Jack In The Box 2007 Annual Report Download - page 58

Property and equipment, at cost — Expenditures for new facilities and equipment, and those that substantially
increase the useful lives of the property, are capitalized. Facilities leased under capital 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 properties 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 reflected in
results of operations.
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 and leasehold
improvement assets are assigned lives that range from 3 to 35 years; and equipment assets are assigned lives that
range from 2 to 35 years.
Impairment of long-lived assets — We evaluate our long-lived assets, such as property and equipment, for
impairment whenever indicators of impairment are present. This review includes a restaurant-level analysis that
takes into consideration a restaurant’s operating cash flows, the period of time since a restaurant has been opened or
remodeled, and the maturity of the related market. When indicators of impairment are present, we perform an
impairment analysis on a restaurant-by-restaurant basis. If the sum of undiscounted future cash flows is less than the
net carrying value of the asset, we recognize an impairment loss by the amount which the carrying value exceeds the
fair value of the asset. 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.
Goodwill and intangible assets — Goodwill is the excess of the purchase price over the fair value of
identifiable net assets acquired. The following table summarizes goodwill by operating segment (in thousands):
Fiscal Year Ended
Sept. 30,
2007
Oct. 1,
2006
JACK IN THE BOX ............................................... $67,868 $67,868
Qdoba ...................................................... 28,797 24,319
Total ....................................................... $96,665 $92,187
During fiscal year 2007, aggregate goodwill of $4.5 million was recorded in connection with the acquisition of
nine Qdoba restaurants previously operated by franchisees.
Intangible assets, net is comprised primarily of lease acquisition costs, acquired franchise contract costs and
our Qdoba trademark. 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, generally 18 years. Acquired franchise contract costs, which represent the acquired value of franchise
contracts, are amortized over the term of the franchise agreements, generally 10 years, based on the projected
royalty revenue stream. Our trademark asset, recorded in connection with our acquisition of Qdoba Restaurant
Corporation in fiscal year 2003, has an indefinite life and is not amortized.
Goodwill and intangible assets not subject to amortization are evaluated for impairment annually or more
frequently if indicators of impairment are present. If the determined fair values of these assets are less than the
related carrying amounts, an impairment loss is recognized. We performed our annual impairment tests of goodwill
and non-amortized intangible assets in the fourth quarter of fiscal year 2007 and determined there was no
impairment.
F-8
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)