Jack In The Box 2007 Annual Report Download - page 43

September 30, 2007, we implemented the recognition provisions of SFAS 158. SFAS 158 requires companies to
recognize the over or under funded status of their plans as an asset or liability as measured by the difference between
the fair value of the plan assets and the benefit obligation and requires any unrecognized prior service costs and
actuarial gains and losses to be recognized as a component of accumulated other comprehensive income (loss).
Additionally, SFAS 158 no longer allows companies to measure their plans as of any date other than as of the end of
their fiscal year. However, this provision is not effective until fiscal years ending after December 15, 2008. We will
not be able to determine the impact of adopting the measurement provision of SFAS 158 until the end of the fiscal
year when such valuation is completed. See Note 7, Retirement Plans, in the notes to the consolidated financial
statements for additional information regarding our retirement plans and SFAS 158.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS 159 permits entities to voluntarily choose to measure many financial instruments and certain other
items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently in the
process of determining whether to elect the fair value measurement options available under this standard.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies
that do not require adoption until a future date are not expected to have a material impact on our consolidated
financial statements upon adoption.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary exposure to risks relating to financial instruments is changes in interest rates. Our credit facility,
which is comprised of a revolving credit facility and a term loan, bears interest at an annual rate equal to the prime
rate or LIBOR plus an applicable margin based on a financial leverage ratio. As of September 30, 2007, the
applicable margin for the LIBOR-based revolving loans and term loan was set at 1.125%.
We use interest rate swap agreements to reduce exposure to interest rate fluctuations. At September 30, 2007,
we had two interest rate swap agreements having an aggregate notional amount of $200.0 million expiring April 1,
2010. These agreements effectively convert a portion of our variable rate bank debt to fixed-rate debt and have an
average pay rate of 4.87%, yielding a fixed-rate of 6.00% including the term loan’s applicable margin of 1.125%.
A hypothetical 100 basis point increase in short-term interest rates, based on the outstanding unhedged balance
of our revolving credit facility and term loan at September 30, 2007 would result in an estimated increase of
$2.2 million in annual interest expense.
Changes in interest rates also impact our pension expense, as do changes in the expected long-term rate of
return on our pension plan assets. An assumed discount rate is used in determining the present value of future cash
outflows currently expected to be required to satisfy the pension benefit obligation when due. Additionally, an
assumed long-term rate of return on plan assets is used in determining the average rate of earnings expected on the
funds invested or to be invested to provide the benefits to meet our projected benefit obligation. A hypothetical
25 basis point reduction in the assumed discount rate and expected long-term rate of return on plan assets would
result in an estimated increase of $2.2 million and $0.6 million, respectively, in our future annual pension expense.
We are also exposed to the impact of commodity and utility price fluctuations related to unpredictable factors
such as weather and various other market conditions outside our control. Our ability to recover increased costs
through higher prices is limited by the competitive environment in which we operate. From time to time, we enter
into futures and option contracts to manage these fluctuations. There were no open commodity futures and option
contracts at September 30, 2007.
At September 30, 2007, we had no other material financial instruments subject to significant market exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and related financial information required to be filed are indexed on
page F-1 and are incorporated herein.
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