Jack In The Box 2008 Annual Report Download - page 58

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. 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
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 28, 2008, we had two interest rate swaps in effect, no outstanding commodity derivatives and an
immaterial amount of utility derivatives. Refer to Note 4, 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 (“FIN 46”) 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. 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 our
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 we administer 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 13, Segment Reporting,
for additional discussion regarding our segments.
Effect of new accounting pronouncements — We adopted the provisions of Financial Accounting Standards
Board (“FASB”) Interpretation 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes —an interpretation of
FASB Statement No. 109, on October 1, 2007. FIN 48 clarifies the accounting for income taxes by prescribing a
minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The
minimum threshold is defined in FIN 48 as a tax position that is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any related appeals or litigation processes,
based on the technical merits of the position. The adoption of this statement did not have a material impact on our
consolidated financial statements. Refer to Note 7, Income Taxes, for additional information regarding our adoption
of FIN 48.
F-12
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)