Jack In The Box 2015 Annual Report Download - page 54

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Use of estimates — In preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles, management is
required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies.
In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts
in a particular area. Actual amounts could differ materially from these estimates.
Cash and cash equivalents — We invest cash in excess of operating requirements in short-term, highly liquid investments with original maturities of three
months or less, which are considered cash equivalents.
Accounts and other receivables, net is primarily comprised of receivables from franchisees, tenants and credit card processors. Franchisee receivables
primarily include rents, royalties, and marketing fees associated with lease and franchise agreements. Tenant receivables relate to subleased properties where
we are on the master lease agreement. We 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. 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):
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Assets held for sale and leaseback
$ 15,216
$ 3,477
Other property and equipment held for sale
300
1,289
Assets held for sale
$ 15,516
$ 4,766
Property and equipment, net — 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 property and equipment 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 expense related to property and equipment was
$88.8 million, $90.7 million and $92.0 million in 2015, 2014, and 2013, respectively.
Impairment of long-lived assets — We evaluate our long-lived assets, such as property and equipment, for impairment on an annual basis or whenever events
or changes in circumstances indicate that their carrying value may not be recoverable. 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.
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