Jack In The Box 2013 Annual Report Download - page 58
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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.
Due to the magnitude of the 2013 Qdoba closures, during the third quarter of fiscal 2013 we tested Qdoba’s goodwill and trademark assets for impairment. To
evaluate goodwill for impairment, we estimated the fair value of the Qdoba reporting unit and compared it to its carrying value. We engaged a valuation firm to
assist us in the fair value analysis. To determine fair value, we used a multiple valuation technique approach, the results of which were weighted based on the
technique that was assessed to be more representative of fair value. Based upon the fair value analysis, the estimated fair value of the Qdoba reporting unit
was substantially in excess of its carrying value as of July 7, 2013. We also utilized the third party valuation firm to aid in our impairment analysis of the
Qdoba trademark. To determine its fair value, we used the relief from royalty method and compared the estimated fair value to its carrying value. The
estimated fair value of the Qdoba trademark was substantially in excess of its carrying value. During the fourth quarter of fiscal 2013, we performed our
annual impairment test over all of our recorded goodwill and non-amortizing intangible assets. Based on this qualitative assessment, we determined there was
no impairment as of September 29, 2013.
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. 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 fiscal year ( in thousands):
Derivatives designated as hedging instruments:
Interest rate swaps (Note 5)
Accrued
liabilities
$(1,190)
Accrued
liabilities
$(2,433)
Total derivatives
$(1,190)
$(2,433)
Financial performance — The following is a summary of the accumulated OCI activity related to our interest rate swap derivative instruments ( in
thousands):
Loss recognized in OCI
N/A
$(110)
$(1,055)
$(2,066)
Loss reclassified from accumulated OCI into income
Interest
expense, net
$(1,353)
$(1,304)
$(117)
Amounts reclassified from accumulated OCI into interest expense represent payments made to the counterparty for the effective portions of the interest rate
swaps. During 2013, 2012 and 2011, our interest rate swaps had no hedge ineffectiveness.
The detail of our long-term debt at the end of each fiscal year is as follows ( in thousands):
Revolver, variable interest rate based on an applicable margin plus LIBOR, 2.48% at September 29, 2013
$175,000
$250,000
Term loan, variable interest rate based on an applicable margin plus LIBOR, 2.19% at September 29, 2013
190,000
165,000
Capital lease obligations, 9.96% weighted average interest rate at September 29, 2013
5,282
6,228
370,282
421,228
Less current portion
(20,889)
(15,952)
$349,393
$405,276
F-16