Jack In The Box 2010 Annual Report Download - page 54

Table of Contents


 
Financial assets and liabilities — The following table presents the financial assets and liabilities measured at fair value on a
recurring basis as of October 3, 2010 ():


 
 
  
  
   
Non-qualified deferred compensation plan (1) $ 36,011 $ 36,011 $ - $ -
Interest rate swaps (Note 6) (2) 733 - 733 -
Total liabilities at fair value $ 36,744 $ 36,011 $ 733 $ -
(1) We maintain an unfunded defined contribution plan for key executives and other members of management excluded from participation in our
qualified savings plan. The fair value of this obligation is based on the closing market prices of the participants’ elected investments.
(2) We entered into interest rate swaps to reduce our exposure to rising interest rates on our variable debt. The fair value of our interest rate
swaps are based upon valuation models as reported by our counterparties.
The fair values of each of our long-term debt instruments are based on quoted market values, where available, or on the amount of
future cash flows associated with each instrument, discounted using our current borrowing rate for similar debt instruments of
comparable maturity. The estimated fair values of our term loan and capital lease obligations approximated their carrying values as
of October 3, 2010.
Non-financial assets and liabilities — The Company’s non-financial instruments, which primarily consist of goodwill,
intangible assets and property and equipment, are reported at carrying value and are not required to be measured at fair value on a
recurring basis. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying value may
not be recoverable (at least annually for goodwill and semi-annually for property and equipment), non-financial instruments are
assessed for impairment and, if applicable, written down to fair value.
In connection with our semi-annual property and equipment impairment reviews and the closure of 40 Jack in the Box company-
operated restaurants prior to the end of the fiscal 2010, long-lived assets having a carrying value of $13.8 million were written down
to fair value using significant unobservable inputs (Level 3). The resulting impairment charge of $13.0 million was included in
impairment and other charges, net in the accompanying consolidated statement of earnings for the fiscal year ended October 3, 2010.
 
Objectives and strategies — We are exposed to interest rate volatility with regard to our variable rate debt. To reduce our exposure to
rising interest rates, in August 2010, we entered into two interest rate swap agreements that will effectively convert $100.0 million of
our variable rate term loan borrowings to a fixed-rate basis beginning September 2011 through September 2014. Previously, we held
two interest rate swaps that effectively converted $200.0 million of our variable rate term loan borrowings to a fixed-rate basis from
March 2007 to April 1, 2010. These agreements have been designated as cash flow hedges under the terms of the FASB authoritative
guidance for derivatives and hedging and to the extent that they are effective in offsetting the variability of the hedged cash flows,
changes in the derivatives’ fair value are not included in earnings but are included in other comprehensive income (loss).
We are also exposed to the impact of 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
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