Nature of operations — Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box® quick-service restaurants. The following table summarizes the number of restaurants as of the end of each period:

References to the Company throughout these notes to condensed consolidated financial statements are made using the first person notations of “we,” “us” and “our.”

Basis of presentation — The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).

These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended September 27, 2020 (“2020 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2020 Form 10-K with the exception of the accounting standards adopted in fiscal 2021, which are described below.

In our opinion, all adjustments considered necessary for a fair presentation of financial condition and results of operations for these interim periods have been included. Operating results for one interim period are not necessarily indicative of the results for any other interim period or for the full year.

Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 2021 and 2020 include 53 and 52 weeks, respectively. Our first quarter includes 16 weeks and all other quarters include 12 weeks, with the exception of the fourth quarter of fiscal 2021, which includes 13 weeks. All comparisons between 2021 and 2020 refer to the 16 weeks (“quarter”) ended January 17, 2021 and January 19, 2020, respectively, unless otherwise indicated.

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

COVID-19 Pandemic — The COVID-19 pandemic has continued to have varying degrees of disruption on our business. Substantially all of our restaurants continue to remain open, with dining rooms closed and locations operating in an off-premise model, leveraging our drive-thru, carryout and delivery capabilities. We continue to prioritize the health and safety of team members and guests through adhering to all safety procedures that were implemented last year.

Our operating results substantially depend upon our franchisees’ sales volumes, restaurant profitability, and financial stability. In the second quarter of 2020, to ensure financial health of our valued franchise operators, we reduced March and April marketing fees and postponed collection of these marketing fees and the collection of certain franchisee rental payments. In 2021, with the exception of March 2020 marketing fees which we postponed collection over 24 months, all rent and marketing deferrals have been repaid. As of January 17, 2021, postponed marketing fees which remain uncollected were $6.6 million, of which $4.4 million is included within “Accounts and other receivable, net” and $2.2 million is included within “Other assets, net” in our condensed consolidated balance sheet.

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

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

Total contributions made by the Company are included in “Selling, general, and administrative expenses” in the accompanying condensed consolidated statements of earnings and for the quarter totaled $5.8 million and $5.3 million in 2021 and 2020, respectively.

Restricted cash — In accordance with the terms of our securitized financing facility, certain cash balances are required to be held in trust. Such restricted cash primarily represents cash collections and cash reserves held by the trustee to be used for payments of quarterly interest and commitments fees required for the Class A-1 and Class A-2 Notes. As of January 17, 2021 and September 27, 2020, restricted cash balances were $37.3 million.

Effect of new accounting pronouncements adopted in fiscal 2021 — In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted the standard in the first quarter of 2021. The adoption of this standard did not have a material impact to our consolidated financial statements.

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

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