Jack In The Box 2011 Annual Report Download - page 56

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,
Income Taxes, for additional information.
Derivative instruments — From time to time, 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 (“OCI”) 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, Fair Value Measurements, and Note 6, Derivative Instruments,
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 probable and reasonably estimable.
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 17, Segment Reporting, for additional discussion regarding our
segments.
Effect of new accounting pronouncements — In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. This
pronouncement was issued to simplify how entities test goodwill for impairment. Under this pronouncement, entities may first assess qualitative factors
to determine whether it is necessary to perform the two-step goodwill impairment test. If the qualitative assessment results in a more than 50% likely
result that the fair value of a reporting unit is less than the carrying amount, then the entity must continue to apply the two-step impairment test. If the
entity concludes it is more likely than not that the fair value exceeds the carrying amount, then neither of the two steps in the goodwill impairment test is
required. This pronouncement is effective for annual and interim goodwill impairment tests performed for
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