Jack In The Box 2007 Annual Report Download - page 59

Deferred financing costs — We capitalize costs incurred in connection with borrowings or establishment of
credit facilities. These costs are amortized as an adjustment to interest expense over the life of the borrowing or life
of the credit facility using the interest method. In the case of early debt principal repayments, we adjust the value of
the corresponding deferred financing costs with a charge to interest expense, net and similarly adjust the future
amortization expense. Deferred financing costs are included in other assets, net in the accompanying consolidated
balance sheets.
Company-owned life insurance — We have elected to purchase company-owned life insurance (“COLI”)
policies to support our non-qualified benefit plans. The cash surrender values of these policies were $66.8 million
and $54.4 million as of September 30, 2007 and October 1, 2006, respectively, and are included in other assets, net
in the accompanying consolidated balance sheets. 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, 2007 and
October 1, 2006, the trust also included cash of $0.7 million and $0.8 million, respectively, and death benefits
receivable of $1.4 million at September 30, 2007.
Leases — We review all leases for capital or operating classification at their inception under the guidance of
Statement of Financial Accounting Standard (“SFAS”) 13, Accounting 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.
Asset retirement obligations — Effective the last day of fiscal 2006, we adopted the provisions of Financial
Accounting Standards Board (“FASB”) Interpretation No. 47, Accounting for Conditional Asset Retirement
Obligations — an interpretation of FASB Statement No. 143 (“FIN 47”), which clarifies the term conditional
asset retirement obligation and requires a liability to be recorded if the fair value of the obligation can be reasonably
estimated. The types of asset retirement obligations that are covered by FIN 47 are those for which an entity has a
legal obligation to perform an asset retirement activity; however, the timing and/or method of settling the obligation
are contingent on a future event that may or may not be within the control of the entity.
This interpretation only applied to legal obligations associated with the removal of improvements in
surrendering our leased properties. The impact of adopting FIN 47 was the recognition of an additional asset
of $0.5 million (net of accumulated amortization of $0.4 million), an asset retirement obligation of $2.2 million, and
a charge of $1.7 million ($1.0 million, net of tax), which was recorded as a cumulative effect of change in
accounting principle in the consolidated statement of earnings for the fiscal year ended October 1, 2006.
Fair value of financial instruments — The fair values of cash and cash equivalents, accounts and other
receivables, accounts payable and accrued liabilities approximate their carrying amounts due to their short
maturities. COLI policies are recorded at their cash surrender values. The fair values of each of our long-term
debt instruments are based on quoted market values, where available, or on the amount of future cash flows
associated with each instrument, discounted using our current borrowing rate for similar debt instruments of
comparable maturity. The estimated fair values of our long-term debt at September 30, 2007 and October 1, 2006
approximate their carrying values. Our derivative instruments are carried at their fair values based upon quoted
market prices.
Revenue recognition — Revenue from restaurant and fuel and convenience store sales are recognized when the
food, beverage, convenience store and fuel products are sold.
We provide purchasing, warehouse and distribution services for most of our franchise-operated restaurants.
Revenue from these services is recognized at the time of physical delivery of the inventory.
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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)