Jack In The Box 2013 Annual Report Download - page 51



are on the master lease agreement. We charge interest on past due accounts receivable and accrue interest on notes receivable based on the contractual terms. The
allowance for doubtful accounts is based on historical experience and a review of existing receivables. Changes in accounts and other receivables are classified
as an operating activity in the consolidated statements of cash flows.
Inventories consist principally of food, packaging and supplies, and are valued at the lower of cost or market on a first-in, first-out basis. Changes in
inventories are classified as an operating activity in the consolidated statements of cash flows.
Assets held for sale typically represent the costs for new sites and existing sites that we plan to sell and lease back within the next year. Gains or losses
realized on sale-leaseback transactions are deferred and amortized to income over the lease terms. If the determination is made that we no longer expect to sell an
asset within the next year, the asset is reclassified out of assets held for sale and leaseback. Assets held for sale also periodically includes the net book value of
property and/or equipment we plan to sell within the next year. Assets held for sale consisted of the following at each fiscal year-end ( in thousands):


Assets held for sale and leaseback
$11,574
$45,443
Other property and equipment held for sale
301
—
Assets held for sale
$11,875
$45,443
Property and equipment, at cost — Expenditures for new facilities and equipment, and those that substantially increase the useful lives of the property, are
capitalized. Facilities leased under capital leases are stated at the present value of minimum lease payments at the beginning of the lease term, not to exceed fair
value. Maintenance and repairs are expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts, and gains or losses on the dispositions are reflected in results of operations.
Buildings, equipment and leasehold improvements are generally depreciated using the straight-line method based on the estimated useful lives of the assets,
over the initial lease term for certain assets acquired in conjunction with the lease commencement for leased properties, or the remaining lease term for certain
assets acquired after the commencement of the lease for leased properties. In certain situations, one or more option periods may be used in determining the
depreciable life of assets related to leased properties if we deem that an economic penalty would be incurred otherwise. In either circumstance, our policy
requires lease term consistency when calculating the depreciation period, in classifying the lease and in computing straight-line rent expense. Building,
leasehold improvement assets and equipment are assigned lives that range from 2 to 35 years. Depreciation and amortization expense related to property and
equipment was $92.0 million, $92.6 million and $91.8 million in 2013, 2012, and 2011 respectively.
Impairment of long-lived assets — We evaluate our long-lived assets, such as property and equipment, for impairment whenever indicators of impairment
are present. This review generally includes a restaurant-level analysis, except when we are actively selling a group of restaurants in which case we perform our
impairment evaluations at the group level. Impairment evaluations for individual restaurants take into consideration a restaurant’s operating cash flows, the
period of time since a restaurant has been opened or remodeled, refranchising expectations, and the maturity of the related market. Impairment evaluations for a
group of restaurants take into consideration the group’s expected future cash flows and sales proceeds from bids received, if any, or fair market value based
on, among other considerations, the specific sales and cash flows of those restaurants. If the assets of a restaurant or group of restaurants subject to our
impairment evaluation are not recoverable based upon the forecasted, undiscounted cash flows, we recognize an impairment loss by the amount which the
carrying value of the assets exceeds fair value. Long-lived assets that meet the held for sale criteria, which excludes assets intended to be sold and leased back,
are held for sale and reported at the lower of their carrying value or fair value, less estimated costs to sell.
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
F-9