Jack In The Box 2010 Annual Report Download - page 51

Table of Contents
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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. We recognize interest and, when applicable,
penalties related to unrecognized tax benefits as a component of our income tax provision.
Authoritative guidance issued by the FASB prescribes a minimum probability threshold that a tax position must meet before a
financial statement benefit is recognized. The minimum threshold is defined 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. Refer to Note 10, , for additional information.
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 we use 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. 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.
Refer to Note 5, , and Note 6,  for additional information regarding our
derivative instruments.
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. Our ultimate
legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates. When
the reasonable estimate is a range, the recorded loss will be the best estimate within the range. We record legal settlement costs as
those costs are incurred.
Variable interest entities — The FASB authoritative guidance on consolidation 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 franchise 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.
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 16, , for additional discussion regarding our segments.
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