Jack In The Box 2008 Annual Report Download - page 38

beginning after December 15, 2008 and interim periods within those years. 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). In fiscal 2007, we
adopted the recognition provisions of SFAS 158, which requires recognition of the overfunded or underfunded
status of a defined benefit plan as an asset or liability. SFAS 158 also requires that companies measure their plan
assets and benefit obligations at the end of their fiscal year. The measurement provision of SFAS 158 is effective for
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.
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.
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities,
which amends SFAS 133 and expands disclosures to include information about the fair value of derivatives, related
credit risks and a company’s strategies and objectives for using derivatives. SFAS 161 is effective for fiscal years
beginning on or after November 15, 2008. We are currently in the process of assessing the impact that SFAS 161 will
have on the disclosures in our consolidated financial statements.
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 28, 2008, the
applicable margin for the LIBOR-based revolving loans and term loan was set at 1.375%.
We use interest rate swap agreements to reduce exposure to interest rate fluctuations. At September 28, 2008,
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 4.875%, yielding a fixed-rate of 6.25% including the term loan’s applicable margin of 1.375%.
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 28, 2008 would result in an estimated increase of
$3.1 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
have resulted in an estimated increase of $1.6 million and $0.6 million, respectively, in our 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. At September 28, 2008, we had five monthly natural
gas swap agreements in place that represent approximately 42% of our total requirements for natural gas for the
months of November 2008 through March 2009.
At September 28, 2008, we had no other material financial instruments subject to significant market exposure.
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