Jack In The Box 2007 Annual Report Download - page 61

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 under SFAS 123R
would not have been materially different.
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 our 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.
Had compensation expense been recognized for our stock-based compensation plans by applying the fair value
recognition provisions of SFAS 123,we would have recorded net earnings and earnings per share amounts as
follows (in thousands, except per share data):
2005
Net earnings, as reported ................................................. $91,537
Add: Stock-based employee compensation included in reported net income, net of taxes . . 1,056
Deduct: Total stock-based employee compensation expense determined under fair-value-
based method for all awards, net of taxes ................................... (7,869)
Pro forma net earnings ................................................... $84,724
Net earnings per share:
Basic — as reported ................................................... $ 1.28
Basic — pro forma .................................................... $ 1.19
Diluted — as reported .................................................. $ 1.24
Diluted — pro forma .................................................. $ 1.15
For the pro forma disclosures, the estimated fair values of the options were amortized on a straight-line basis
over their vesting periods of up to five years. Refer to Note 8, Share-Based Employee Compensation, for
information regarding the assumptions used by us to value our stock options.
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.
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, and 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
F-11
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)