Jack In The Box 2014 Annual Report Download - page 55

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Income recognized on unredeemed gift card balances was $0.8 million, $0.7 million and $0.5 million in fiscal 2014, 2013 and 2012, respectively.
Pre-opening costs associated with the opening of a new restaurant consist primarily of employee training costs and are expensed as incurred and included in
selling, general and administrative expenses in the accompanying consolidated statements of earnings.
Restaurant closure costs — All costs associated with exit or disposal activities are recognized when they are incurred. Restaurant closure costs, which are
included in impairment and other charges, net and gains/losses on the sale of company-operated restaurants in the accompanying consolidated statements of
earnings, consist of future lease commitments, net of anticipated sublease rentals, and expected ancillary costs.
Self-insurance — We are self-insured for a portion of our workers’ compensation, general liability, employee medical and dental, and automotive claims. We
utilize a paid-loss plan for our workers’ compensation, general liability and automotive programs, which have predetermined loss limits per occurrence and in
the aggregate. We establish our insurance liability (undiscounted) and reserves using independent actuarial estimates of expected losses for determining
reported claims and as the basis for estimating claims incurred but not reported. As of September 28, 2014 and September 29, 2013, our estimated liability for
general liability and workers’ compensation claims exceeded our self-insurance retention limits by $24.6 million and $22.9 million, respectively, which we
expect our insurance providers to pay on our behalf in accordance with the contractual terms of our insurance policies.
Advertising costs — We administer marketing funds which include contractual contributions. In fiscal years 2014, 2013 and 2012 the marketing funds were
approximately 5% and 1% of sales at all franchise and company-operated Jack in the Box and Qdoba restaurants, respectively. We record contributions from
franchisees as a liability included in accrued liabilities in the accompanying consolidated balance sheets until such funds are expended. The contributions to
the marketing funds are designated for advertising and we act as an agent for the franchisees with regard to these contributions. Therefore, we do not reflect
franchisee contributions to the funds in our consolidated statements of earnings or cash flows.
Production costs of commercials, programming and other marketing activities are charged to the marketing funds when the advertising is first used for its
intended purpose, and the costs of advertising are charged to operations as incurred. Total contributions and other marketing expenses, are included in
selling, general, and administrative expenses in the accompanying consolidated statements of earnings. The following table provides a summary of
advertising costs related to company-operated restaurants in each year (in thousands):
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

Jack in the Box
$ 42,349
$ 46,739
$ 49,757
Qdoba
18,215
16,123
13,135
Total
$ 60,564
$ 62,862
$ 62,892
Share-based compensation — We account for our share-based compensation as required by the FASB authoritative guidance on stock compensation , which
generally requires, among other things, that all employee share-based compensation be measured using a fair value method and that the resulting
compensation cost be recognized in the financial statements. Compensation expense for our share-based compensation awards is generally recognized on a
straight-line basis over the shorter of the vesting period or the period from the date of grant to the date the employee becomes eligible to retire.
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 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 or not the instrument is
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