Jack In The Box 2005 Annual Report Download - page 52

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Buildings, equipment, and leasehold improvements are generally depreciated using the straight-line method based on the
estimated useful lives of the assets, or over the initial lease term for certain leased properties (buildings and improvements
range from 15 to 35 years; and equipment from 3 to 35 years). In certain situations, one or more option periods may be
used in determining the depreciable life of certain leased properties, if we deem that an economic penalty will be incurred.
In either circumstance, the Company’ s policy requires lease term consistency when calculating the depreciation period, in
classifying the lease and in computing straight-line rent expense.
Other assets primarily include lease acquisition costs, acquired franchise contract costs, deferred finance costs and COLI
policies. Lease acquisition costs primarily represent the fair values of acquired lease contracts having contractual rents
lower than fair market rents, and are amortized on a straight-line basis over the remaining initial lease term. Acquired
franchise contract costs, which represent the acquired value of franchise contracts, are amortized over the term of the
franchise agreements based on the projected royalty revenue stream. Deferred finance costs are amortized using the
effective-interest method over the terms of the respective loan agreements, from 4 to 7 years. COLI policies are recorded at
their cash surrender values in other assets, net, while changes in cash surrender value are included in selling, general and
administrative expenses. We purchase COLI policies to offset a portion of our obligations under our non-qualified deferred
compensation and defined benefit pension plans. Refer to Note 8, Retirement and Savings Plans, for additional discussion
regarding certain restrictions related to the COLI policies.
Impairment of long-lived assets – Property, equipment and certain other assets, including amortized intangible assets, are
reviewed for impairment when indicators of impairment are present. Impairment is recognized when the undiscounted
future cash flows estimated to be generated by those assets are less than the assets’ carrying amount. Long-lived assets that
are held for disposal are reported at the lower of their carrying value or fair value, less estimated costs to sell. In addition,
goodwill and intangible assets not subject to amortization are evaluated for impairment annually, or more frequently if
indicators of impairment are present. If the estimated fair values of these assets are less than the related carrying amounts,
an impairment loss is recognized. We performed our annual impairment tests in the fourth quarter of fiscal years 2005 and
2004, and determined these assets were not impaired at October 2, 2005 and October 3, 2004.
Preopening costs associated with the opening of a new restaurant consist primarily of employee training costs and are
expensed as incurred.
Restaurant closure costs – All costs associated with exit or disposal activities are recognized when they are incurred. Prior
to December 31, 2002, we charged costs associated with restaurant closures to operations when management committed to
closing a restaurant. Restaurant closure costs, which are included in selling, general and administrative expenses, consist
of future lease commitments, net of anticipated sublease rentals, and expected ancillary costs.
Self-insurance – We are self-insured for a portion of our workers’ compensation, general liability, automotive, and
employee medical and dental 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 and reserves using independent actuarial estimates of expected losses for determining reported claims
and as the basis for estimating claims incurred but not reported.
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