Jack In The Box 2005 Annual Report Download - page 54

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock options – Stock awards are accounted for under Accounting Principles Board (“APB”) Opinion 25, Accounting for
Stock Issued to Employees, using the intrinsic method, whereby compensation expense is recognized for the excess, if any,
of the quoted market price of the Company’ s stock at the date of grant over the exercise price. Our policy is to grant stock
options at fair value at the date of grant. Had compensation expense been recognized for our stock-based compensation
plans by applying the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, we would
have recorded net earnings and earnings per share amounts as follows:
2005 2004 2003
Net earnings, as reported ........................................................................ $ 91,537 $ 74,684 $ 70,084
Add: Stock-based employee compensation included in reported
net income, net of taxes ....................................................................... 880 371 318
Deduct: Total stock-based employee compensation expense
determined under fair-value-based method for all awards, net
of taxes ................................................................................................ (7,693) (6,171) (5,126)
Pro forma net earnings ............................................................................ $ 84,724 $ 68,884 $ 65,276
Net earnings per share:
Basic - as reported ............................................................................ $ 2.57 $ 2.06 $ 1.92
Basic - pro forma .............................................................................. $ 2.38 $ 1.90 $ 1.79
Diluted - as reported ........................................................................... $ 2.48 $ 2.02 $ 1.90
Diluted - pro forma ............................................................................ $ 2.29 $ 1.86 $ 1.77
For the pro forma disclosures, the estimated fair values of the options were amortized on a straight-line basis over their
vesting periods of up to five years. Refer to Note 10, Stock-Based Employee Compensation, for information regarding the
assumptions used by the Company in valuing its stock options.
In December 2004, the FASB issued SFAS 123R, Share-Based Payment, which revises SFAS 123, Accounting for Stock-
Based Compensation, and generally requires, among other things, that all employee stock-based compensation be measured
using a fair-value method and that the resulting compensation cost be recognized in the financial statements. SFAS 123R
also provides guidance on how to determine the grant-date fair value for awards of equity instruments, as well as alternative
methods of adopting its requirements. SFAS 123R is effective at the beginning of the first annual period after June 15,
2005. We plan to adopt the provisions of SFAS 123R in the first quarter of fiscal year 2006 and expect the impact in fiscal
2006 to be approximately $0.15 per diluted share.
Estimations – 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 from, and consider information provided by, actuaries and other experts in
a particular area. Actual amounts could differ materially from these estimates.
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