Jack In The Box 2006 Annual Report Download - page 61

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
F-11
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
SFAS 123R requires the Company to estimate forfeitures in calculating the expense relating to share-based
compensation as opposed to recognizing forfeitures as they occur. The adjustment to apply estimated forfeitures
to previously recognized share-based compensation was considered immaterial and as such was not classified as
a cumulative effect of a change in accounting principle. Furthermore, we reclassified the balance in unearned
compensation to capital in excess of par value in our consolidated balance sheet on October 3, 2005, in
accordance with the provisions of SFAS 123R.
SFAS 123R also requires companies to calculate an initial “pool” of excess tax benefits available at the adoption
date to absorb any tax deficiencies that may be recognized under SFAS 123R. The pool includes the net excess
tax benefits that would have been recognized if the Company had adopted SFAS 123 for recognition purposes on
its effective date.
We have elected to calculate the pool of excess tax benefits under the alternative transition method described in
FASB Staff Position (“FSP”) 123-3, Transition Election Related to Accounting for Tax Effects of Share-Based
Payment Awards, which also specifies the method we must use to calculate excess tax benefits reported on the
statement of cash flows. The excess tax benefits from share-based payment arrangements classified as financing
cash flows for the year ended October 1, 2006 of $12,327 would not have been materially different if we had not
adopted SFAS 123R; however, they would have been classified as operating cash flows rather than as financing
cash flows.
Compensation expense for the Company’ s share-based compensation awards are 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, the
Company recognizes compensation costs over the service period and accelerates any remaining unrecognized
compensation when the employee retires. For awards granted after October 2, 2005, the Company recognizes
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 the Company 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 under SFAS 123R would not have been materially different.
In 2006, we recognized total share-based compensation expense, including expenses for stock options,
performance-vested stock awards, nonvested stock and directors’ deferred compensation, and related tax benefits
of $12,170 and $4,751, respectively.
The change in stock option expensing requirements resulting from our adoption of SFAS 123R impacted the
fiscal 2006 consolidated statement of earnings as follows:
2006
Reduction in earnings from operations........................................................................................................ $ 7,270
Reduction in earnings before income taxes and cumulative effect of accounting change........................... 7,270
Reduction in net earnings ............................................................................................................................ 4,432
Reduction in earnings per share:
Basic........................................................................................................................................................ $ 0.13
Diluted..................................................................................................................................................... $ 0.12
Prior to fiscal year 2006, stock awards were accounted for under Accounting Principles Board Opinion (“APB”)
25, Accounting for Stock Issued to Employees, using the intrinsic method, whereby compensation expense was
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. We applied the disclosure provisions of SFAS 123 as if the fair value based method had been
applied in measuring compensation expense.