Jack In The Box 2015 Annual Report Download - page 55



Goodwill and intangible assets — Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired, if any. We generally
record goodwill in connection with the acquisition of restaurants from franchisees. Likewise, upon the sale of restaurants to franchisees, goodwill is
decremented. The amount of goodwill written-off is determined as the fair value of the reporting unit disposed of as a percentage of the fair value of the
reporting unit retained. Goodwill 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 a reporting
unit is less than its carrying amount. If the qualitative factors indicate that it is more likely than not that the fair value of a reporting unit is less than its
carrying amount, we perform a two-step impairment test of goodwill. In the first step, we estimate the fair value of the reporting unit and compare it to the
carrying value of the reporting unit. If the carrying value exceeds the fair value of the reporting unit, the second step is performed to measure the amount of
the impairment loss, if any. In the second step, the amount of the impairment loss is the excess of the carrying amount of the goodwill over its implied fair
value.
Intangible assets, net is comprised primarily of acquired franchise contract costs, our Qdoba trademark, lease acquisition costs and reacquired franchise rights.
Acquired franchise contract costs and our Qdoba trademark were recorded in connection with our acquisition of Qdoba Restaurant Corporation in fiscal 2003.
Acquired franchise contract costs represent the acquired value of franchise contracts, which are amortized over the term of the franchise agreements plus
options based on the projected royalty revenue stream. Our Qdoba trademark asset has an indefinite life and is not amortized. 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. 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 carrying amount. If the carrying amount of an
intangible asset exceeds its fair value, an impairment loss is recognized equal to the excess.
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 $99.5 million and $100.7 million as of September 27, 2015 and September 28, 2014, 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.
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 development and license fees are
recorded as deferred revenue until we have substantially performed all of our contractual obligations and the restaurant has opened for business. 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.
F-10