Jack In The Box 2007 Annual Report Download - page 42

Self Insurance — We are self-insured for a portion of our losses related to workers’ compensation, general
liability, automotive, medical and dental programs. In estimating our self-insurance accruals, we utilize indepen-
dent actuarial estimates of expected losses, which are based on statistical analysis 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.
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 restaurant-level
analysis that takes into consideration a restaurant’s operating cash flows, the period of time since a restaurant has
been opened or remodeled, and the maturity of the related market. 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.
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 of fiscal 2007, we reviewed the
carrying value of our goodwill and indefinite life intangible assets and determined that no impairment existed as of
September 30, 2007.
Allowances for Doubtful Accounts — Our trade receivables consist primarily of amounts due from franchisees
for rents on subleased sites, royalties and distribution sales. We continually monitor amounts due from franchisees
and maintain an allowance for doubtful accounts for estimated losses. 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. We
have good relationships with our 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, we may be
required to increase the allowance for doubtful accounts.
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 June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”),
Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, which clarifies the
accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS 109,
Accounting for Income Taxes. FIN 48 provides guidance on the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosures, and transition. We are currently
evaluating the impact of FIN 48 on our consolidated financial statements, which is effective for fiscal years
beginning after December 15, 2006.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 clarifies the definition of
fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure
requirements. This statement applies under other accounting pronouncements that currently require or permit
fair value measurements and is effective for fiscal years beginning after November 15, 2007. We are currently in the
process of assessing the impact that SFAS 157 will have on our consolidated financial statements.
In September 2006, the FASB issued SFAS 158, Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). Effective
29