Jack In The Box 2007 Annual Report Download - page 62

other comprehensive income are classified to earnings in the period the hedged item affects earnings. If the
underlying hedge transaction ceases to exist, any associated amounts reported in other comprehensive income are
reclassified to earnings at that time. Any ineffectiveness is recognized in earnings in the current period. At
September 30, 2007, we had two interest rate swaps in effect and no outstanding commodity or utility derivatives.
Refer to Note 3, Indebtedness, for additional discussion regarding our interest rate swaps.
Contingencies — We recognize liabilities for contingencies when we have an exposure that indicates it is
probable that an asset has been impaired or that a liability has been incurred and the amount of impairment or loss
can be reasonably estimated.
Variable interest entities — FASB issued Interpretation No. 46 (revised 2003), Consolidation of Variable
Interest Entities requires the primary beneficiary of a variable interest entity to consolidate that entity. The primary
beneficiary of a variable interest entity is the party that absorbs a majority of the variable interest entity’s expected
losses, receives a majority of the entity’s expected residual returns, or both, because of ownership, contractual or
other financial interests in the entity.
The primary entities in which we possess a variable interest are franchise entities, which operate our franchised
restaurants. We do not possess any ownership interests in franchise entities and we do not generally provide
financial support to our franchisees. We have reviewed these franchise entities and determined that we are not the
primary beneficiary of the entities and therefore, these entities have not been consolidated.
We use two advertising funds to administer our advertising programs. These funds are consolidated into the
Company’s financial statements as they are deemed variable interest entities for which we are the primary
beneficiary. Contributions to these funds are designed for advertising, and the Company administers the funds’
contributions. In accordance with SFAS 45, Accounting for Franchise Fee Revenue, contributions from franchisees,
when received, are recorded as offsets to advertising expense in the accompanying consolidated statements of
earnings.
Segment reporting — An operating segment is defined as a component of an enterprise that engages in
business activities from which it may earn revenues and incur expenses, and about which separate financial
information is regularly evaluated by our chief operating decision makers in deciding how to allocate resources.
Similar operating segments can be aggregated into a single operating segment if the businesses are similar. We
operate our business in two operating segments, JACK IN THE BOX and Qdoba. Refer to Note 12, Segment Reporting,
for additional discussion regarding our segments.
Effect of new accounting pronouncements — In September 2006, the SEC issued Staff Accounting Bulle-
tin No. 108 (“SAB 108”), which provides interpretive guidance on how the effects of the carryover or reversal of
prior year misstatements should be considered in quantifying a current year misstatement. The provisions of
SAB 108 became effective during the fourth quarter of fiscal year 2007 but had no impact on our results of
operations or financial position.
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
September 30, 2007, we implemented the recognition and measurement 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 projected 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. The adoption of SFAS 158 resulted in an after-tax adjustment to accumulated
other comprehensive income (loss) of $20.2 million related to a reclassification of unrecognized actuarial gains and
losses from assets and liabilities to a component of accumulated other comprehensive income (loss), as well as a
F-12
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)