matching contribution with an annual restoration match that is intended to “restore” up to the full match for participants whose elective deferrals (and related company matching contributions) to the qualified savings plan were limited due to IRC rules. A participant’s right to the Company restoration match vests immediately. This plan allows participants to defer up to 50 % of their salary and 85 % of their bonus, on a pre-tax basis. In addition, to compensate executives who were hired or promoted into an eligible position prior to May 7, 2015 and who may no longer participate in our supplemental defined benefit pension plan, we also contribute a supplemental amount equal to 4 % of an eligible employee’s salary and bonus for a period of 10 years in such eligible position. Our contributions under the non-qualified deferred compensation plan were $ 0.3 million in fiscal 2020, $ 0.2 million and $ 0.2 million in fiscal 2019 and 2018, respectively. Defined benefit pension plans — We sponsor two defined benefit pension plans, a “Qualified Plan” covering substantially all full-time employees hired prior to January 1, 2011, and an unfunded supplemental executive retirement plan (“SERP”) which provides certain employees additional pension benefits and was closed to new participants effective January 1, 2007. In fiscal 2011, the Board of Directors approved changes to our Qualified Plan whereby participants will no longer accrue benefits effective December 31, 2015. Benefits under both plans are based on the employees’ years of service and compensation over defined periods of employment. In the fiscal fourth quarter of 2019, the Company amended its Qualified Plan to add a limited lump sum payment window whereby certain terminated participants with a vested pension benefit could elect to receive either an immediate lump sum or a monthly annuity payment of their accrued benefit. The offering period began September 16, 2019 and ended October 31, 2019. The participants that elected a lump sum benefit under the program were paid in December 2019, which triggered settlement accounting. As a result of the offering, the Company’s Qualified Plan paid $ 122.3 million from its plan assets to those who accepted the offer, thereby reducing the plan’s pension benefit obligation (“PBO”). The transaction had no cash impact to the Company but did result in a non-cash settlement charge of $ 38.6 million in the first quarter of fiscal 2020. Routine lump sum payments made in the second, third and fourth quarters of fiscal 2020 resulted in additional non-cash settlement charges totaling $ 0.6 million. Postretirement healthcare plans — We also sponsor two healthcare plans, closed to new participants, that provide postretirement medical benefits to certain employees who have met minimum age and service requirements. The plans are contributory, with retiree contributions adjusted annually, and contain other cost-sharing features such as deductibles and coinsurance. F-28 Obligations and funded status — The following table provides a reconciliation of the changes in benefit obligations, plan assets, and funded status of our retirement plans for each fiscal year ( in thousands ): Qualified Plan SERP Postretirement Health Plans 2020 2019 2020 2019 2020 2019 Change in benefit obligation: Obligation at beginning of year $ 521,931 $ 457,109 $ 79,893 $ 73,067 $ 25,632 $ 23,461 Service cost — — — — — — Interest cost 13,377 19,825 2,499 3,080 807 997 Participant contributions — — — — 106 112 Actuarial loss (gain) 14,498 61,029 1,739 8,771 ( 4,391 ) 2,343 Benefits paid ( 12,980 ) ( 12,224 ) ( 5,160 ) ( 5,025 ) ( 1,246 ) ( 1,354 ) Settlements ( 124,253 ) ( 3,808 ) — — — — Other — — — — 57 73 Obligation at end of year $ 412,573 $ 521,931 $ 78,971 $ 79,893 $ 20,965 $ 25,632 Change in plan assets: Fair value at beginning of year $ 476,194 $ 456,127 $ — $ — $ — $ — Actual return on plan assets 26,549 36,099 — — — — Participant contributions — — — — 106 112 Employer contributions — — 5,160 5,025 1,083 1,169 Benefits paid ( 12,980 ) ( 12,224 ) ( 5,160 ) ( 5,025 ) ( 1,246 ) ( 1,354 ) Settlements ( 124,253 ) ( 3,808 ) — — — — Other — — — — 57 73 Fair value at end of year $ 365,510 $ 476,194 $ — $ — $ — $ — Unfunded status at end of year $ ( 47,063 ) $ ( 45,737 ) $ ( 78,971 ) $ ( 79,893 ) $ ( 20,965 ) $ ( 25,632 ) Amounts recognized on the balance sheet: Current liabilities $ — $ — $ ( 5,223 ) $ ( 5,371 ) $ ( 1,243 ) $ ( 1,379 ) Noncurrent liabilities ( 47,063 ) ( 45,737 ) ( 73,748 ) ( 74,522 ) ( 19,722 ) ( 24,253 ) Total liability recognized $ ( 47,063 ) $ ( 45,737 ) $ ( 78,971 ) $ ( 79,893 ) $ ( 20,965 ) $ ( 25,632 ) Amounts in AOCI not yet reflected in net periodic benefit cost: Unamortized actuarial loss (gain), net $ 152,370 $ 187,705 $ 34,890 $ 34,803 $ ( 4,174 ) $ 235 Unamortized prior service cost — — 72 157 — — Total $ 152,370 $ 187,705 $ 34,962 $ 34,960 $ ( 4,174 ) $ 235 Other changes in plan assets and benefit obligations recognized in OCI: Net actuarial loss (gain) $ 7,527 $ 51,263 $ 1,739 $ 8,771 $ ( 4,391 ) $ 2,343 Pension settlement costs ( 39,218 ) — — — — — Amortization of actuarial (loss) gain ( 3,644 ) ( 2,754 ) ( 1,652 ) ( 1,207 ) ( 18 ) 159 Amortization of prior service cost — — ( 85 ) ( 115 ) — — Total recognized in OCI ( 35,335 ) 48,509 2 7,449 ( 4,409 ) 2,502 Net periodic benefit cost (credit) and other losses 36,661 ( 3,755 ) 4,236 4,402 825 838 Total recognized in comprehensive income $ 1,326 $ 44,754 $ 4,238 $ 11,851 $ ( 3,584 ) $ 3,340 Amounts in AOCI expected to be amortized in fiscal 2021 net periodic benefit cost: Net actuarial loss (gain) $ 3,511 $ 1,743 $ ( 341 ) Prior service cost — 19 — Total $ 3,511 $ 1,762 $ ( 341 ) F-29 Additional year-end pension plan information — The PBO is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation (“ABO”) also reflects the actuarial present value of benefits attributable to employee service rendered to date but does not include the effects of estimated future pay increases. Therefore, the ABO as compared to plan assets is an indication of the assets currently available to fund vested and nonvested benefits accrued through the end of the fiscal year. The funded status is measured as the difference between the fair value of a plan’s assets and its PBO. As of September 27, 2020 and September 29, 2019, the Qualified Plan’s ABO exceeded the fair value of its plan assets. The SERP is an unfunded plan and, as such, had no plan assets as of September 27, 2020 and September 29, 2019. The following sets forth the PBO, ABO, and fair value of plan assets of our pension plans as of the measurement date in each fiscal year ( in thousands ): 2020 2019 Qualified Plan: Projected benefit obligation $ 412,573 $ 521,931 Accumulated benefit obligation $ 412,573 $ 521,931 Fair value of plan assets $ 365,510 $ 476,194 SERP: Projected benefit obligation $ 78,971 $ 79,893 Accumulated benefit obligation $ 78,971 $ 79,893 Fair value of plan assets $ — $ — Net periodic benefit cost — The components of the fiscal year net periodic benefit cost were as follows ( in thousands ): 2020 2019 2018 Qualified Plan: Interest cost $ 13,377 $ 19,825 $ 19,463 Expected return on plan assets ( 19,578 ) ( 26,334 ) ( 26,467 ) Pension settlements 39,218 — — Actuarial loss 3,644 2,754 3,331 Net periodic benefit cost (credit) $ 36,661 $ ( 3,755 ) $ ( 3,673 ) SERP: Service cost $ — $ — $ 490 Interest cost 2,499 3,080 2,894 Actuarial loss 1,652 1,207 1,538 Amortization of unrecognized prior service cost 85 115 146 Net periodic benefit cost $ 4,236 $ 4,402 $ 5,068 Postretirement health plans: Interest cost $ 807 $ 997 $ 955 Actuarial loss (gain) 18 ( 159 ) ( 27 ) Net periodic benefit cost $ 825 $ 838 $ 928 Prior service costs are amortized on a straight-line basis from date of participation to full eligibility. Unrecognized gains or losses are amortized using the “corridor approach” under which the net gain or loss in excess of 10% of the greater of the PBO or the market-related value of the assets, if applicable, is amortized. For our Qualified Plan, actuarial losses are amortized over the average future expected lifetime of all participants expected to receive benefits. For our SERP, actuarial losses are amortized over the expected remaining future lifetime for inactive participants, and for our postretirement health plans, actuarial losses are amortized over the expected remaining future lifetime of inactive participants expected to receive benefits. F-30 Assumptions — We determine our actuarial assumptions on an annual basis. In determining the present values of our benefit obligations and net periodic benefit costs as of and for the fiscal years ended September 27, 2020, September 29, 2019, and September 30, 2018, we used the following weighted-average assumptions: 2020 2019 2018 Assumptions used to determine benefit obligations (1): Qualified Plan: Discount rate 3.10 % 3.36 % 4.40 % SERP: Discount rate 2.84 % 3.24 % 4.37 % Rate of future pay increases (2) N/A 3.50 % 3.50 % Postretirement health plans: Discount rate 2.77 % 3.24 % 4.38 % Assumptions used to determine net periodic benefit cost (3): Qualified Plan: Discount rate (4) 3.36 % 4.40 % 3.99 % Long-term rate of return on assets (5) 5.80 % 5.85 % 5.80 % SERP: Discount rate 3.24 % 4.37 % 3.80 % Rate of future pay increases 3.50 % 3.50 % 3.50 % Postretirement health plans: Discount rate 3.24 % 4.38 % 3.82 % ____________________________ (1) Determined as of end of year. (2) Rate is not applicable as there are no active employees as of fiscal year end 2020. (3) Determined as of beginning of year. (4) Remeasurements were performed in the first, second, and third quarters of fiscal 2020 using 3.61 %, 3.38 %, and 3.13 % respectively. (5) Remeasurements were performed in the first, second, and third quarters of fiscal 2020 using 5.9 %, 5.2 %, and 5.4 % respectively. The assumed discount rates were determined by considering the average of pension yield curves constructed of a population of high-quality bonds with a Moody’s or Standard and Poor’s rating of “AA” or better whose cash flow from coupons and maturities match the year-by-year projected benefit payments from the plans. As benefit payments typically extend beyond the date of the longest maturing bond, cash flows beyond 30 years were discounted back to the 30th year and then matched like any other payment. The assumed expected long-term rate of return on assets is the weighted-average rate of earnings expected on the funds invested or to be invested to provide for the pension obligations. The long-term rate of return on assets was determined taking into consideration our projected asset allocation and economic forecasts prepared with the assistance of our actuarial consultants. The assumed discount rate and expected long-term rate of return on assets have a significant effect on amounts reported for our pension and postretirement plans. If the discount rate and long-term rate of return used were decreased by a quarter percentage point, fiscal 2020 earnings before income taxes would have increased by less than $ 0.1 million and decreased by $ 1.0 million, respectively. The assumed average rate of compensation increase is the average annual compensation increase expected over the remaining employment periods for the participating employees. For our Qualified Plan, no future pay increases were included in our benefit obligation assumptions as, effective December 31, 2015, our plan participants no longer accrue benefits. F-31 For measurement purposes, the weighted-average assumed health care cost trend rates for our postretirement health plans were as follows for each fiscal year: 2020 2019 2018 Healthcare cost trend rate for next year: Participants under age 65 6.75 % 7.00 % 7.25 % Participants age 65 or older 6.25 % 6.50 % 6.75 % Rate to which the cost trend rate is assumed to decline: Participants under age 65 4.50 % 4.50 % 4.50 % Participants age 65 or older 4.50 % 4.50 % 4.50 % Year the rate reaches the ultimate trend rate: Participants under age 65 2030 2030 2030 Participants age 65 or older 2028 2028 2028 The assumed healthcare cost trend rate represents our estimate of the annual rates of change in the costs of the healthcare benefits currently provided by our postretirement plans. The healthcare cost trend rate implicitly considers estimates of healthcare inflation, changes in healthcare utilization and delivery patterns, technological advances and changes in the health status of the plan participants. The healthcare cost trend rate assumption has a significant effect on the amounts reported. For example, a 1.0% change in the assumed healthcare cost trend rate would have the following effect on the fiscal 2020 net periodic benefit cost and end of year PBO ( in thousands ): 1% Point Increase 1% Point Decrease Total interest and service cost $ 89 $ ( 76 ) Postretirement benefit obligation $ 2,143 $ ( 1,861 ) Plan assets — Our investment philosophy is to (1) protect the corpus of the fund; (2) establish investment objectives that will allow the market value to exceed the present value of the vested and unvested liabilities over time; while (3) obtaining adequate investment returns to protect benefits promised to the participants and their beneficiaries. Our asset allocation strategy utilizes multiple investment managers in order to maximize the plan’s return while minimizing risk. We regularly monitor our asset allocation, and senior financial management and the Finance Committee of the Board of Directors review performance results quarterly. We continually review our target asset allocation for our Qualified Plan and when changes are made, we reallocate our plan assets over a period of time, as deemed appropriate by senior financial management, to achieve our target asset allocation. Our plan asset allocation at the end of fiscal 2020 and target allocations were as follows: 2020 Target Minimum Maximum Cash & cash equivalents 1 % — % — % — % Domestic equities 23 % 23 % 12 % 32 % International equities 22 % 23 % 12 % 32 % Core fixed funds 33 % 32 % 27 % 37 % High yield 3 % 4 % — % 8 % Alternative investments 8 % 8 % — % 16 % Real estate 9 % 7 % 2 % 12 % Real return bonds 1 % 3 % — % 8 % 100 % 100 % F-32 The Company measures its defined benefit plan assets and obligations as of the month-end date closest to its fiscal year end, which is a practical expedient under FASB authoritative guidance. The fair values of the Qualified Plan’s assets by asset category are as follows ( in thousands ): Total Quoted Prices in Active Markets for Identical (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Items Measured at Fair Value at September 30, 2020: Asset Category: Cash and cash equivalents (1) $ 3,665 $ — $ 3,665 $ — Equity: U.S (2) 83,676 83,676 — — International (3),(4) 81,228 40,319 — — Fixed income: Investment grade (5) 126,630 3,006 123,624 — High yield (6) 9,270 9,270 — — Alternatives (4),(7) 29,375 — — — Real estate (4),(8) 31,666 — — — $ 365,510 $ 136,271 $ 127,289 $ — Items Measured at Fair Value at September 30, 2019: Asset Category: Cash and cash equivalents (1) $ 10,110 $ — $ 10,110 $ — Equity: U.S (2) 99,124 99,124 — — International (3),(4) 94,953 47,262 — — Fixed income: Investment grade (5) 177,500 — 177,500 — High yield (6) 9,256 9,256 — — Alternatives (4),(7) 42,052 — — — Real estate (4),(8) 43,199 — — — $ 476,194 $ 155,642 $ 187,610 $ — ________________________ (1) Cash and cash equivalents are comprised of commercial paper, short-term bills and notes, and short-term investment funds, which are valued at quoted prices in active markets for similar securities. (2) U.S. equity securities are comprised of investments in common stock of U.S. companies for total return purposes. These investments are valued by the trustee at closing prices from national exchanges on the valuation date. (3) International equity securities are comprised of investments in common stock of companies located outside of the U.S for total return purposes. These investments are valued by the trustee at closing prices from national exchanges on the valuation date, or the values are adjusted as a result of market movements following the close of local trading using inputs to models that are observable either directly or indirectly. The portion of these investments that are measured at fair value using the net asset value per share practical expedient (see note 4 below) can be redeemed on a monthly basis. (4) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. (5) Investment grade fixed income consists of debt obligations either issued by the US government or have a rating of BBB- / Baa or higher assigned by a major credit rating agency. These investments are valued based on unadjusted quoted market prices (Level 1), or based on quoted prices in inactive markets, or whose values are based on models, but the inputs to those models are observable either directly or indirectly (Level 2). (6) High yield fixed income consists primarily of debt obligations that have a rating of below BBB- / Baa or lower assigned by a major credit rating agency. These investments are valued based on unadjusted quoted market prices. (7) Alternative investments consist primarily of an investment in asset classes other than stocks, bonds, and cash. Alternative investments can include commodities, hedge funds, private equity, managed futures, and derivatives. These investments are valued based on unadjusted quoted market prices and can be redeemed on a bi-monthly basis. (8) Real estate is investments in a real estate collective trust for purposes of total return. These investments are valued based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These investments can be redeemed on a quarterly basis. F-33 Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of the date of our last actuarial funding valuation, there was no minimum requirement. We do not anticipate making any contributions to our Qualified Plan in fiscal 2021. Contributions expected to be paid in the next fiscal year, the projected benefit payments for each of the next five fiscal years, and the total aggregate amount for the subsequent five fiscal years are as follows ( in thousands ): Defined Benefit Plans Postretirement Health Plans Estimated net contributions during fiscal 2021 $ 5,223 $ 1,260 Estimated future year benefit payments during fiscal years: 2021 $ 19,948 $ 1,260 2022 $ 19,883 $ 1,276 2023 $ 19,947 $ 1,296 2024 $ 20,205 $ 1,319 2025 $ 20,678 $ 1,336 2026-2030 $ 111,465 $ 6,634 We will continue to evaluate contributions to our Qualified Plan based on changes in pension assets as a result of asset performance in the current market and economic environment. Expected benefit payments are based on the same assumptions used to measure our benefit obligations at September 27, 2020 and include estimated future employee service, if applicable. 13. SHARE-BASED EMPLOYEE COMPENSATION Stock incentive plans — We offer share-based compensation plans to attract, retain, and motivate key officers, employees, and non-employee directors to work toward the financial success of the Company. Our stock incentive plans are administered by the Compensation Committee of the Board of Directors and have been approved by the stockholders of the Company. The terms and conditions of our share-based awards are determined by the Compensation Committee for each award date and may include provisions for the exercise price, expirations, vesting, restriction on sales, and forfeitures, as applicable. We issue new shares to satisfy stock issuances under our stock incentive plans. Our Amended and Restated 2004 Stock Incentive Plan authorizes the issuance of up to 11,600,000 common shares in connection with the granting of stock options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, or performance units to our employees and directors. There were 1,764,132 shares of common stock available for future issuance under this plan as of September 27, 2020. We also maintain a deferred compensation plan for non-management directors under which those who are eligible to receive fees or retainers may choose to defer receipt of their compensation. The deferred amounts are converted to stock equivalents. The plan requires settlement in shares of our common stock based on the number of stock equivalents and dividend equivalents at the time of a participant’s separation from the Board of Directors. This plan provides for the issuance of up to 350,000 shares of common stock in connection with the crediting of stock equivalents. There were 142,918 shares of common stock available for future issuance under this plan as of September 27, 2020. Compensation expense — The components of share-based compensation expense, included within “Selling, general, and administrative expenses” in our consolidated statement of earnings, in each fiscal year are as follows ( in thousands ): 2020 2019 2018 Nonvested stock units $ 3,526 $ 5,458 $ 5,737 Stock options 351 936 1,790 Performance share awards 254 1,417 1,236 Nonvested restricted stock awards — — 33 Non-management directors’ deferred compensation 263 263 350 Total share-based compensation expense $ 4,394 $ 8,074 $ 9,146 Nonvested restricted stock units — Nonvested restricted stock units (“RSUs”) are generally issued to executives, non-management directors and certain other members of management and employees. Prior to fiscal 2011, RSUs were granted to certain Executive and Senior Vice Presidents pursuant to our share ownership guidelines. These awards vest upon retirement or termination based on years of service. There were 34,700 of such RSUs outstanding as of September 27, 2020. F-34 Beginning fiscal 2011, we eliminated ownership share grants to executive officers and implemented a stock holding requirement on grants of time-vesting RSUs that vest ratably over four years, and require executives to hold until termination of service 50 % of after-tax net shares resulting from the vesting of RSUs. There were 46,351 of such RSUs outstanding as of September 27, 2020. RSUs issued to non-management directors vest 12 months from the date of grant, or upon termination of board service if the director elects to defer receipt and totaled 64,836 units outstanding as of September 27, 2020. RSUs issued to certain other employees either cliff vest or vest ratably over three years and totaled 29,254 units outstanding as of September 27, 2020. These awards are amortized to compensation expense over the estimated vesting period based upon the fair value of our common stock on the award date discounted by the present value of the expected dividend stream over the vesting period. The following is a summary of RSU activity for fiscal 2020: Shares Weighted- Average Grant Date Fair Value RSUs outstanding at September 29, 2019 311,845 $ 66.18 Granted 76,429 $ 73.94 Released ( 126,694 ) $ 68.39 Forfeited ( 86,439 ) $ 83.05 RSUs outstanding at September 27, 2020 175,141 $ 59.65 As of September 27, 2020, there was approximately $ 2.6 million of total unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of 1.4 years. The weighted-average grant date fair value of awards granted was $ 73.94 , $ 86.08 , and $ 94.93 in fiscal years 2020, 2019, and 2018, respectively. In fiscal years 2020, 2019, and 2018, the total fair value of RSUs that vested and were released was $ 8.7 million, $ 4.7 million, and $ 4.4 million, respectively. Modification of RSU awards — On April 16, 2020, we entered into a Retention, Transition and Separation Agreement with our former Chairman and Chief Executive Officer, which sets forth the terms of his transition and certain benefits he is eligible to receive, pro-rated through the duration of the transition period, which included vesting of his final tranche of unvested restricted stock units remaining under his November 2015 restricted stock unit award scheduled to vest in November 2020. Consequently, 23,128 shares vested on his last day of employment on July 31, 2020. This was accounted for as an equity award modification under ASC Topic 718, and as the fair value of the modified award was less than previously recognized compensation, no incremental compensation costs were recorded by the Company. Stock options — Option grants have contractual terms of seven years and employee options vest over a three-year period. Options may vest sooner upon retirement from the Company for employees meeting certain age and years of service thresholds. All option grants provide for an option exercise price equal to the closing market value of the common stock on the date of grant. The following is a summary of stock option activity for fiscal 2020: Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Options outstanding at September 29, 2019 266,558 $ 89.54 Granted 129,173 $ 75.23 Exercised ( 62,305 ) $ 74.57 Forfeited ( 122,594 ) $ 77.95 Expired ( 3,369 ) $ 97.31 Options outstanding at September 27, 2020 207,463 $ 91.85 2.48 $ 252 Options exercisable at September 27, 2020 174,104 $ 94.67 1.81 $ 107 The aggregate intrinsic value in the table above is the amount by which the current market price of our stock on September 27, 2020 exceeds the weighted-average exercise price. F-35 We use a valuation model to determine the fair value of options granted that requires the input of highly subjective assumptions, including the expected volatility of the stock price. The following table presents the weighted-average assumptions used for stock option grants in each fiscal year, along with the related weighted-average grant date fair value: 2020 2019 2018 Risk-free interest rate 1.7 % N/A 2.4 % Expected dividends yield 2.1 % N/A 1.8 % Expected stock price volatility 28.1 % N/A 28.8 % Expected life of options (in years) 3.47 N/A 3.40 Weighted-average grant date fair value $ 13.97 N/A $ 18.49 The risk-free interest rate was determined by a yield curve of risk-free rates based on published U.S. Treasury spot rates in effect at the time of grant and has a term equal to the expected life of the related options. The dividend yield assumption is based on the Company’s history and expectations of dividend payouts at the grant date. The expected stock price volatility in all years represents the Company’s historical volatility. The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends. As of September 27, 2020, there was approximately $ 0.3 million of total unrecognized compensation cost related to stock options grants that is expected to be recognized over a weighted-average period of 2 years. The total intrinsic value of stock options exercised was $ 0.7 million, $ 0.5 million, and $ 2.3 million in fiscal years 2020, 2019, and 2018, respectively. Performance share awards — Performance share awards, granted in the form of stock units, represent a right to receive a certain number of shares of common stock based on the achievement of corporate performance goals and continued employment during the vesting period. Performance share awards issued to executives vest at the end of a three-year period and vested amounts may range from 0 % to a maximum of 150 % of targeted amounts depending on the achievement of performance measures at the end of a three-year period. If the awardee ceases to be employed by the Company prior to the last day of the performance period due to retirement, disability, or death, the performance share awards become vested pro-rata based on the number of full accounting periods the awardee was continuously employed by the Company. The expected cost of the shares is based on the fair value of our stock on the date of grant and is reflected over the vesting period with a reduction for estimated forfeitures. These awards may be settled in cash or shares of common stock at the election of the Company on the date of grant. It is our intent to settle these awards with shares of common stock. The following is a summary of performance share award activity for fiscal 2020: Shares Weighted- Average Grant Date Fair Value Performance share awards outstanding at September 29, 2019 75,490 $ 83.40 Granted 23,600 $ 81.02 Issued ( 21,509 ) $ 97.51 Forfeited ( 50,336 ) $ 83.31 Performance adjustments ( 2,203 ) $ 86.84 Performance share awards outstanding at September 27, 2020 25,042 $ 63.59 As of September 27, 2020, there was approximately $ 0.5 million of total unrecognized compensation cost related to performance share awards, which is expected to be recognized over a weighted-average period of 1.6 years. The weighted-average grant date fair value of awards granted was $ 81.02 , $ 84.60 , and $ 97.02 in fiscal years 2020, 2019, and 2018, respectively. The total fair value of awards that became fully vested during fiscal years 2020, 2019, and 2018 was $ 0.5 million, $ 2.1 million, and $ 1.6 million, respectively. Nonvested stock awards — We previously issued nonvested stock awards (“RSAs”) to certain executives under our share ownership guidelines. Effective fiscal 2009, we no longer issue RSA awards and replaced them with grants of RSUs. The RSAs vest, subject to the discretion of our Board of Directors in certain circumstances, upon retirement or termination based upon years of service. These awards are amortized to compensation expense over the estimated vesting period based upon the fair value of our common stock on the award date. During fiscal 2020, 33,243 RSAs were released with a weighted-average grant date fair value of $ 26.47 per share. Compensation cost related to RSAs was fully recognized by the end of 2018. As of September 27, 2020, there were no RSAs outstanding. F-36 Non-management directors’ deferred compensation — All awards outstanding under our directors’ deferred compensation plan are accounted for as equity-based awards and deferred amounts are converted into stock equivalents based on a per share price equal to the average of the closing price of our common stock for the 10 trading days immediately preceding the date the deferred compensation is credited to the director’s account. During fiscal 2020, 204 shares of common stock were issued in connection with director retirements with a fair value of less than $ 0.1 million. During fiscal years 2019 and 2018 no common stock was issued in connection with director retirements. The following is a summary of the stock equivalent activity for fiscal 2020: Stock Equivalents Weighted- Average Grant Date Fair Value Stock equivalents outstanding at September 29, 2019 100,005 $ 38.87 Deferred directors’ compensation 3,851 $ 81.56 Dividend equivalents 2,224 $ 68.80 Stock distribution ( 204 ) $ 86.74 Stock equivalents outstanding at September 27, 2020 105,876 $ 40.96 14. STOCKHOLDERS’ DEFICIT Repurchases of common stock — The Company purchased 1.9 million shares of its common stock in the first quarter of fiscal 2020 at an average price of $ 81.41 per shares for an aggregate cost of $ 153.5 million. There were no other repurchases of common stock in fiscal 2020. As of September 27, 2020, there was approximately $ 122.2 million remaining under share repurchase programs authorized by the Board of Directors, consisting of $ 22.2 million that expires in November 2020 and $ 100.0 million that expires in November 2021. Repurchases of common stock included in our 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. Dividends — In fiscal 2020, the Board of Directors declared three cash dividends of $ 0.40 per share totaling $ 27.7 million. Future dividends are subject to approval by our Board of Directors. 15. AVERAGE SHARES OUTSTANDING Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive common shares include nonvested stock awards and units, stock options, and non-management director stock equivalents. Performance share awards are included in the average diluted shares outstanding each period if the performance criteria have been met at the end of the respective periods. The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding in each fiscal year ( in thousands ): 2020 2019 2018 Weighted-average shares outstanding — basic 23,125 25,823 28,499 Effect of potentially dilutive securities: Nonvested stock awards and units 137 211 240 Stock options — 10 40 Performance share awards 7 24 28 Weighted-average shares outstanding — diluted 23,269 26,068 28,807 Excluded from diluted weighted-average shares outstanding: Antidilutive 318 186 150 Performance conditions not satisfied at the end of the period 14 65 44 F-37 16. COMMITMENTS AND CONTINGENCIES Purchase commitments — We have entered into long-term beverage agreements with The Coca-Cola Company and Dr. Pepper / Seven Up, Inc., which provide fountain products and certain marketing support funding to the Company and its franchisees. These agreements require minimum purchases of fountain beverage syrup, by the Company and its franchisees at agreed upon prices until the total volume commitments have been reached. The volume commitments are not subject to any time limit and as of September 27, 2020, we estimate that it will take approximately 5 years for both of these commitments to be completed. The Company estimates future annual purchases under these agreements to be approximately $ 62.1 million as of September 27, 2020 based on the expected ratio of usage at company-operated to franchise restaurants. We also have entered into various arrangements with vendors providing information technology services with no early termination fees. The Company’s unconditional purchase obligations on these contracts total approximately $ 11.3 million over the next three years . Legal matters — We assess contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates. As of September 27, 2020 and September 29, 2019, the Company had recorded aggregate liabilities of $ 3.8 million and $ 10.0 million, respectively, within “Accrued liabilities” on our consolidated balance sheets for all matters including those described below, that were probable and reasonably estimable. While we believe that additional losses beyond these accruals are reasonably possible, we cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond these accruals. Gessele v. Jack in the Box Inc. — In August 2010, five former employees instituted litigation in federal court in Oregon alleging claims under the federal Fair Labor Standards Act and Oregon wage and hour laws. The plaintiffs alleged that the Company failed to pay non-exempt employees for certain meal breaks and improperly made payroll deductions for shoe purchases and for workers’ compensation expenses, and later added additional claims relating to timing of final pay and related wage and hour claims involving employees of a franchisee. In 2016, the court dismissed the federal claims and those relating to franchise employees. In June 2017, the court granted class certification with respect to state law claims of improper deductions and late payment of final wages. In November 2019, the court issued a ruling on various dispositive motions, disallowing a portion of plaintiffs’ claimed damages. The parties participated in a voluntary mediation on March 16, 2020, but the matter did not settle. The plaintiffs recently filed a motion for reconsideration of the court’s prior denial of class certification regarding meal and rest break claims which was denied by the court. The plaintiffs have now filed a motion requesting permission to appeal this ruling. The Company has opposed the motion and the parties are currently awaiting a decision from the 9th Circuit as to whether or not it will allow the appeal. The Company continues to dispute liability and the plaintiffs’ damage calculations and will continue to vigorously defend against the lawsuit. Other legal matters — In addition to the matter described above, we are subject to normal and routine litigation brought by former or current employees, customers, franchisees, vendors, landlords, shareholders or others. We intend to defend ourselves in any such matters. Some of these matters may be covered, at least in part, by insurance or other third party indemnity obligation. We record receivables from third party insurers when recovery has been determined to be probable. We believe that the ultimate determination of liability in connection with legal claims pending against us, if any, in excess of amounts already provided for such matters in the consolidated financial statements, will not have a material adverse effect on our business, our annual results of operations, liquidity or financial position; however, it is possible that our business, results of operations, liquidity, or financial condition could be materially affected in a particular future reporting period by the unfavorable resolution of one or more matters or contingencies during such period. F-38 17. SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION ( in thousands ) 2020 2019 2018 Cash paid during the year for: Income tax payments $ 29,360 $ 14,906 $ 56,183 Interest, net of amounts capitalized $ 68,612 $ 46,227 $ 43,692 Non-cash investing and financing transactions: Increase in notes receivable from the sale of company-operated restaurants $ — $ — $ 70,461 Increase in dividends accrued or converted to common stock equivalents $ 117 $ 247 $ 276 Decrease in equipment capital lease obligations from the sale of company-operated restaurants, closure of stores, and termination of equipment leases $ — $ — $ 3,617 Decrease in finance lease obligations from the termination of building leases $ 24 $ 41 $ 271 Equipment finance lease obligations incurred $ 132 $ 20 $ 98 Consideration for franchise acquisitions $ 859 $ — $ — (Decrease) increase in obligations for purchases of property and equipment $ ( 2,696 ) $ ( 2,117 ) $ 822 (Decrease) increase in obligations for treasury stock repurchases $ ( 2,025 ) $ ( 12,337 ) $ 14,362 18. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION ( in thousands ) September 27, 2020 September 29, 2019 Accounts and other receivables, net: Trade $ 77,082 $ 36,907 Notes receivable 1,193 278 Income tax receivable 1,591 160 Other 4,092 10,855 Allowance for doubtful accounts ( 5,541 ) ( 2,965 ) $ 78,417 $ 45,235 Other assets, net: Company-owned life insurance policies $ 113,767 $ 112,753 Deferred rent receivable 48,604 49,333 Franchise tenant improvement allowances 29,437 26,925 Other 18,815 17,674 $ 210,623 $ 206,685 Accrued liabilities: Insurance $ 25,310 $ 27,888 Payroll and related taxes 34,475 31,095 Sales and property taxes 22,038 4,268 Gift card liability 2,195 2,036 Deferred franchise fees 4,934 4,978 Other 40,479 49,818 $ 129,431 $ 120,083 Other long-term liabilities: Defined benefit pension plans $ 120,811 $ 120,260 Deferred franchise fees 38,607 41,295 Straight-line rent accrual — 29,537 Other 47,076 72,678 $ 206,494 $ 263,770 F-39 19. UNAUDITED QUARTERLY RESULTS OF OPERATIONS ( in thousands, except per share data ) 16 Weeks Ended 12 Weeks Ended Fiscal Year 2020 January 19, 2020 April 12, 2020 July 5, 2020 September 27, 2020 Revenues $ 307,673 $ 216,157 $ 242,275 $ 255,401 Earnings from operations $ 69,950 $ 32,842 $ 61,790 $ 66,002 Net earnings $ 7,897 $ 11,463 $ 32,555 $ 37,849 Net earnings per share: Basic $ 0.33 $ 0.50 $ 1.42 $ 1.65 Diluted $ 0.33 $ 0.50 $ 1.42 $ 1.64 16 Weeks Ended 12 Weeks Ended Fiscal Year 2019 January 20, 2019 April 14, 2019 July 7, 2019 September 29, 2019 Revenues $ 290,786 $ 215,727 $ 222,359 $ 221,235 Earnings from operations $ 58,324 $ 47,123 $ 48,261 $ 48,515 Net earnings $ 34,098 $ 25,089 $ 13,189 $ 22,061 Net earnings per share: Basic $ 1.32 $ 0.97 $ 0.51 $ 0.86 Diluted $ 1.31 $ 0.96 $ 0.50 $ 0.85 20. SUBSEQUENT EVENTS On November 13, 2020, the Board of Directors declared a cash dividend of $ 0.40 per share, to be paid on December 18, 2020 to shareholders of record as of the close of business on December 2, 2020. Future dividends will be subject to approval by our Board of Directors. On November 13, 2020, the Board of Directors authorized an additional $ 100.0 million stock buy-back program that expires on November 30, 2022. F-40