Jack In The Box 2005 Annual Report Download - page 39

of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. We expect the adoption of
FIN 47 will not have a material impact on our consolidated financial statements.
In October 2005, the FASB issued Staff Position 13-1, Accounting for Rental Costs Incurred During a Construction
Period (“FSP 13-1”). FSP 13-1 is effective for the first fiscal period beginning after December 15, 2005 and requires that rental
costs associated with ground or building operating leases that are incurred during a construction period be recognized as rental
expense. We expect the adoption of this Staff Position will not have a material impact on our operating results or financial
condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary exposure relating to financial instruments is changes in interest rates. The Company uses interest rate
swaps agreements to reduce exposure to interest rate fluctuations. At October 2, 2005, the Company had two interest rate swap
agreements having an aggregate notional amount of $130 million expiring March 2008. These agreements effectively convert a
portion of the Company’ s variable rate bank debt to fixed rate debt and have an average pay rate of 4.28%, yielding a fixed rate
of 6.03% including the term loan’ s applicable margin of 1.75%.
Our credit facility, which is comprised of a revolving credit facility and a term loan, bears interest at an annual rate
equal to the prime rate or the LIBOR plus an applicable margin based on a financial leverage ratio. The majority of the credit
facility borrowings are LIBOR-based. As of October 2, 2005, our applicable margins for the LIBOR-based revolving loans and
term loan were set at 2.25% and 1.75%, respectively. A hypothetical 100 basis point increase in short-term interest rates, based
on the outstanding balance of our revolving credit facility and term loan at October 2, 2005, would result in an estimated increase
of $1.4 million in annual interest expense. The estimated increase is based on holding the unhedged portion of bank debt at its
October 2, 2005 level.
Changes in interest rates also impact our pension expense, as do changes in the expected long-term rate of return on our
pension plan assets. An assumed discount rate is used in determining the present value of future cash outflows currently
expected to be required to satisfy the pension benefit obligation when due. Additionally, an assumed long-term rate of return on
plan assets is used in determining the average rate of earnings expected on the funds invested or to be invested to provide the
benefits to meet our projected benefit obligation. A hypothetical 25 basis point reduction in the assumed discount rate and
expected long-term rate of return on plan assets would result in an estimated increase of $1.6 million and $0.3 million,
respectively, in our future annual pension expense.
We are also exposed to the impact of commodity and utility price fluctuations related to unpredictable factors such as
weather and various other market conditions outside our control. Our ability to recover increased costs through higher prices is
limited by the competitive environment in which we operate. From time-to-time we enter into futures and option contracts to
manage these fluctuations. There were no open futures or options contracts at October 2, 2005.
At October 2, 2005, we had no other material financial instruments subject to significant market exposure other than
our company-owned life insurance policies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related financial information required to be filed are indexed on page F-1
and are incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.
Based on an evaluation of the Company’ s disclosure controls and procedures (as defined in Rules 13(a) – 15(e) and
15(d) – 15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the Company’ s fiscal year ended October 2,
2005, the Company’ s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial
officer, respectively) have concluded that the Company’ s disclosure controls and procedures were effective.
There have been no significant changes in the Company’ s internal controls over financial reporting that occurred during
the Company’ s fiscal quarter ended October 2, 2005 that have materially affected, or are reasonably likely to materially affect,
the Company’ s internal controls over financial reporting.
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