Jack In The Box 2009 Annual Report Download - page 50

Table of Contents
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Self-insurance — We are self-insured for a portion of our workers’ compensation, general liability, automotive, and employee
medical and dental claims. We utilize a paid-loss plan for our workers’ compensation, general liability and automotive programs, which
have predetermined loss limits per occurrence and in the aggregate. We establish our insurance liability and reserves using independent
actuarial estimates of expected losses for determining reported claims and as the basis for estimating claims incurred but not reported.
Advertising costs — We maintain marketing funds which include contributions of approximately 5% and 1% of sales at all
company-operated Jack in the Box and Qdoba restaurants, respectively, as well as contractual marketing fees paid monthly by
franchisees. Production costs of commercials, programming and other marketing activities are charged to the marketing funds when the
advertising is first used for its intended purpose, and the costs of advertising are charged to operations as incurred. Our contributions to
the marketing funds and other marketing expenses, which are included in selling, general, and administrative expenses in the
accompanying consolidated statements of earnings, were $100.1 million, $106.9 million and $109.5 million in 2009, 2008 and 2007,
respectively.
Share-based compensation — At the beginning of fiscal 2006, we adopted the fair value recognition provisions as required by the
FASB authoritative guidance on stock compensation, which generally requires, among other things, that all employee share-based
compensation be measured using a fair value method and that the resulting compensation cost be recognized in the financial statements.
Compensation expense for our share-based compensation awards is generally recognized on a straight-line basis during the service
period of the respective grant. Certain awards accelerate vesting upon the recipient’s retirement from the Company. In these cases, for
awards granted prior to October 3, 2005, we recognize compensation costs over the service period and accelerate any remaining
unrecognized compensation when the employee retires. For awards granted after October 2, 2005, we recognize compensation costs over
the shorter of the vesting period or the period from the date of grant to the date the employee becomes eligible to retire. For awards granted
prior to October 3, 2005, had we recognized compensation cost over the shorter of the vesting period or the period from the date of grant to
becoming retirement eligible, compensation costs recognized would not have been materially different.
Income taxes — Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as tax loss and credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. We recognize interest and, when applicable, penalties related to
unrecognized tax benefits as a component of our income tax provision.
In fiscal 2007, we adopted the authoritative guidance issued by the FASB which clarified the accounting for income taxes by
prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The
minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The adoption
did not have a material impact on our consolidated financial statements.
Derivative instruments — From time to time, we use commodity derivatives to reduce the risk of price fluctuations related to raw
material requirements for commodities such as beef and pork, and utility derivatives to reduce the risk of price fluctuations related to
natural gas. We also use interest rate swap agreements to manage interest rate exposure. We do not speculate using derivative instruments.
We purchase derivative instruments only for the purpose of risk management.
All derivatives are recognized on the consolidated balance sheets at fair value based upon quoted market prices. Changes in the fair
values of derivatives are recorded in earnings or other comprehensive income, based on whether the instrument is designated as a hedge
transaction. Gains or losses on derivative instruments reported in
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