Jack In The Box 2008 Annual Report Download - page 57

Income recognized on unredeemed gift card balances was $1.0 million in fiscal 2008. No income from
unredeemed gift cards (“breakage”) was recognized prior to fiscal 2008 due to, among other things, insufficient gift
card history necessary to estimate our potential breakage.
Pre-opening costs associated with the opening of a new restaurant consist primarily of employee training costs
and are expensed as incurred.
Restaurant closure costs — All costs associated with exit or disposal activities are recognized when they are
incurred. Restaurant closure costs, which are included in selling, general and administrative expenses, consist of
future lease commitments, net of anticipated sublease rentals, and expected ancillary costs.
Self-insurance — We are self-insured for a portion of our workers’ compensation, general liability, auto-
motive, and employee medical and dental claims. We utilize a paid-loss plan for our workers’ compensation,
general liability and automotive programs, which have predetermined loss limits per occurrence and in the
aggregate. We establish our insurance liability and reserves using independent actuarial estimates of expected losses
for determining reported claims and as the basis for estimating claims incurred but not reported.
Advertising costs — We maintain marketing funds which include contributions of approximately 5% and 1%
of sales at all company-operated JACK IN THE BOX and Qdoba restaurants, respectively, as well as contractual
marketing fees paid monthly by franchisees. Production costs of commercials, programming and other marketing
activities are charged to the marketing funds when the advertising is first used for its intended purpose, and the costs
of advertising are charged to operations as incurred. Our contributions to the marketing funds and other marketing
expenses, which are included in selling, general, and administrative expenses in the accompanying consolidated
statements of earnings, were $106.9 million, $109.5 million and $107.5 million in 2008, 2007 and 2006,
respectively.
Share-based compensation — At the beginning of fiscal2006, we adopted the fair value recognition provisions
of SFAS 123 (revised 2004), Share-Based Payment (“123R”),which generally requires, among other things, that all
employee share-based compensation be measured using a fair value method and that the resulting compensation
cost be recognized in the financial statements. We selected the modified prospective method of adoption. Under this
method, compensation expense in 2006 included: (a) all share-based payments granted prior to, but not yet vested as
of, October 3, 2005, estimated in accordance with the original provisions of SFAS 123, Accounting for Stock-Based
Compensation, and (b) all share-based payments granted on or after October 3, 2005, estimated in accordance with
the provisions of SFAS 123R.
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.
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
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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)