Jack In The Box 2012 Annual Report Download - page 48



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. 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.
Our non-amortizing intangible asset is evaluated for impairment annually, or more frequently if indicators of impairment are present. We first assess
qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the
intangible asset is less than its carrying amount. If the qualitative factors indicate that it is more likely than not that the fair value of the intangible asset is less
than its carrying amount, we compare the fair value of the non-amortizing intangible asset with its fair value. If the carrying amount of an intangible asset
exceeds its fair value, an impairment loss is recognized equal to the excess. During the fourth quarter of fiscal 2012, based upon our qualitative assessment,
we determined there was no impairment.
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 $85.5 million and $73.3 million as of September 30, 2012 and October 2, 2011, 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. As of September 30, 2012 and October 2, 2011, the trust also included cash of $0.7 million and $1.9
million, respectively.
Book overdraft — Accounts payable in our consolidated balance sheets include book overdrafts totaling $40.5 million and $32.0 million at September 30,
2012 and October 2, 2011, respectively. Changes in such amounts are classified as a financing activity in the consolidated statements of cash flows.
Leases — We review all leases for capital or operating classification at their inception under the FASB authoritative guidance for leases. Our operations are
primarily conducted under operating leases. Within the provisions of certain leases, there are rent holidays and escalations in payments over the base lease
term, as well as renewal periods. The effects of the holidays and escalations have been reflected in rent expense on a straight-line basis over the expected lease
term. Differences between amounts paid and amounts expensed are recorded as deferred rent. The lease term commences on the date when we have the right to
control the use of the leased property. Certain leases also include contingent rent provisions based on sales levels, which are accrued at the point in time we
determine that it is probable such sales levels will be achieved.
Revenue recognition — Revenue from company restaurant sales is recognized when the food and beverage products are sold and are presented net of sales
taxes.
Our franchise arrangements generally provide for franchise fees and continuing fees based upon a percentage of sales (“royalties”). In order to renew a
franchise agreement upon expiration, a franchisee must obtain the Company’s approval and pay then current fees. Franchise fees are recorded as revenue when
we have substantially performed all of our contractual obligations. Franchise royalties are recorded in revenues on an accrual basis. Among other things, a
franchisee may be provided the use of land and building, generally for a period of 20 years, and is required to pay negotiated rent, property taxes, insurance
and maintenance. Certain franchise rents, which are contingent upon sales levels, are recognized in the period in which the contingency is met.
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 and/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 a reduction to selling, general and administrative expenses in the
accompanying consolidated statements of earnings.
Income recognized on unredeemed gift card balances was $0.5 million in fiscal 2012 and $0.6 million and $0.7 million in fiscal 2011 and 2010, respectively.
Pre-opening costs associated with the opening of a new restaurant consist primarily of employee training costs and are expensed as incurred and are included
in selling, general and administrative expenses in the accompanying consolidated statements of earnings.
Restaurant closure costs — All costs associated with exit or disposal activities are recognized when they are incurred. Restaurant
F-8