Jack In The Box 2012 Annual Report Download - page 53

Non-financial assets and liabilities — The Company’s non-financial instruments, which primarily consist of property and equipment, goodwill and
intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on a periodic basis (at least
annually for goodwill and intangible assets and semi-annually for property and equipment) or whenever events or changes in circumstances indicate that their
carrying value may not be recoverable, non-financial instruments are assessed for impairment. If applicable, the carrying values are written down to fair value.
The following table presents non-financial assets and liabilities measured at fair value on a non-recurring basis during fiscal year 2012 ( in thousands):




Long-lived assets held and used
$ 624
$2,834
Long-lived assets held for sale
$1,525
278
Total liabilities at fair value
$3,112
Long-lived assets held and used consist primarily of Jack in the Box restaurants determined to be underperforming or which we intend to close. Long-lived
assets held for sale relate to surplus property.
To determine fair value, we used the income approach, which assumes that the future cash flows reflect current market expectations. The future cash flows are
generally based on the assumption that the highest and best use of the asset is to sell the store to a franchisee (market participant). These fair value
measurements require significant judgment using Level 3 inputs, such as discounted cash flows, which are not observable from the market, directly or
indirectly. Refer to Note 9, Impairment, Disposition of Property and Equipment, Restaurant Closing Costs and Restructuring, for additional information
regarding impairment charges.

Objectives and strategies — We are exposed to interest rate volatility with regard to our variable rate debt. To reduce our exposure to rising interest rates, in
August 2010, we entered into two interest rate swap agreements that effectively convert $100.0 million of our variable rate term loan borrowings to a fixed-rate
basis from September 2011 through September 2014. Previously, we held two interest rate swaps that effectively converted $200.0 million of our variable rate
term loan borrowings to a fixed-rate basis from March 2007 to April 1, 2010. These agreements have been designated as cash flow hedges under the terms of
the FASB authoritative guidance for derivatives and hedging. To the extent that they are effective in offsetting the variability of the hedged cash flows, changes
in the fair values of the derivatives are not included in earnings but are included in OCI. These changes in fair value are subsequently reclassified into net
earnings as a component of interest expense as the hedged interest payments are made on our term debt.
Financial position — The following derivative instruments were outstanding as of the end of each period ( in thousands):












Derivatives designated as hedging instruments:
Interest rate swaps (Note 5)
Accrued
liabilities
$(2,433)
Accrued
liabilities
$(2,682)
Total derivatives
$(2,433)
$(2,682)
Financial performance — The following is a summary of the accumulated OCI gain or (loss) activity related to our interest rate swap derivative instruments
(in thousands):






Loss recognized in OCI (Note 13)
N/A
$(1,055)
$(2,066)
$(837)
Loss reclassified from accumulated OCI into income (Note 13)
Interest
expense, net
$(1,304)
$(117)
$(4,719)
Amounts reclassified from accumulated OCI into interest expense represent payments made to the counterparty for the effective portions of the interest rate
swaps. During 2012, 2011 and 2010, our interest rate swaps had no hedge ineffectiveness.
F-13