Jack In The Box 2008 Annual Report Download - page 56

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 28, 2008 and September 30,
2007 approximate their carrying values. Our derivative instruments are carried at their fair values based upon
quoted market prices.
Revenue recognition — Revenue from restaurant sales are recognized when the food and beverage products
are sold and are presented net of sales taxes.
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.
Franchise arrangements generally provide for initial franchise fees and continuing royalty payments to us
based on a percentage of sales. 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.
Franchise fees are recorded as revenue when we have substantially performed all of our contractual obligations.
Expenses associated with the issuance of the franchise are expensed as incurred. Franchise royalties are recorded in
revenues on an accrual basis. Certain franchise rents, which are contingent upon sales levels, are recognized in the
period in which the contingency is met. Gains on the sale of restaurant businesses to franchisees are recorded when
the sales are consummated and certain other gain recognition criteria are met.
The following is a summary of these transactions (dollars in thousands):
2008 2007 2006
Number of restaurants sold to franchisees .................. 109 76 82
Number of new restaurants opened by franchisees............ 71 93 65
Initial franchise fees received ........................... $ 7,303 $ 6,355 $ 5,538
Cash proceeds from the sale of company-operated restaurants . . . $ 57,117 $ 51,256 $ 54,389
Notes receivable(1) .................................. 27,928 — —
Net assets sold (primarily property and equipment) ........... (16,864) (11,995) (12,343)
Goodwill related to the sale of company-operated restaurants . . . (1,832) (1,170) (1,582)
Gains on the sale of company-operated restaurants ........... $66,349 $ 38,091 $ 40,464
(1) Temporary financing was provided to franchisees to facilitate the closing of certain refranchising transactions
in the fourth quarter of fiscal 2008.
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 in selling, general and administrative expenses in
the accompanying consolidated statements of earnings.
F-10
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)