Jack In The Box 2015 Annual Report Download - page 80

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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 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, and later added additional claims relating to
timing of final pay and related wage and hour claims involving employees of a franchisee. The most recent complaint seeks damages of $45.0 million but
does not provide a basis for that amount. In fiscal 2012, we 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 27, 2015, our estimated
liability for general liability and workers’ compensation claims exceeded our self-insurance retention limits by $25.8 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 lease at one of our distribution centers to a third party.
Under this agreement, which expires in 2017, the Company remains secondarily liable for the lease payments for which we were responsible under the
original lease. As of September 27, 2015, the amount remaining under this lease guarantee totaled $1.3 million. We have not recorded a liability for this
guarantee 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 and Other Charges, Net). 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. Our 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.
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