Jack In The Box 2011 Annual Report Download - page 35

Table of Contents
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 $2.7 million
and $0.7 million, respectively, in our fiscal 2011 pension and postretirement plan expense. We expect our pension and postretirement expense to increase $2.8
million in fiscal 2012 principally due to a decrease in our discount rate from 5.82% to 5.60% and the market performance of the plan assets in the fourth
quarter of 2011.
Self Insurance — We are self-insured for a portion of our losses related to workers’ compensation, general liability, automotive, and health benefits. In
estimating our self-insurance accruals, we utilize independent actuarial estimates of expected losses, which are based on statistical analysis of historical data.
These assumptions are closely monitored and adjusted when warranted by changing circumstances. Should a greater amount of claims occur compared to
what was estimated or medical costs increase beyond what was expected, accruals might not be sufficient, and additional expense may be recorded.
Restaurant Closing Costs — Restaurant closing costs consist of future lease commitments, net of anticipated sublease rentals and expected ancillary
costs. We record a liability for the net present value of any remaining lease obligations, net of estimated sublease income, at the date we cease using a property.
Subsequent adjustments to the liability as a result of changes in estimates of sublease income or lease cancellations are recorded in the period incurred. The
estimates we make related to sublease income are subject to a high degree of judgment and may differ from actual sublease income due to changes in economic
conditions, desirability of the sites and other factors.
Share-based Compensation — We offer share-based compensation plans to attract, retain and motivate key officers, non-employee directors and
employees to work toward the financial success of the Company. Share-based compensation cost for our stock option grants is estimated at the grant date
based on the award’s fair-value as calculated by an option pricing model and is recognized as expense ratably over the requisite service period. The option
pricing models require various highly judgmental assumptions including volatility, forfeiture rates and expected option life. If any of the assumptions used in
the model change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period.
Goodwill and Other Intangibles — We evaluate goodwill and non-amortizable intangible assets annually, or more frequently if indicators of
impairment are present. Our goodwill impairment analysis includes a qualitative assessment. If this assessment results in a less-than 50% likelihood that the
fair value of a reporting unit is less than the carrying amount, then no impairment is recognized and step two of the impairment test is not required. If the
determined fair values of these assets are less than the related carrying amounts, an impairment loss is recognized. The methods we use to estimate fair value
include future cash flow assumptions, which may differ from actual cash flows due to, among other things, economic conditions or changes in operating
performance. During the fourth quarter of fiscal 2011, we reviewed our goodwill and indefinite life intangible assets and determined that no impairment existed
as of October 2, 2011.
Legal Accruals — The Company is subject to claims and lawsuits in the ordinary course of its business. A determination of the amount accrued, if
any, for these contingencies is made after analysis of each matter. We continually evaluate such accruals and may increase or decrease accrued amounts, as we
deem appropriate. Because lawsuits are inherently unpredictable, and unfavorable resolutions could occur, assessing contingencies is highly subjective and
requires judgment about future events. As a result, the amount of ultimate loss may differ from those estimates.
Income Taxes — We estimate certain components of our provision for income taxes. These estimates include, among other items, depreciation and
amortization expense allowable for tax purposes, allowable tax credits, effective rates for state and local income taxes and the tax deductibility of certain other
items. We adjust our effective income tax rate as additional information on outcomes or events becomes available. Our estimates are based on the best available
information at the time that we prepare the income tax provision. We generally file our annual income tax returns several months after our fiscal year-end.
Income tax returns are subject to audit by federal, state and local governments, generally years after the returns are filed. These returns could be subject to
material adjustments or differing interpretations of the tax laws.
34