Jack In The Box 2010 Annual Report Download - page 49

Table of Contents
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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, 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 2003, has an indefinite life
and is not amortized.
Goodwill and non-amortizable intangible assets 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
2010 and 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 $75.8 million and $66.9 million as of October 3, 2010
and September 27, 2009, 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 October 3, 2010 and September 27, 2009, the trust also included cash of $0.5 million and
$1.4 million, respectively.
Leases We review all leases for capital or operating classification at their inception under the Financial Accounting Standards
Board (“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.
We provide purchasing, warehouse and distribution services for most of our franchise-operated restaurants. Revenue from these
services, included in distribution sales in the accompanying consolidated statements of earnings, is recognized at the time of
physical delivery of the inventory.
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.
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