Jack In The Box 2005 Annual Report Download - page 38

life spans of participants. These differences may impact the amount of pension expense recorded by the Company. Due
principally to decreases in interest rates, the pension expense in fiscal year 2006 is expected to be approximately $4.8 million
higher than fiscal year 2005 pension expense.
Self Insurance – The Company is self-insured for a portion of its current and prior years’ losses related to its workers’
compensation, general liability, automotive, medical, and dental programs. In estimating the Company’ s self insurance accruals,
we utilize independent actuarial estimates of expected losses, which are based on statistical analyses of historical data. These
assumptions are closely monitored and adjusted when warranted by changing circumstances. Should a greater amount of claims
occur compared to what was estimated or medical costs increase beyond what was expected, accruals might not be sufficient, and
additional expense may be recorded. While medical and dental costs are anticipated to increase very modestly in fiscal year
2006, related to the new health care coverage being offered to all crew members, we expect these cost increases to be offset by
savings realized from reduced crew turnover.
Long-lived Assets – Property, equipment and certain other assets, including amortized intangible assets, are reviewed
for impairment when indicators of impairment are present. This review includes a market-level analysis and evaluations of
restaurant operating performance from operations and marketing management. When indicators of impairment are present, we
perform an impairment analysis on a restaurant-by-restaurant basis. If the sum of undiscounted future cash flows is less than the
net carrying value of the asset, we recognize an impairment loss by the amount which the carrying value exceeds the fair value of
the asset. Our estimates of future cash flows may differ from actual cash flows due to, among other things, economic conditions
or changes in operating performance. In fiscal 2005, we recorded immaterial impairment charges related to certain restaurant
closures. During 2005, we noted no other indicators of impairment of our long-lived assets.
Goodwill and Other Intangibles – We also evaluate goodwill and intangible assets not subject to amortization annually
or more frequently if indicators of impairment are present. If the determined fair values of these assets are less than the related
carrying amounts, an impairment loss is recognized. The methods we use to estimate fair value include future cash flow
assumptions, which may differ from actual cash flows due to, among other things, economic conditions or changes in operating
performance. During the fourth quarter, we reviewed the carrying value of our goodwill and indefinite life intangible assets and
determined that no impairment existed as of October 2, 2005.
Allowances for Doubtful Accounts – Our trade receivables consist primarily of amounts due from franchisees for rents
on subleased sites, royalties and distribution sales. We also have receivables related to short-term financing provided on the sale
of company-operated restaurants to certain qualified franchisees. We continually monitor amounts due from franchisees and
maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our franchisees to make required
payments. This estimate is based on our assessment of the collectibility of specific franchisee accounts, as well as a general
allowance based on historical trends, the financial condition of our franchisees, consideration of the general economy and the
aging of such receivables. The Company has good relationships with its franchisees and high collection rates; however, if the
future financial condition of our franchisees were to deteriorate, resulting in their inability to make specific required payments,
additions to the allowance for doubtful accounts may be required.
Legal Accruals – The Company is subject to claims and lawsuits in the ordinary course of its business. A
determination of the amount accrued, if any, for these contingencies is made after analysis of each matter. We continually
evaluate such accruals and may increase or decrease accrued amounts as we deem appropriate.
Future Application of Accounting Principles
In November 2004, the FASB issued SFAS 151, Inventory Costs. SFAS 151 clarifies the accounting for abnormal
amounts of idle facilities expense, freight, handling costs and wasted material. SFAS 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. We expect the adoption of this Statement will not have a material impact on
our operating results or financial condition.
In December 2004, the FASB issued SFAS 123R, Share-Based Payment. SFAS 123R 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. On April 14, 2005, the Securities and Exchange Commission delayed the
effective date of required adoption of SFAS 123R to the first fiscal year beginning 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.
In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations—an
interpretation of FASB Statement No. 143 (“FIN 47”). FIN 47 clarifies the term conditional asset retirement obligation and
requires a liability to be recorded if the fair value of the obligation can be reasonably estimated. The types of asset retirement
obligations that are covered by FIN 47 are those for which an entity has a legal obligation to perform an asset retirement activity;
however the timing and/or method of settling the obligation are conditional on a future event that may or may not be within the
control of the entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value
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