Jack In The Box 2014 Annual Report Download - page 79

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Gessele v. Jack in the Box Inc. — In August 2010, five former employees instituted litigation in federal court in Oregon alleging claims under the federal
Fair Labor Standards Act (“FLSA”) and Oregon wage and hour laws. The plaintiffs alleged that the Company failed to pay non-exempt employees for certain
meal breaks and improperly made payroll deductions for shoe purchases and for workers’ compensation expenses. In April 2014, the district court granted
our motion for summary judgment, and dismissed all claims without prejudice to re-filing in state court. In July 2014, the plaintiffs re-filed similar claims, and
additional claims relating to timing of final pay and related wage and hour claims involving employees of a franchisee, in Oregon state court. The amended
complaint seeks damages of $45.0 million but does not provide a basis for that amount. We have accrued for a single claim for which we believe a loss is both
probable and estimable; this accrued loss contingency did not have a material effect on our results of operations. We have not established a loss contingency
accrual for those claims as to which we believe liability is not probable or estimable, and we plan to vigorously defend against this lawsuit. Nonetheless, an
unfavorable resolution of this matter in excess of our current accrued loss contingencies could have a material adverse effect on our business, results of
operations, liquidity or financial condition.
Other legal matters — In addition to the matter described above, the Company is subject to normal and routine litigation brought by former, current or
prospective employees, customers, franchisees, vendors, landlords, shareholders or others. We intend to defend ourselves in any such matters. Some of these
matters may be covered, at least in part, by insurance. Our insurance liability (undiscounted) and reserves are established in part by using independent
actuarial estimates of expected losses for reported claims and for estimating claims incurred but not reported. As of September 28, 2014, our estimated
liability for general liability and workers’ compensation claims exceeded our self-insurance retention limits by $24.6 million. We expect to be fully covered
for these amounts by surety bond issuers or our insurance providers. Although the Company currently believes that the ultimate determination of liability in
connection with legal claims pending against it, if any, in excess of amounts already provided for these matters in the consolidated financial statements will
not have a material adverse effect on our business, the Company’s annual results of operations, liquidity or financial position, it is possible that our results of
operations, liquidity, or financial position could be materially affected in a particular future reporting period by the unfavorable resolution of one or more of
these matters or contingencies during such period.
Lease guarantees — In connection with the sale of the distribution business, we have assigned the leases at three of our distribution centers to third parties.
Under these agreements, which expire in 2015 and 2017, the Company remains secondarily liable for the lease payments for which we were responsible under
the original lease. As of September 28, 2014, the amount remaining under these lease guarantees totaled $2.4 million. We have not recorded a liability for the
guarantees as the likelihood of the third party defaulting on the assignment agreements was deemed to be less than probable.
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Our principal business consists of developing, operating and franchising our Jack in the Box and Qdoba restaurant concepts, each of which we consider
reportable operating segments. Since the beginning of 2012, we have been engaged in restructuring activities related to our internal organization and have
now instituted a shared-services model (refer also to Note 9, Impairment, Disposition of Property and Equipment, Restaurant Closing Costs and
Restructuring). As a result, in fiscal 2014, our chief operating decision makers, which consist of a collective group of executive leadership, revised the
method by which they determine performance and strategy for our segments. This change was made to reflect a shared-services model whereby each brand’s
results of operations are assessed separately and do not include costs related to certain corporate functions which support both brands. This segment reporting
structure reflects the Company’s current management structure, internal reporting method and financial information used in deciding how to allocate
Company resources. Based upon certain quantitative thresholds, each operating segment is considered a reportable segment. This change to our segment
reporting did not change our reporting units for goodwill.
We measure and evaluate our segments based on segment revenues and earnings from operations. The reportable segments do not include an allocation of the
costs related to shared service functions, such as accounting/finance, human resources, audit services, legal, tax and treasury; nor do they include unallocated
costs such as pension expense and share-based compensation. These costs are reflected in the caption “Shared services and unallocated costs,” and therefore,
the measure of segment profit or loss is before such items. As it was impractical to recast prior period information, 2014 segment information is reported under
both the old basis and new basis of segmentation (in thousands):
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