UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FormFORM 10-K
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 2009
FOR THE FISCAL YEAR ENDED OCTOBER 3, 2010
 
COMMISSION FILE NUMBER1-9390
 
JACK IN THE BOX INC.
(Exact name of registrant as specified in its charter)
 
   
Delaware
95-2698708
(State of Incorporation) 95-2698708
(I.R.S. Employer
Identification No.)
9330 Balboa Avenue, San Diego, CA 92123
9330 Balboa Avenue,
San Diego, CA		92123
(Zip Code)
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code
(858)571-2121
 
Securities registered pursuant to Section 12(b) of the Act:
 
   
Title of Each Class
each class		 
Name of Each Exchangeeach exchange on Which Registered
which registered
Common Stock, $.01$0.01 par value NASDAQ
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yesþ  Noo
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yeso  Noþ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesþ  Noo
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yesþ  Noo     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þLarge accelerated filer þAccelerated filer o     Non-accelerated filer oNon-accelerated     filer oSmaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).
Yeso  Noþ
 
The aggregate market value of the common stock held by non-affiliates of the registrant, computed by reference to the closing price reported in the NASDAQ — Composite Transactions as of April 12, 2009,11, 2010, was approximately $1,457.4$1,302.3 million.
 
Number of shares of common stock, $.01$0.01 par value, outstanding as of the close of business November 12, 200918, 2010 — 57,291,586.52,904,990.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 20102011 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
 

 

 
JACK IN THE BOX INC.
 
TABLE OF CONTENTS
 
     
    Page
 
PARTPart I
Item 1.
 Business 2
Item 1A.
 Risk Factors 1211
Item 1B.
 Unresolved Staff Comments 1615
Item 2.
 Properties 1615
Item 3.
 Legal Proceedings 1716
Item 4.
Submission of Matters to a Vote of Security Holders  17 
 
PARTPart II
Item 5.
 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities		 17
Item 6.
 Selected Financial Data 2019
Item 7.
 Management’s Discussion and Analysis of Financial Condition and Results of Operations 2120
Item 7A.
 Quantitative and Qualitative Disclosures About Market Risk 31
Item 8.
 Financial Statements and Supplementary Data 31
Item 9.
 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 31
Item 9A.
 Controls and Procedures 31
Item 9B.
 Other Information 34
 34 
 
PARTPart III
Item 10.
 Directors, Executive Officers and Corporate Governance 34
Item 11.
 Executive Compensation 34
Item 12.
 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 34
Item 13.
 Certain Relationships and Related Transactions, and Director Independence 35
Item 14.
 Principal Accountant Fees and Services 35
 35 
 
PARTPart IV
Item 15.
 Exhibits, Financial Statement Schedules 35
 EX-10.16.4(A)EX-10.16.4.B
 EX-10.16.5EX-10.16.6
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT


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PART I
 
ITEM 1.BUSINESS
 
The Company
 
Overview. Jack in the Box Inc. (the “Company”), based in San Diego, California, operates and franchises more than 2,700Jack in the Box® quick-service restaurants (“QSR”) and Qdoba Mexican Grill® fast-casual restaurants. In fiscal 2009,2010, we generated total revenues from continuing operations of $2.5$2.3 billion. References to the Company throughout this Annual Report onForm 10-K are made using the first person notations of “we,” “us” and “our.”
 
Jack in the Box — The firstJack in the Box restaurant, which offered only drive-thru service, opened in 1951.Jack in the Box isBoxis one of the nation’s largest hamburger chains and, based on the number of units, is the second or third largest QSR hamburger chain in most of our major markets. As of the end of our fiscal year on September 27, 2009,October 3, 2010, theJack in the Box system included 2,2122,206 restaurants in 18 states, of which 1,190956 were company-operated and 1,0221,250 were franchise-operated.
 
Qdoba Mexican Grill — To supplement our core growth and balance the risk associated with growing solely in the highly competitive hamburger segment of the QSR industry, in January 2003 we acquired Qdoba Restaurant Corporation, operator and franchisor of Qdoba Mexican Grill. As of September 27, 2009,October 3, 2010, the Qdoba system included 510525 restaurants in 4243 states, as well as the District of Columbia, of which 157188 were company-operated and 353337 were franchise-operated. In recent years, Qdoba has emerged as a leader in the fast-casual segment of the restaurant industry.
 
Discontinued Operations — We had also operated a proprietary chain of 61 convenience stores and fuel stations called Quick Stuff®, which were each adjacent to aJack in the Box restaurant. In the fourth quarter of 2008,2009, under a plan approved by our Board of Directors, approved a plan to sellwe sold Quick Stuff and we completed the disposition in the fourth quarter of 2009.Stuff. Refer to Note 2,Discontinued Operations, in the notes to the consolidated financial statements for more information.
 
Strategic Plan. Our Company vision of being a national restaurant companyCompany’s long-term strategic plan is supported by four key strategic initiatives: (i) reinvent theJack in the Box brand, (ii) expand franchising operations, (iii) improve the business model, and (iv) growJack in the Box and Qdoba Mexican Grill.
 
Strategic Plan — Brand Reinvention. We believe that reinventing theJack in the Box brand by focusing on the following three initiatives will differentiate us from our competition by offering our guests a better restaurant experience than typically found in the QSR segment:
 
 •  Menu Innovation. We believe that menu innovation and our use of high-quality ingredients will further differentiatedifferentiates Jack in the Box from competitors, strengthenstrengthens our brand and appealappeals to a broader base of consumers. In recent years, we have successfully leveraged premium ingredients like sirloin and artisan breads in launching new products unique to our segment of the restaurant industry. In fiscal 2009, we introduced several new menu items and new product platforms, including our chicken and beef Teriyaki Bowls, Mini Sirloin Burgers and Mini Buffalo Ranch Chicken Sandwiches, Flavored Teas and two new varieties of our Real Fruit Smoothies. We also introduced two products featuring a homestyle chicken fillet: a Homestyle Ranch Chicken Club and Breakfast Homestyle Chicken Biscuit. We further enhanced our line of breakfast products with a Chorizo Sausage Burrito and added two new side items, Mini Churros and Taco Nachos. Looking ahead, we have numerous products in various stages of development and test as we continue to innovate and enhance our menu as a means to further differentiateJack in the Box from other QSR chains.
 
 •  Service. A second major initiative of brand reinvention is to improve the level and consistency of guest service at our restaurants. Our investmentservice. Investing in employee training to reinforce six key tenets of guest service (quality food, a clean environment, friendly employees, order accuracy, a hassle-free experience and speed of service) has resulted in significant improvement in guest-satisfaction scores, which increased steadily throughout the year to a substantially higher level than fiscal 2008. We believe that our all-time low levels of


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employee turnover at our restaurants also contributed to the higher guest-service scores. In recent years, we introduced several internal service programs to help us improve employee retention and productivity at our restaurants, while also attracting higher-quality applicants for team-member positions. These initiatives include access to affordable healthcare for our employees meeting certain requirements, an ESL (English-as-a-second-language) program for our Spanish-speaking team members, and computer-based training in all of our restaurants. Additionally, we are leveraging new technologies to improve service and guest satisfaction, such as self-serve kiosks installed at certainJack in the Box locations, which offer guests an alternative method of ordering inside a restaurant. AtAs of fiscal year end, kiosks were installed in more than 200230 company and franchisedfranchise restaurants had kiosks, and over time, we plan to add them to additional restaurants where the frequency of use is expected to be highest. OurGenerally, our kiosk transactions have higher check averages than orders processed at the service counters, partially due to our ability to customize messaging to prompt add-on items.
 •  Environment. TheBecause the restaurant environment is another driver of guest satisfaction, the third element of brand reinvention is the major renovation of our restaurants with a comprehensive re-image of the facilities, including a complete redesign of the dining room and common areas, as well as other exterior enhancements such as new paint schemes, lighting and landscaping. Approximately 46% of theJack in the Box system now features all interior and exterior elements of our re-image program, which enables us torestaurant facilities. We can portray a more cohesive and consistent brand image to our guests. In 2009, we acceleratedguests by completely redesigning the dining room and substantially completedcommon areas and enhancing the exterior enhancements throughoutexteriors with new paint schemes, lighting and landscaping. At fiscal year end, nearly 68% of company restaurants – and more than 55% of theJack in the Box system – featured all interior and will now focusexterior elements of the re-image program. We remain focused on enhancing the entire guest


2

experience, including the substantial completion of our restaurant re-imaging restaurant interiors, including franchise locations,program system-wide, which we expect to complete system-wideis targeted by the end of fiscal year 2012. In fiscal 2009, we opened 63 of our2011. Our newest restaurant prototype which distinguishesJack in the Box from our competitors through innovative architectural elements and a flexible kitchen design that can accommodate future menu offerings while maximizing productivity and throughput. Several energy-efficient and environmentally friendly amenities are standard in our new prototype, including tankless water heaters and water-saving utilities, while solar lighting tubes, energy management systems, synthetic turf and LED lighting are currently in test at several locations. In 2009, we also unveiled a new logo that sends a clear signal to consumers that today’sJack in the Box is not the Jack of the past. The new logo which is infused with the personality of our iconic founder, Jack, now appears on packaging and uniforms and in our advertising. Restaurant signage is expected to be rolled out overAt fiscal year end, nearly 15% of the next three to five years.system featured the new logo on restaurant signage.
 
Strategic Plan — Expand Franchising Operations. Our second strategic initiative is to continue expanding our franchising operations to generate higher margins and returns for the Company while creating a business model that is less capital intensive and not as susceptible to cost fluctuations. Through the sale of 194219 company-operatedJack in the Box restaurants to franchisees and the development of 2116 new franchisedfranchise restaurants, we increased franchise ownership of theJack in the Box system to approximately 46%57% at fiscal year end from approximately 38%46% at the end of fiscal 2008.2009. We remain on track withare ahead of our long-termplan to achieve our goal to increase the percentage of franchise ownership in the Jack in the Box system to approximately70-80% of the system by the end of fiscal 2013. We also have executed development agreements with several franchisees to further expand theJack in the Box brand in new and existing markets in 20102011 and beyond. The Qdoba system is predominantly franchised, and we anticipate that future growth will continue to be mostly franchised. In fiscal 2009,2010, Qdoba franchisees opened 38 restaurants in existing and new markets.21 restaurants.
 
Strategic Plan — Improve the Business Model. This sweeping strategy involves focusing our entire organization on improving restaurant profitability and returns as well as on administrative efficiencies. We will continue to focus on reducing food, packaging and labor costs through product design, menu innovation and operations simplification, as well as pricing optimization. We expect our selling, general and administrative expenses to continue tofurther decrease as we continue reengineering our processes and systems and transition to a business model comprised of predominantly franchised restaurant locations.
 
Strategic Plan — GrowJack in the Box and Qdoba Mexican Grill.
 
 •  Jack in the BoxGrowth. In fiscal 2009, 642010, 46 Jack in the Box restaurants opened, including 21 franchised16 franchise locations. During the year, we expanded intoour presence in several new contiguous markets in Texas, Colorado, Oregon, New Mexico and New Mexico. As with other new-market openings in recent years, the new restaurants generated significant traffic and sales. The first Colorado Springs restaurant, a franchised location, had opening-week sales of more than $130,000 and opening-week sales at each of the first two Albuquerque restaurants, also


3

both franchised, topped $115,000. We plan to openOklahoma. In fiscal 2011,45-5030-35 new company and franchise restaurants in fiscal 2010 and will continue expandingare planned as Jack in the Boxinto will continue to expandinto new contiguous markets, including locations currently under construction in Oklahomathe Kansas City and Tulsa, Oklahoma.metropolitan area.
 •  Qdoba Growth. In fiscal 2009, 622010, 36 Qdoba restaurants opened, including 38 franchised21 franchise locations, and franchisees expanded into new markets in DelawareIllinois, Texas, New Mexico, West Virginia and Minnesota.Mississippi. Our Qdoba system is primarily franchised and is the largest franchised Mexican-food chain in the fast-casual segment of the restaurant industry. The 24 company locations opened inIn fiscal 2009 was the highest number of company units ever opened in a year, and in fiscal 20102011, we plan to open 30-4050-60 new restaurants, including approximately 15 company-operated locations.company and franchise restaurants.
 
Restaurant Concepts
 
Jack in the Box.Jack in the Box. Jack in the Box restaurants offer a broad selection of distinctive, innovative products targeted primarily at the adult fast-food consumer. Our menuOurmenu features a variety of hamburgers, salads, specialty sandwiches, tacos, drinks, smoothies, real ice cream shakes and side items. Hamburger products include our signature Jumbo Jack®, Sourdough Jack®, Ultimate Cheeseburger and Jack’s 100% Sirloin Burger.Jack in the Boxrestaurants also offer premium entrée salads, specialty sandwiches, and Teriyaki Bowls to appeal to a broader customer base, including more women and consumers older than the traditional QSR target market of18-34 year old men. Furthermore,Jack in the Boxrestaurants offerevery day value-priced products, known as “Jack’s Value Menu,” to compete against price-oriented competitors and because value is important to certain fast-food customers.Jack in the Boxrestaurants also offer customers both the ability to customize their meals and to order any product, including breakfast items, any time of the day. We believe that our distinctive menu has been instrumental in developing brand loyalty and is appealing to customers with a broad range of food preferences. Furthermore, we believe that, because of our diverse menu, our restaurants are less dependent than other QSR chains on the commercial success of one or a few products.
 
TheJack in the Box restaurantBoxrestaurant chain was the first major hamburger chain to develop and expand the concept of drive-thru restaurants. In addition to drive-thru windows, most of our restaurants have seating capacities ranging from 20 to 100 persons and are open18-24 hours a day. Drive-thru sales currently account for approximately 70% of sales at company-operated restaurants.


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The following table summarizes the changes in the number of company-operated and franchisedfranchise Jack in the Box restaurants sinceover the beginning of fiscal 2005:past five years:
 
                                        
 Fiscal Year  Fiscal Year 
 2009 2008 2007 2006 2005  2010 2009 2008 2007 2006 
Company-operated restaurants:                                        
Beginning of period  1,346   1,436   1,475   1,534   1,558   1,190   1,346   1,436   1,475   1,534 
New  43   23   42   29   38   30   43   23   42   29 
Refranchised  (194)  (109)  (76)  (82)  (58)  (219)  (194)  (109)  (76)  (82)
Closed  (6)  (4)  (5)  (6)  (5)  (46)  (6)  (4)  (5)  (6)
Acquired from franchisees  1   —   —   —   1   1   1   -   -   - 
                      
End of period total  1,190   1,346   1,436   1,475   1,534   956   1,190   1,346   1,436   1,475 
                      
% of system  54%  62%  67%  71%  75%  43%   54%   62%   67%   71% 
Franchised restaurants:                    
Franchise restaurants:                    
Beginning of period  812   696   604   515   448   1,022   812   696   604   515 
New  21   15   16   7   11   16   21   15   16   7 
Refranchised  194   109   76   82   58   219   194   109   76   82 
Closed  (4)  (8)  —   —   (1)  (6)  (4)  (8)  -   - 
Acquired from franchisees  (1)  —   —   —   (1)
Sold to Company  (1)  (1)  -   -   - 
                      
End of period total  1,022   812   696   604   515   1,250   1,022   812   696   604 
                      
% of system  46%  38%  33%  29%  25%  57%   46%   38%   33%   29% 
 
System end of period total  2,212   2,158   2,132   2,079   2,049       2,206       2,212       2,158       2,132       2,079 
                      
 
Qdoba Mexican Grill. Qdoba restaurants use fresh, high quality ingredients and traditional Mexican flavors fused with popular ingredients from other regional cuisines, to give a unique “Nouveau-Mexican” taste to our broad menu.positioning Qdoba as an Artisanal Mexican kitchen within reach. A few examples of Qdoba’s unique flavors are its signature Poblano Pesto and Ancho Chile BBQ sauces. While the great flavors start with the core philosophy of “the fresher the ingredients, the fresher the flavorstm,”, our ability to deliver these flavors is made possible by the commitment to professional preparation methods. Throughout each day, guacamole is prepared on site using fresh Hass avocados, black and pinto beans are slow-simmered, shredded beef and pork are slow-roasted and adobo-marinated chicken and steak are flame-grilled. Customer orders are prepared in full view, which gives our guests the control they desire to build a meal that is specifically suited to their individual taste preferences and nutritional needs. WeQdoba restaurants also offer a variety of catering options that can be tailored to feed groups of five to several hundred. Our Hot Taco, Nacho and Naked Burrito Bars come with everything needed, including plates, napkins, serving utensils, chafing stands and sternos. Each Hot Bar is set up buffet-style so diners have the ability to prepare their meal to their liking, just like in the restaurant. The seating capacity at Qdoba restaurants ranges from 60 to 80 persons, including outdoor patio seating at many locations.


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The following table summarizes the changes in the number of company-operated and franchised Qdoba restaurants sincefranchise Qdobarestaurants over the beginning of fiscal 2005:past five years:
 
                                   
 Fiscal Year  Fiscal Year 
 2009 2008 2007 2006 2005  2010 2009 2008 2007 2006 
Company-operated restaurants:                                        
Beginning of period  111   90   70   57   47   157   111   90   70   57 
New  24   21   10   13   12   15   24   21   10   13 
Refranchised  —   —   —   —   (4)  -   -   -   -   - 
Closed  —   —   —   —   (1)  -   -   -   -   - 
Acquired from franchisees  22   —   10   —   3   16   22   -   10   - 
                      
End of period total  157   111   90   70   57   188   157   111   90   70 
                      
% of system  31%  24%  23%  22%  23%  36%   31%   24%   23%   22% 
Franchised restaurants:                    
Franchise restaurants:                    
Beginning of period  343   305   248   193   130   353   343   305   248   193 
New  38   56   77   58   65   21   38   56   77   58 
Refranchised  —   —   —   —   4   -   -   -   -   - 
Closed  (6)  (18)  (10)  (3)  (3)  (21)  (6)  (18)  (10)  (3)
Acquired from franchisees  (22)  —   (10)  —   (3)
Sold to Company  (16)  (22)  -   (10)  - 
                      
End of period total  353   343   305   248   193   337   353   343   305   248 
                      
% of system  69%  76%  77%  78%  77%  64%   69%   76%   77%   78% 
 
System end of period total  510   454   395   318   250       525       510       454       395       318 
                      
 
Restaurant Expansion and Site Selection and Design
 
Restaurant Expansion.  Our long-term growth strategy for ourJack in the Box brand consists of continued restaurant expansion, including expansion into new contiguous markets through Company investment and franchise development. Qdoba’s growth is expected to come primarily from increasing the number of franchise-developed locations. We remain committed to growing our fast-casual subsidiary and believe that Qdoba has significant expansion potential.
Site Selection and Design. Site selections for all new company-operated restaurants are made after an economic analysis and a review of demographic data and other information relating to population density, traffic, competition, restaurant visibility and access, available parking, surrounding businesses and opportunities for market penetration. Restaurants developed by franchisees are built to our specifications on sites we have reviewed.
 
We have a restaurant prototype with different seating capacities to help reduce costs and improve our flexibility in locating restaurants. Management believes that the flexibility provided by the alternative configurations enables the Company to match the restaurant configuration with the specific economic, demographic, geographic and physical characteristics of a particular site. The majority of ourJack in the Box restaurantsBoxrestaurants are financed with sale and leaseback transactions or constructed on leased land. Typical costs to develop a traditionalJack in the Box restaurant, excluding the land value, range from $1.3$1.2 million to $1.8$1.9 million. Whenever possible, we useWhen sale and leaseback financing and other means to loweris used, the initial cash investment in a typicalJack in the Box restaurantis reduced to the cost of equipment, which averages approximately $0.4 million. Qdoba restaurant development costs typically range from $0.5 million to $1.2$0.9 million depending on geographic region with most closer to the lower end of the range.region.
 
Franchising Program
 
JackJack in the Box. Box.The JackJack in the Box Box franchise agreement generally provides for an initial franchise fee of $50,000 per restaurant for a20-year term, and in most instances, marketing fees at 5% of gross sales. Royalty rates, typically 5% of gross sales, range from 2.5%2% to as high as 15% of gross sales, and some existing agreements provide for variable rates. We offer development agreements for construction of one or more new restaurants over a defined period of


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time and in a defined geographic area. Developers are required to pay a fee, a portion of which may be credited against franchise fees due when restaurants open in the future. Developers may forfeit such fees and lose their rights to future development if they do not maintain the required schedule of openings. In fiscal 2009, we began offering a new market development incentive to our franchisees whereby the first 10% of restaurants opening on schedule in a new market may be eligible to receive a royalty rate reduction of 2.5% of gross sales for the first two years after opening, subject to certain limitations.
 
In connection with the sale of a company-operated restaurant, the restaurant equipment and the right to do business at that location are sold to the franchisee. The aggregate price is equal to the negotiated fair market value of the restaurant as a going concern, which depends on various factors, including the historysales and cash flows of the


5

restaurant, as well as its location and its sales and cash flow potential.history. In addition, the land and building are generally leased or subleased to the franchisee at a negotiated rent, generally equal to the greater of a minimum base rent or a percentage of gross sales. The franchisee is usually required to pay property taxes, insurance and maintenance costs.
We view our non-franchised Jack inancillary costs, and is responsible for maintaining the Boxrestaurants as a resource, which based on our strategic plan, can be sold to franchisees, thereby providing increased cash flows and gains when sold while still generating future cash flows and earnings through franchise rents and royalties. image of the restaurant.
 
Qdoba Mexican Grill. The current Qdoba franchise agreement generally provides for in most instances, an initial franchise fee of $30,000 per restaurant, a10-year term with a10-year option to extend royaltiesat a fee of 5% of gross sales$5,000, and marketing fees of up to 2% of gross sales. Franchisees are also required to spend a minimum of 2% of gross sales on local marketing for their restaurants. Royalty rates are typically 5% of gross sales with certain agreements at 2.5% as noted below. We typically offer area development agreements for the construction of 5 to 20one or more new restaurants over a defined period of time and in a defined geographic area for a development fee, a portion of which may be credited against franchise fees due for restaurants to be opened in the future. If the developer does not maintain the required schedule of openings, they may forfeit such fees and lose their rights to future development. In fiscal 2010, as an incentive to develop target markets, we entered into two development agreements with an initial franchise fee of $15,000 and a royalty rate of 2.5% of gross sales for the first two years of operation for each restaurant opened within the first two years of the development agreement, subject to certain limitations. We may offer similar development agreements in target markets during fiscal 2011.
 
Restaurant Operations
 
Restaurant Management. Restaurants are operated by a company-employed manager or a franchisee thatwho is directly responsible for the operations of the restaurant, including product quality, service, food safety, cleanliness, inventory, cash control and the conduct and appearance of employees. Our restaurantRestaurant managers are required to attend extensive management training classes involving a combination of classroom instruction andon-the-job training in specially designated training restaurants. Restaurant managers and supervisory personnel train other restaurant employees in accordance with detailed procedures and guidelines using training aids available at each location. We also use an interactive system of computer-based training (“CBT”), with a touch-screen computer terminal at our JackJack in the Box Box restaurants. The CBT technology incorporates audio, video and text, all of which are updated on the computer via satellite technology.satellite. CBT is also designed to reduce the administrative demands on restaurant managers.
 
For Companycompany operations, regional groupdivision vice presidents supervise regional directors, who supervise area coaches, who in turn supervise restaurant managers. Under our performance system, regional groupdivision vice presidents, regional directors, area coaches and restaurant managers are eligible for periodic bonuses based on achievement of goals related to location sales, our “Voice of the Guest” consumer feedback program, profitabilityprofitand/or certain other operational performance standards.
 
Customer Satisfaction. We devote significant resources toward ensuring that all restaurants offer quality food and good service. We place great emphasis on ensuring that ingredients are delivered timely to the restaurants. Restaurant food production systems are continuously developed and improved, and we train our employees to be dedicated to deliveringdeliver consistently good service. Through our network of quality assurance, facilities services and restaurant management personnel, we standardize specifications for food preparation and service, employee conduct and appearance, and the maintenance of our restaurant premises. Operating specifications and procedures are documented in on-line reference manuals and CBT presentations.modules. During fiscal 2009,2010, most JackJack in the Box Box restaurants received at least two quality and food safety and cleanliness inspections. In addition, our “Voice of the Guest” program provides restaurant managers with guest surveys each period regarding their Jack inthe BoxJack in the Box experience. In 2009,2010, we received more than one1.2 million guest survey responses. We also receiveresponses, in addition to receiving guest feedback through our 800toll-free telephone number. Also, we recently implemented a comprehensive, system-wide program at Jack in the Box restaurants to improve guest service by delivering a more consistent dining experience. Additional resources are being committed to more closely measure how restaurants are executing the key drivers of guest satisfaction, including: food quality, accuracy, hassle free service, friendliness, cleanliness and service times. The regional director, area coach and restaurant manager receive the feedback so they are able to take immediate action to correct any issues and improve the guest experience in the restaurant.


7

Quality Assurance
 
Our“farm-to-fork” food safety and quality assurance program is designed to maintain high standards for the food products and food preparation procedures used by company-operated and franchisedfranchise restaurants. We maintain


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product specifications and approve product sources. We have a comprehensive, restaurant-based Hazard Analysis & Critical Control Points (“HACCP”) system for managing food safety and quality. HACCP combines employee training, testing by suppliers, documented restaurant practices and detailed attention to product quality at every stage of the food preparation cycle. The USDA, FDAU.S. Department of Agriculture (“USDA”), Food and Drug Administration (“FDA”) and the Center for Science in the Public Interest have recognized our HACCP program as a leader in the industry.
 
In addition, our HACCP system uses ServSafe®, a nationally recognized food-safety training and certification program administered in partnership with the National Restaurant Association.program. Jack in the Box Inc. is a member of the International Food Safety Council, a coalition of industry members of the National Restaurant Association that have demonstrated a corporate commitment to food safety. Our standards require that all restaurant managers and grill employees receive special grill certification training and be certified annually.
 
Purchasing and Distribution
 
We provide purchasing, warehouse and distribution services for all JackJack in the Box Box company-operated restaurants, nearly 74%90% of our JackJack in the Box Box franchise-operated restaurants, and approximately 45% of Qdoba’s company and franchise-operated restaurants. The remaining JackJack in the Box Box franchisees and Qdoba restaurants purchase product from approved suppliers and distributors. Some products, primarily dairy and bakery items, are delivered directly by approved suppliers to both company and franchise-operated restaurants. In 2009, we outsourced the transportation services portion of our supply chain to JB Hunt as a means of reducing our riskrisks associated with the transportation business without increasing our costs.
 
Regardless of whether we provide distribution services to a restaurant or not, we require that all suppliers meet our strict HACCP program standards, previously discussed. The primary commodities purchased by theour restaurants are beef, poultry, pork, cheese and produce. We monitor the primary commodities we purchase in order to minimize the impact of fluctuations in price and availability, and we make advance purchases of commodities when considered to be advantageous. However, certain commodities remain subject to price fluctuations. All essential food and beverage products are available, or can be made available, upon short notice from alternative qualified suppliers.
 
Information Systems
 
Jack in the Box.We have centralized financial and accounting systems for company-operated restaurants, which werestaurants. We believe these systems are important in analyzing and improving profit margins and accumulating marketing information. Our restaurant satellite-enabled software allows for daily, weekly and monthly polling of sales, inventory and labor data from the restaurants. We use a standardized Windows-based touch screenpoint-of-sale (“POS”) platform in ourJack in the Box company and franchisedfranchise restaurants, which allows us to accept credit cards andJACK CA$H®, our re-loadable gift cards. We have an order confirmation system with color screens and contactless payment technology throughout our system, which allows us to accept new credit card types and to prepare for future innovation. We have also developed business intelligence systems to provide visibility to the key metrics in the operation of company and franchisedfranchise restaurants. We use anOur interactive computer-based training (“CBT”)CBT system, in ourJack in the Box restaurants aspreviously discussed, is the standard training tool for new hire training and periodic workstation re-certifications, andre-certifications. We have a labor scheduling system to assist in managing labor hours based on forecasted sales volumes. We also have a highly reliable inventory management system, which enables timely deliveries to our restaurants with excellent control over food safety. To support order accuracy and speed of service, our drive-thru restaurants use color order confirmation screens.
Qdoba. Qdoba restaurants use POS software with touch screens, accept debit and credit cards at all locations and useback-of-the-restaurant software to control purchasing, inventory, and food and labor costs. These software products have been customized to meet Qdoba’s operating standards.
 
Advertising and Promotion
 
We build brand awareness through our marketing and advertising programs and activities. These activities are supported primarily by contractual contributions from all company and franchisedfranchise restaurants based on a


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percentage of sales. Activities to advertise restaurant products, promote brand awareness and attract customers include, but are not limited to, regional and local campaigns on television, national cable television, radio and print media, as well as Internet advertising on specific sites and broad-reach Web portals.


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Employees
 
At September 27, 2009,October 3, 2010, we had approximately 35,70029,300 employees, of whom 34,10027,600 were restaurant employees, 9001,000 were corporate personnel, 300 were distribution employees and 400 were field management and administrative personnel. Employees are paid on an hourly basis, except certain restaurant managers, operations and corporate management, and certain administrative personnel. We employ both full and part-time restaurant employees in order to provide the flexibility necessary during peak periods of restaurant operations.
 
We have not experienced any significant work stoppages and believe our labor relations are good. Over the last several years, we have realized improvements in our hourly restaurant employee retention rate. In 2005 and 2008,Jack in the Box and Qdoba, respectively, received the Spirit Award, an honor awarded by Nation’s Restaurant News and the National Restaurant Association Educational Foundation to the restaurant companies with the most innovative workforce programs for enhancing employee satisfaction. We support our employees, including part-time workers, by offering competitive wages competitive benefits, including a pension plan for all of our employees meeting certain requirements, and discounts on dining.benefits. Furthermore, we offer all hourly employees meeting certain minimum service requirements access to health coverage, including vision and dental benefits. As an additional incentive to team members with more than a year of service, we will pay a portion of their health insurance premiums. We also provide our restaurant employees with a program called “Sed de Saber” (Thirst for Knowledge), an electronic home study program to assist Spanish-speaking restaurant employees in improving their English skills. We believe these programs have contributed to lower turnover, training costs and workers’ compensation claims.
 
Executive Officers
 
The following table sets forth the name, age, (as of September 27, 2009), position and years with the Company of each person who is an executive officer of Jack in the Box Inc. (as of October 3, 2010):
 
              
     Years with the
     Years with the
Name
 
Age
 
Positions
 
Company
 Age Positions 
Company
Linda A. Lang 51 Chairman of the Board and Chief Executive Officer 22  52 Chairman of the Board, Chief Executive Officer and President 23 
Paul L. Schultz 55 President and Chief Operating Officer 36 
Jerry P. Rebel 52 Executive Vice President and Chief Financial Officer 6  53 Executive Vice President and Chief Financial Officer 7 
Phillip H. Rudolph 51 Senior Vice President, General Counsel and Secretary 2  52 Executive Vice President, General Counsel, Secretary, and Chief Ethics & Compliance Officer 2 
Leonard A. Comma 40 Senior Vice President, Chief Operating Officer 9 
Terri F. Graham 44 Senior Vice President, Chief Marketing Officer 19  45 Senior Vice President, Chief Marketing Officer 20 
Charles E. Watson 54 Senior Vice President, Chief Development Officer 23  55 Senior Vice President, Chief Development Officer 24 
Mark H. Blankenship, Ph.D. 48 Vice President, Human Resources and Operational Services 12  49 Vice President, Human Resources 13 
Carol A. DiRaimo 48 Vice President, Investor Relations and Corporate Communications 1  49 Vice President, Investor Relations and Corporate Communications 2 
Gary J. Beisler 53 Chief Executive Officer and President, Qdoba Restaurant Corporation 6  54 Chief Executive Officer and President, Qdoba Restaurant Corporation 7 
 
The following sets forth the business experience of each executive officer for at least the last 5 years.years:
 
Ms. Langhas been Chairman of the Board and Chief Executive Officer since October 2005.2005, and became President in February 2010. She was President and Chief Operating Officer from November 2003 to October 2005 and was Executive Vice President from


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July 2002 to November 2003. From 1996 through July 2002, Ms. Lang held officer-level positions with marketing or operations responsibilities.
 
Mr. Schultzhas been President and Chief Operating Officer since October 2005. He was Executive Vice President, Operations and Franchising from November 2004 to October 2005, Senior Vice President, Operations and Franchising from August 1999 to November 2004, and was Vice President from May 1988 to August 1999. In September 2009, Mr. Schultz announced his retirement from the Company effective January 2010.
Mr. Rebelhas been Executive Vice President and Chief Financial Officer since October 2005. He was previously Senior Vice President and Chief Financial Officer sincefrom January 2005 to October 2005 and Vice President and Controller of the Company from September 2003 to January 2005. Prior to joining the company, he was Vice PresidentCompany in 2003, Mr. Rebel held senior level positions with Fleming Companies, CVS Corporation and Controller for Fleming Companies. Mr. RebelPeople’s Drugs and has more than 20 years of corporate finance experience, including senior level positions with the CVS Corporation and People’s Drugs.experience.
 
Mr. Rudolphhas served asbeen Executive Vice President, General Counsel, Corporate Secretary, and Chief Ethics & Compliance Officer since February 2010. He was previously Senior Vice President, General Counsel, and Corporate Secretary and Chief Ethics & Compliance Officer since November 2007. Prior to joining the company,Company in November 2007, Mr. Rudolph was Vice President and General Counsel for Ethical Leadership Group of Wilmette, Ill. He was previously a Partner with Foley Hoag, LLP, a Vice President and U.S. and International General Counsel at McDonald’s Corporation, and a Partner with the law firm of Gibson, Dunn & Crutcher, LLP. Mr. Rudolph has more than 2425 years of legal experience.
 
Mr. Comma became Senior Vice President and Chief Operating Officer in February 2010. He was Vice President Operations Division II from February 2007 to February 2010, Regional Vice President of the Company’s Southern California region from May 2006 to February 2007 and Director of Convenience-Store & Fuel Operations for the Company’s proprietary chain of Quick Stuff convenience stores from August 2001 to May 2006.


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Ms. Grahamhas served asbeen Senior Vice President and Chief Marketing Officer since September 2007. She was previously Vice President and Chief Marketing Officer from December 2004 to September 2007, Vice President of Marketing from May 2003 to December 2004 and Vice President of Brand Communications and Regional Marketing from July 2002 to May 2003. Ms. Graham has 1820 years of experience with the companyCompany in various marketing positions.
 
Mr. Watsonhas been Senior Vice President since September 2008 and Chief Development Officer since November 2007. Mr. Watson served as Vice President, Restaurant Development since rejoining the Company in April 1997. Mr. Watson has 2324 years of experience with the Company in various development and franchising positions.
 
Dr. Blankenshiphas been Vice President, Human Resources since November 2009. He was previously Vice President, Human Resources and Operational Services since October 2005. He was Division Vice President, Human Resources from October 2001 to September 2005. Dr. Blankenship has more than 1213 years experience with the Company in various human resource and training positions. Effective the beginning of fiscal 2011, he was promoted to Senior Vice President and Chief Administrative Officer.
 
Ms. DiRaimohas been Vice President of Investor Relations and Corporate Communications since July 2008. She previously held various positions with Applebee’s International, Inc., including Vice President of Investor Relations from February 2004 to November 2007. Ms. DiRaimo has more than 2527 years of corporate finance and public accounting experience.
 
Mr. Beislerhas been Chief Executive Officer of Qdoba Restaurant Corporation since November 2000 and President since January 1999. He was Chief Operating Officer from April 1998 to December 1998.
 
Trademarks and Service Marks
 
The JackJack in the Box Box and Qdoba Mexican Grill names are of material importance to us and each is a registered trademark and service mark in the United States. In addition, we have registered numerous service marks and trade names for use in our businesses, including the JackJack in the Box Box logo, the Qdoba logo and various product names and designs.
 
Seasonality
 
Restaurant sales and profitability are subject to seasonal fluctuations and are traditionally higher during the spring and summer months because of factors such as increased travel and improved weather conditions, which affect the public’s dining habits.


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Competition and Markets
 
The restaurant business is highly competitive and is affected by population trends, traffic patterns, competitive changes in a geographic area, changes in consumer dining habits and preferences, new information regarding diet, nutrition and health, and local and national economic conditions, including unemployment levels, that affect consumer spending habits. Key elements of competition in the industry are the type and quality of the food products offered, price, quality and speed of service, personnel, advertising, name identification, restaurant location and attractiveness of the facilities.
 
Each JackJack in the Box Box and Qdoba restaurant competes directly and indirectly with a large number of national and regional restaurant chains, as well as with locally-ownedand/or independent restaurants in the quick-service restaurants and the fast-casual segment.segments. In selling franchises, we compete with many other restaurant franchisors, some of whom have substantially greater financial resources and higher total sales volume.
 
Regulation
 
Each restaurant is subject to regulation by federal agencies, as well as licensing and regulation by state and local health, sanitation, safety, fire, zoning, building and other departments. Difficulties or failures in obtaining and


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maintaining any required permits, licensing or approval could result in closures of existing restaurants or delays or cancellations in the opening of new restaurants.
 
We are also subject to federal and state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises, and may also apply substantive standards to the relationship between franchisor and franchisee, including limitations on the ability of franchisors to terminate franchises and alter franchise arrangements.
 
We are subject to the federal Fair Labor Standards Act and various state laws governing such matters as minimum wages, exempt status classification, overtime, breaks and other working conditions. A significant number of our food service personnel are paid at rates based on the federal and state minimum wage and, accordingly, increases in the minimum wage increase our labor costs. Federal and state laws may also require us to provide paid and unpaid leave to our employees, which could result in significant additional expense to us.
 
We are subject to certain guidelines under the Americans with Disabilities Act of 1990 and various state codes and regulations, which require restaurants to provide full and equal access to persons with physical disabilities. To comply with such laws and regulations, the cost of remodeling and developing restaurants has increased.
 
We are also subject to various federal, state and local laws regulating the discharge of materials into the environment. The cost of complying with these laws increases the cost of operating existing restaurants and developing new restaurants. Additional costs relate primarily to the necessity of obtaining more land, landscaping, and storm drainage control and the cost of more expensive equipment necessary to decrease the amount of effluent emitted into the air, ground and surface waters.
 
Many of our Qdoba restaurants sell alcoholic beverages, which require licensing. The regulations governing licensing may impose requirements on licensees including minimum age of employees, hours of operation, advertising and handling of alcoholic beverages. The failure of a Qdoba Mexican Grill restaurant to obtain or retain a license could adversely affect the store’s results of operations.
 
We have processes in place to monitor compliance with applicable laws and regulations governing our operations.
 
Forward-Looking Statements
 
From time to time, we make oral and written forward-looking statements that reflect our current expectations regarding future results of operations, economic performance, financial condition and achievements of the Company. A forward-looking statement is neither a prediction nor a guarantee of future events. Whenever possible, we try to identify these forward-looking statements by using words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “will,” “would,” and similar expressions. Certain forward-looking statements are included in thisForm 10-K, principally in the


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sections captioned “Business,” “Legal Proceedings,” “Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including statements regarding our strategic plans and operating strategies. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, such expectations may prove to be materially incorrect due to known and unknown risks and uncertainties.
 
In some cases, information regarding certain important factors that could cause actual results to differ materially from any forward-looking statement appears together with such statement. In addition, the factors described under “Risk Factors” and “Critical Accounting Estimates,” as well as other possible factors not listed, could cause actual resultsand/or goals to differ materially from those expressed in forward-looking statements. As a result, investors should not place undue reliance on such forward-looking statements, which speak only as of the date of this report. The Company is under no obligation to update forward-looking statements, whether as a result of new information or otherwise.


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ITEM 1A.RISK FACTORS
 
We caution you that our business and operations are subject to a number of risks and uncertainties. The factors listed below are important factors that could cause actual results to differ materially from our historical results and from projections in forward-looking statements contained in this report, in our other filings with the Securities and Exchange Commission (“SEC”), in our news releases and in oral statements by our representatives. However, other factors that we do not anticipate or that we do not consider significant based on currently available information may also have an adverse effect on our results.
 
Risks Related to the Food Service Industry. Food service businesses may be materially and adversely affected by changes in consumer tastes, national and regional economic and political conditions, and changes in consumer eating habits, whether based on new information regarding diet, nutrition and health, or otherwise. Recessionary economic conditions, including higher levels of unemployment, lower levels of consumer confidence and decreased consumer spending can reduce restaurant traffic and sales and impose practical limits on pricing. If recessionary economic conditions persist for an extended period of time, consumers may make long-lasting changes to their spending behavior. The performance of individual restaurants may be adversely affected by factors such as traffic patterns, demographics and the type, number and location of competing restaurants, as well as local regulatory, economic and political conditions, terrorist acts or government responses, weather conditions and catastrophic events such as earthquakes fires, floods or other natural disasters.
 
Multi-unit food service businesses such as ours can also be materially and adversely affected by widespread negative publicity of any type, particularly regarding food quality, nutritional content, illness or public health issues (such as epidemics or the prospect of a pandemic), obesity, safety, injury or other health concerns. Adverse publicity in these areas could damage the trust customers place in our brand. We have taken steps to mitigate each of these risks. To minimize the risk of food-bornefoodborne illness, we have implemented a HACCP system for managing food safety and quality. Nevertheless, these risks cannot be completely eliminated. Any outbreak of such illness attributed to our restaurants or within the food service industry or any widespread negative publicity regarding our brands or the restaurant industry in general could cause a decline in our sales and have a material adverse effect on our financial condition and results of operations.
 
Unfavorable trends or developments concerning factors such as inflation, increased cost of food, labor, fuel, utilities, technology, insurance and employee benefits (including increases in hourly wages, workers’ compensation and other insurance costs and premiums), increases in the number and locations of competing restaurants, regional weather conditions and the availability of qualified, experienced management and hourly employees, may also adversely affect the food service industry in general. Because a significant number of our restaurants are company-operated, we may have greater exposure to operating cost issues than chains that are more heavily franchised. Exposure to these fluctuating costs, including increases in commodity costs, could negatively impact our margins. Our continued success will depend in part on our ability to anticipate, identify and respond to changing conditions.
 
Restaurant sales and profitability are traditionally higher in the spring and summer months due to increased travel, improved weather conditions and other factors which affect the public’s dining habits. We cannot assure that our operating results will not be impacted by seasonal fluctuations in sales.
Risks Associated with Severe Weather and Climate Conditions. Foodservice businesses such as ours can be materially and adversely affected by severe weather conditions. Severe storms, hurricanes, prolonged drought or protracted heat waves and their aftermath, including flooding, mudslides or wildfires, can result in (i) lost restaurant sales when consumers stay home or are physically prevented from reaching the restaurants; (ii) property damage and lost sales when locations are forced to close for extended periods of time; (iii) interruptions in supply when vendors suffer damages or transportation is affected and (iv) increased costs if agricultural capacity is diminished or if insurance recoveries do not cover all our losses. If systemic or widespread adverse changes in climate or weather patterns occur, we could experience more of these losses, and such losses could have a material effect on our results of operations and financial condition.
Risks Associated with Suppliers. Dependence on frequent deliveries of fresh produce and other food products subjects food service businesses such as ours to the risk that shortages or interruptions in supply could adversely affect the availability, quality and cost of ingredients or require us to incur additional costs to obtain adequate


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supplies. Our deliveries of supplies may be affected by adverse weather conditions, natural disasters, supplier financial or solvency issues, product recalls, failure to meet our high standards for quality or other issues.
Reliance on Certain Geographic Markets. Because approximately 57% of all of our restaurants are located in the states of California and Texas, the economic conditions, state and local laws, government regulations, weather conditions and natural disasters affecting those states may have a material impact upon our results. While there are reports pointing towards U.S. economic recovery, many of our largest markets continue to experience adverse economic conditions, including higher levels of unemployment, lower levels of consumer confidence and decreased consumer spending. If economic recovery is slower and unemployment rates remain elevated, our sales results may be adversely affected.
 
Risks Associated with Development. We intend to grow by developing additional company-owned restaurants and through new restaurant development by franchisees. Development involves substantial risks, including the risk of (i) the availability of financing for the Company and for franchisees at acceptable rates and terms, (ii) development costs exceeding budgeted or contracted amounts, (iii) delays in completion of construction, (iv) the inability to identify, or the unavailability of suitable sites on acceptable leasing or purchase terms, (v) developed properties not achieving desired revenue or cash flow levels once opened, (vi) the unpredicted negative impact of a new restaurant upon sales at nearby existing restaurants, (vii) competition for suitable development sites;sites, (viii) incurring substantial unrecoverable costs in the event a development project is abandoned prior to completion, (ix) the inability to obtain all required governmental permits, including, in appropriate cases, liquor licenses;licenses, (x) changes in governmental rules, regulations and interpretations (including interpretations of the requirements of the Americans with Disabilities Act), and (xi) general economic and business conditions.
 
Although we manage our development activities to reduce such risks, we cannot assure you that present or future development will perform in accordance with our expectations. Our inability to expand in accordance with our plans or to manage our growth could have a material adverse effect on our results of operations and financial condition.
 
Reliance on Certain Geographic Markets.  Because approximately 60% of our restaurants are located in the states of California and Texas, the economic conditions, state and local laws, government regulations, weather conditions and natural disasters affecting those states may have a material impact upon our results.
Risks Related to Entering New Markets. Our growth strategy includes opening restaurants in markets where we have no existing locations. We cannot assure you that we will be able to successfully expand or acquire critical market presence for our brands in new geographicalgeographic markets, as we may encounter well-established competitors with substantially greater financial resources. We may be unable to find attractive locations, acquire name recognition, successfully market our products or attract new customers. Competitive circumstances and consumer characteristics in new market segments and new geographicalgeographic markets may differ substantially from those in the market segments and geographicalgeographic markets in which we have substantial experience. It may also be difficult for us to recruit and retain qualified personnel to manage restaurants. We cannot assure that company or franchisedfranchise restaurants can be operated profitably in new geographicalgeographic markets. Management decisions to curtail or cease investment in certain locations or markets may result in impairment charges.
 
Competition. The restaurant industry is highly competitive with respect to price, service, location, personnel, advertising, brand identification and the type and quality of food,and therefood. There are many well-established competitors. Each of our restaurants competes directly and indirectly with a large number of national and regional restaurant chains, as well as with locally-ownedand/or independent quick-service restaurants, fast-casual restaurants, sandwich shops and similar types of businesses. The trend toward convergence in grocery, deli and restaurant services may increase the number of our competitors. Such increased competition could decrease the demand for our products and negatively affect our sales and profitability. Some of our competitors have substantially greater financial, marketing, operating and other resources than we have, which may give them a competitive advantage. Certain of our competitors have introduced a variety of new products and engaged in substantial price discounting in the past, and may adopt similar strategies in the future. Our promotional strategies or other actions during unfavorable competitive conditions may adversely affect our margins. We plan to take various steps in connection with our on-going “brand re-invention” strategy, including making improvements to the facility image at our restaurants, introducing new, higher-quality products, discontinuing certain menu items and implementing new service and training initiatives. However, there can be no assurance (i) that our facility improvements will foster increases in sales and yield the desired return on investment,investment; (ii) of the success of our new products, initiatives or our overall strategiesstrategies; or (iii) that competitive product offerings, pricing and promotions will not have an adverse effect upon our sales results and financial condition. We have an on-going “profit improvement program” which seeks to


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improve efficiencies and lower costs in all aspects of operations. Although we have been successful in improving efficiencies and reducing costs in the past, there is no assurance that we will be able to continue to do so in the future.


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Risks Related to Increased Labor Costs. We have a substantial number of employees who are paid wage rates at or slightly above the minimum wage. As federal, state and local minimum wage rates increase, our labor costs will increase. If competitive pressures or other factors prevent us from offsetting the increased costs by increases in prices, our profitability may decline. In addition, various proposals that would require employers to provide health insurance for all of their employees are currently being considered inthe Patient Protection and Affordable Care Act (the healthcare reform act) passed by Congress and various states. We offer access to healthcare benefits to our restaurant team members. The imposition of anysigned into law in early 2010 imposes several new and costly mandates upon us, including the requirement that we provideoffer health insurance to all full time employees on terms materially different frombeginning in 2014. It is our existing programsbelief that our expenses incurred in providing such insurance will be substantially higher than our current expenses and could have a material adverse impact onnegatively affect our results of operations and financial condition.operations.
 
Risks Related to Advertising. Some of our competitors have greater financial resources, which enable them to purchase significantly more television and radio advertising than we are able to purchase. Should our competitors increase spending on advertising and promotion, should the cost of television or radio advertising increase or our advertising funds decrease for any reason, including implementation of reduced spending strategies, or should our advertising and promotion be less effective than our competitors, there could be a material adverse effect on our results of operations and financial condition. Also, the trend toward fragmentation in the media favored by our target consumers poses challenges and risks for our marketing and advertising strategies. Failure to effectively tackle these challenges and risks could also have a materially adverse effect on our results.
 
Taxes. Our income tax provision is sensitive to expected earnings and, as those expectations change, our income tax provisions may vary fromquarter-to-quarter andyear-to-year. In addition, from time to time, we may take positions for filing our tax returns that differ from the treatment for financial reporting purposes. The ultimate outcome of such positions could have an adverse impact on our effective tax rate.
 
Risks Related to Achieving Increased Franchise Ownership and Reducing Operating Costs. At September 27, 2009,October 3, 2010, approximately 46%57% of theJack in the Box restaurants were franchised. Our plan to increase the percentage of franchise restaurants and move towards a level of franchise ownership more closely aligned with that of the quick service restaurant industry is subject to risks and uncertainties. We may not be able to identify franchisee candidates with appropriate experience and financial resources or to negotiate mutually acceptable agreements with them. Our franchisee candidates may not be able to obtain financing at acceptable rates and terms. Current credit market conditions may slow the rate at which we are able to refranchise. We may not be able to increase the percentage of franchisedfranchise restaurants at the annual rate we desire or achieve the ownership mix of franchise to company-operated restaurants that we desire. Our ability to sell franchises and to realize gains from such sales is uncertain. Sales of our franchises and the realization of gains from franchising may vary fromquarter-to-quarter andyear-to-year, and may not meet expectations. We anticipate that our operating costs will be reduced as the number of company-operated restaurants decreases. The ability to reduce our operating costs through increased franchise ownership is subject to risks and uncertainties, and we may not achieve reductions in costs at the rate we desire.
 
Risks Related to Franchise Operations. The opening and success of franchisedfranchise restaurants depends on various factors, including the demand for our franchises, the selection of appropriate franchisee candidates, the availability of suitable sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the availability of financing and the financial and other capabilities of our franchisees and developers. See “Risks Associated with Development” and “Risks Related to Achieving Increased Franchise Ownership and Reducing Operating Costs” above. We cannot assure you that developers planning the opening of franchisedfranchise restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants required by their agreements. As the number of franchisees increases, our revenues derived from royalties and rents at franchisedfranchise restaurants will increase, as will the risk that revenuesearnings could be negatively impacted by defaults in the payment of royalties.royalties and rents. In addition, franchisee business obligations may not be limited to the operation ofJack in the Box restaurants, making them subject to business and financial risks unrelated to the operation of our restaurants. These unrelated risks could adversely affect a franchisee’s ability to make payments to us or to make payments on a timely basis. We cannot assure you that franchisees will successfully participate in our strategic initiatives or operate their restaurants in a manner consistent with our concept and standards. There are significant risks to our business if a franchisee, particularly one who


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operates a large number of restaurants, fails to adhere to our standards and projects an image inconsistent with our brand.


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Risks Related to Loss of Key Personnel. We believe that our success will depend, in part, on our ability to attract and retain the services of skilled personnel, including key executives. The loss of services of any such personnel could have a material adverse effect on our business.
Risks Related to Government Regulations. See also “Item 1. Business — Regulation.” The restaurant industry is subject to extensive federal, state and local governmental regulations. The trend of increasing the amount and complexity of regulations including regulations relating to the preparation, labeling, advertising and sale of food and those relating to building and zoning requirements may increase both our costs of compliance and our exposure to claims of violation of law. The Company and its franchisees are also subject to licensing and regulation by state and local departments relating to health, sanitation and safety standards, liquor licenses, and laws governing our relationships with employees, including work eligibility requirements. Changes in, or failure to comply with these laws and regulations could subject us to fines or legal actions. See also “Risks Related to Increased Labor Costs” above. We are also subject to federal regulation and certain state laws, which govern the offer and sale, termination and renewal of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on noncompetition provisions and on provisions concerning the termination or nonrenewal of a franchise. Some states require that certain materials be registered before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could adversely affect us and our franchisees.regulatory claims. We are subject to consumer protection and other laws and regulations governing the security of information. The costs of compliance, including increased investment in technology in orderbut not limited to protect such information, may negatively impact our margins. Changes in, and the cost of compliance with, government regulations could have a material adverse effect on our operations.those related to:
•  The preparation, labeling, advertising and sale of food;
•  Building and zoning requirements;
•  Employee healthcare (we are currently assessing the potential costs of new federal healthcare legislation);
•  Health, sanitation and safety standards;
•  Liquor licenses;
•  Labor and employment, including our relationships with employees and work eligibility requirements;
•  The registration, offer, sale, termination and renewal of franchises;
•  Consumer protection and the security of information. The costs of compliance, including increased investment in technology in order to protect such information, may negatively impact our margins;
•  Climate change, including the potential impact of greenhouse gases, water consumption, or a tax on carbon emissions.
 
Risks Related to Computer Systems and Information Technology. We rely on computer systems and information technology to conduct our business. A material failure or interruption of service or a breach in security of our computer systems could cause reduced efficiency in operations, loss of data and business interruptions, and significantinterruptions. Significant capital investment could be required to rectify thethese problems. In addition, any security breach involving our point of sale or other systems could result in loss of consumer confidence and potential costs associated with consumer fraud.
 
Risks Related to Interest Rates. We have exposure to changes in interest rates based on our financing, investing and cash management activities. Changes in interest rates could materially impact our profitability.
 
Risks Related to Availability of Credit. To the extent that banks in our revolving credit facility become insolvent, this could limit our ability to borrow to the full level of our facility.
 
Risks Related to the Failure of Internal Controls. We maintain a documented system of internal controls, which is reviewed and monitored by an Internal ControlsControl Committee and tested by the Company’s full time Internal Audit Department. The Internal Audit Department reports to the Audit Committee of the Board of Directors. We believe we have a well-designed system to maintain adequate internal controls on the business,business; however, we cannot be certain that our controls will be adequate in the future or that adequate controls will be effective in preventing errors or fraud. If our internal controls are ineffective, we may not be able to accurately report our financial results or prevent fraud. Any failures in the effectiveness of our internal controls could have a material adverse effect on our operating results or cause us to fail to meet reporting obligations.
 
Environmental Risks and Regulations. As is the case with any owner or operator of real property, we are subject to a variety of federal, state and local governmental regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. Failure to comply with environmental laws could result in the imposition of severe penalties or restrictions on operations by governmental agencies or courts of law, which could adversely affect operations. Accordingly, weWe have engaged and may engage in real estate development projects and own or lease several parcels of real estate on which our restaurants are located. We are unaware of any significant hazards on properties we own or have owned, or operate or have operated, the remediation of which would result in material liability for the Company. WeAccordingly, we do not have environmental liability insurance, nor do we maintain a reserve to cover such events. In the event of the determination of contamination on such properties, the Company, as owner or operator, could be held liable for severe penalties and costs of remediation. We also operate motor vehicles and


14

warehouses and handle various petroleum substances and hazardous substances, and we are not aware of any current material liability related thereto.
 
Risks Related to Leverage. The Company has a $565.0$600 million credit facility, which is comprised of a $150.0$400 million revolving credit facility and a $415.0$200 million term loan. Increased leverage resulting from borrowings under the credit facility could have certain material adverse effects on the Company, including but


15

not limited to the following: (i) our credit rating may be reduced; (ii) our ability to obtain additional financing in the future for acquisitions, working capital, capital expenditures and general corporate or other purposes could be impaired, or any such financing may not be available on terms favorable to us; (iii)(ii) a substantial portion of our cash flows could be required for debt service and, as a result, might not be available for our operations or other purposes; (iv)(iii) any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or force us to modify our operations or sell assets; (v)(iv) our ability to withstand competitive pressures may be decreased; and (vi)(v) our level of indebtedness may make us more vulnerable to economic downturns and reduce our flexibility in responding to changing business, regulatory and economic conditions. Our ability to repay expected borrowings under our credit facility and to meet our other debt or contractual obligations (including compliance with applicable financial covenants) will depend upon our future performance and our cash flows from operations, both of which are subject to prevailing economic conditions and financial, business and other known and unknown risks and uncertainties, certain of which are beyond our control.
 
Risks of Market Volatility. Many factors affect the trading price of our stock, including factors over which we have no control, such as reports on the economy or the price of commodities, as well as negative or positive announcements by competitors, regardless of whether the report relates directly to our business. In addition to investor expectations about our prospects, trading activity in our stock can reflect the portfolio strategies and investment allocation changes of institutional holders and non-operating initiatives such as a share repurchase program. Any failure to meet market expectations whether for sales, growth rates, refranchising goals, earnings per share or other metrics could cause our share price to drop.
 
Risks of Changes in Accounting Policies and Assumptions. Changes in accounting standards, policies or related interpretations by auditors or regulatory entities may negatively impact our results. Many accounting standards require management to make subjective assumptions and estimates, such as those required for stock compensation, tax matters, pension costs, litigation, insurance accruals and asset impairment calculations. Changes in those underlying assumptions and estimates could significantly change our results.
 
Litigation. Litigation trends and potential class actions by consumers, shareholders and employees, and the costs and other effectsLike any public company, we are subject to a wide variety of legal claims by employees, consumers, franchisees, customers, vendors, stockholdersshareholders and others including potential class action claims. The costs associated with the defense, settlement of thoseand/or potential judgments related to such claims could negatively impactadversely affect our results.
 
ITEM 1B.UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 2.PROPERTIES
 
The following table sets forth information regarding our Jack inthe BoxJack in the Box and Qdoba restaurant properties as of September 27, 2009:October 3, 2010:
 
            
 Company-
                 
 Operated Franchised Total  Company-Operated Franchised Total 
Company-owned restaurant buildings:                        
On company-owned land  143   107   250   101   131   232 
On leased land  392   248   640   500   330   830 
              
Subtotal  535   355   890   601   461   1,062 
Company-leased restaurant buildings on leased land  812   526   1,338   543   637   1,180 
Franchise directly-owned or directly-leased restaurant buildings  —   494   494   -   489   489 
              
Total restaurant buildings  1,347   1,375   2,722     1,144     1,587     2,731 
              
 
Our leases generally provide for fixed rental payments (withcost-of-living index adjustments) plus real estate


15

taxes, insurance and other expenses. In addition, less than 20% of the leases provide for contingent rental payments between 1% and 13%11% of the restaurant’s gross sales once certain thresholds are met. We have generally been able to renew our restaurant leases as they expire at then-current market rates. The remaining terms of ground leases range from approximately one year to 5058 years, including optional renewal periods. The remaining lease terms of our


16

other leases range from approximately one year to 4847 years, including optional renewal periods. At September 27, 2009,October 3, 2010, our restaurant leases had initial terms expiring as follows:
 
         
  Number of Restaurants 
  Ground
  Land and
 
Fiscal Year
 Leases  Building Leases 
 
2010 - 2014  169   332 
2015 - 2019  137   561 
2020 - 2024  190   383 
2025 and later  144   62 
         
  Number of Restaurants 
     Land and
 
  Ground
  Building
 
Fiscal Year Leases  Leases 
 
2011 – 2015  157   377 
2016 – 2020  176   580 
2021 – 2025  176   306 
2026 and later    133     105 
 
Our principal executive offices are located in San Diego, California in an owned facility of approximately 150,000 square feet. We also own our 70,000 square foot Innovation Center and approximately four acres of undeveloped land directly adjacent to it. Qdoba’s corporate support center is located in a leased facility in Wheat Ridge, Colorado. We also lease seven distribution centers, with remaining terms ranging from eightseven to 1615 years, including optional renewal periods.
 
Certain of our personal property is pledged as collateral under our credit agreement and certain of our real property may be pledged as collateral in the event of a ratings downgrade as defined in the credit agreement.
ITEM 3.LEGAL PROCEEDINGS
 
The Company is subject to normal and routine litigation. In the opinion of management, based in part on the advice of legal counsel, the ultimate liability from all pending legal proceedings, asserted legal claims and known potential legal claims should not materially affect our operating results, financial position or liquidity.


16

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter during the fourth quarter of fiscal 2009 to a vote of its stockholders, through the solicitation of proxies or otherwise.
 
PART II
 
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Market Information. Our common stock is traded on the Nasdaq Global Select Market under the symbol “JACK.” The following table sets forth the high and low sales prices for our common stock during the fiscal quarters indicated, as reported on the New York Stock Exchange and NASDAQ — Composite Transactions:
 
                                
 12 Weeks Ended 16 Weeks Ended
 13 Weeks Ended
 12 Weeks Ended 16 Weeks Ended
 Sept. 27, 2009 July 5, 2009 Apr. 12, 2009 Jan. 18, 2009 Oct. 3, 2010 July 4, 2010 Apr. 11, 2010 Jan. 17, 2010
High $23.87  $28.35  $25.78  $23.09  $     22.54  $     26.37  $     25.04  $     21.04 
Low  19.87   21.82   16.59   11.82   18.42   19.05   19.50   17.84 
 
                                
 12 Weeks Ended 16 Weeks Ended
 12 Weeks Ended 16 Weeks Ended
 Sept. 28, 2008 July 6, 2008 Apr. 13, 2008 Jan. 20, 2008 Sept. 27, 2009 July 5, 2009 Apr. 12, 2009 Jan. 18, 2009
High $30.35  $28.27  $29.89  $35.13  $     23.87  $     28.35  $     25.78  $     23.09 
Low  17.79   21.49   22.57   22.68   19.87   21.82   16.59   11.82 
 
Dividends. We did not pay any cash or other dividends during the last two fiscal years and do not anticipate paying dividends in the foreseeable future. Our credit agreement provides for $50.0$500 million for the potential payment of cash dividends.dividends and stock repurchases, subject to certain limitations based on our leverage ratio as defined in our credit agreement.
 
Stock Repurchases. In November 2007, the Board approved a program to repurchase up to $200.0$200 million in shares of our common stock over three years expiring November 9, 2010. As of September 27, 2009,October 3, 2010, the aggregate


17

remaining amount authorized and available under our credit agreementthis program for repurchase was $97.4$3.0 million. There were no stock repurchasesDuring fiscal 2010, we repurchased 4.9 million shares for a total of $97.0 million. The following table summarizes shares repurchased pursuant to this program during fiscal 2009.the quarter ended October 3, 2010:
                 
        (c)
    
        Total number
  (d)
 
        of shares
  Maximum dollar
 
  (a)
  (b)
  purchased as
  value that may
 
  Total number
  Average
  part of publicly
  yet be purchased
 
  of shares
  price paid
  announced
  under
 
  purchased  per share  programs  these programs 
 
              $  50,000,479 
July 5, 2010 – August 1, 2010  -   -   -   50,000,479 
August 2, 2010 – August 29, 2010  1,979,287  $    19.82   1,979,287   10,718,098 
August 30, 2010 – October 3, 2010  366,368   21.04   366,368   3,000,485 
                 
Total    2,345,655  $20.01     2,345,655     
                 
In November 2010, the Board of Directors approved a new program to repurchase, within the next year, up to $100.0 million in shares of our common stock.
 
Stockholders. As of September 27, 2009,October 3, 2010, there were 617638 stockholders of record.
 
Securities Authorized for Issuance Under Equity Compensation Plans. The following table summarizes the


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equity compensation plans under which Company common stock may be issued as of September 27, 2009.October 3, 2010. Stockholders of the Company approved all plans.
 
             
    (b) Weighted-
 (c) Number of Securities
  (a) Number of Securities to
 Average
 Remaining for Future Issuance
  be Issued Upon Exercise of
 Exercise Price
 Under Equity Compensation
  Outstanding Options, Warrants
 of Outstanding
 Plans (Excluding Securities
  and Rights(1) Options(1) Reflected in Column (a))(2)
 
Equity compensation plans approved by security holders.  5,274,705  $21.31   1,762,721 
             
    (b) Weighted-
  
    average
 (c) Number of securities
  (a) Number of securities to
 exercise price
 remaining for future issuance
  be issued upon exercise of
 of
 under equity compensation
  outstanding options, warrants
 outstanding
 plans (excluding securities
  and rights (1) options (1) reflected in column (a))(2)
 
Equity compensation plans
approved by security holders (3)		  5,503,369  $21.81   2,371,672 
 
 
(1)Includes shares issuable in connection with our outstanding stock options, performance-vested stock awards, nonvested stock awards and units, and non-management director deferred stock equivalents. The weighted-average exercise price in column (b) includes the weighted-average exercise price of stock options only.
 
(2)Includes 157,637143,072 shares that are reserved for issuance under our Employee Stock Purchase Plan.
(3)For a description of our equity compensation plans, refer to Note 12,Share-Based Employee Compensation, of the notes to the consolidated financial statements.


18

Performance Graph. The following graph compares the cumulative return to holders of the Company’s common stock at September 30th of each year (except 20042010 when the comparison date is October 3 due to the fifty-third week in fiscal 2004)2010) to the yearly weighted cumulative return of a Restaurant Peer Group Index and to the Standard & Poor’s (“S&P”) 500 Index for the same period. In 2009, we updated the composition of our peer group to maintain consistency with the peer group used by the Company for compensation purposes. In the year of transition, both the old and new peer groups have been included in the performance graph.
 
The below comparison assumes $100 was invested on September 30, 20042005 in the Company’s common stock and in the comparison group and assumes reinvestment of dividends. The Company paid no dividends during these periods.
 
 
                               
   2004   2005   2006   2007   2008   2009 
Jack in the Box Inc.   $100   $94   $164   $204   $133   $129 
S & P 500 Index  $100   $112   $124   $145   $113   $105 
New Restaurant Peer Group(1)  $100   $117   $141   $164   $160   $166 
Old Restaurant Peer Group(2)  $100   $112   $131   $122   $85   $91 
                               
                               
   2005   2006   2007   2008   2009   2010 
Jack in the Box Inc.   $100   $174   $217   $141   $137   $144 
S&P 500 Index  $100   $111   $129   $101   $94   $103 
Restaurant Peer Group (1)  $100   $121   $141   $138   $143   $193 
                               
 
(1)Jack in the Box Inc. New Restaurant Peer Group Index is comprised of the following companies: Brinker International, Inc.; CKE Restaurants, Inc.; Cracker Barrel Old Country Store, Inc.; Darden Restaurants Inc.; DineEquity, Inc.; McDonalds Corp.; Panera Bread Company; PF Chang’s China Bistro Inc.; Ruby Tuesday, Inc.; Sonic Corp.; Starbucks Corp.; The Cheesecake Factory Inc.; and Yum! Brands Inc.
(2)Jack in the Box Inc. Old Restaurant Peer Group Index is comprised of the following companies: Brinker International, Inc.; Cracker Barrel Old Country Store, Inc.; Cheesecake Factory Inc.; CKE Restaurants, Inc.; Darden Restaurants Inc.; Panera Bread Company; PF Chang’s China Bistro Inc.; Ruby Tuesday, Inc.; Sonic Corp. andWendys-Arbys Group Inc.


1918

ITEM 6.SELECTED FINANCIAL DATA
 
Our fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30. All years presented include 52 weeks, except for 2010 which includes 53 weeks. The selected financial data reflects Quick Stuff as a discontinued operationoperations for allfiscal years presented.2006 through 2009. The following selected financial data of Jack in the Box Inc. for each fiscal year was extracted or derived from our audited financial statements.
 
                                        
 Fiscal Year  Fiscal Year 
 2009 2008 2007 2006 2005  2010 2009 2008 2007 2006 
 (In thousands, except per share data)  (in thousands, except per share data) 
Statements of Earnings Data:
                                        
Total revenues $2,471,096  $2,539,561  $2,513,431  $2,381,244  $2,269,477  $ 2,297,531  $ 2,471,096  $ 2,539,561  $ 2,513,431  $ 2,381,244 
Costs of revenues  2,035,794   2,102,467   2,042,781   1,945,947   1,871,128 
Selling, general and administrative expenses  282,676   287,555   291,745   298,436   272,087 
Gains on sale of company-operated restaurants  (78,642)  (66,349)  (38,091)  (40,464)  (22,093)
Total operating costs and expenses  2,230,609   2,318,470   2,390,022   2,334,526   2,244,383 
Gains on the sale of company-operated
restaurants, net		  (54,988)  (78,642)  (66,349)  (38,091)  (40,464)
                      
Total operating costs and expenses  2,239,828   2,323,673   2,296,435   2,203,919   2,121,122 
Total operating costs and expenses, net  2,175,621   2,239,828   2,323,673   2,296,435   2,203,919 
                      
Earnings from operations  231,268   215,888   216,996   177,325   148,355   121,910   231,268   215,888   216,996   177,325 
                      
Interest expense, net(1)  20,767   27,428   23,335   12,056   13,389 
Interest expense, net  15,894   20,767   27,428   23,335   12,056 
Income taxes  79,455   70,251   68,982   58,845   45,405   35,806   79,455   70,251   68,982   58,845 
                      
Earnings from continuing operations $131,046  $118,209  $124,679  $106,424  $89,561  $70,210  $131,046  $118,209  $124,679  $106,424 
                      
Earnings per Share and Share Data:
                                        
Earnings per share from continuing operations:                                        
Basic $2.31  $2.03  $1.91  $1.52  $1.26  $1.27  $2.31  $2.03  $1.91  $1.52 
Diluted $2.27  $1.99  $1.85  $1.48  $1.21  $1.26  $2.27  $1.99  $1.85  $1.48 
Weighted-average shares outstanding — Diluted(2)  57,733   59,445   67,263   71,834   73,876 
Weighted-average shares outstanding – Diluted (1)  55,843   57,733   59,445   67,263   71,834 
Market price at year-end $20.07  $22.06  $32.42  $26.09  $14.95  $21.47  $20.07  $22.06  $32.42  $26.09 
Other Operating Data:
                                        
Jack in the Box restaurants:                                        
Company-operated average unit volume $1,420  $1,439  $1,430  $1,358  $1,295 
Change in company-operatedsame-store sales
  (1.2)%  0.2%  6.1%  4.8%  2.4%
Company-operated average unit volume (3) $1,297  $1,420  $1,439  $1,430  $1,358 
Change in company-operated same-store sales (4)  (8.6)%  (1.2)%  0.2%   6.1%   4.8% 
Change in franchise-operated same-store sales (4)  (7.8)%  (1.3)%  0.1%   5.3%   3.5% 
Change in system same-store sales (4)  (8.2)%  (1.3)%  0.2%   5.8%   4.5% 
Qdoba restaurants:                                        
System average unit volume $905  $946  $953  $933  $919 
Change in system same-store sales  (2.3)%  1.6%  4.6%  5.9%  11.4%
Restaurant operating margin  16.2%  16.1%  17.9%  17.5%  16.9%
System average unit volume (3) $923  $905  $946  $953  $933 
Change in system same-store sales(4)  2.8%   (2.3)%  1.6%   4.6%   5.9% 
SG&A rate  11.4%  11.3%  11.6%  12.5%  12.0%  10.6%   10.5%   10.4%   11.6%   12.5% 
Capital expenditures from continuing operations $153,500  $178,605  $148,508  $135,022  $110,133 
Capital expenditures related to continuing operations $95,610  $153,500  $178,605  $148,508  $135,022 
Balance Sheet Data (at end of period):
                                        
Total assets $1,455,910  $1,498,418  $1,374,690  $1,513,499  $1,332,606  $1,407,092  $1,455,910  $1,498,418  $1,374,690  $1,513,499 
Long-term debt(1)  357,270   516,250   427,516   254,231   290,213   352,630   357,270   516,250   427,516   254,231 
Stockholders’ equity(3)(2)  524,489   457,111   409,585   706,633   562,085   520,463   524,489   457,111   409,585   706,633 
 
 
(1)Fiscal 2009, 2008 and 2007 reflect higher bank borrowings associated with our revolver and credit facility.
(2)Weighted-average shares reflect the impact of common stock repurchases under Board approvedBoard-approved programs.
 
(3)(2)Fiscal 2007 includes a reduction in stockholders’ equity of $363.4 million related to shares repurchased and retired during the year.
(3)2010 average unit volume is adjusted to exclude the 53rd week for the purpose of comparison to prior years.
(4)Same-store sales, sales growth and average unit volume presented on a system-wide basis include company and franchise restaurants. Franchise sales represent sales at all franchise restaurants and are revenues to our franchisees. We do not record franchise sales as revenues; however, our royalty revenues are calculated based on a percentage of franchise sales. We believe franchise and system sales growth information is useful to investors as a significant indicator of the overall strength of our business as it incorporates our significant revenue drivers which are company and franchise same-store sales as well as net unit development. Company, franchise and system same-store sales growth includes the results of all restaurants that have been open more than one year.


2019

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
GENERAL
 
For an understanding of the significant factors that influenced our performance during the past three fiscal years, we believe our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and related Notes included in this Annual Report as indexed onpage F-1.
 
All comparisonsComparisons under this heading among 2009, 2008 and 2007 refer to the 53-week period ended October 3, 2010 and the 52-week periods ended September 27, 2009 and September 28, 2008 for 2010, 2009 and September 30, 2007,2008, respectively, unless otherwise indicated.
 
Our MD&A consists of the following sections:
 
 •  Overview— a general description of our business, the quick-service dining segment of the restaurant industry and fiscal 20092010 highlights.
 
 •  Financial reporting— a discussion of changes in presentation.
•  Results of operations— an analysis of our consolidated statements of earnings for the three years presented in our consolidated financial statements.
 
 •  Liquidity and capital resources— an analysis of cash flows including capital expenditures, aggregate contractual obligations, share repurchase activity, known trends that may impact liquidity, and the impact of inflation.
 
 •  Discussion of critical accounting estimates— a discussion of accounting policies that require critical judgments and estimates.
•  Future application of accounting principles— a discussion of new accounting pronouncements, dates of implementation and impact on our consolidated financial position or results of operations, if any.
 
OVERVIEW
 
Our primary source of revenue is from retail sales at Jack inthe BoxJack in the Box and Qdoba company-operated restaurants. We also derive revenue from Jack inthe BoxJack in the Box and Qdoba franchisedfranchise restaurants, including royalties based(based upon a percent of sales,sales), rents, franchise fees and distribution sales of food and packaging commodities. In addition, we recognize gains from the sale of company-operated restaurants to franchisees, which are presented as a reduction of operating costs and expenses, net in the accompanying consolidated statements of earnings.
 
The quick-service restaurant industry is complex and challenging. Challenges currently facing the sector include higher levels of consumer expectations, intense competition with respect to market share, restaurant locations, labor, menu and product development, changes in the economy, including the current recessionary environment, significant promotional and discounting activity in the QSR and casual dining segmentshigh rates of the industry,unemployment, costs of commodities and trends for healthier eating. In light of these challenges, we were able to grow earnings in fiscal 2009 due in large part to the successful execution of strategic initiatives, such as refranchising, new unit growth and improving our cost structure.
 
The following summarizes the most significant events occurring in fiscal 2009:2010 and certain trends compared to prior years:
 
 •  Earnings from Continuing Operations per Diluted Share.  Earnings per diluted share of $2.27 in fiscal 2009 represented an increase of more than 14% over fiscal 2008.
• Restaurant Sales.  The recessionary environment negatively impacted discretionary spending and sales throughout the restaurant industry. Sales at Jack inthe BoxJack in the Box company-operated restaurants open more than one year (“same-store sales”) decreased 8.6% in fiscal 2010 and 1.2% in 2009. Same-store sales at franchise-operated restaurants decreased 7.8% in fiscal 2009 versus an increase of 0.2%2010 and 1.3% in 2008.2009. System same-store sales at Qdoba decreasedincreased 2.8% versus a decrease of 2.3% versus an increase of 1.6% last fiscal year. Sales at Jack in the Box restaurants continue to be impacted by high unemployment rates in our major markets for our key customer demographics.
 
 •  Restaurant Operating Margin.  Our consolidated restaurant operating margin improved to 16.2%, despite the deleverage in same-store sales.
• Commodity Costs. Pressures from higher commodity costs, havewhich negatively impacted our business. However, as expected,business in fiscal 2009, moderated somewhat in 2010. Overall commodity costs moderatedat Jack in 2009,the Box restaurants decreased approximately 1.4% after increasing approximately 2.0% over last year,in 2009, as higherlower costs for bakery, potatoesbeef, shortening, poultry and beefbakery were partially offset by lower cheesehigher costs for produce and dairy. In 2009, food and packaging costs decreased 100 basis points compared with 2008 when such costs increased 150 basis points over the prior year.pork.


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 •  New Restaurant Growth.Closures.  Unit expansion was strong during In the year, with the opening of 126 newfourth quarter, we closed 40 underperforming Jack in the Box restaurants located primarily in the Southeast and Qdoba company-operatedTexas resulting in a charge of $18.5 million, net of taxes, or $0.33 per diluted share. These closures are expected to have a positive impact on future earnings and franchised restaurants. Both brands opened restaurants in new markets during the year, with sales volumes above system averages.cash flows.
 
 •  Re-Image Program.New Unit Development. We continued to executegrow our strategic initiative to reinventbrands with the opening of new company-operated and franchise restaurants. In 2010, we opened 46 Jack in the Box brand, which includes comprehensive enhancements to locations, including several in our restaurant facilities. As of September 27, 2009, approximately 46% of allJack in the Box restaurants were fully re-imagednewer markets, and 96% of theJack in the Box system featured the exterior elements of the program.36 Qdoba locations.
 
 •  Franchising Program.  We continued on pace with our strategic initiative to expand franchising (through sales of company-operated restaurants to franchisees and new restaurant development), despite tight credit markets. We refranchised 194219 Jack in the Box restaurants, andwhile Qdoba andJack in the Box franchisees opened 5937 restaurants in 2009.2010. We also have signed development agreements with franchisees representing commitmentsremain on track to open a totalachieve our goal to increase the percentage of 78 and 201 newfranchise ownership in the Jack in the Box system to70-80% by the end of fiscal year 2013, and Qdoba restaurants, respectively, over the next five years.we ended fiscal 2010 at 57% franchised.
 
 •  Discontinued Operations.Credit Facility.  In September 2008, the During 2010, we entered into a new credit agreement consisting of a $400 million revolving credit facility and a $200 million term loan, both with a five-year maturity.
•  Share Repurchases. Pursuant to a share repurchase program authorized by our Board of Directors, approved plans to sellwe repurchased 4.9 million shares of our Quick Stuff convenience stores to maximize the potentialcommon stock at an average price of theJack in the Box and Qdoba Brands. In the fourth quarter of fiscal 2009, we successfully completed the sale of all 61 locations.$19.71 per share.
 
FINANCIAL REPORTING
In 2010, we separated impairment and other charges, net from selling, general and administrative expenses in our consolidated statements of earnings. Prior year amounts have been reclassified to conform to this new presentation.
 
The results of operations and cash flows for Quick Stuff, which was sold in 2009, are reflected as discontinued operations for all periods presented. Refer to Note 2,Discontinued Operations, in the notes to our consolidated financial statements for more information.
 
In 2009, restaurant operating costs have been separated into two components: “Payroll and employee benefits” and “Occupancy and other.” Prior year amounts have been adjusted to conform to this new method of presentation.
RESULTS OF OPERATIONS
 
The following table sets forth, unless otherwise indicated, the percentage relationship to total revenues ofpresents certain income and expense items included in our consolidated statements of earnings. This information is derived from the consolidated statementsearnings as a percentage of earnings found elsewhere in this report.total revenues, unless otherwise indicated:
 
CONSOLIDATED STATEMENTS OF EARNINGS DATA
 
             
  Fiscal Year 
  2009  2008  2007 
 
Revenues:            
Restaurant sales  80.0%  82.8%  85.6%
Distribution sales  12.2%  10.8%  8.9%
Franchised restaurant revenues  7.8%  6.4%  5.5%
             
Total revenues  100.0%  100.0%  100.0%
             
Operating costs and expenses:            
Food and packaging costs(1)  32.4%  33.4%  31.9%
Payroll and employee benefits(1)  29.7%  29.7%  30.0%
Occupancy and other(1)  21.7%  20.9%  20.3%
Company restaurant costs(1)  83.8%  83.9%  82.1%
Distribution costs of sales(1)  99.6%  99.3%  99.0%
Franchised restaurant costs(1)  40.6%  39.9%  40.4%
Selling, general and administrative expenses  11.4%  11.3%  11.6%
Gains on the sale of company-operated restaurants  (3.2)%  (2.6)%  (1.5)%
Earnings from operations  9.4%  8.5%  8.6%
Income tax rate(2)  37.7%  37.3%  35.6%
             
  Fiscal Year 
  2010  2009  2008 
 
Revenues:            
Company restaurant sales  72.6%   80.0%   82.8% 
Distribution sales  17.3%   12.2%   10.8% 
Franchise revenues  10.1%   7.8%   6.4% 
             
Total revenues    100.0%     100.0%     100.0% 
             
Total operating costs and expenses, net:            
Company restaurant costs:            
Food and packaging (1)  31.8%   32.4%   33.3% 
Payroll and employee benefits(1)  30.3%   29.7%   29.7% 
Occupancy and other (1)  23.9%   21.7%   20.9% 
Total company restaurant costs (1)  85.9%   83.8%   83.9% 
Distribution costs (1)  100.4%   99.6%   99.3% 
Franchise costs (1)  45.4%   40.6%   39.9% 
Selling, general and administrative expenses  10.6%   10.5%   10.4% 
Impairment and other charges, net  2.1%   0.9%   0.9% 
Gains on the sale of company-operated restaurants, net  (2.4)%   (3.2)%   (2.6)% 
Earnings from operations  5.3%   9.4%   8.5% 
             
Income tax rate (2)  33.8%   37.7%   37.3% 
 
 
(1)As a percentage of the related sales and/or revenues.
(2)As a percentage of earnings from continuing operations and before income taxes.


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Revenues
 
Restaurant sales decreased 6.0% in 2009 and 2.3% 2008, primarily reflectingAs we execute our refranchising strategy, which includes the sale of Jack inthe Boxrestaurants to franchisees, we expect the number of company-operated restaurants and the related sales to franchisees. To a lesser extent,continually decrease while revenues from franchise restaurants increase. Company restaurant sales decreased $307.3 million in 2010 and $125.7 million in 2009 compared with the prior years. The decrease in restaurant sales in both years is due primarily to decreases in the average number of Jack in the Box company-operated restaurants and declines in same-store sales at Jack inthe BoxrestaurantsJack in 2009 and Qdobathe Box restaurants, in both years also contributed to the sales decline. Additionally, in 2008, the loss of approximately 1,300 restaurant operating days due to the impact of Hurricane Ike contributed to the decline in restaurant sales. These decreases were partially offset by an increase in the number of Qdoba company-operated restaurants and, in 2008, modest2010, additional sales of $28.9 million from a 53rd week. The following table presents the approximate impact of these increases and decreases on restaurant sales (dollars in per store average (“PSA”millions) sales at Jack inthe Box company-operated restaurants. :
         
  Increase/(Decrease) 
  2010 vs 2009  2009 vs 2008 
 
Reduction in the average number of company-operated restaurants $  (176.6)  $  (85.5) 
Jack in the Box same-store sales declines  (156.1)   (27.4) 
53rd week  28.9   - 
Other  (3.5)   (12.8) 
         
Total change in restaurant sales $(307.3)  $(125.7) 
         
Same-store sales at Jack inthe Box company-operatedJack in the Box restaurants decreaseddeclined 8.6% in 2010 and 1.2% in 2009. The average check decreased 1.5% in 2010 and increased 1.8% in 2009, compared with a 0.2% increase in 2008 and includeincluding the impact of price increases of approximately 2.8%1.7% and 2.2%2.8%, respectively. The 2010 decline reflects unfavorable product mix changes, promotions and discounting. Sales continue to be impacted by high unemployment rates in our major markets.
 
Distribution sales to Jack inthe BoxJack in the Box and Qdoba franchisees grew to $302.1$95.8 million in 2010 and $26.9 million in 2009 from $275.2 million in 2008 and $222.6 million in 2007.compared with the prior year. The increase in distribution sales in 2009 and 2008both years primarily relates to an increase in the number ofJack in the Box and Qdoba franchisedfranchise restaurants serviced by our distribution centers, which contributed additional sales of approximately $108.4 million and $39.6 million in 2010 and 2009, respectively, and were partially offset by lower per store average (“PSA”) volumes in 2009. Higher food costsboth years. The increase in 20082010 also contributed toincludes sales of approximately $11.2 million from the sales increase per comparison with 2007.53rd week.
 
Franchise revenues increased $37.9 million and $30.4 million in 2010 and 2009, respectively, primarily reflecting an increase in the average number of Jack in the Box franchise restaurants and, in 2010, additional revenues of $4.6 million from a 53rd week, offset in part by a decline in same-store sales at Jack in the Box franchise restaurants. The increase in the average number of restaurants due to refranchising activity contributed additional royalties, rents and fees of approximately $39.0 million and $31.2 million in 2010 and 2009, respectively. The following table reflects the detail of our franchised restaurantfranchise revenues in each year and other information we believe is useful in analyzing the change in franchise revenues (dollars in thousands):
 
                        
 2009 2008 2007  2010 2009 2008 
Royalties $79,690  $68,811  $58,070  $  91,216  $  79,690  $  68,811 
Rents  103,784   86,310   72,830   128,143   103,784   86,310 
Franchise fees and other(1)  9,645   7,639   8,986 
Re-image contributions to franchisees  (1,455)   (3,700)   (2,100) 
Franchise fees and other  13,123   13,345   9,739 
              
Franchised restaurant revenues $193,119  $162,760  $139,886 
Franchise revenues $231,027  $193,119  $162,760 
              
% change  18.7%  16.4%  27.5%  19.6%   18.7%   16.4% 
Average number of franchised restaurants  1,215   1,068   918   1,424   1,215   1,068 
Jack in the Box effective royalty rate  5.3%  5.1%  5.0%
Qdoba effective royalty rate  5.0%  5.0%  5.0%
% change  17.2%   13.8%     
 
Change in Jack in the Box franchise-operated same-store sales  (7.8)%   (1.3)%   0.1% 
 
Royalties as a percentage of estimated franchised restaurant sales:            
Jack in the Box  5.3%   5.3%   5.1% 
Qdoba  5.0%   5.0%   5.0% 


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(1)Includes re-image contributions to franchisees of $3.7 million, $2.1 million and $0.1 million in 2009, 2008 and 2007, respectively, which were recorded as a reduction of franchised restaurant revenues.
The increase in franchised restaurant revenues is primarily attributable to an increase in the number of franchised restaurants reflecting the franchising ofJack in the Box company-operated restaurants and new restaurant development by Qdoba andJack in the Boxfranchisees.
Operating Costs and Expenses
 
Food and packaging costs decreased to 32.4%31.8% of company restaurant sales in 2010 from 32.4% in 2009 from 33.4%and 33.3% in 20082008. In 2010, lower commodity costs (including beef, shortening, poultry and compared with 31.9% in 2007.bakery), margin improvement initiatives and modest selling price increases more than offset the impact of unfavorable product mix and promotions. The decline in 2009 included the benefit of selling price increases, favorable product mix changes and margin improvement initiatives, offset in part by commodity cost increases of approximately 2.0%. In 2008, higher commodity costs, primarily cheese, shortening, eggs, and beef were partially offset by selling price increases.
 
Payroll and employee benefit costs improved to 29.7%were 30.3% of company restaurant sales in 2010 and 29.7% in 2009 and 20082008. The increase in 2010 reflects the impact of same-store sales deleverage and higher workers’ compensation costs of approximately 50 basis points, which more than offset the benefits derived from 30.0% in 2007, due primarily toour labor productivity initiatives. Workers’ compensation costs have increased as the cost per claim is trending higher although the number of claims is lower. In 2009 labor productivity initiatives and lower workers’ compensation costs which more than offset minimum wage increases.
 
Occupancy and other costs were 21.7%23.9% of company restaurant sales in 2010, 21.7% in 2009 and 20.9% in 20082008. The higher percentage in 2010 is due primarily to sales deleverage and 20.3%higher depreciation from the ongoing re-image program at Jack in 2007.the Box, which were partially offset by lower utilities expense. The percent of sales increase in 2009 was due primarily to higher depreciation expense related to the ongoing re-image program atJack in the Boxrestaurants re-image program and a kitchen enhancement project completed in 2008, higher rent and depreciation related to new restaurant development at Qdoba and sales deleverage atJack in the Boxand Qdoba restaurants, which were partially offset by lower utility costs. The percentage increase in 2008 is primarily attributable to higher utility costs and an increase in depreciation expense related to our re-image and kitchen enhancement programs.


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Distribution costs of sales increased to $399.7 million in 2010 from $300.9 million in 2009 fromand $273.4 million in 2008, and $220.2 million in 2007, primarily reflecting increases in the related sales. These costs were 99.6%increased to 100.4% of distribution sales in 2010, compared with 99.6% in 2009 and 99.3% in 2008, and 99.0% in 2007. The percentage increase in 2009 compared with 2008 is due primarily to costs incurreddeleverage from lower PSA sales at Jack in connection with outsourcing our transportation services and lower volumes. The percentage increase in 2008 primarily relates to higher fuel and delivery costs compared with 2007.the Box franchise restaurants.
 
Franchised restaurantFranchise costs, principally rents and depreciation on properties leased to Jack inthe BoxJack in the Box franchisees, increased $26.4 million in 2010 and $13.4 million in 2009, and $8.5 million in 2008, due primarily to an increase in the number of franchisedfranchise restaurants that sublease property from us as a result of our refranchising activities. Franchise costs increased to 45.4% of the related revenues in 2010 from 40.6% in 2009 and 39.9% in 2008 primarily due to revenue deleverage from lower sales at franchised restaurants and higher PSA rent and depreciation expense.
 
The following table sets forthpresents the change in selling, general and administrative (“SG&A”) expense components between periods(expenses in thousands)each period compared with the prior year (in thousands):
 
         
  Increase/(Decrease) 
  2009 vs. 2008  2008 vs. 2007 
 
Advertising declines primarily related to refranchising strategy $(6,807) $(2,318)
Refranchising strategy overhead reduction  (1,412)  (5,006)
Severance  2,079   — 
Incentive compensation  (25)  (9,631)
Preopening expenses  2,452   (272)
Facility charges including impairment and accelerated depreciation  (667)  2,674 
Cash surrender value of insurance products used to fund certain nonqualified retirement plans, net  (2,731)  6,033 
Insurance losses and legal settlements, net  72   4,847 
Other  2,160   (517)
         
  $(4,879) $(4,190)
         
         
  Increase/(Decrease) 
  2010 vs 2009  2009 vs 2008 
 
Advertising $  (11,689) $  (6,807)
Refranchising strategy  (14,818)  4,217 
Severance  (1,366)  2,079 
Incentive compensation  (6,062)  (25)
Cash surrender value of COLI policies, net  (2,954)  (2,731)
Pension and postretirement benefits  17,632   (2,190)
Hurricane Ike insurance proceeds  (4,223)  - 
Pre-opening  (1,540)  1,861 
53rd week  3,597   - 
Other  4,114   (540)
         
  $(17,309) $(4,136)
         
 
Our refranchising strategy has resulted in a decrease in the number of company-operated restaurants and the related overhead expenses to manage and support those restaurants. Advertising costs, primarily contributions to theour marketing fund whichthat are generally determined as a percentage of company restaurant sales, decreased primarily due toreflecting our refranchising strategy and contributed tolower PSA sales at Jack in the declineBox company-operated restaurants, and were partially offset by incremental Company contributions of approximately $6.5 million in SG&A expenses2010. The decrease in both 2009 and 2008. Additionally,incentive compensation in 2009,2010 reflects the partial recovery of prior year losses related todecrease in the Company’s performance. Changes in the cash surrender value of our COLI policies, net of changes in our non-qualified deferred compensation obligation supported by these policies also contributedare subject to market fluctuations. The market adjustments of the decrease. Ininvestments include a net benefit of


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$2.7 million in 2010 compared with negative impacts of $0.3 million in 2009 these decreases were partially offset by higher preopeningand $3.0 million in 2008. The increase in pension and postretirement benefits expense in 2010 principally relates to a decrease in our discount rate. The fluctuations in pre-opening costs relatedprimarily relate to changes in the openingnumber of 43new Jack in the Box restaurants versusopened which decreased to 30 locations in 2010, compared with 43 in 2009 and 23 in 2008,2008.
Impairment and severance costs. In 2008,other charges, net is comprised of the decrease following(in SG&A expenses also relatesthousands):
             
  2010  2009  2008 
 
Impairment $  12,970  $  6,586  $  3,507 
Losses on disposition of property and equipment, net  10,757   11,418   17,373 
Costs of closed restaurants (primarily lease obligations)  22,262   2,080   (21)
Other  2,898   1,930   1,898 
             
  $48,887  $22,014  $22,757 
             
Impairment and other charges, net increased $26.9 million in 2010 and decreased slightly in 2009 compared to lower incentive compensation and the impact of our refranchising strategy on field management and administrative expenses. These decreases were offset in part by losses on the cash surrender value of our COLI policies, net, losses related to hurricanes and anprior years. The increase in facility charges related2010 is due primarily to the closure of 40 underperforming Jack in the Box re-image program, restaurants in the kitchen enhancement projectfourth quarter of the fiscal year. The decision to close these restaurants was based on a comprehensive analysis performed that took into consideration levels of return on investment and theother key operating performance metrics. In connection with these closures, we recorded a total charge of $28.0 million which included property and equipment impairment charges of seven restaurants we continue$8.4 million and $19.0 million related to operate.future lease commitments.
 
Gains on the sale of company-operated restaurants to franchisees, net are detailed in the following table (dollars in thousands):
             
  2010  2009  2008 
  
 
Number of restaurants sold to franchisees  219   194   109 
Gains on the sale of company-operated restaurants $  54,988  $  81,013  $  66,349 
Loss on expected sale of underperforming market  -   (2,371)  - 
             
Gains on the sale of company-operated restaurants, net $54,988  $78,642  $66,349 
             
Average gain on restaurants sold $251  $418  $609 
Gains were $78.6 million, $66.3 million and $38.1 million in 2009, 2008 and 2007, respectively. The change in gains relates toimpacted by the number of restaurants sold and changes in average gains recognized, which relate to the specific sales and cash flows of those restaurants. In 2009, we sold 194gains on the sale of company-operated restaurants to franchisees, net included a loss of $2.4 million relating to the anticipated sale of a lower performing Jack in the Box restaurants, compared with 109 in 2008, and 76 in 2007. market.
 
Interest Expense, Net
 
Interest expense, was $22.2net is comprised of the following (in thousands):
             
  2010  2009  2008 
  
 
Interest expense $  17,011  $  22,155  $  28,070 
Interest income  (1,117)  (1,388)  (642)
             
Interest expense, net $15,894  $20,767  $27,428 
             
Interest expense, net decreased $4.9 million $28.1 million,in 2010 and $32.1$6.7 million in 2009 2008 and 2007, respectively. The decreases in interest expense in 2009 and 2008due primarily relate to lower average interest rates which wererates. In 2010, lower average borrowings, partially offset by higher average borrowings in 2009. Fiscal 2007 also included a $1.9$0.5 million charge in the first quarter to write-offwrite off deferred financing fees in connection with the replacementrefinancing of our credit facility.


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Interest Income
Interest income was $1.4 million, $0.6 million, and $8.8 million, infacility, also contributed to the decrease. In 2009, 2008 and 2007, respectively. The increase in 2009 from a year ago primarily reflectshigher average borrowings partially offset the impact of lower interest earned on notes receivable. The decrease in 2008 compared with 2007 is due to lower average cash balances.rates.
 
Income Taxes
 
The income tax provisions reflect effective tax rates of 37.7%33.8%, 37.3%,37.7% and 35.6%37.3% of pretax earnings from continuing operations in 2009, 2008 and 2007, respectively. The higher tax rates in2010, 2009 and 2008, are primarilyrespectively. The lower tax rate in 2010 is largely attributable to the impact of impairment and other charges, higher work opportunity tax credits and the market performance of insurance investment products used to fund certain non-qualified retirement plans. Changes in the cash value of the insurance products are not deductible or taxable.included in taxable income.


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Earnings from Continuing Operations
 
Earnings from continuing operations were $70.2 million, or $1.26 per diluted share, in 2010; $131.0 million, or $2.27 per diluted share, in 2009; and $118.2 million, or $1.99 per diluted share, in 2008; and $124.72008. We estimate that the extra 53rd week benefitted net earnings by approximately $1.8 million, or $1.85$0.03 per diluted share, in 2007.fiscal 2010.
 
Earnings from Discontinued Operations, Net
 
As described in the “Financial Reporting” section, Quick Stuff’s results of operations have been reported as discontinued operations. In 2009, the loss from discontinued operations, net was $12.6 million, reflecting the $15.0 million net of tax loss from the sale of Quick Stuff in the fourth quarter. Earnings from discontinued operations, net were $1.1 million and $0.9 million in 2008 and 2007, respectively.2008.
 
LIQUIDITY AND CAPITAL RESOURCES
 
General. Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations, the revolving bank credit facility, the sale of company-operated restaurants to franchisees and the sale and leaseback of certain restaurant properties.
 
Our cash requirements consist principally of:
 
 •  working capital;
 
 •  capital expenditures for new restaurant construction and restaurant renovations;
 
 •  income tax payments;
 
 •  debt service requirements; and
 
 •  obligations related to our benefit plans.
 
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with other financing alternatives in place or available, will be sufficient to meet our capital expenditure, working capital and debt service requirements for the foreseeable future.
 
As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories and our vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. As a result, we typically maintain current liabilities in excess of current assets, that resultwhich results in a working capital deficit.
 
Cash and cash equivalents increased $5.1decreased $42.4 million to $53.0$10.6 million at September 27, 2009October 3, 2010 from $47.9$53.0 million at the beginning of the fiscal year. This increasedecrease is primarily due to repurchases of common stock, net repayments under our credit facility, and property and equipment expenditures. These uses of cash were offset in part by proceeds from the sale and leaseback of restaurant properties, cash flows provided by operating activities, and proceeds receivedand collections of notes receivable from the sale of Quick Stuff and company-operated restaurants and collections on notes receivable. These cash inflows were partially offset by cash used to repay borrowings under our revolving credit facility and purchase property and equipment.franchisees. We generally reinvest available cash flows from operations to develop new restaurants or enhance existing restaurants, to reduce debt and to repurchase shares of our common stock and to reduce debt.stock.


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Cash Flows. The table below summarizes our cash flows from operating, investing and financing activities for each of the past three fiscal years(in thousands).
 
                        
 2009 2008 2007  2010 2009 2008 
Total cash provided by (used in):                        
Operating activities:                        
Continuing operations $147,324  $167,035  $173,757  $  64,038  $  147,324  $  167,035 
Discontinued operations  1,426   5,349   4,764   (2,172)  1,426   5,349 
Investing activities:                        
Continuing operations  (71,607)  (132,406)  (124,379)  19,173   (71,607)  (132,406)
Discontinued operations  30,648   (1,964)  (5,674)  -   30,648   (1,964)
Financing activities  (102,673)  (5,832)  (266,672)  (123,434)  (102,673)  (5,832)
              
Increase (decrease) in cash and cash equivalents $5,118  $32,182  $(218,204) $(42,395) $5,118  $32,182 
              
 
Operating Activities. Operating cash flows from continuing operations decreased $83.3 million in 2010 compared with 2009 due primarily to the timing of working capital receipts and disbursements and a decrease in cash flows related to higher company restaurant costs, our refranchising strategy and same-store sales declines at our Jack in the Box restaurants. In 2009, cash flows from continuing operations decreased $19.7 million in 2009compared with 2008 due to a decrease in earnings from continuing operations adjusted for non-cash items, (primarily our provision for deferred income taxes), partially offset by fluctuations due to the timing of working capital receipts and disbursements. In 2008, cash flows from continuing operations decreased $6.7 million compared with 2007 primarily due to the timing of working capital receipts and disbursements, including an increase in pension contributions, partially offset by an increase in earnings from continuing operations adjusted for non-cash items. Operating cash flows from our discontinued operations were not material to our consolidated statements of cash flows.flows for all fiscal years presented.
 
Investing Activities.  Cash Investing activity cash flows from continuing operations increased $90.8 million in 2010 compared with 2009. This increase is primarily due to an increase in the number of sites that we sold and leased back and lower spending for purchases of property and equipment, partially offset by decreases in proceeds from and collections of notes receivable related to the sale of restaurants to franchisees. In 2009, cash flows used in investing activities from continuing operations decreased $60.8 million compared with a year ago.2008. This decrease iswas primarily due to an increase in cash proceeds from the sale of company-operated restaurants to franchisees, lower spending for purchases of property and equipment and an increase in collections on notes receivable, offset in part by an increase in spending related to assets held for sale and leaseback and cash used in 2009 to acquire Qdoba franchise-operated restaurants. In 2008, cash flows used in investing activities increased $8.0 million due to higher capital expenditures offset in part by an increase in proceeds from the sale of company-operated restaurants to franchisees and the impact of cash used in 2007 to acquire Qdoba restaurants previously operated by franchisees.
 
In 2009, cash flows provided by discontinued operations increased $32.6 million compared with a year ago2008 due primarily to proceeds received in 2009 of $34.4 million related to the sale of our Quick Stuff convenience and fuel stores.
Assets Held for Sale and Leaseback. We use sale and leaseback financing to lower the initial cash investment in our Jack in the Box restaurants to the cost of the equipment, whenever possible. In 2008,2010, 20 of our new Jack in the decreaseBox restaurants were developed as sale and leaseback properties, compared with 18 in 2009 and 9 in 2008. In 2010, we sold and leased back 25 restaurants compared with four in 2009 and 7 in 2008. As of October 3, 2010, we had cash flows usedinvestments of $59.9 million in investing activities relatesapproximately 56 operating and under-construction restaurant properties that we expect to a decrease in capital expenditures.sell and lease back during fiscal 2011.
 
Capital Expenditures. The composition of capital expenditures used in continuing operations in each year follows ((in thousands)thousands):
 
                        
 2009 2008 2007  2010 2009 2008 
Jack in the Box:                        
New restaurants $46,078  $35,751  $39,208  $  20,867  $  46,078  $  35,751 
Restaurant facility improvements  69,856   116,670   87,380   50,724   69,856   116,670 
Other, including corporate  18,377   10,943   13,036   10,447   18,377   10,943 
Qdoba  19,189   15,241   8,884   13,572   19,189   15,241 
              
Total capital expenditures used in continuing operations $153,500  $178,605  $148,508  $95,610  $153,500  $178,605 
              
 
Our capital expenditure program includes, among other things, investments in new locations, restaurant remodeling, new equipment and information technology enhancements. In 2010, capital expenditures decreased


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due primarily to a decline in the number of new Jack in the Box and Qdoba restaurants developed and the number of existing restaurants rebuilt, and lower spending related to our re-image program and network and system upgrades. In 2010, we continued reimaging our restaurants, focusing on the interiors as we substantially completed reimaging the restaurant exteriors in 2009. The reimage program, which began in 2006, is an important part of the chain’s brand-reinvention initiative and is intended to create a warm and inviting dining experience for Jack in the Box guests. As of October 3, 2010, approximately 68% of all Jack in the Box company-operated restaurants feature all interior and exterior elements of the reimage program; we expect completion by the end of fiscal year 2011. In 2009, capital expenditures decreased due to lower spending related to our reimage program as well as the inclusion of a kitchen enhancement project and the purchase of our smoothie equipment in 2008, which also contributed to the increased spending in 2008 compared with 2007.2008. The kitchen enhancements were designed to increase restaurant capacity for new product introductions while also reducing utility expense using energy-efficient equipment. The reimage program, which


26

began in 2006, is an important part of the chain’s holistic brand-reinvention initiative and is intended to create a warm and inviting dining experience forJack in the box guests. In 2009, we focused our reimage efforts on completing the restaurant exteriors as the majority of the Company’s business is conducted through the drive-thru. With the exteriors substantially completed, we will focus on reimaging restaurant interiors. As of September 27, 2009, approximately 53% of all company-operated restaurants feature all interior and exterior elements of the reimage program and we now expect system-wide completion by the end of fiscal year 2012.
 
In fiscal 2010,2011, capital expenditures are expected to be approximately $125-$135-$135145 million, including investment costs related to the JackJack in theBox Box restaurant re-image program.program and the continued rollout of our new logo. We plan to open approximately 3025 new JackJack in theBox Box and 1525 new Qdoba company-operated restaurants in 2010.2011.
 
Sale of Company-Operated Restaurants. We have continued our strategy of selectively sellingto expand franchise ownership in the Jack in the Box system primarily through the sale of company-operated restaurants to franchisees. In 2009, we generated cashThe following table details proceeds and notes receivable of $116.5 million from the sale of 194 restaurants comparedreceived in connection with $85.0 million our refranchising activities(in 2008 from the sale of 109 restaurants and $51.3 million in 2007 from the sale of 76 restaurants. Fiscalthousands):
             
  2010  2009  2008 
 
Number of restaurants sold to franchisees  219   194   109 
             
Cash proceeds from the sale of company-operated restaurants $66,152  $94,927  $57,117 
Notes receivable  25,809   21,575   27,928 
             
Total proceeds $  91,961  $  116,502  $  85,045 
             
Average proceeds $420  $601  $780 
All fiscal years 2009 and 2008presented include $21.6 million and $27.9 million, respectively, of financing provided to facilitate the closing of certain transactions. The $20 million in notes receivable at September 28, 2008 related to franchising transactions was repaid in 2009. As of September 27, 2009,October 3, 2010, notes receivable related to refranchisings were $12.2$29.8 million, of which we anticipate approximately $4.5$18.7 million will behas been repaid insince the end of the fiscal 2010.year. We expect total proceeds of $85-$95 million from the sale of150-170175-225Jack in the Box restaurants in 2010.2011.
 
Acquisition of Franchise-Operated Restaurants. In 2010, we acquired 16 Qdoba franchise-operated restaurants in the first quarterBoston market for approximately $8.1 million. The purchase price was allocated to property and equipment, goodwill and reacquired franchise rights. For additional information, refer to Note 3,Initial Franchise Fees, Refranchisings and Acquisitions, of the notes to the consolidated financial statements.
In 2009, Qdobawe acquired 22 Qdoba franchise-operated restaurants for approximately $6.8 million, net of cash received. The total purchase price was allocated to property and equipment, goodwill and other income. The restaurants acquired are located in Michigan and Los Angeles,California, which we believe provide good long-term growth potential consistent with our strategic goals. In the third quarter of 2007, Qdoba acquired nine franchise-operated restaurants for approximately $7.0 million in cash. The primary assets acquired include $2.5 million in net property and equipment and $4.5 million in goodwill.
 
Financing Activities. Cash used in financing activities increased $20.8 million in 2010 and $96.8 million in 2009 compared with the previous year. These increases were primarily attributable to cash usedpurchases of our common stock in 2009 for2010 and the repayment of borrowings under our revolving credit facility. In 2008, cash usedfacility in financing activities decreased due to a decrease in share repurchases and proceeds from the issuance of common stock, offset in part by a decrease in credit facility borrowings.2009.
 
Financing.New Credit Facility. OurOn June 29, 2010, we replaced our existing credit facility with a new credit facility intended to provide a more flexible capital structure. The new credit facility is comprised of (i) a $150.0$400.0 million revolving credit facility maturing on December 15, 2011 and (ii) a $200.0 million term loan maturing on December 15, 2012,with a five-year maturity, initially both bearing interest atwith London Interbank Offered Rate (“LIBOR”) plus 1.125%2.50%. In connection with the refinancing, borrowings under the term loan and $169.0 million of borrowings under the revolving credit facility were used to repay all borrowings under the prior credit facility and related transaction fees and expenses, including those associated with the new credit facility. Loan origination costs associated with the new credit facility were $9.5 million and are included as deferred costs in other assets, net in the accompanying consolidated balance sheet as of October 3, 2010.
As part of the credit agreement, we may also request the issuance of up to $75.0 million in letters of credit, the outstanding amount of which reduces the net borrowing capacity under the agreement. The new credit facility


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requires the payment of an annual commitment fee based on the unused portion of the credit facility. The credit facility’s interest rates and the annual commitment rate are based on a financial leverage ratio, as defined in the credit agreement. Our obligations underWe may make voluntary prepayments of the credit facility are secured by first priority liens and security interests in the capital stock, partnership and membership interests owned by us and (or) our subsidiaries, and any proceeds thereof, subject to certain restrictions set forth in the credit agreement. Additionally, the credit agreement includes a negative pledge on all tangible and intangible assets (including all real and personal property) with customary exceptions. At September 27, 2009, we had no borrowingsloans under the revolving credit facility $415.0 million outstanding under theand term loan at any time without premium or penalty. Specific events, such as asset sales, certain issuances of debt and letters of credit outstanding of $35.5 million.insurance and condemnation recoveries, may trigger a mandatory prepayment.
 
Loan origination costs associated with the credit facility were $7.4 million and are included as deferred costs in other assets, net in the consolidated balance sheet. Deferred financing fees of $1.9 million related to the prior credit facility were written-off in fiscal 2007 and are included in interest expense, net in the consolidated statement of earnings for the year ended September 30, 2007.
Covenants.We are subject to a number of customary covenants under our credit facility, including limitations on additional borrowings, acquisitions, loans to franchisees, capital expenditures, lease commitments, stock repurchases, and dividend payments and requirements to maintain certain financial ratios. Following the end of each fiscal year,
At October 3, 2010, we may be required to prepayhad $197.5 million outstanding under the term debt with a portionloan, borrowings under the revolving credit facility of $160.0 million and letters of credit outstanding of $34.9 million. For additional information related to our excess cash flows for such fiscal year, as defined incredit facility, refer to Note 7,Indebtedness, of the credit agreement. Other events and transactions, such as certain asset sales, may also trigger


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an additional mandatory prepayment. In connection with the sale of Quick Stuff in 2009, we estimate we will be required to make a term loan prepayment of $21.0 million in February 2010, which will be appliednotes to the remaining scheduled principal installments on a pro-rata basis.consolidated financial statements.
 
Interest Rate Swaps. To reduce our exposure to rising interest rates under our credit facility, we consider interest rate swaps. In August 2010, we entered into two forward looking swaps that will effectively convert $100.0 million of our variable rate term loan to a fixed-rate basis beginning September 2011 through September 2014. Based on the term loan’s applicable margin of 2.50% as of October 3, 2010, these agreements would have an average pay rate of 1.54%, yielding a fixed rate of 4.04%. Previously, we held two interest rate swaps that effectively converted $200.0 million of our variable rate term loan borrowings to a fixed-rate basis untilfrom March 2007 to April 1, 2010. These agreements have been designated as cash flow hedges with effectiveness assessed on changes in the present valueFor additional information related to our interest rate swaps, refer to Note 6,Derivative Instruments, of the term loan interest payments. There was no hedge ineffectiveness in 2009 or 2008. Accordingly, changes innotes to the fair value of the interest rate swap contracts were recorded, net of taxes, as a component of accumulated other comprehensive loss in the Company’s consolidated balance sheets at the end of each period.financial statements.
 
Repurchases of Common Stock. In November 2007, the Board of Directors approved a program to repurchase up to $200.0 million in shares of our common stock over three years expiring November 9, 2010. During fiscal 2010, we repurchased 4.9 million shares at an aggregate cost of $97.0 million. During fiscal 2008, we repurchased 3.9 million shares at an aggregate cost of $100.0 million. As of September 27, 2009,October 3, 2010, the aggregate remaining amount authorized and available under our credit agreement for repurchase was $97.4$3.0 million.
In fiscal 2007, pursuantNovember 2010, the Board of Directors approved a new program to a tender offer in December 2006, we accepted for purchase approximately 2.3 million shares of common stock for a total cost of $143.3 million. All shares repurchased were subsequently retired. In fiscal 2007, we also repurchased 3.2 million shares of stock for $220.1 million and 1.6 million shares forrepurchase, within the next year, up to $100.0 million in connection with stock repurchase authorizations made byshares of our Board of Directors in 2006 and 2005, respectively.common stock.
 
Share-based Compensation.  Proceeds from the issuance of common stock decreased $4.1 million in 2009 reflecting a decline in the exercise of employee stock options compared with 2008, which also resulted in a corresponding decrease in tax benefits from share-based compensation. As options granted are exercised, the Company will continue to receive proceeds and a tax deduction, but the amount and the timing of these cash flows cannot be reliably predicted as option holders’ decisions to exercise options will be largely driven by movements in the Company’s stock price.
Off-balance sheet arrangements. Other than operating leases, we are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources. We finance a portion of our new restaurant development through sale-leaseback transactions. These transactions involve selling restaurants to unrelated parties and leasing the restaurants back. Additional information regarding our operating leases is available in Item 2,Properties,and Note 8,Leases,of the notes to the consolidated financial statements.
 
Contractual obligations and commitments. The following is a summary of our contractual obligations and commercial commitments as of September 27, 2009October 3, 2010 ((in thousands)thousands):
 
                     
  Payments Due by Year 
     Less than
          
  Total  1 Year  1-3 Years  3-5 Years  After 5 Years 
 
Contractual Obligations:
                    
Credit facility term loan(1) $431,785  $74,212  $289,612  $67,961  $— 
Revolving credit facility(1)  —   —   —   —   — 
Capital lease obligations(1)  15,186   2,293   3,984   3,013   5,896 
Operating lease obligations  1,850,492   203,673   381,886   339,703   925,230 
Purchase commitments(2)  1,069,512   609,887   419,754   39,871   — 
Benefit obligations(3)  56,036   27,996   5,655   5,790   16,595 
                     
Total contractual obligations $3,423,011  $918,061  $1,100,891  $456,338  $947,721 
                     
Other Commercial Commitments:
                    
Stand-by letters of credit(4) $35,523  $35,523  $—  $—  $— 
                     
                     
  Payments Due by Year 
  Total  Less than 1 year  1-3 years  3-5 years  After 5 years 
 
Contractual Obligations:
                    
Credit facility term loan (1) $217,240  $17,925  $51,880  $147,435  $- 
Revolving credit facility (1)  181,180   4,459   8,918   167,803   - 
Capital lease obligations  12,824   2,101   3,424   2,735   4,564 
Operating lease obligations  1,901,022   219,414   405,462   356,770   919,376 
Purchase commitments (2)  740,786   482,871   254,794   3,121   - 
Benefit obligations (3)  61,465   16,428   9,091   9,111   26,835 
                     
Total contractual obligations $ 3,114,517  $    743,198  $  733,569  $  686,975  $ 950,775 
                     
                     
Other Commercial Commitments:
                    
Stand-by letters of credit (4) $34,941  $34,941  $-  $-  $- 
                     


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(1)Obligations related to our credit facility capital lease obligations, and other long-term debt obligations include interest expense estimated at interest rates in effect on September 27, 2009.October 3, 2010.
 
(2)Includes purchase commitments for food, beverage, packaging items and certain utilities.
 
(3)Includes expected payments associated with our defined benefit plans, postretirement benefit plans and our non-qualified deferred compensation plan through fiscal 2017.2020.
 
(4)Consists primarily of letters of credit for workers’ compensation and general liability insurance.
 
The contractual obligations and commitments table includes $24.8 million in contributions we expect to make to our pension plans in fiscal 2010. We maintain two pension plans, a noncontributory defined benefit pension plan (“qualified pension plan”) covering substantially all full-time employees and an unfunded supplemental executive plan (“non-qualified pension plan’).employees. Our policy is to fund our qualified pension plan at amounts necessary to satisfy the minimum amount required by law, plus additional amounts as determined by management to improve the plan’s funded status. Based on the funding status of our qualified pension plan as of our last measurement date, we are not required to make a minimum contribution in 2010, however,2011. However, we currently expect to make voluntarydiscretionary contributions of approximately $22.0$10.0 million duringwhich have been included in the fiscal year.table above. Effective September 2010, we amended our qualified plan whereby participants will no longer accrue benefits after December 31, 2015. As a result, our discretionary contributions will likely be lower in the future when compared with recent years. Contributions beyond fiscal 20102011 will depend on pension asset performance, future interest rates, future tax law changes, and future changes in regulatory funding requirements. For additional information related to our pension plans, refer to Note 11,Retirement Plans, of the discount rate and returns on plan assets. As of September 27, 2009, our qualified pension plan had a projected benefit obligation (“PBO”) of $290.5 million and plan assets of $231.6 million, and our non-qualified pension plan had a PBO of $49.5 million.notes to the consolidated financial statements.
 
DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES
 
We have identified the following as our most critical accounting estimates, which are those that are most important to the portrayal of the Company’s financial condition and results, and that require management’s most subjective and complex judgments. Information regarding our other significant accounting estimates and policies are disclosed in Note 1 to our consolidated financial statements.
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.
Retirement Benefits — Our defined benefit and other postretirement plans’ costs and liabilities are determined using several statistical and other factors, which attempt to anticipate future events, including assumptions about the discount rate and expected return on plan assets. Our discount rate is set annually by us, with assistance from our actuaries, and is determined by considering the average of pension yield curves constructed of a population of high-quality bonds with a Moody’s or Standard and Poor’s rating of “AA” or better meeting certain other criteria. As of September 27, 2009, our discount rate was 6.16% for our defined benefit and postretirement benefit plans. Our expected long-term rate of return on assets is determined taking into consideration our projected asset allocation and economic forecasts prepared with the assistance of our actuarial consultants. As of September 27, 2009, our assumed expected long-term rate of return was 7.75% for our qualified defined benefit plan. The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower turnover and retirement rates or longer or shorter life spans of participants. These differences may affect the amount of pension expense we record. A hypothetical 25 basis 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 $2.4 million and $4.7 million, respectively, in our fiscal 2010 pension expense. We expect our pension expense to increase in fiscal 2010 principally due to a decrease in our discount rate from 7.30% to 6.16%.
Self Insurance — We are self-insured for a portion of our losses related to workers’ compensation, general liability, automotive, medical and dental programs. 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


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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.
 
Long-lived Assets — Property, equipment and certain other assets, including amortized intangible assets, are reviewed for impairment when indicators of impairment are present. This review generally includes a restaurant-level analysis, except when we are actively selling a group of restaurants, in which case we perform our impairment evaluations at the group level. Impairment evaluations for individual restaurants take into consideration a restaurant’s operating cash flows, the period of time since a restaurant has been opened or remodeled, refranchising expectations, and the maturity of the related market. Impairment evaluations for a group of restaurants take into consideration the group’s expected future cash flows and sales proceeds from bids received, if any, or fair market value based on, among other considerations, the specific sales and cash flows of those restaurants. If the assets of a restaurant or group of restaurants subject to our impairment evaluation are not recoverable based upon the forecasted, undiscounted cash flows, we recognize an impairment loss byas the amount by which the carrying value of the assets exceeds fair value. Our estimates of cash flows used to assess impairment are subject to a high degree of judgment and may differ from actual cash flows due to, among other things, economic conditions or changes in operating performance. During fiscal year 2010, we recorded impairment charges totaling $13.0 million to write down certain assets to their estimated fair value.
Retirement Benefits — Our defined benefit and other postretirement plans’ costs and liabilities are determined using several statistical and other factors, which attempt to anticipate future events, including assumptions about the discount rate and expected return on plan assets. Our discount rate is set annually by us, with assistance from our actuaries, and is determined by considering the average of pension yield curves constructed of a population of high-quality bonds with a Moody’s or Standard and Poor’s rating of “AA” or better meeting certain other criteria. As of October 3, 2010, our discount rate was 5.82% for our defined benefit and postretirement benefit plans. Our expected long-term rate of return on assets is determined taking into consideration our projected asset allocation and economic forecasts prepared with the assistance of our actuarial consultants. As of October 3, 2010, our assumed expected long-term rate of return was 7.75% for our qualified defined benefit plan. The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower turnover and retirement rates or longer or shorter life spans of participants. These differences may affect the amount of pension expense we record. A hypothetical 25 basis 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


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postretirement expense to decrease in fiscal 2011 principally due to the curtailment of our qualified plan which will be partially offset by a decrease in our discount rate from 6.16% to 5.82%.
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 also evaluate goodwill andnon-amortizable intangible assets not subject to amortization annually, or more frequently if indicators of impairment are present. 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 2009,2010, we reviewed the carrying value of our goodwill and indefinite life intangible assets and determined that no impairment existed as of September 27, 2009.October 3, 2010.
 
Allowances for Doubtful Accounts — Our trade receivables consist primarily of amounts due from franchisees for rents on subleased sites, royalties and distribution sales. We continually monitor amounts due from franchisees and maintain an allowance for doubtful accounts for estimated losses. This estimate is based on our assessment of the collectibilitycollectability of specific franchisee accounts, as well as a general allowance based on historical trends, the financial condition of our franchisees, consideration of the general economy and the aging of such receivables. We have good relationships with our franchisees and high collection rates; however, if the future financial condition of our franchisees were to deteriorate, resulting in their inability to make specific required payments, we may be required to increase the allowance for doubtful accounts.
 
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.
 
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 annual 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.


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FUTURE APPLICATION OF ACCOUNTING PRINCIPLES
In September 2006, the FASB issued authoritative guidance on fair value measurements. This guidance clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. This guidance applies under other accounting pronouncements that currently require or permit fair value measurements and is effective for fiscal years beginning after November 15, 2007, and interim periods within those years. We adopted the provisions of the fair value measurement guidance for our financial assets and liabilities and have elected to defer adoption for our nonfinancial assets and liabilities until fiscal year


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2010. We are currently in the process of assessing the impact this guidance may have on our consolidated financial statements related to our nonfinancial assets and liabilities.
 
In June 2009, the FASB issued authoritative guidance for consolidation, which changes the approach for determining which enterprise has a controlling financial interest in a variable interest entity and requires more frequent reassessments of whether an enterprise is a primary beneficiary. This guidance is effective for annual periods beginning after November 15, 2009. We are currently in the process of assessing the impact this guidance may have on our consolidated financial statements.
 
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.
 
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Our primary exposure to risks relating to financial instruments is changes in interest rates. Our credit facility, which is comprised of a revolving credit facility and a term loan, bears interest at an annual rate equal to the prime rate or LIBOR plus an applicable margin based on a financial leverage ratio. As of September 27, 2009,October 3, 2010, the applicable margin for the LIBOR-based revolving loans and term loan was set at 1.125%2.50%.
 
We use interest rate swap agreements to reduce exposure to interest rate fluctuations. At September 27, 2009,In August 2010, we hadentered into two interest rate swap agreements having an aggregate notional amount of $200.0 million expiring April 1, 2010. These agreementsthat will effectively convert a portion$100.0 million of our variable rate bank debtterm loan borrowings to a fixed-rate debt andbasis beginning September 2011 through September 2014. Based on the term loan’s applicable margin of 2.50% as of October 3, 2010, these agreements would have an average pay rate of 4.875%1.54%, yielding a fixed-ratefixed rate of 6.00% including the term loan’s applicable margin of 1.125%4.04%.
 
A hypothetical 100 basis point increase in short-term interest rates, based on the outstanding unhedged balance of our revolving credit facility and term loan at September 27, 2009October 3, 2010, would result in an estimated increase of $2.2$3.6 million in annual interest expense.
 
We are also exposed to the impact of commodity and utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs through higher prices is limited by the competitive environment in which we operate. From time to time, we enter into futures and option contracts to manage these fluctuations. At September 27, 2009,October 3, 2010, we had 20 natural gas Over the Counter Call Option agreementsno such contracts in place that represent approximately 33% of our total requirements for natural gas for the months of November 2009 through March 2010.place.
 
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
The consolidated financial statements and related financial information required to be filed are indexed onpage F-1 and are incorporated herein.
 
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
Not applicable.
 
ITEM 9A.CONTROLS AND PROCEDURES
 
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
 
Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13(a) —– 15(e) and 15(d) —– 15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s fiscal year ended September 27, 2009,October 3, 2010, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) have concluded that the Company’s disclosure controls and procedures were effective.


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Changes in Internal Control Over Financial Reporting
 
There have been no significant changes in the Company’s internal control over financial reporting that occurred


31

during the Company’s fiscal quarter ended September 27, 2009October 3, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Management’s Report on Internal Control Over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined inRule 13a-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 27, 2009.October 3, 2010. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Management has concluded that, as of September 27, 2009,October 3, 2010, the Company’s internal control over financial reporting was effective based on these criteria.
 
The Company’s independent registered public accounting firm, KPMG LLP, has issued an audit report on the effectiveness of our internal control over financial reporting, which follows.


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Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders
Jack in the Box Inc.:
 
We have audited Jack in the Box Inc.’s (the Company’s) internal control over financial reporting as of September 27, 2009,October 3, 2010, based on criteria established inInternal Control —– Integrated Framework,issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, Jack in the Box Inc. maintained, in all material respects, effective internal control over financial reporting as of September 27, 2009,October 3, 2010, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Jack in the Box Inc. and subsidiaries as of October 3, 2010 and September 27, 2009, and September 28, 2008, and the related consolidated statements of earnings, cash flows, and stockholders’ equity for the fifty-three weeks ended October 3, 2010, and the fifty-two weeks ended September 27, 2009 and September 28, 2008, and September 30, 2007, and our report dated November 19, 2009,23, 2010, expressed an unqualified opinion on those consolidated financial statements.
 
/s/  KPMG LLP
 
San Diego, California
November 19, 200923, 2010


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ITEM 9B.OTHER INFORMATION
 
Not applicable.
 
PART III
 
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
That portion of our definitive Proxy Statement appearing under the captions “Election of Directors —– Committees of the Board of Directors Member Qualifications” and “Section 16(a) Beneficial Ownership Reporting Compliance” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2009October 3, 2010 and to be used in connection with our 20102011 Annual Meeting of Stockholders is hereby incorporated by reference.
 
Information regarding executive officers is set forth in Item 1 of Part I of this Report under the caption “Executive Officers.”
 
That portion of our definitive Proxy Statement appearing under the caption “Audit Committee,” relating to the members of the Company’s Audit Committee and the Audit Committee financial expert, is also incorporated herein by reference.
 
That portion of our definitive Proxy Statement appearing under the caption “Other Business,” relating to the procedures by which stockholders may recommend candidates for director to the Nominating and Governance Committee of the Board of Directors, is also incorporated herein by reference.
 
We have adopted a Code of Ethics, which applies to all Jack in the Box Inc. directors, officers and employees, including the Chief Executive Officer, Chief Financial Officer, Controller and all of the financial team. The Code of Ethics is posted on the Company’s website, www.jackinthebox.com (under the “Investors —– Corporate Governance —– Code of Conduct” caption). We intend to satisfy the disclosure requirement regarding any amendment to, or waiver of, a provision of the Code of Ethics for the Chief Executive Officer, Chief Financial Officer and Controller or persons performing similar functions, by posting such information on our website. No such waivers have been issued during fiscal 2009.2010.
 
We have also adopted a set of Corporate Governance Principles and Practices and charters for all of our Board Committees, including the Audit, Compensation, and Nominating and Governance Committees. The Corporate Governance Principles and Practices and committee charters are available on our website at www.jackinthebox.com and in print free of charge to any shareholder who requests them. Written requests for our Code of Business Conduct and Ethics, Corporate Governance Principles and Practices and committee charters should be addressed to Jack in the Box Inc., 9330 Balboa Avenue, San Diego, CA 92123, Attention: Corporate Secretary.
 
The Company’s primary website can be found at www.jackinthebox.com. We make available free of charge at this website (under the caption “Investors — SEC Filings”) all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, including our Annual Report onForm 10-K, our Quarterly Reports onForm 10-Q and our Current Reports onForm 8-K, and amendments to those reports. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.
 
ITEM 11.EXECUTIVE COMPENSATION
 
That portion of our definitive Proxy Statement appearing under the caption “Executive Compensation”Compensation,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2009October 3, 2010 and to be used in connection with our 20102011 Annual Meeting of Stockholders is hereby incorporated by reference.
 
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
That portion of our definitive Proxy Statement appearing under the caption “Security Ownership of Certain Beneficial Owners and Management” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2009October 3, 2010 and to be used in connection with our 20102011 Annual Meeting of Stockholders is hereby


34

incorporated by reference. Information regarding equity compensation plans under which Companycompany common stock may be issued as of September 27, 2009October 3, 2010 is set forth in Item 5 of this Report.
 
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
That portion of our definitive Proxy Statement appearing under the caption “Certain Transactions,” if any, to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2009October 3, 2010 and to be used in connection with our 20102011 Annual Meeting of Stockholders is hereby incorporated by reference.
 
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
 
That portion of our definitive Proxy Statement appearing under the caption “Independent Registered Public Accountant Fees and Services” to be filed with the Commission pursuant to Regulation 14A within 120 days after September 27, 2009October 3, 2010 and to be used in connection with our 20102011 Annual Meeting of Stockholders is hereby incorporated by reference.
 
PART IV
 
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
ITEM 15(a) (1)Financial Statements.  See Index to Consolidated Financial Statements onpage F-1 of this Report.
ITEM 15(a) (1)Financial Statements. See Index to Consolidated Financial Statements onpage F-1 of this Report.
 
ITEM 15(a) (2)Financial Statement Schedules.  Not applicable.
ITEM 15(a) (3)Exhibits.
     
Number
 
Description
 
 3.1 Restated Certificate of Incorporation, as amended, which is incorporated herein by reference from the registrant’s Annual Report onForm 8-K dated September 24, 2007.
 3.1.1 Certificate of Amendment of Restated Certificate of Incorporation, which is incorporated herein by reference from the registrant’s Current Report onForm 10-K dated September 21, 2007.
 3.2 Amended and Restated Bylaws, which are incorporated herein by reference from the registrant’s Current Report onForm 8-K dated July 30, 2009.
 10.1 Credit Agreement dated as of December 15, 2006 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated December 15, 2006.
 10.2 Collateral Agreement dated as of December 15, 2006 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated December 15, 2006.
 10.3 Guaranty Agreement dated as of December 15, 2006 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated December 15, 2006.
 10.4* Amended and Restated 1992 Employee Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Registration Statement onForm S-8(No. 333-26781) filed May 9, 1997.
 10.5* Jack in the Box Inc. 2002 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Definitive Proxy Statement dated January 18, 2002 for the Annual Meeting of Stockholders’ on February 22, 2002.
 10.5.1* Form of Restricted Stock Award for certain executives under the 2002 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended January 19, 2003.
 10.6* Amended and Restated Supplemental Executive Retirement Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended January 18, 2009.
ITEM 15(a) (2)Financial Statement Schedules. Not applicable.


35

ITEM 15(a) (3)Exhibits.
   
Number
Description
3.1 
DescriptionRestated Certificate of Incorporation, as amended, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated September 21, 2007.
10.6.1*3.1.1 
Certificate of Amendment of Restated Certificate of Incorporation, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated September 21, 2007.
3.2
Amended and Restated Bylaws, which are incorporated herein by reference from the registrant’s Current Report onForm 8-K dated May 11, 2010.
10.1
Credit Agreement dated as of June 29, 2010 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated July 1, 2010.
10.2
Collateral Agreement dated as of June 29, 2010 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated July 1, 2010.
10.3
Guaranty Agreement dated as of June 29, 2010 by and among Jack in the Box Inc. and the lenders named therein, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated July 1, 2010.
10.4*
Amended and Restated 1992 Employee Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Registration Statement onForm S-8(No. 333-26781) filed May 9, 1997.
10.5*Jack in the Box Inc. 2002 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Definitive Proxy Statement dated January 18, 2002 for the Annual Meeting of Stockholders on February 22, 2002.
10.5.1*
Form of Restricted Stock Award for certain executives under the 2002 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended January 19, 2003.
10.6*
Amended and Restated Supplemental Executive Retirement Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended January 18, 2009.
10.6.1*
First Amendment dated as of August 2, 2002 to the Supplemental Executive Retirement Plan, which is incorporated herein by reference from registrant’s Annual Report onForm 10-K for the fiscal year ended September 29, 2002.
10.6.2*10.6.2* 
Second Amendment dated as of November 9, 2006 to the Supplemental Executive Retirement Plan, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended October 1, 2006.
10.6.3*10.6.3* 
Third Amendment dated as of February 15, 2007 to the Supplemental Executive Retirement Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended April 15, 2007.
10.6.4*10.6.4* 
Fourth and Fifth Amendments dated as of September 14, 2007 and November 8, 2007, respectively, to the Supplemental Executive Retirement Plan, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended September 30, 2007.
10.7*10.7* Amended and Restated Performance Bonus Plan effective October 2, 2000, which is incorporated herein by reference from the registrant’s Definitive Proxy Statement dated January 13, 2006 for the Annual Meeting of Stockholders on February 17, 2006.
10.8*10.8* 
Amended and Restated Deferred Compensation Plan for Non-Management Directors effective November 9, 2006, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended October 1, 2006.


36

 10.9*
Number Description
10.9*
Amended and Restated Non-Employee Director Stock Option Plan, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the fiscal year ended October 3, 1999.
10.10*10.10* 
Form of Compensation and Benefits Assurance Agreement for Executives, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 9, 2006.January 20, 2008.
10.10.1*10.10.1* 
Revised Form of Compensation and Benefits Assurance Agreement for Executives, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated November 16, 2009.
10.11*10.11* 
Form of Indemnification Agreement between Jack in the Box Inc. and certain officers and directors, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the fiscal year ended September 29, 2002.
10.13*10.13* 
Amended and Restated Executive Deferred Compensation Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended January 18, 2009.
10.13.1*10.13.1* 
First amendment dated September 14, 2007 to the Executive Deferred Compensation Plan, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended September 30, 2007.
10.14(a)10.14(a)* 
Schedule of Restricted Stock Awards, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended October 1, 2006.
10.15*10.15* 
Executive Retention Agreement between Jack in the Box Inc. and Gary J. Beisler, President and Chief Executive Officer of Qdoba Restaurant Corporation, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended April 13, 2003.
10.16*10.16* 
Amended and Restated 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s CurrentQuarterly Report onForm 8-K10-Q dated February 24, 2005.April 11, 2010.
10.16.1*10.16.1* 
Form of Restricted Stock Award for officers and certain members of management under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 5, 2009.
10.16.1(a)10.16.1(a)* 
Form of Restricted Stock Award for executives of Qdoba Restaurant Corporation under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 5, 2009.
10.16.2*10.16.2* 
Form of Stock Option Awards under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 5, 2009.
10.16.2(a)*
Form of Stock Option Award for officers of Qdoba Restaurant Corporation under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 5, 2009.
10.16.3*
Jack in the Box Inc. Non-Employee Director Stock Option Award Agreement under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated November 10, 2005.
10.16.4*
Form of Restricted Stock Unit Award Agreement for officers and certain members of management under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended April 12, 2009.
10.16.4(a)*Form of Restricted Stock Unit Award Agreement for Non-Employee Director under the 2004 Stock Incentive Plan, which is incorporated by reference from the registrant’s Annual Report on Form 10-K for the year ended September 27, 2009.

3637

     
Number
 
Description
 
 10.16.2(a)* Form of Stock Option Award for officers of Qdoba Restaurant Corporation under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended July 5, 2009.
 10.16.3* Jack in the Box Inc. Non-Employee Director Stock Option Award Agreement under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated November 10, 2005.
 10.16.4* Form of Restricted Stock Unit Award Agreement for officers and certain members of management under the 2004 Stock Incentive Plan, which is incorporated herein by reference from the registrant’s Quarterly Report onForm 10-Q for the quarter ended April 12, 2009.
 10.16.4(a)* Form of Restricted Stock Unit Award Agreement for Non-Employee Director under the 2004 Stock Incentive Plan.
 10.16.5* Form of Award Agreement under the 2004 Stock Incentive Plan.
 10.22* Dr. David M. Theno’s Retirement and Release Agreement, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended September 28, 2008.
 10.23* Summary of Director Compensation effective fiscal 2007, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended October 1, 2006.
 23.1 Consent of Independent Registered Public Accounting Firm.
 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
NumberDescription
10.16.4(b)*Form of Time-Vested Restricted Stock Unit Award Agreement for officers under the 2004 Stock Incentive Plan.
10.16.5*
Form of Award Agreement under the 2004 Stock Incentive Plan, which is incorporated by reference from the registrant’s Annual Report on Form10-K for the year ended September 27, 2009.
10.16.6*Form of Qdoba Unit Award Agreement
10.22*
Dr. David M. Theno’s Retirement and Release Agreement, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended September 28, 2008.
10.23*
Summary of Director Compensation effective fiscal 2007, which is incorporated herein by reference from the registrant’s Annual Report onForm 10-K for the year ended October 1, 2006.
23.1Consent of Independent Registered Public Accounting Firm.
31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSλXBRL Instance Document
101.SCHλXBRL Taxonomy Extension Schema Document
101.CALλXBRL Taxonomy Extension Calculation Linkbase Document
101.LABλXBRL Taxonomy Extension Label Linkbase Document
101.PREλXBRL Taxonomy Extension Presentation Linkbase Document
101.DEFλXBRL Taxonomy Extension Definition Linkbase Document
 
*Management contract or compensatory plan.
λIn accordance withRegulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report onForm 10-K shall be deemed to be “furnished” and not “filed.”
 
ITEM 15(b) All required exhibits are filed herein or incorporated by reference as described in Item 15(a)(3).
ITEM 15(b)  All required exhibits are filed herein or incorporated by reference as described in Item 15(a)(3).
 
ITEM 15(c) All supplemental schedules are omitted as inapplicable or because the required information is included in the consolidated financial statements or notes thereto.
ITEM 15(c)  All supplemental schedules are omitted as inapplicable or because the required information is included in the consolidated financial statements or notes thereto.

3738

SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
JACK IN THE BOX INC.
 
 By: 
/s/  S/ JERRY P. REBEL
Jerry P. Rebel
Executive Vice President and Chief Financial Officer
(principal financial officer)
(Duly Authorized Signatory)
Date: November 19, 200924, 2010
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
       
Signature
 
Title
 
Date
 
     
/s/  S/ LINDA A. LANG

Linda A. Lang		 Chairman of the Board, and Chief Executive Officer and President
(principal executive officer)		 November 19, 200924, 2010
     
/s/  S/ JERRY P. REBEL

Jerry P. Rebel		 Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) November 19, 200924, 2010
     
/s/  S/ MICHAEL E. ALPERT

Michael E. Alpert		 Director November 19, 200924, 2010
     
/s/  ANNE B. GUST
S/ DAVID L. GOEBEL
Anne B. GustDavid L. Goebel		 Director November 19, 200924, 2010
     
/S/ MURRAY H. HUTCHISON
Murray H. Hutchison		DirectorNovember 24, 2010
/s/  S/ MICHAEL W. MURPHY
Michael W. Murphy		DirectorNovember 24, 2010
/S/ DAVID M. TEHLE
David M. Tehle		DirectorNovember 24, 2010
/S/ WINIFRED M. WEBB
Winifred M. Webb		 Director November 19, 200924, 2010
     
/s/  MURRAY H. HUTCHISON
S/ JOHN T. WYATT
Murray H. HutchisonJohn T. Wyatt		 Director November 19, 2009
/s/  MICHAEL W. MURPHY

Michael W. Murphy		DirectorNovember 19, 2009
/s/  DAVID M. TEHLE

David M. Tehle		DirectorNovember 19, 2009
/s/  DAVID L. GOEBEL

David L. Goebel		DirectorNovember 19, 200924, 2010


3839

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
     
  Page
 
Report of Independent Registered Public Accounting Firm
  F-2 
Consolidated Balance Sheets
  F-3 
Consolidated Statements of Earnings
  F-4 
Consolidated Statements of Cash Flows
  F-5 
Consolidated Statements of Stockholders’ Equity
  F-6 
Notes to Consolidated Financial Statements
  F-7 
 
Schedules not filed: All schedules have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.


F-1

 
Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders
Jack in the Box Inc.:
 
We have audited the accompanying consolidated balance sheets of Jack in the Box Inc. and subsidiaries (the Company) as of October 3, 2010 and September 27, 2009, and September 28, 2008, and the related consolidated statements of earnings, cash flows, and stockholders’ equity for the fifty-three weeks ended October 3, 2010, and the fifty-two weeks ended September 27, 2009 and September 28, 2008 and September 30, 2007.2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jack in the Box Inc. and subsidiaries as of October 3, 2010 and September 27, 2009, and September 28, 2008, and the results of their operations and their cash flows for the fifty-three weeks ended October 3, 2010, and the fifty-two weeks ended September 27, 2009 and September 28, 2008, and September 30, 2007, in conformity with U.S. generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company changed its method of accounting for defined benefit plans in fiscal 2007 and its method of accounting for uncertainty in income taxes in fiscal 2008 due to the adoption of new accounting pronouncements.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Jack in the Box Inc.’s internal control over financial reporting as of September 27, 2009,October 3, 2010, based on criteria established inInternal Control —– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November 19, 2009,23, 2010, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 
/s/ KPMG LLP
 
San Diego, CA
November 19, 200923, 2010


F-2

JACK IN THE BOX INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
         
  September 27,
  September 28,
 
  2009  2008 
  (Dollars in thousands,
 
  except per share data) 
 
ASSETS
Current assets:        
Cash and cash equivalents $53,002  $47,884 
Accounts and other receivables, net  49,036   70,290 
Inventories  37,675   45,206 
Prepaid expenses  8,958   20,061 
Deferred income taxes  44,614   46,166 
Assets held for sale  99,612   112,994 
Other current assets  7,152   7,480 
         
Total current assets  300,049   350,081 
         
Property and equipment, at cost:        
Land  101,576   98,816 
Buildings  936,351   863,461 
Restaurant and other equipment  506,185   564,898 
Construction in progress  58,135   71,572 
         
   1,602,247   1,598,747 
Less accumulated depreciation and amortization  (665,957)  (655,685)
         
Property and equipment, net  936,290   943,062 
         
Intangible assets, net  18,434   19,249 
Goodwill  85,843   85,789 
Other assets, net  115,294   100,237 
         
  $1,455,910  $1,498,418 
         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:        
Current maturities of long-term debt $67,977  $2,331 
Accounts payable  63,620   99,708 
Accrued liabilities  206,100   213,631 
         
Total current liabilities  337,697   315,670 
         
Long-term debt, net of current maturities  357,270   516,250 
Other long-term liabilities  234,190   161,277 
Deferred income taxes  2,264   48,110 
Stockholders’ equity:        
Preferred stock $.01 par value, 15,000,000 authorized, none issued  —   — 
Common stock $.01 par value, 175,000,000 shares authorized, 73,987,070 and 73,506,049 issued, respectively  740   735 
Capital in excess of par value  169,440   155,023 
Retained earnings  912,210   795,657 
Accumulated other comprehensive loss, net  (83,442)  (19,845)
Treasury stock, at cost, 16,726,032 shares  (474,459)  (474,459)
         
Total stockholders’ equity  524,489   457,111 
         
  $1,455,910  $1,498,418 
         
         
  October 3,
  September 27,
 
  2010  2009 
 
ASSETS
Current assets:        
Cash and cash equivalents $10,607  $53,002 
Accounts and other receivables, net  81,150   49,036 
Inventories  37,391   37,675 
Prepaid expenses  33,563   8,958 
Deferred income taxes  46,185   44,614 
Assets held for sale  59,897   99,612 
Other current assets  6,129   7,152 
         
Total current assets  274,922   300,049 
         
Property and equipment, at cost:        
Land  101,206   101,576 
Buildings  965,312   936,351 
Restaurant and other equipment  437,547   506,185 
Construction in progress  58,664   58,135 
         
   1,562,729   1,602,247 
Less accumulated depreciation and amortization  (684,690)  (665,957)
         
Property and equipment, net  878,039   936,290 
         
Intangible assets, net  17,986   18,434 
Goodwill  85,041   85,843 
Other assets, net  151,104   115,294 
    ��    
  $1,407,092  $1,455,910 
         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:        
Current maturities of long-term debt $13,781  $67,977 
Accounts payable  101,216   63,620 
Accrued liabilities  168,186   206,100 
         
Total current liabilities  283,183   337,697 
         
Long-term debt, net of current maturities  352,630   357,270 
Other long-term liabilities  250,440   234,190 
Deferred income taxes  376   2,264 
Stockholders’ equity:        
Preferred stock $.01 par value, 15,000,000 shares authorized, none issued  -   - 
Common stock $.01 par value, 175,000,000 shares authorized, 74,461,632 and 73,987,070 issued, respectively  745   740 
Capital in excess of par value  187,544   169,440 
Retained earnings  982,420   912,210 
Accumulated other comprehensive loss, net  (78,787)  (83,442)
Treasury stock, at cost, 21,640,400 and 16,726,032 shares, respectively  (571,459)  (474,459)
         
Total stockholders’ equity  520,463   524,489 
         
  $ 1,407,092  $ 1,455,910 
         
 
See accompanying notes to consolidated financial statements.


F-3

JACK IN THE BOX INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
             
  Fiscal Year 
  2009  2008  2007 
  (Dollars in thousands, except per share data) 
 
Revenues:            
Restaurant sales $1,975,842  $2,101,576  $2,150,985 
Distribution sales  302,135   275,225   222,560 
Franchised restaurant revenues  193,119   162,760   139,886 
             
   2,471,096   2,539,561   2,513,431 
             
Operating costs and expenses:            
Food and packaging costs  640,386   701,051   685,179 
Payroll and employee benefits  587,551   624,600   644,283 
Occupancy and other  428,509   438,492   436,588 
             
Company restaurant costs  1,656,446   1,764,143   1,766,050 
Distribution costs of sales  300,934   273,369   220,240 
Franchised restaurant costs  78,414   64,955   56,491 
Selling, general and administrative expenses  282,676   287,555   291,745 
Gains on the sale of company-operated restaurants  (78,642)  (66,349)  (38,091)
             
   2,239,828   2,323,673   2,296,435 
             
Earnings from operations  231,268   215,888   216,996 
Interest expense  22,155   28,070   32,127 
Interest income  (1,388)  (642)  (8,792)
             
Interest expense, net  20,767   27,428   23,335 
Earnings before income taxes  210,501   188,460   193,661 
Income taxes  79,455   70,251   68,982 
             
Earnings from continuing operations  131,046   118,209   124,679 
Earnings (losses) from discontinued operations, net  (12,638)  1,070   904 
             
Net earnings $118,408  $119,279  $125,583 
             
Net earnings per share — basic:            
Earnings from continuing operations $2.31  $2.03  $1.91 
Earnings (losses) from discontinued operations  (0.23)  0.02   0.01 
             
Net earnings per share $2.08  $2.05  $1.92 
             
Net earnings per share — diluted:            
Earnings from continuing operations $2.27  $1.99  $1.85 
Earnings (losses) from discontinued operations  (0.22)  0.02   0.02 
             
Net earnings per share $2.05  $2.01  $1.87 
             
Weighted-average shares outstanding:            
Basic  56,795   58,249   65,314 
Diluted  57,733   59,445   67,263 
             
  Fiscal Year 
  2010  2009  2008 
 
Revenues:            
Company restaurant sales $1,668,527  $1,975,842  $2,101,576 
Distribution sales  397,977   302,135   275,225 
Franchise revenues  231,027   193,119   162,760 
             
   2,297,531   2,471,096   2,539,561 
             
Operating costs and expenses, net:            
Company restaurant costs:            
Food and packaging  530,613   639,916   700,755 
Payroll and employee benefits  505,138   587,551   624,600 
Occupancy and other  398,066   428,979   438,788 
             
Total company restaurant costs  1,433,817   1,656,446   1,764,143 
Distribution costs  399,707   300,934   273,369 
Franchise costs  104,845   78,414   64,955 
Selling, general and administrative expenses  243,353   260,662   264,798 
Impairment and other charges, net  48,887   22,014   22,757 
Gains on the sale of company-operated restaurants, net  (54,988)  (78,642)  (66,349)
             
   2,175,621   2,239,828   2,323,673 
             
Earnings from operations  121,910   231,268   215,888 
             
Interest expense, net  15,894   20,767   27,428 
             
             
Earnings from continuing operations and before income taxes  106,016   210,501   188,460 
             
Income taxes  35,806   79,455   70,251 
             
             
Earnings from continuing operations  70,210   131,046   118,209 
             
Earnings (losses) from discontinued operations, net  -   (12,638)  1,070 
             
Net earnings $70,210  $118,408  $119,279 
             
             
Net earnings per share – basic:            
Earnings from continuing operations $1.27  $2.31  $2.03 
Earnings (losses) from discontinued operations, net  -   (0.23)  0.02 
             
Net earnings per share $1.27  $2.08  $2.05 
             
             
Net earnings per share – diluted:            
Earnings from continuing operations $1.26  $2.27  $1.99 
Earnings (losses) from discontinued operations, net  -   (0.22)  0.02 
             
Net earnings per share $1.26  $2.05  $2.01 
             
             
Weighted-average shares outstanding:            
Basic  55,070   56,795   58,249 
Diluted  55,843   57,733   59,445 
 
See accompanying notes to consolidated financial statements.


F-4

JACK IN THE BOX INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
             
  Fiscal Year 
  2009  2008  2007 
  (Dollars in thousands) 
 
Cash flows from operating activities:            
Net earnings $118,408  $119,279  $125,583 
Loss (earnings) from discontinued operations, net  12,638   (1,070)  (904)
             
Net earnings from continuing operations  131,046   118,209   124,679 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization  100,830   96,943   90,700 
Deferred finance cost amortization  1,461   1,462   1,443 
Deferred income taxes  (15,331)  6,643   (14,688)
Share-based compensation expense  9,341   10,566   12,640 
Pension and postretirement expense  12,243   14,433   15,777 
Losses (gains) on cash surrender value of company-owned life insurance  1,910   8,172   (7,639)
Gains on the sale of company-operated restaurants, net  (78,642)  (66,349)  (38,091)
Gains on the acquisition of franchise-operated restaurants  (958)  —   — 
Losses on the disposition of property and equipment, net  12,666   16,412   15,898 
Loss on early retirement of debt  —   —   1,939 
Impairment charges and other  6,586   3,507   1,347 
Changes in assets and liabilities, excluding acquisitions and dispositions:            
Receivables  3,519   (9,172)  (10,277)
Inventories  7,596   (4,452)  (4,720)
Prepaid expenses and other current assets  11,496   7,026   (5,915)
Accounts payable  (14,975)  4,167   13,075 
Pension and postretirement contributions  (26,233)  (25,012)  (14,795)
Other  (15,231)  (15,520)  (7,616)
             
Cash flows provided by operating activities from continuing operations  147,324   167,035   173,757 
             
Cash flows provided by operating activities from discontinued operations  1,426   5,349   4,764 
             
Cash flows provided by operating activities  148,750   172,384   178,521 
             
Cash flows from investing activities:            
Purchases of property and equipment  (153,500)  (178,605)  (148,508)
Proceeds from the sale of company-operated restaurants  94,927   57,117   51,256 
Purchase of assets held for sale and leaseback, net  (36,824)  (14,003)  (15,396)
Collections on notes receivable  31,539   7,942   122 
Acquisition of franchise-operated restaurants  (6,760)  —   (6,960)
Other  (989)  (4,857)  (4,893)
             
Cash flows used in investing activities from continuing operations  (71,607)  (132,406)  (124,379)
             
Cash flows provided by (used in) investing activities from discontinued operations  30,648   (1,964)  (5,674)
             
Cash flows used in investing activities  (40,959)  (134,370)  (130,053)
             
Cash flows from financing activities:            
Borrowings on revolving credit facility  541,000   650,000   — 
Repayments of borrowings on revolving credit facility  (632,000)  (559,000)  — 
Borrowings under term loan  —   —   475,000 
Principal payments on debt  (2,334)  (5,722)  (333,931)
Payment of debt costs  —   —   (7,357)
Proceeds from issuance of common stock  4,574   8,642   27,809 
Repurchase of common stock  —   (100,000)  (463,402)
Excess tax benefits from share-based compensation arrangements  664   3,346   17,533 
Change in book overdraft  (14,577)  (3,098)  17,676 
             
Cash flows used in financing activities  (102,673)  (5,832)  (266,672)
             
Net increase (decrease) in cash and cash equivalents  5,118   32,182   (218,204)
Cash and cash equivalents at beginning of period  47,884   15,702   233,906 
             
Cash and cash equivalents at end of period $53,002  $47,884  $15,702 
             
             
  Fiscal Year 
  2010  2009  2008 
 
Cash flows from operating activities:            
Net earnings $70,210  $118,408  $119,279 
Losses (earnings) from discontinued operations, net  -   12,638   (1,070)
             
Net earnings from continuing operations  70,210   131,046   118,209 
Adjustments to reconcile net earnings to net cash provided by operating activities:            
Depreciation and amortization  101,514   100,830   96,943 
Deferred finance cost amortization  1,658   1,461   1,462 
Deferred income taxes  (27,554)  (15,331)  6,643 
Share-based compensation expense  10,605   9,341   10,566 
Pension and postretirement expense  29,140   12,243   14,433 
Losses (gains) on cash surrender value of company-owned life insurance  (6,199)  1,910   8,172 
Gains on the sale of company-operated restaurants, net  (54,988)  (78,642)  (66,349)
Gains on the acquisition of franchise-operated restaurants  -   (958)  - 
Losses on the disposition of property and equipment, net  10,757   11,418   17,373 
Impairment charges and other  12,970   6,586   3,507 
Loss on early retirement of debt  513   -   - 
Changes in assets and liabilities, excluding acquisitions and dispositions:            
Accounts and other receivables  (8,174)  3,519   (9,172)
Inventories  284   7,596   (4,452)
Prepaid expenses and other current assets  (22,967)  11,496   7,026 
Accounts payable  (2,219)  (14,975)  4,167 
Pension and postretirement contributions  (24,072)  (26,233)  (25,012)
Other  (27,440)  (13,983)  (16,481)
             
Cash flows provided by operating activities from continuing operations  64,038   147,324   167,035 
Cash flows provided by (used in) operating activities from discontinued operations  (2,172)  1,426   5,349 
             
Cash flows provided by operating activities  61,866   148,750   172,384 
             
Cash flows from investing activities:            
Purchases of property and equipment  (95,610)  (153,500)  (178,605)
Proceeds from the sale of company-operated restaurants  66,152   94,927   57,117 
Proceeds from (purchases of) assets held for sale and leaseback, net  45,348   (36,824)  (14,003)
Collections on notes receivable  8,322   31,539   7,942 
Acquisition of franchise-operated restaurants  (8,115)  (6,760)  - 
Other  3,076   (989)  (4,857)
             
Cash flows provided by (used in) investing activities from continuing operations  19,173   (71,607)  (132,406)
Cash flows provided by (used in) investing activities from discontinued operations  -   30,648   (1,964)
             
Cash flows provided by (used in) investing activities  19,173   (40,959)  (134,370)
             
             
Cash flows from financing activities:            
Borrowings on revolving credit facility  881,000   541,000   650,000 
Repayments of borrowings on revolving credit facility  (721,000)  (632,000)  (559,000)
Proceeds from issuance of debt  200,000   -   - 
Principal repayments on debt  (418,836)  (2,334)  (5,722)
Debt issuance costs  (9,548)  -   - 
Proceeds from issuance of common stock  5,186   4,574   8,642 
Repurchase of common stock  (97,000)  -   (100,000)
Excess tax benefits from share-based compensation arrangements  2,037   664   3,346 
Change in book overdraft  34,727   (14,577)  (3,098)
             
Cash flows used in financing activities  (123,434)  (102,673)  (5,832)
             
             
Net increase (decrease) in cash and cash equivalents  (42,395)  5,118   32,182 
Cash and cash equivalents at beginning of period  53,002   47,884   15,702 
             
Cash and cash equivalents at end of period $10,607  $53,002  $47,884 
             
 
See accompanying notes to consolidated financial statements.


F-5

JACK IN THE BOX INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
 
                                                        
         Accumulated
              Accumulated
     
     Capital in
   Other
          Capital in
   other
     
 Number of
   Excess of
 Retained
 Comprehensive
 Treasury
    Number
   excess of
 Retained
 comprehensive
 Treasury
   
 Shares Amount par Value Earnings Loss, Net Stock Total  of shares Amount par value earnings loss, net stock Total 
 (Dollars in thousands)    
Balance at October 1, 2006  75,640,701  $756  $431,338  $550,795  $(1,796) $(274,459) $706,634 
Shares issued under stock plans, including tax benefit  2,374,470   24   45,685   —   —   —   45,709 
Share-based compensation  —   —   12,640   —   —   —   12,640 
Reclass of non-management director stock equivalents as equity-based awards  —   —   5,765   —   —   —   5,765 
Purchase of treasury stock  —   —   —   —   —   (100,000)  (100,000)
Repurchase and retirement of common stock  (5,500,000)  (55)  (363,347)  —   —   —   (363,402)
Retirement plans’ adjustment in connection with funded status guidance, net  —   —   —   —   (24,249)  —   (24,249)
Comprehensive income:                            
Net earnings  —   —   —   125,583   —   —   125,583 
Unrealized/realized losses on interest rate swaps, net  —   —   —   —   (1,488)  —   (1,488)
Additional minimum pension liability, net  —   —   —   —   2,393   —   2,393 
               
Total comprehensive income  —   —   —   125,583   905   —   126,488 
               
Balance at September 30, 2007  72,515,171   725   132,081   676,378   (25,140)  (374,459)  409,585   72,515,171  $725  $132,081  $676,378  $(25,140) $(374,459) $409,585 
Shares issued under stock plans, including tax benefit  990,878   10   12,376   —   —   —   12,386   990,878   10   12,376   -   -   -   12,386 
Share-based compensation  —   —   10,566   —   —   —   10,566   -   -   10,566   -   -   -   10,566 
Purchase of treasury stock  —   —   —   —   —   (100,000)  (100,000)  -   -   -   -   -   (100,000)  (100,000)
Comprehensive income:                                                        
Net earnings  —   —   —   119,279   —   —   119,279   -   -   -   119,279   -   -   119,279 
Unrealized losses on interest rate swaps, net  —   —   —   —   (1,984)  —   (1,984)  -   -   -   -   (1,984)  -   (1,984)
Amortization of unrecognized actuarial gain and prior service cost, net  —   —   —   —   7,279   —   7,279   -   -   -   -   7,279   -   7,279 
                              
Total comprehensive income  —   —   —   119,279   5,295   —   124,574   -   -   -   119,279   5,295   -   124,574 
                              
Balance at September 28, 2008  73,506,049   735   155,023   795,657   (19,845)  (474,459)  457,111   73,506,049   735   155,023   795,657   (19,845)  (474,459)  457,111 
Shares issued under stock plans, including tax benefit  481,021   5   5,076   —   —   —   5,081   481,021   5   5,076   -   -   -   5,081 
Share-based compensation  —   —   9,341   —   —   —   9,341   -   -   9,341   -   -   -   9,341 
Change in pension and postretirement plans’ measurement date, net  —   —   —   (1,855)  40   —   (1,815)  -   -   -   (1,855)  40   -   (1,815)
Comprehensive income:                                                        
Net earnings  —   —   —   118,408   —   —   118,408   -   -   -   118,408   -   -   118,408 
Unrealized gains on interest rate swaps, net  —   —   —   —   21   —   21   -   -   -   -   21   -   21 
Amortization of unrecognized actuarial loss and prior service cost, net  —   —   —   —   (63,658)  —   (63,658)  -   -   -   -   (63,658)  -   (63,658)
                              
Total comprehensive income  —   —   —   118,408   (63,637)  —   54,771   -   -   -   118,408   (63,637)  -   54,771 
                              
Balance at September 27, 2009  73,987,070  $740  $169,440  $912,210  $(83,442) $(474,459) $524,489   73,987,070   740   169,440   912,210   (83,442)  (474,459)  524,489 
Shares issued under stock plans, including tax benefit  474,562   5   7,499   -   -   -   7,504 
Share-based compensation  -   -   10,605   -   -   -   10,605 
Purchase of treasury stock  -   -   -   -   -   (97,000)  (97,000)
Comprehensive income:                            
Net earnings  -   -   -   70,210   -   -   70,210 
Unrealized gains on interest rate swaps, net  -   -   -   -   2,401   -   2,401 
Amortization of unrecognized actuarial loss and prior service cost, net  -   -   -   -   2,254   -   2,254 
                              
Total comprehensive income  -   -   -   70,210   4,655   -   74,865 
               
Balance at October 3, 2010   74,461,632  $     745  $ 187,544  $ 982,420  $ (78,787) $ (571,459) $    520,463 
               
 
See accompanying notes to consolidated financial statements.


F-6

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Nature of operations— Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchisesJack in the Box® quick-service restaurants and Qdoba Mexican Grill® (“Qdoba”) fast-casual restaurants in 45 states. The following summarizes the number of restaurants:
 
                        
 2009 2008 2007  2010 2009 2008 
Jack in the Box:
                        
Company-operated  1,190   1,346   1,436   956   1,190   1,346 
Franchised  1,022   812   696   1,250   1,022   812 
              
Total system  2,212   2,158   2,132   2,206   2,212   2,158 
              
Qdoba:
                        
Company-operated  157   111   90   188   157   111 
Franchised  353   343   305   337   353   343 
              
Total system  510   454   395   525   510   454 
              
 
References to the Company throughout these notes to the consolidated financial statements are made using the first person notations of “we,” “us” and “our.”
 
Basis of presentation— The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission (“SEC”). During fiscal 2009, we sold all of our Quick Stuff® convenience stores and fuel stations. These stores and their related activities have been presented as discontinued operations for all periods presented. Refer to Note 2,Discontinued Operations, for additional information. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate to our continuing operations.
 
Principles of consolidation— The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the accounts of any variable interest entities where we are deemed the primary beneficiary. All significant intercompany transactions are eliminated.
 
Reclassifications and adjustments— Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the fiscal 2009 presentation, including the separation2010 presentation. In 2010, we separated impairment and other charges, net from selling, general and administrative expenses in our consolidated statements of restaurant operating costs into two components; payroll and employee benefits, and occupancy and other.earnings. We believe the additional detail provided is useful when analyzing the operatingour results of our restaurants.operations.
 
Fiscal year— Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years2010 includes 53 weeks while fiscal 2009 2008 and 20072008 include 52 weeks.
 
Use of estimates— In preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates.
 
Cash and cash equivalents— We invest cash in excess of operating requirements in short-term, highly liquid investments with original maturities of three months or less, which are considered cash equivalents.
 
Accounts and other receivables, netis primarily comprised of receivables from franchisees, tenants and credit card processors. Franchisee receivables primarily include rents, royalties, and marketing fees associated with the franchise agreements, and receivables arising from distribution services provided to most franchisees. Tenant receivables relate to subleased properties where we are on the master lease agreement. We charge interest on past due accounts receivable and accrue interest on notes receivable based on the contractual terms. The allowance for doubtful accounts is based on historical experience and a review of existing receivables.


F-7

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
doubtful accounts is based on historical experience and a review of existing receivables. Changes in accounts and other receivables are classified as an operating activity in the consolidated statements of cash flows.
 
Inventoriesare valued at the lower of cost or market on afirst-in, first-out basis. Changes in inventories are classified as an operating activity in the consolidated statements of cash flows.
 
Assets held for saletypically represent the costs for new sites and existing sites that we plan to sell and lease back within the next year. Gains or losses realized on sale-leaseback transactions are deferred and amortized to income over the lease terms. Assets held for sale also includes the net book value of equipment we plan to sell to franchisees and assets sold in connection with our disposition of our Quick Stuff convenience and fuel stores.franchisees. Assets are not depreciated when classified as held for sale. Assets held for sale consisted of the following at each year-end:
 
                
 2009 2008  2010 2009 
Sites held for sale and leaseback $99,612  $62,309  $55,224  $99,612 
Quick Stuff assets held for sale  —   49,656 
Assets held for sale to franchisees  —   1,029 
     
Assets held for sale $99,612  $112,994   4,673   - 
          
 $  59,897  $  99,612 
     
 
Property and equipment, at cost— Expenditures for new facilities and equipment, and those that substantially increase the useful lives of the property, are capitalized. Facilities leased under capital leases are stated at the present value of minimum lease payments at the beginning of the lease term, not to exceed fair value. Maintenance and repairs are expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and gains or losses on the dispositions are reflected in results of operations.
 
Buildings, equipment, and leasehold improvements are generally depreciated using the straight-line method based on the estimated useful lives of the assets, over the initial lease term for certain assets acquired in conjunction with the lease commencement for leased properties, or the remaining lease term for certain assets acquired after the commencement of the lease for leased properties. In certain situations, one or more option periods may be used in determining the depreciable life of assets related to leased properties if we deem that an economic penalty would be incurred otherwise. In either circumstance, our policy requires lease term consistency when calculating the depreciation period, in classifying the lease and in computing straight-line rent expense. Building and leasehold improvement assets are assigned lives that range from three to 35 years, and equipment assets are assigned lives that range from two to 35 years. Depreciation and amortization expense related to property and equipment was $101.0 million, $100.5 million and $96.7 million in 2010, 2009 and 2008, respectively.
 
Impairment of long-lived assets— We evaluate our long-lived assets, such as property and equipment, for impairment whenever indicators of impairment are present. This review generally includes a restaurant-level analysis, except when we are actively selling a group of restaurants in which case we perform our impairment evaluations at the group level. Impairment evaluations for individual restaurants take into consideration a restaurant’s operating cash flows, the period of time since a restaurant has been opened or remodeled, refranchising expectations, and the maturity of the related market. Impairment evaluations for a group of restaurants takes into consideration the group’s expected future cash flows and sales proceeds from bids received, if any, or fair market value based on, among other considerations, the specific sales and cash flows of those restaurants. If the assets of a restaurant or group of restaurants subject to our impairment evaluation are not recoverable based upon the forecasted, undiscounted cash flows, we recognize an impairment loss by the amount which the carrying value of the assets exceeds fair value. Long-lived assets that are held for disposal are reported at the lower of their carrying value or fair value, less estimated costs to sell.
 
Goodwill and intangible assets— Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired. Intangible assets, net is comprised primarily of lease acquisition costs, acquired franchise contract costs and our Qdoba trademark. Lease acquisition costs primarily represent the fair


F-8

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
values of acquired lease contracts having contractual rents lower than fair market rents and are amortized on a straight-line


F-8

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
basis over the remaining initial lease term, generally 18 years.term. Acquired franchise contract costs, which represent the acquired value of franchise contracts, are amortized over the term of the franchise agreements, generally 10 years, based on the projected royalty revenue stream. Our trademark asset, recorded in connection with our acquisition of Qdoba Restaurant Corporation in fiscal 2003, has an indefinite life and is not amortized.
 
Goodwill andnon-amortizable intangible assets not subject to amortization are evaluated for impairment annually, or more frequently if indicators of impairment are present. If the determined fair values of these assets are less than the related carrying amounts, an impairment loss is recognized. We performed our annual impairment tests of goodwill andnon-amortized intangible assets in the fourth quarter of fiscal 20092010 and determined there was no impairment.
 
Company-owned life insurance— We have purchased company-owned life insurance (“COLI”) policies to support our non-qualified benefit plans. The cash surrender values of these policies were $66.9$75.8 million and $65.3$66.9 million as of October 3, 2010 and September 27, 2009, and September 28, 2008, respectively, and are included in other assets, net in the accompanying consolidated balance sheets. Changes in cash surrender values are included in selling, general and administrative expenses in the accompanying consolidated statements of earnings. These policies reside in an umbrella trust for use only to pay plan benefits to participants or to pay creditors if the Company becomes insolvent. As of October 3, 2010 and September 27, 2009, and September 28, 2008, the trust also included cash of $0.5 million and $1.4 million, in both years.respectively.
 
Leases— We review all leases for capital or operating classification at their inception under the Financial Accounting Standards Board (“FASB”) authoritative guidance for leases. Our operations are primarily conducted under operating leases. Within the provisions of certain leases, there are rent holidays and escalations in payments over the base lease term, as well as renewal periods. The effects of the holidays and escalations have been reflected in rent expense on a straight-line basis over the expected lease term. Differences between amounts paid and amounts expensed are recorded as deferred rent. The lease term commences on the date when we have the right to control the use of the leased property. Certain leases also include contingent rent provisions based on sales levels, which are accrued at the point in time we determine that it is probable such sales levels will be achieved.
 
Retirement plans — In fiscal 2007, we adopted the authoritative guidance issued by the FASB which required an employer to recognize in its statement of financial position the funded status of a benefit plan and recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise but are not recognized as components of net periodic benefit costs pursuant to prior existing guidance. The adoption resulted in an after-tax adjustment to accumulated other comprehensive income (loss) of $20.2 million related to a reclassification of unrecognized actuarial gains and losses from assets and liabilities to a component of accumulated other comprehensive income (loss), as well as a requirement to recognize over and under funding of our pension and post-retirement health plans.
On September 29, 2008, we adopted the authoritative guidance issued by the FASB, which requires that companies measure their retirement plan assets and benefit obligations at the end of their fiscal year. Refer to Note 11,Retirement Plans, for additional information and disclosures related to our defined benefit and post retirement plans.
Fair value measurements — On September 29, 2008, we adopted the authoritative guidance issued by the FASB, which defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements, for our financial assets and liabilities. The adoption did not have a material impact on our consolidated financial statements. As permitted by the authoritative guidance, we elected to defer the fair value guidance for our non-financial assets and liabilities until the first quarter of fiscal 2010. Refer to Note 5,Fair Value Measurements, for disclosure related to our financial assets and liabilities measured at fair value.
Franchise arrangements— Franchise arrangements generally provide for franchise fees and continuing fees based upon a percentage of sales. Among other things, a franchisee may be provided the use of land and building, generally for a period of 20 years, and is required to pay negotiated rent, property taxes, insurance and maintenance. In order to renew a franchise agreement upon expiration, a franchisee must obtain the Company’s approval and pay then current fees. Expenses associated with the issuance of the franchise are expensed as incurred.


F-9

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue recognition— Revenue from company restaurant sales areis recognized when the food and beverage products are sold and are presented net of sales taxes.
 
We provide purchasing, warehouse and distribution services for most of our franchise-operated restaurants. Revenue from these services, included in distribution sales in the accompanying consolidated statements of earnings, is recognized at the time of physical delivery of the inventory.
 
Our franchise arrangements generally provide for franchise fees and continuing fees based upon a percentage of sales (“royalties”). In order to renew a franchise agreement upon expiration, a franchisee must obtain the Company’s approval and pay then current fees. Franchise fees are recorded as revenue when we have substantially performed all of our contractual obligations. Franchise royalties are recorded in revenues on an accrual basis. Among other things, a franchisee may be provided the use of land and building, generally for a period of 20 years, and is required to pay negotiated rent, property taxes, insurance and maintenance. Certain franchise rents, which are contingent upon sales levels, are recognized in the period in which the contingency is met. In addition, we recognize gains from the sale of company-operated restaurants to franchisees which are recorded when the sales are consummated and certain other gain recognition criteria are met and are presented as a reduction of operating costs and expenses in the accompanying consolidated statements of earnings.
 
The following is a summary of initial franchise fees received and gains recognized on the sale of restaurants to franchisees(dollars in thousands):
             
  2009  2008  2007 
 
Number of restaurants sold to franchisees  194   109   76 
Number of new restaurants opened by franchisees  59   71   93 
             
Initial franchise fees received $10,538  $7,303  $6,355 
             
Cash proceeds from the sale of company-operated restaurants $94,927  $57,117  $51,256 
Notes receivable(1)  21,575   27,928   — 
Net assets sold (primarily property and equipment)  (35,378)  (16,864)  (11,995)
Goodwill related to the sale of company-operated restaurants  (2,482)  (1,832)  (1,170)
             
Gains on the sale of company-operated restaurants(2) $78,642  $66,349  $38,091 
             
(1)Temporary financing was provided to franchisees to facilitate the closing of certain refranchising transactions.
(2)In 2009, we recognized a loss of $2.4 million relating to the anticipated sale of a lower-performingJack in the Box company-operated market.
Gift cards— We sell gift cards to our customers in our restaurants and through selected third parties. The gift cards sold to our customers have no stated expiration dates and are subject to actualand/or potential escheatment rights in several of the jurisdictions in which we operate. We recognize income from gift cards when redeemed by the customer.


F-9

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
While we will continue to honor all gift cards presented for payment, we may determine the likelihood of redemption to be remote for certain card balances due to, among other things, long periods of inactivity. In these circumstances, to the extent we determine there is no requirement for remitting balances to government agencies under unclaimed property laws, card balances may be recognized as a reduction to selling, general and administrative expenses in the accompanying consolidated statements of earnings.
 
Income recognized on unredeemed gift card balances was $0.7 million in fiscal 2010 and 2009 and $1.0 million in fiscal 2009 and 2008, respectively. No income from unredeemed gift cards (“breakage”) was recognized prior to fiscal 2008 due to, among other things, insufficient gift card history necessary to estimate our potential breakage.2008.
 
Pre-opening costsassociated with the opening of a new restaurant consist primarily of employee training costs and are expensed as incurred.incurred and are 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 selling, generalimpairment and administrative expenses,other charges, net in the accompanying consolidated statements of earnings, consist of future lease commitments, net of anticipated sublease rentals, and expected ancillary costs.


F-10

 
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Self-insurance— We are self-insured for a portion of our workers’ compensation, general liability, automotive, and employee medical and dental 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 and reserves using independent actuarial estimates of expected losses for determining reported claims and as the basis for estimating claims incurred but not reported.
 
Advertising costs— We maintainadminister marketing funds which includeincluded contractual contributions of approximately 5% and 1% of sales at all franchise and company-operatedJack in the Box and Qdoba restaurants, respectively,respectively. We record contributions from franchisees as wella liability included in accrued expenses in the accompanying consolidated balance sheets until such funds are expended. As the contributions to the marketing funds are designated for advertising, we act as contractual marketing fees paid monthly by franchisees. 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. OurTotal contributions to the marketing funds and other marketing expenses, which are included in selling, general, and administrative expenses in the accompanying consolidated statements of earnings, were $89.8 million, $100.1 million and $106.9 million in 2010, 2009 and $109.5 million in 2009, 2008, and 2007, respectively.
 
Share-based compensation— At the beginning of fiscal 2006, we adopted the fair value recognition provisionsWe 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 during the service period of the respective grant. Certain awards accelerate vesting upon the recipient’s retirement from the Company. In these cases, for awards granted prior to October 3, 2005, we recognize compensation costs over the service period and accelerate any remaining unrecognized compensation when the employee retires. For awards granted after October 2, 2005, we recognize compensation costs over the shorter of the vesting period or the period from the date of grant to the date the employee becomes eligible to retire. For awards granted prior to October 3, 2005, had we recognized compensation cost over the shorter of the vesting period or the period from the date of grant to becoming retirement eligible, compensation costs recognized would not have been materially different.


F-10

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
 
In fiscal 2007, we adopted the authoritativeAuthoritative guidance issued by the FASB which clarified the accounting for income taxes by prescribingprescribes 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. The adoption did not have a material impact on our consolidated financial statements.Refer to Note 10,Income Taxes, for additional information.
 
Derivative instruments— From time to time, we use commodity derivatives to reduce the risk of price fluctuations related to raw material requirements for commodities such as beef and pork, and 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


F-11

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
other comprehensive income 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. At September 27, 2009, we had two interest rate swaps in effect, no outstanding commodity derivatives and an immaterial amount of utility derivatives. 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 incurred.
 
Variable interest entities— The FASB authoritative guidance on consolidation requires the primary beneficiary of a variable interest entity to consolidate that entity. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the variable interest entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, because of ownership, contractual or other financial interests in the entity. Refer to Note 15,Variable Interest Entities, for additional information regarding our
The primary entities in which we possess a variable interest are franchise entities, which operate our franchise restaurants. We do not possess any ownership interests in franchise entities. We have reviewed these franchise entities and determined that we are not the primary beneficiary of the entities and therefore, these entities have not been consolidated.
 
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 inthe BoxJack in the Box and Qdoba. Refer to Note 17,16,Segment Reporting, for additional discussion regarding our segments.


F-11

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effect of new accounting pronouncements— In June 2009, FASB establishedDecember 2008, the FASB Accounting Standards Codificationtm (“Codification”) to become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities, except for SEC rules and interpretive releases, which is alsoissued authoritative guidance which expands the disclosure requirements about fair value measurements of plan assets for SEC registrants. The Codification does not change GAAP, except in limited circumstances, and the content of the Codification carries the same level of GAAP authority. The GAAP hierarchy has been modified to include only two levels of GAAP: authoritative and nonauthoritative.pension plans. We adopted the Codificationwith guidance in the fourth quarter of fiscal 2009 and as a result, references to legacy GAAP accounting pronouncements2010. The additional disclosures are included in our financial statement disclosures have been modified to reflect plain English descriptions.Note 11,Retirement Plans.
 
Subsequent events—  SubsequentThe Company has evaluated subsequent events have been evaluated through November 19, 2009, the date our financial statementstime of filing thisForm 10-K with the SEC, and determined there were availableno other items to be issued.disclose.
 
2. DISCONTINUED OPERATIONS
 
In October 2008,2009, we announcedcompleted the decision to sellsale of all 61 of our 61 Quick Stuff convenience stores, which included a major-branded fuel station developed adjacent to a full-sizeJack in the Box restaurant, to maximize the potential of ourJack in the Box and Qdoba brands. The assets and liabilities associated with Quick Stuff were classified as held for sale in the consolidated balance sheet for the fiscal year ended September 28, 2008, and the operating results have been classified as discontinued operations for all periods presented.
In the fourth quarter of fiscal 2009, we completed the sale of all 61 locations. restaurant. We received cash proceeds of $34.4 million and recorded a loss on disposition of $24.3 million, or $15.0 million net of taxes, included in earnings (losses) from discontinued operations, net in the accompanying consolidated statement of earnings for fiscal 2009. The loss on disposition includes an impairment charge of $22.4 million related to building assets retained by us and leased to the buyers as part of the sale agreements. The net assets sold totaled approximately $25.7 million and consisted primarily of property and equipment of $24.8 million.
Revenue and operating income from discontinued operations for fiscal 2009 (through the date of sale) and 2008 were as follows(in thousands):
         
  2009  2008 
 
Revenue $ 272,202  $ 461,888 
Operating (losses) income  (20,439)  1,749 
         
3. INITIAL FRANCHISE FEES, REFRANCHISINGS AND ACQUISITIONS
Initial franchise fees and refranchisings— The following is a summary of initial franchise fees received and gains recognized on the sale of restaurants to franchisees (dollars in thousands):
             
  2010  2009  2008 
 
Number of restaurants sold to franchisees  219   194   109 
Number of new restaurants opened by franchisees  37   59   71 
             
Initial franchise fees received $10,218  $10,538  $7,303 
             
Cash proceeds from the sale of company-operated restaurants $66,152  $94,927  $57,117 
Notes receivable  25,809   21,575   27,928 
             
Total proceeds  91,961   116,502   85,045 
Net assets sold (primarily property and equipment)  (35,113)  (33,007)  (16,864)
Goodwill related to the sale of company-operated restaurants  (1,860)  (2,482)  (1,832)
             
Gains on the sale of company-operated restaurants $ 54,988  $ 81,013  $ 66,349 
             
In 2009, we recognized a loss of $2.4 million related to the anticipated sale of a lower performing Jack in the Box company-operated market. This loss was included in gains on the sale of company-operated restaurants, net in the accompanying consolidated statement of earnings.
Franchise acquisitions— We account for the acquisition of franchise restaurants using the purchase method of accounting for business combinations. In 2010, we acquired 16 Qdoba restaurants from a franchisee for net consideration of $8.1 million. The purchase price allocation was based on fair value estimates determined


F-12

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Revenue and operating income from discontinued operations for fiscal 2009 (throughusing significant unobservable inputs (Level 3). The following table provides detail of the date of sale), 2008 and 2007 were as followsallocation ((in thousands)thousands):
 
             
  2009 2008 2007
 
Revenue $272,202  $461,888  $362,547 
Operating (losses) income  (20,439)  1,749   1,500 
     
Property and equipment $6,756 
Reacquired franchise rights  301 
Goodwill  1,058 
     
Total consideration $  8,115 
     
     
 
3.  ACQUISITIONS
We account for the acquisition of franchised restaurants using the purchase method of accounting pursuant to the FASB authoritative guidance on business combinations. During the quarter ended January 18,In 2009, we acquired 22 Qdoba restaurants from franchisees for net consideration of $6.8 million. The total purchase price was allocated to property and equipment, goodwill and other income.income (included in selling, general and administrative expenses in the accompanying consolidated statement of earnings).
 
4. GOODWILL AND INTANGIBLE ASSETS, NET
 
The changes in the carrying amount of goodwill during 20092010 and 20082009 by operating segment were as follows(in thousands):
 
                        
 Jack in the Box Qdoba Total  Jack in the Box Qdoba Total 
Balance at September 30, 2007 $58,824  $28,797  $87,621 
Sale of company-operated restaurants to franchisees  (1,832)  —   (1,832)
       
Balance at September 28, 2008  56,992   28,797   85,789  $56,992  $28,797  $85,789 
Acquisition of franchised restaurants  —   2,536   2,536   -   2,536   2,536 
Sale of company-operated restaurants to franchisees  (2,482)  —   (2,482)  (2,482)  -   (2,482)
              
Balance at September 27, 2009 $54,510  $31,333  $85,843   54,510   31,333   85,843 
Acquisition of franchised restaurants  -   1,058   1,058 
Sale of company-operated restaurants to franchisees  (1,860)  -   (1,860)
              
Balance at October 3, 2010 $ 52,650  $ 32,391  $ 85,041 
       
 
Intangible assets, net consist of the following as of October 3, 2010 and September 27, 2009 and September 28, 2008(in thousands):
 
                
 2009 2008  2010 2009 
Amortized intangible assets:                
Gross carrying amount $17,679  $19,249  $17,035  $17,679 
Less accumulated amortization  (8,045)  (8,800)  (7,849)  (8,045)
          
Net carrying amount  9,634   10,449   9,186   9,634 
          
Unamortized intangible assets:        
Non-amortized intangible assets:
        
Trademark  8,800   8,800   8,800   8,800 
          
Net carrying amount $18,434  $19,249  $  17,986  $  18,434 
          
 
Amortized intangible assets include lease acquisition costs and acquired franchise contracts. The weighted-average life of the amortized intangible assets is approximately 2620 years. Total amortization expense related to intangible assets was $0.8 million, $0.8 million, and $0.9$0.7 million in fiscal years2010 and $0.8 million in fiscal 2009 2008 and 2007, respectively.2008.
The following table summarizes, as of October 3, 2010, the estimated amortization expense for each of the next five fiscal years(in thousands):
     
Fiscal Year
   
 
2011 $780 
2012  769 
2013  735 
2014  702 
2015  688 
     
Total $  3,674 
     


F-13

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes, as of September 27, 2009, the estimated amortization expense for each of the next five fiscal years(in thousands):
     
Fiscal Year
   
 
2010 $734 
2011  733 
2012  721 
2013  687 
2014  658 
     
Total $3,533 
     
 
5. FAIR VALUE MEASUREMENTS
 
Financial assets and liabilities— The following table presents the financial assets and liabilities measured at fair value on a recurring basis as of September 27, 2009October 3, 2010 (in thousands):
 
                 
     Fair Value Measurements 
     Quoted Prices
       
     in Active
     Significant
 
     Markets for
  Significant Other
  Unobservable
 
  September 27,
  Identical Assets
  Observable Inputs
  Inputs
 
  2009  (Level 1)  (Level 2)  (Level 3) 
 
Interest rate swaps(1) (Note 6) $4,615  $—  $4,615  $— 
Non-qualified deferred compensation plan(2)  34,194   34,194   —   — 
                 
Total liabilities at fair value $38,809  $34,194  $4,615  $— 
                 
                 
     Fair Value Measurements 
     Quoted Prices
       
     in Active
  Significant
    
     Markets for
  Other
    
     Identical
  Observable
  Significant
 
     Assets
  Inputs
  Unobservable Inputs
 
  Total  (Level 1)  (Level 2)  (Level 3) 
  
 
Non-qualified deferred compensation plan (1) $36,011  $36,011  $-  $- 
Interest rate swaps (Note 6) (2)  733   -   733   - 
                 
Total liabilities at fair value $  36,744  $  36,011  $  733  $       - 
                 
 
 
(1)We entered into interest rate swaps to reduce our exposure to rising interest rates on our variable debt. The fair value of our interest rate swaps are based upon valuation models as reported by our counterparties.
(2)We maintain an unfunded defined contribution plan for key executives and other members of management excluded from participation in our qualified savings plan. The fair value of this obligation is based on the closing market prices of the participants’ elected investments.
(2)We entered into interest rate swaps to reduce our exposure to rising interest rates on our variable debt. The fair value of our interest rate swaps are based upon valuation models as reported by our counterparties.
 
The fair values of cash and cash equivalents, accounts and other receivables, accounts payable and accrued liabilities approximate their carrying amounts due to their short maturities. The fair values of each of our long-term debt instruments are based on quoted market values, where available, or on the amount of future cash flows associated with each instrument, discounted using our current borrowing rate for similar debt instruments of comparable maturity. At September 27, 2009, the fair value of our term loan approximated $402.6 million compared with its carrying value of $415.0 million. The estimated fair values of our term loan and capital lease obligations approximated their carrying values as of September 27, 2009.October 3, 2010.
Non-financial assets and liabilities— The Company’s non-financial instruments, which primarily consist of goodwill, intangible assets and property and equipment, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable (at least annually for goodwill and semi-annually for property and equipment), non-financial instruments are assessed for impairment and, if applicable, written down to fair value.
In connection with our semi-annual property and equipment impairment reviews and the closure of 40 Jack in the Box company-operated restaurants prior to the end of the fiscal 2010, long-lived assets having a carrying value of $13.8 million were written down to fair value using significant unobservable inputs (Level 3). The resulting impairment charge of $13.0 million was included in impairment and other charges, net in the accompanying consolidated statement of earnings for the fiscal year ended October 3, 2010.
 
6. DERIVATIVE INSTRUMENTS
 
Objectives and strategies— We are exposed to interest rate volatility with regard to our variable rate debt. To reduce our exposure to rising interest rates, in March 2007,August 2010, we entered into two interest rate swap agreements that will effectively convert $100.0 million of our variable rate term loan borrowings to a fixed-rate basis beginning September 2011 through September 2014. Previously, we held two interest rate swaps that effectively converted $200.0 million of our variable rate term loan borrowings to a fixed ratefixed-rate basis untilfrom March 2007 to April 1, 2010. These agreements have been designated as cash flow hedges under the terms of the FASB authoritative guidance for derivatives and hedging with effectiveness assessed based onand to the extent that they are effective in offsetting the variability of the hedged cash flows, changes in the presentderivatives’ fair value of the term loan interest payments. As such, the gains or losses on these derivatives are reportednot included in earnings but are included in other comprehensive income (“OCI”)(loss).


F-14

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
We are also exposed to the impact of utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs through higher


F-14

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
prices is limited by the competitive environment in which we operate. Therefore, from time to time, we enter into futures and option contracts to manage these fluctuations. These contracts have not been designated as hedging instruments under the FASB authoritative guidance for derivatives and hedging.
 
Financial position— The following derivative instruments were outstanding as of the end of each period(in thousands):
 
                
 October 3, 2010 September 27, 2009 
               
 September 27, 2009 September 28, 2008  Balance
   Balance
   
 Balance
   Balance
    Sheet
 Fair
 Sheet
 Fair
 
 Sheet
 Fair
 Sheet
 Fair
  Location Value Location Value 
 
Location
 Value 
Location
 Value   
Derivatives designated hedging instruments:                            
Interest rate swaps (Note 5) Accrued liabilities $4,615  Accrued liabilities $4,657   Accrued
liabilities		  $    733   Accrued
liabilities		  $  4,615 
Derivatives not designated hedging instruments:            
Natural gas contracts Accrued liabilities  —  Accrued liabilities  840 
          
Total derivatives   $4,615    $5,497      $733      $4,615 
          
 
Financial performance— The following is a summary of the gains or losses recognized on our derivative instruments(in thousands):
 
            
 Amount of Gain/(Loss)
 
            Recognized in OCI 
 Amount of Gain/(Loss) Recognized in OCI 2010 2009 2008 
 2009 2008 2007  
Derivatives in cash flow hedging relationship:                     
Interest rate swaps (Note 13) $42  $(3,210) $(2,055) $3,882  $42  $(3,210)
 
                
                Location of
 Amount of Loss
 
 Location of
 Amount of Gain/(Loss)
 Gain/(Loss)
 Recognized in Income 
 Gain/(Loss) Recognized in Income in Income 2010 2009 2008 
 
in Income
 2009 2008 2007  
Derivatives not designated hedging instruments:                            
Natural gas contracts  Restaurant operating costs  $(544) $(840) $—   Occupancy
and other		  $     -  $  (544) $  (840)
 
Approximately $4.7 million, $6.2 million, and $2.0 million was reclassified from accumulated other comprehensive income (loss) to interest expense during fiscal years 2010, 2009, and 2008, respectively. These amounts represent payments made to the counterparty for the effective portions of the interest rate swaps that were recognized in accumulated other comprehensive income (loss) and reclassified into earnings as an increase to interest expense for the periods presented. During 2010, 2009 and 2008, our interest rate swaps had no hedge ineffectiveness and no gains or losses were reclassified into net earnings.


F-15

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
7. INDEBTEDNESS
 
The detail of long-term debt at each year-end is as follows(in thousands):
 
         
  2009  2008 
 
Revolver, variable interest rate based on an applicable margin plus LIBOR $—  $91,000 
Term loan, variable interest rate based on an applicable margin plus LIBOR, 1.57% at September 27, 2009  415,000   415,000 
Capital lease obligations, 9.97% weighted average interest rate  10,247   12,526 
Other notes, principally unsecured  —   55 
         
   425,247   518,581 
Less current portion  (67,977)  (2,331)
         
  $357,270  $516,250 
         
         
  2010  2009 
 
Revolver, variable interest rate based on an applicable margin plus LIBOR, 2.79% at October 3, 2010 $160,000  $- 
Term loan, variable interest rate based on an applicable margin plus LIBOR, 2.80% at October 3, 2010  197,500   415,000 
Capital lease obligations, 10.14% weighted average interest rate  8,911   10,247 
         
   366,411   425,247 
Less current portion  (13,781)  (67,977)
         
  $ 352,630  $ 357,270 
         
 
New Credit Facility— On June 29, 2010, the Company replaced its existing credit facility — Ourwith a new credit facility intended to provide a more flexible capital structure. The new credit facility is comprised of (i) a $150.0


F-15

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$400.0 million revolving credit facility maturing on December 15, 2011 and (ii) a $200.0 million term loan maturing on December 15, 2012,with a five-year maturity, initially both bearing interest atwith London Interbank Offered Rate (“LIBOR”) plus 1.125%2.50%.As part of the credit agreement, we may also request the issuance of up to $75.0 million in letters of credit, the outstanding amount of which reduces the net borrowing capacity under the agreement. The new credit facility requires the payment of an annual commitment fee based on the unused portion of the credit facility. The credit facility’s interest rates and the annual commitment rate are based on a financial leverage ratio, as defined in the credit agreement. OurAt October 3, 2010, we had borrowings under the revolving credit facility of $160.0 million, $197.5 million outstanding under the term loan and letters of credit outstanding of $34.9 million. Loan origination costs associated with the new credit facility were $9.5 million and are included as deferred costs in other assets, net in the accompanying consolidated balance sheet as of October 3, 2010. Deferred financing fees of $0.5 million related to the prior credit facility were written off and are included in interest expense, net in the accompanying consolidated statements of earnings.
Collateral— The Company’s obligations under the new credit facility are secured by first priority liens and security interests in the capital stock, partnership and membership interests owned by usthe Company and (or) ourits subsidiaries, and any proceeds thereof, subject to certain restrictions set forth in the credit agreement. Additionally, the credit agreement includesthere is a negative pledge on all tangible and intangible assets (including all real and personal property) with customary exceptions. At September 27, 2009, we had no borrowings underexceptions as reflected in the revolving credit facility, $415.0 million outstanding under the term loan and letters of credit outstanding of $35.5 million.agreement.
 
Covenants— We are subject to a number of customary covenants under our credit facility, including limitations on additional borrowings, acquisitions, loans to franchisees, capital expenditures, lease commitments, stock repurchases, and dividend payments and requirements to maintain certain financial ratios. Following the end of each fiscal year, we may be required to prepay the term debtWe were in compliance with a portion of our excess cash flows for such fiscal year, as defined in the credit agreement. Other events and transactions, such as certain asset sales, may also trigger an additional mandatory prepayment. In connection with the sale of Quick Stuff, we estimate we will be required to make a term loan prepayment of $21.0 million in February 2010, which will be applied to the remaining scheduled principal installments on a pro-rata basis.all covenants at October 3, 2010.
 
Future cash payments— Scheduled principal payments on our long-term debt for each of the next five fiscal years are as follows(in thousands):
 
        
Fiscal Year
      
2010 $67,977 
2011  63,060  $13,781 
2012  220,291   21,137 
2013  68,409   23,478 
2014  931   53,430 
2015  250,901 
      
Total principal payments $420,668  $ 362,727 
      
 
We may make voluntary prepayments of the loans under the revolving credit facility and term loan at any time without premium or penalty. Certain events such as asset sales, certain issuances of debt and insurance and condemnation recoveries may trigger a mandatory prepayment.
Capitalized interest— We capitalize interest in connection with the construction of our restaurants and other facilities. Interest capitalized in 2010, 2009 and 2008 and 2007 was $0.3 million, $0.7 million and $0.9 million, and $1.4 million, respectively.


F-16

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
8. LEASES
Leases Of Lessee Disclosure

 
As lessee— We lease restaurants and other facilities, which generally have renewal clauses of 5 to 20 years exercisable at our option. In some instances, our leases have provisions for contingent rentals based upon a percentage of defined revenues. Many of our leases also have rent escalation clauses and require the payment of property taxes, insurance and maintenance costs. We also lease certain restaurant, office and warehouse equipment, as well as various transportation equipment. Minimum rental obligations are accounted for on a straight-line basis over the term of the initial lease.


F-16

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The components of rent expense were as follows in each fiscal year(in thousands):
 
                        
 2009 2008 2007  2010 2009 2008 
Minimum rentals $208,091  $199,903  $194,889  $222,600  $208,091  $199,903 
Contingent rentals  2,954   3,444   3,942   1,804   2,954   3,444 
              
Total rent expense  211,045   203,347   198,831   224,404   211,045   203,347 
Less sublease rentals  (61,529)  (50,004)  (42,308)  (83,340)  (61,529)  (50,004)
              
Net rent expense $149,516  $153,343  $156,523  $ 141,064  $ 149,516  $ 153,343 
              
 
Future minimum lease payments under capital and operating leases are as follows(in thousands):
 
                
 Capital
 Operating
  Capital
 Operating
 
Fiscal Year
 Leases Leases  Leases Leases 
2010 $2,293  $203,673 
2011  2,137   195,614  $2,101  $219,414 
2012  1,847   186,272   1,841   209,939 
2013  1,583   174,274   1,583   195,523 
2014  1,430   165,429   1,426   185,697 
2015  1,309   171,073 
Thereafter  5,896   925,230   4,564   919,376 
          
Total minimum lease payments  15,186  $1,850,492   12,824  $ 1,901,022 
      
Less amount representing interest, 9.97% weighted average interest rate  (4,939)    
Less amount representing interest, 10.14% weighted average interest rate  (3,913)    
      
Present value of obligations under capital leases  10,247       8,911     
Less current portion  (1,314)      (1,281)    
      
Long-term capital lease obligations $8,933      $  7,630     
      
 
Total future minimum lease payments have not been reduced by minimum sublease rents of $1,459.9 million$1.2 billion expected to be recovered under our operating subleases.
 
Assets recorded under capital leases are included in property and equipment and consisted of the following at each year-end(in thousands):
 
                
 2009 2008  2010 2009 
Buildings $22,733  $23,049  $22,733  $22,733 
Equipment  499   16,556   16   499 
          
  23,232   39,605   22,749   23,232 
Less accumulated amortization  (15,048)  (30,204)  (15,340)  (15,048)
          
 $8,184  $9,401  $7,409  $  8,184 
          
 
Amortization of assets under capital leases is included in depreciation and amortization expense.

Leases Of Lessor Disclosure

F-17

 
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As lessor— We lease or sublease restaurants to certain franchisees and others under agreements that generally provide for the payment of percentage rentals in excess of stipulated minimum rentals, usually for a period of 20 years. Most of our leases have rent escalation clauses and renewal clauses of 5 to 20 years. Total rental revenueincome was $133.8 million, $105.5 million $88.6 million and $74.4$88.6 million, including contingent rentals of $7.7 million, $13.0 million and $13.8 million, in 2010, 2009 and $13.9 million, in 2009, 2008, and 2007, respectively.


F-17

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The minimum rents receivable expected to be received under these non-cancelable operating leases, excluding contingent rentals, are as follows(in thousands):
 
        
Fiscal Year
      
2010 $109,792 
2011  105,659  $122,577 
2012  102,649   120,393 
2013  100,216   117,872 
2014  99,396   117,010 
2015  116,238 
Thereafter  1,111,866   1,199,605 
      
Total minimum future rentals $1,629,578  $ 1,793,695 
      
 
Assets held for lease consisted of the following at each year-end(in thousands):
 
                
 2009 2008  2010 2009 
Land $36,507  $32,837  $49,913  $36,507 
Buildings  256,858   194,305   410,823   256,858 
Equipment  —   3,497   373   - 
          
  293,365   230,639   461,109   293,365 
Less accumulated depreciation  (140,870)  (110,793)  (207,616)  (140,870)
          
 $152,495  $119,846  $253,493  $152,495 
          
 
9. IMPAIRMENT, DISPOSAL OF PROPERTY AND EQUIPMENT, AND RESTAURANT CLOSING IMPAIRMENT CHARGES AND OTHERCOSTS
 
In 2009,Impairment— When events and circumstances indicate that our long-lived assets might be impaired and their carrying amount is greater than the undiscounted cash flows we recordedexpect to generate from such assets, we recognize an impairment loss as the amount by which the carrying value exceeds the fair value of the assets. We typically estimate fair value based on the estimated discounted cash flows of the related asset using marketplace participant assumptions. Impairment charges of $0.4 million relatedprimarily relate to the closurewrite-down of fourJack in the Box restaurants and $5.6 million and $0.6 million, respectively, to write-down the carrying value of certain underperforming Jack in the Box and Qdoba restaurants which we continue to operate.operate and restaurants we have closed.
Disposal of property and equipment— We also recognizedrecognize accelerated depreciation and other costs on the disposition of property and equipmentequipment. When we decide to dispose of $12.7 million primarily relating to our restaurant re-image programa long-lived asset, depreciable lives are adjusted based on the estimated disposal date and normal ongoing capital maintenance activity.
In 2008, we recorded impairment charges of $3.5 million primarily related to the write-down of the carrying value of sevenJack in the Box restaurants, which we continue to operate. We also recognized accelerated depreciation and otheris recorded. Other disposal costs onprimarily relate to gains or losses recognized upon the dispositionsale of property and equipment of $16.4 million primarily related to ourclosed restaurant re-image program, which includes a major renovation of our restaurant facilities, a kitchen enhancement projectproperties and normal ongoing capital maintenance activities.
 
In 2007, we recordedThe following impairment charges of $1.3 million related to the closure of fiveJack in the Box restaurants and the write-down of the carrying value of oneJack in the Box restaurant, which we continued to operate. We also recognized accelerated depreciation and otherdisposal costs on the disposition of property and equipment of $15.9 million primarily relating to our re-image program and capital maintenance activity.
These impairment charges, accelerated depreciation and other costs on the disposition of property and equipment are included in selling, generalimpairment and administrative expensesother charges, net in the accompanying consolidated statements of earnings.earnings (in thousands):
             
  2010  2009  2008 
 
Impairment charges $    12,970  $    6,586  $    3,507 
Losses on the disposition of property and equipment, net $10,757  $11,418  $17,373 


F-18

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Restaurant closing costsconsist of future lease commitments, net of anticipated sublease rentals and expected ancillary costs, and are included in impairment and other charges, net. Total accrued restaurant closing costs, included in accrued expensesliabilities and other long-term liabilities, changed as follows during 2009 and 2008((in thousands)thousands):
 
                
 2009 2008  2010 2009 
Balance at beginning of year $4,712  $5,451  $4,234  $4,712 
Additions and adjustments  834   654   22,362   834 
Cash payments  (1,312)  (1,393)  (1,576)  (1,312)
          
Balance at end of year $4,234  $4,712  $ 25,020  $    4,234 
          
 
Additions and adjustments primarily relate to revisions to certain sublease assumptions and the closureclosures of twocertain Jack in the Box restaurants. Additions in 2010 principally relate to the closure of 40 restaurants at the end of the fiscal year which resulted in both 2009 and 2008.future lease commitment charges of $20.3 million.
 
10. INCOME TAXES
 
The fiscal year income taxes consist of the following(in thousands):
 
                        
 2009 2008 2007  2010 2009 2008 
Current:                        
Federal $91,088  $54,967  $72,781  $55,046  $91,088  $54,967 
State  13,442   9,061   11,485   8,314   13,442   9,061 
              
  104,530   64,028   84,266   63,360   104,530   64,028 
              
Deferred:                        
Federal  (21,846)  5,202   (12,827)  (24,070)  (21,846)  5,202 
State  (3,229)  1,021   (2,457)  (3,484)  (3,229)  1,021 
              
  (25,075)  6,223   (15,284)  (27,554)  (25,075)  6,223 
              
Income tax expense from continuing operations $79,455  $70,251  $68,982  $35,806  $79,455  $70,251 
              
 
Income tax expense (benefit) from discontinued operations $(7,465) $679  $1,045  $-  $(7,465) $679 
              
 
A reconciliation of the federal statutory income tax rate to our effective tax rate is as follows:
 
                        
 2009 2008 2007  2010 2009 2008 
Computed at federal statutory rate  35.0%  35.0%  35.0%  35.0%   35.0%   35.0% 
State income taxes, net of federal tax benefit  3.2   3.3   3.5   3.2   3.2   3.3 
Benefit of jobs tax credits  (0.7)  (2.5)  (1.1)  (1.8)  (0.7)  (2.5)
Benefit of research and experimentation credits  —   (0.1)  (0.2)
Benefit of cash surrender value  (2.3)  -   (0.1)
Others, net  0.2   1.6   (1.6)  (0.3)  0.2   1.6 
              
  37.7%  37.3%  35.6%    33.8%     37.7%     37.3% 
              


F-19

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at each year-end are presented below(in thousands):
 
                
 2009 2008  2010 2009 
Deferred tax assets:                
Accrued pension and postretirement benefits $58,256  $23,510  $57,817  $58,256 
Accrued insurance  12,676   13,952   13,603   12,676 
Leasing transactions  13,304   14,057   11,290   13,304 
Accrued vacation pay expense  11,835   11,926   8,528   11,835 
Deferred income  2,660   2,883   2,436   2,660 
Other reserves and allowances  21,955   9,633   33,893   21,955 
Tax loss and tax credit carryforwards  3,924   4,257   4,087   3,924 
Share-based compensation  12,172   11,398   16,708   12,172 
Other, net  3,922   4,244   4,515   3,922 
          
Total gross deferred tax assets  140,704   95,860   152,877   140,704 
Valuation allowance  (3,924)  (4,257)  (4,087)  (3,924)
          
Total net deferred tax assets  136,780   91,603   148,790   136,780 
Deferred tax liabilities:                
Property and equipment, principally due to differences in depreciation  (51,734)  (71,159)  (38,250)  (51,734)
Intangible assets  (22,737)  (22,388)  (23,394)  (22,737)
          
Total gross deferred tax liabilities  (74,471)  (93,547)  (61,644)  (74,471)
          
Net deferred tax assets (liabilities) $62,309  $(1,944)
Net deferred tax assets $87,146  $62,309 
          
 
Deferred tax assets at September 27, 2009October 3, 2010 include state net operating loss carryforwards of approximately $61.1$63.5 million expiring at various times between 2011 and 2028. At October 3, 2010 and 2027. At September 27, 2009, and September 28, 2008, we recorded a valuation allowance related to state net operating losses of $4.1 million for October 3, 2010 and $3.9 million for September 27, 2009 and $4.32009. The current year change in the valuation allowance of $0.2 million for September 28, 2008. The reduction of $0.3 million is duerelates to utilization of net operating losses in the current year.losses. We believe that it is more likely than not that these loss carryforwards will not be realized and that the remaining deferred tax assets will be realized through future taxable income or alternative tax strategies.
 
As ofAt September 28, 2008,27, 2009, our gross unrecognized tax benefits for income taxes associated with uncertain income tax positions totaled $4.2 million. At September 27, 2009, we hadwere $0.6 million, of unrecognized tax benefits. Of this total, $0.5 million represented the amount of unrecognized tax benefits that,which if recognized, would favorably affect the effective income tax rate in future periods.rate. As of October 3, 2010, the gross unrecognized tax benefits remain unchanged. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows (in thousands):
 
                
 2009 2008  2010 2009 
Balance beginning of year $4,172  $11,024  $608  $4,172 
Reductions to tax positions recorded during prior years  195   (689)
Increases to tax positions recorded during current years  200   195 
Reductions to tax positions due to settlements with taxing authorities  (3,759)  (3,625)  (179)  (3,759)
Reductions to tax positions due to statute expiration  —   (2,538)
          
Balance at end of year $608  $4,172  $    629  $      608 
          
 
From time to time, we may take positions for filing our tax returns which may differ from the treatment of the same item for financial reporting purposes. The ultimate outcome of these items will not be known until the Internal Revenue ServiceIRS has completed its examination or until the statute of limitations has expired.
It is reasonably possible that changes of approximately $0.4 million to the gross unrecognized tax benefits will be required within the next twelve months. These changes relate to the possible settlement of state tax audits.
The major jurisdictions in which the Company files income tax returns include the United States and states in which we operate that impose an income tax. The federal statutes of limitations have not expired for tax years 2007 and forward. The statutes of limitations for California and Texas, which constitute the Company’s major


F-20

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
It is reasonably possible that changes to the gross unrecognized tax benefits may be required within the next twelve months of approximately $0.5 million. These changes relate to the possible settlement of state tax audits and possible favorable settlement of appeal with the Internal Revenue Service.
The major jurisdictions, in which the Company files income tax returns include the US and most US states that impose an income tax. The federal statute of limitations for all tax years beginning with 2006 remains open at this time. The statute of limitations for state taxing jurisdictions, which could have a material impact, namely California and Texas, has not expired for tax years 2000 and 2004, respectively.2006, respectively, and forward. Generally, the statutes of limitations for the other state jurisdictions have not expired for tax years 20052007 and forward.
 
11. RETIREMENT PLANS
 
We sponsor programs that provide retirement benefits to most of our employees. These programs include defined benefit contribution plans, defined benefit pension plans and postretirement healthcare plans.
 
Defined contribution plans— We maintain savings plans pursuant to Section 401(k) of the Internal Revenue Code, which allow administrative and clerical employees who have satisfied the service requirements and reached age 21 to defer a percentage of their pay on a pre-tax basis. We match 50% of the first 4% of compensation deferred by the participant. Our contributions under these plans were $1.5 million, $1.9 million and $2.0 million in 2010, 2009 and $1.9 million in 2009, 2008, and 2007, respectively. We also maintain an unfunded, non-qualified deferred compensation plan for key executives and other members of management who are excluded from participation in the qualified savings plan. This plan allows participants to defer up to 50% of their salary and 100% of their bonus, on a pre-tax basis. We match 100% of the first 3% contributed by the participant. Effective January 1, 2007, to compensate for changes made to our supplemental executive retirement plan (“SERP”) was closed to new participants. To compensate executives no longer eligible to participate in the SERP, we also contribute a supplemental amount equal to 4% of an eligible employee’s salary and bonus for a period of ten years in such eligible position. Our contributions under the non-qualified deferred compensation plan were $1.2 million, $1.1 million and $1.3 million in 2010, 2009 and $1.2 million in 2009, 2008, and 2007, respectively. In each plan, a participant’s right to Company contributions vests at a rate of 25% per year of service.
 
Defined benefit pension plans— We sponsor a defined benefit pension plan (“qualified pension plan”) covering substantially all full-time employees. In September 2010, the Board of Directors approved changes to our qualified plan whereby participants will no longer accrue benefits effective December 31, 2015 and the plan will be closed to new participants effective January 1, 2011. This change was accounted for as a plan “curtailment” in accordance with the authoritative guidance issued by the FASB. As a result of the curtailment, our qualified plan benefit obligation decreased by approximately $16.5 million representing the effect of estimated future pay increases which cease to be a part of the benefit obligation as of December 31, 2015. The curtailment impact to net earnings in fiscal 2010 was immaterial. We also sponsor an unfunded supplemental executive retirement plan (“non-qualified plan”) which provides certain employees additional pension benefits and washas been closed to any new participants effectivesince January 1, 2007. In connection with the curtailment of the qualified plan, our non-qualified plan benefit obligation increased $0.2 million in 2010. Benefits under allboth plans are based on the employees’ years of service and compensation over defined periods of employment.
 
Postretirement healthcare plans— We also sponsor healthcare plans that provide postretirement medical benefits to certain employees who meet minimum age and service requirements. The plans are contributory;contributory, with retiree contributions adjusted annually, and contain other cost-sharing features such as deductibles and coinsurance.


F-21

 
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Obligations and funded status— The following table provides a reconciliation of the changes in benefit obligations, plan assets and funded status of our retirement plans as of October 3, 2010 and September 27, 2009 and June 30, 2008.2009. In fiscal 2009, we adopted the measurement date provisions of the FASB guidance for retirement


F-21

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
benefits, which require the measurement date to be consistent with our fiscal year end. Previously, we used a June 30 measurement date. This change in measurement date resulted in a $1.9 million, net of tax, adjustment to the beginning balance of our retained earnings.(in thousands):
 
                                                
 Qualified Pension Plans Non-Qualified Pension Plan Postretirement Health Plans  Qualified Pension Plans Non-Qualified Pension Plan Postretirement Health Plans 
 2009 2008 2009 2008 2009 2008  2010 2009 2010 2009 2010 2009 
Change in benefit obligation:
                                                
Obligation at beginning of year $212,027  $224,895  $40,634  $39,628  $16,979  $18,487  $  290,469  $  212,027  $  49,445  $  40,634  $  23,828  $16,979 
Service cost  9,045   10,427   641   802   99   222   11,726   9,045   829   641   106   99 
Interest cost  15,334   14,539   2,907   2,552   1,199   1,176   17,704   15,334   3,003   2,907   1,435   1,199 
Participant contributions  —   —   —   —   138   125   -   -   -   -   142   138 
Actuarial loss (gain)  55,779   (32,712)  7,717   (994)  6,185   (2,205)
Actuarial loss  26,594   55,779   3,053   7,717   4,677   6,185 
Benefits paid  (7,810)  (5,122)  (3,341)  (2,287)  (1,097)  (826)  (8,061)   (7,810)   (3,001)   (3,341)   (2,369)   (1,097) 
Effect of change in measurement date  6,094   —   887   —   325   — 
Plan amendment and other  —   —   —   933   —   — 
Elimination of early measurement date  -   6,094   -   887   -   325 
Plan amendment  -   -   176   -   -   - 
Net gain arising due to curtailment  (16,491)   -   -   -   -   - 
                          
Obligation at end of year $290,469  $212,027  $49,445  $40,634  $23,828  $16,979  $321,941  $290,469  $53,505  $49,445  $27,819  $23,828 
                          
Change in plan assets:
                                                
Fair value at beginning of year $228,772  $216,679  $—  $—  $—  $—  $231,584  $228,772  $-  $-  $-  $- 
Actual return on plan assets  (11,878)  (7,785)  —   —   —   —   27,296   (11,878)   -   -   -   - 
Participant contributions  —   —   —   —   138   125   -   -   -   -   142   138 
Employer contributions  22,500   25,000   3,341   2,287   959   701   20,000   22,500   3,001   3,341   2,227   959 
Benefits paid  (7,810)  (5,122)  (3,341)  (2,287)  (1,097)  (826)  (8,061)   (7,810)   (3,001)   (3,341)   (2,369)   (1,097) 
                          
Fair value at end of year $231,584  $228,772  $—  $—  $—  $—  $270,819  $231,584  $-  $-  $-  $- 
                          
 
Funded status at end of year
 $(58,885) $16,745  $(49,445) $(40,634) $(23,828) $(16,979) $(51,122)  $(58,885)  $(53,505)  $(49,445)  $(27,819)  $(23,828) 
                          
Amounts recognized:
                        
Noncurrent assets $—  $16,745  $—  $—  $—  $— 
Amounts recognized on the balance sheet:
                        
Current liabilities  —   —   (2,827)  (2,451)  1,053   (877) $-  $-  $(3,184)  $(2,827)  $(1,193)  $(1,053) 
Noncurrent liabilities  (58,885)  —   (46,618)  (38,183)  22,775   (16,102)  (51,122)   (58,885)   (50,321)   (46,618)   (26,626)   (22,775) 
                          
Net amount recognized $(58,885) $16,745  $(49,445) $(40,634) $23,828  $(16,979)
Total liability recognized $(51,122)  $(58,885)  $(53,505)  $(49,445)  $(27,819)  $(23,828) 
                          
Amounts in AOCI not yet reflected in net periodic benefit cost:
                                                
Net actuarial loss (gain) $110,895  $21,451  $14,452  $7,229  $1,768  $(5,622)
Prior service cost  180   335   2,827   3,650   216   446 
Unamortized actuarial loss, net $101,447  $110,895  $16,316  $14,452  $6,381  $1,768 
Unamortized prior service cost  -   180   2,538   2,827   31   216 
                          
Total $111,075  $21,786  $17,279  $10,879  $1,984  $(5,176) $101,447  $111,075  $18,854  $17,279  $6,412  $1,984 
                          
Other changes in plan assets and benefit obligations recognized in OCI:
                                                
Net (gain) loss $89,513  $(7,917) $7,717  $(994) $6,185  $(2,205)
Amortization of gain (loss)  (55)  (971)  (396)  (533)  964   821 
Prior service cost  —   —   —   933   —   — 
Net actuarial loss $17,012  $89,513  $3,053  $7,717  $4,677  $6,185 
Amortization of actuarial gain (loss)  (9,969)   (55)   (1,189)   (396)   (64)   964 
Amortization of prior service cost  (124)  (124)  (707)  (733)  (185)  (185)  (124)   (124)   (465)   (707)   (184)   (185) 
Prior service cost due to curtailment  (56)   -   176   -   -   - 
Net gain arising due to curtailment  (16,491)   -   -   -   -   - 
                          
Total recognized in OCI  89,334   (9,012)  6,614   (1,327)  6,964   (1,569)  (9,628)   89,334   1,575   6,614   4,429   6,964 
Net periodic benefit cost  7,073   9,051   4,651   4,620   519   762 
Net periodic benefit cost and other losses  21,865   7,073   5,486   4,651   1,789   519 
                          
Total recognized in comprehensive income $96,407  $39  $11,265  $3,293  $7,483  $(807) $12,237  $96,407  $7,061  $11,265  $6,218  $7,483 
                          
Amounts in AOCI expected to be amortized in fiscal 2010 net periodic benefit cost:
                        
Amounts in AOCI expected to be amortized in fiscal 2011 net periodic benefit cost:
                        
Net actuarial loss $9,969      $1,188      $64      $8,518      $1,305      $202     
Prior service cost  124       464       185       -       488       31     
              
Total $10,093      $1,652      $249      $8,518      $1,793      $233     
              


F-22

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Additional year-end pension plan information— The pension benefit obligation (“PBO”) is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation (“ABO”) also reflects the actuarial present value of benefits attributable to employee service rendered to date but does not include the effects of estimated future pay increases. Therefore, the ABO as compared to plan assets is an indication of the assets currently available to fund vested and nonvested benefits accrued through the end of the fiscal year. The funded status is measured as the difference between the fair value of a plan’s assets and its PBO.
 
As of October 3, 2010 and September 27, 2009, the qualified plan’s ABO exceeded the fair value of its plan assets. The non-qualified plan is an unfunded plan and, as such, had no plan assets as of October 3, 2010 and September 27, 2009 and June 30, 2008.2009. The following sets forth the PBO, ABO and fair value of plan assets of our pension plans as of the measurement date in each year(in thousands):
 
                
 2009 2008  2010 2009
Qualified plans:
        
Qualified plan:
      
Projected benefit obligation $290,469  $212,027  $  321,941  $  290,469 
Accumulated benefit obligation  254,470   184,295   302,982   254,470 
Fair value of plan assets  231,584   228,772   270,819   231,584 
 
Non-qualified plan:
              
Projected benefit obligation $49,445  $40,634  $53,505  $49,445 
Accumulated benefit obligation  46,875   39,058   53,282   46,875 
Fair value of plan assets  —   —   -   - 
 
Net periodic benefit cost— The components of the fiscal year net periodic benefit cost were as follows(in thousands):
 
                        
 2009 2008 2007  2010 2009 2008 
Qualified defined pension plans:
            
Qualified defined pension plan:
            
Service cost $9,045  $10,427  $9,846  $  11,726  $  9,045  $  10,427 
Interest cost  15,334   14,539   13,201   17,704   15,334   14,539 
Expected return on plan assets  (17,485)  (17,010)  (14,541)  (17,714)   (17,485)   (17,010) 
Actuarial loss  55   971   2,257   9,969   55   971 
Amortization of unrecognized prior service cost  124   124   124   124   124   124 
Prior service cost due to curtailment  56   -   - 
              
Net periodic benefit cost $7,073  $9,051  $10,887  $  21,865  $7,073  $9,051 
              
Non-qualified pension plan:
                        
Service cost $641  $802  $734  $829  $641  $802 
Interest cost  2,907   2,552   2,401   3,003   2,907   2,552 
Actuarial loss  396   533   404   1,189   396   533 
Amortization of unrecognized prior service cost  707   733   707   465   707   733 
Amortization of unrecognized net transition obligation  —   —   95 
              
Net periodic benefit cost $4,651  $4,620  $4,341  $  5,486  $4,651  $4,620 
              
Postretirement health plans:
                        
Service cost $99  $222  $213  $106  $99  $222 
Interest cost  1,199   1,176   1,081   1,435   1,199   1,176 
Actuarial gain  (964)  (821)  (930)
Actuarial loss (gain)  64   (964)   (821) 
Amortization of unrecognized prior service cost  185   185   185   184   185   185 
              
Net periodic benefit cost $519  $762  $549  $  1,789  $519  $762 
              


F-23

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assumptions— We determine our actuarial assumptions on an annual basis. In determining the present values of our benefit obligations and net periodic benefit costs as of and for the fiscal years ended October 3, 2010,


F-23

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 27, 2009 and September 28, 2008, and September 30, 2007, respectively, we used the following weighted-average assumptions:
 
                        
 2009 2008 2007    2010     2009     2008   
Assumptions used to determine benefit obligations(1):
            
Qualified pension plans:
            
Assumptions used to determine benefit obligations (1):
            
Qualified pension plan:
            
Discount rate  6.16%  7.30%  6.50%  5.82%   6.16%   7.30% 
Rate of future compensation increases  3.50   3.50   3.50 
Rate of future pay increases  3.50   3.50   3.50 
Non-qualified pension plan:
                        
Discount rate  6.16%  7.30%  6.50%  5.82%   6.16%   7.30% 
Rate of future compensation increases  5.00   5.00   5.00 
Rate of future pay increases  3.50   5.00   5.00 
Postretirement health plans:
                        
Discount rate  6.16%  7.30%  6.50%  5.82%   6.16%   7.30% 
Assumptions used to determine net periodic benefit cost(2):
            
Assumptions used to determine net periodic benefit cost (2):
            
Qualified pension plans:
                        
Discount rate  7.30%  6.50%  6.60%  6.16%   7.30%   6.50% 
Long-term rate of return on assets  7.75   7.75   7.75   7.75   7.75   7.75 
Rate of future compensation increases  3.50   3.50   3.50 
Rate of future pay increases  3.50   3.50   3.50 
Non-qualified pension plan:
                        
Discount rate  7.30%  6.50%  6.60%  6.16%   7.30%   6.50% 
Rate of future compensation increases  5.00   5.00   5.00 
Rate of future pay increases  5.00   5.00   5.00 
Postretirement health plans:
                        
Discount rate  7.30%  6.50%  6.60%  6.16%   7.30%   6.50% 
 
 
(1)Determined as of end of year.
(2)Determined as of beginning of year.
 
The assumed discount rate was determined by considering the average of pension yield curves constructed of a population of high-quality bonds with a Moody’s or Standard and Poor’s rating of “AA” or better meeting certain other criteria. The resulting discount rate reflectswhose cash flow from coupons and maturities match the matchingyear-by year projected benefit payments from the plans. Since benefit payments typically extend beyond the date of plan liabilitythe longest maturing bond, cash flows beyond 30 years were discounted back to the yield curves.30th year and then matched like any other payment.
 
The assumed expected long-term rate of return on assets is the weighted average rate of earnings expected on the funds invested or to be invested to provide for the pension obligations. The long-term rate of return on assets was determined taking into consideration our projected asset allocation and economic forecasts prepared with the assistance of our actuarial consultants.
 
The assumed discount rate and expected long-term rate of return on assets have a significant effect on amounts reported for our pension and postretirement plans. A quarter percentage point decrease in the discount rate and long-term rate of return used would decrease earnings before income taxes by $2.7 million and $0.7 million, respectively.
The assumed average rate of compensation increase is the average annual compensation increase expected over the remaining employment periods for the participating employees.


F-24

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
For measurement purposes, the weighted-average assumed health care cost trend rates for our postretirement health plans were as follows for each fiscal year:
 
                
 2009 2008    2010     2009  
Health care cost trend rate for next year:              
Participants under age 65  8.00%  7.50%    7.75%     8.00% 
Participants age 65 or older  7.50%  7.69%  7.25%   7.50% 
Rate to which the cost trend rate is assumed to decline  5.00%  4.94%  4.50%   5.00% 
Year the rate reaches the ultimate trend rate  2021   2013   2028   2021 


F-24

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The assumed health care cost trend rate represents our estimate of the annual rates of change in the costs of the health care benefits currently provided by our postretirement plans. The health care cost trend rate implicitly considers estimates of health care inflation, changes in health care utilization and delivery patterns, technological advances and changes in the health status of the plan participants. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasinga 1.0% change in the assumed health care cost trend rates by 1.0% rate would have the following effect(in each year would increase the postretirement benefit obligation as of September 27, 2009 by $3.2 million and the aggregate of the service and interest cost components of net periodic benefit cost for 2009 by $0.2 million. If the assumed health care cost trend rates decreased by 1.0% in each year, the postretirement benefit obligation would decrease by $2.7 million as of September 27, 2009, and the aggregate of the service and interest components of net periodic benefit cost for 2009 would decrease by $0.2 million.thousands):
         
  1% Point
 1% Point
  Increase Decrease
 
Total interest and service cost $211  $(178) 
Postretirement benefit obligation $ 3,727  $ (3,155) 
 
Plan assets— Our investment strategyphilosophy is to seek a competitive rate(1) protect the corpus of return relativethe fund; (2) establish investment objectives that will allow the market value to an appropriate levelexceed the present value of risk.the vested and unvested liabilities over time; while (3) obtaining adequate investment returns to protect benefits promised to the participants and their beneficiaries. Our asset allocation strategy utilizes multiple investment managers in order to maximize the plan’s return while minimizing risk. We regularly monitor our asset allocation, and senior financial management and the Finance Committee of the Board of Directors review performance results at least semi-annually. In May 2007, we adjusted our targetOur plan asset allocation for our qualified pension plans toat the following: 40% U.S. equities, 30% debt securities, 15% international equities, 5% balanced fundend of 2010 and 10% real estate. We plan to reallocate our plan assets over a period of time,target allocations are as deemed appropriate by senior financial management, to achieve our target asset allocation. The qualified pension plan had the following asset allocations at September 27, 2009 and June 30, 2008:follows:
 
         
  2009  2008 
 
U.S. equities  43%  39%
Debt securities  30   36 
International equities  18   14 
Balanced fund  6   6 
Real estate  3   5 
         
   100%  100%
         
             
  Percentage of
  
  Plan Assets Asset Allocation
  2010   Target     Minimum     Maximum  
 
Large cap equity  26%  25%  15%  35%
Small cap equity  15%  15%  5%  25%
International equity  17%  15%  5%  25%
Core fixed funds  27%  25%  15%  35%
Real return bonds  6%  5%  0%  10%
Alternative investments  6%  5%  0%  10%
Real estate  3%  10%  0%  10%
             
   100%  100%      
             


F-25

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The fair values of the qualified plan’s assets at October 3, 2010 by asset category are as follows(in thousands):
                     
        Fair Value Measurements 
        Quoted Prices
  Significant
    
        in Active
  Other
  Significant
 
        Markets for
  Observable
  Unobservable
 
        Identical
  Inputs
  Inputs
 
  Total  (Level 1)  (Level 2)  (Level 3) 
  
 
Asset Category:
                    
Cash and cash equivalents  (1) $5,311  $5,311  $-  $- 
Equity:                    
U.S.  (2)  74,240   74,240   -   - 
Commingled  (3)  82,065   82,065   -   - 
Fixed income:                    
Asset-backed securities  (4)  4,679   -   4,679   - 
Corporate bonds  (5)  44,557   36,123   8,365   69 
Non-government-backed C.M.O.’s  (6)  5,778   -   5,778   - 
Government and mortgage securities  (7)  31,136   16,075   15,061   - 
Other  (8)  15,945   15,945   -   - 
Interest rate swaps  (9)  54   -   54   - 
Real estate  (10)  7,054   -   -   7,054 
                     
      $  270,819  $  229,759  $  33,937  $     7,123 
                     
(1)Cash and cash equivalents are comprised of commercial paper, short-term bills and notes, and short-term investment funds, which are valued at unadjusted quoted market prices.
(2)U.S. equity securities are comprised of investments in common stock of U.S. andnon-U.S. companies for total return purposes. These investments are valued by the trustee at closing prices from national exchanges on the valuation date.
(3)Commingled equity securities are comprised of investments in mutual funds, the fair value of which is determined by reference to the fund’s underlying assets, which are primarily marketable equity securities that are traded on national exchanges and valued at unadjusted quoted market prices.
(4)Asset-backed securities are comprised of collateralized obligations and mortgage-backed securities, which are valued by the trustee using observable, market-based inputs.
(5)Corporate bonds are comprised of mutual funds traded on national securities exchanges, valued at unadjusted quoted market prices, as well as securities traded in markets that are not considered active, which are valued based on quoted market prices, broker/dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Securities that trade infrequently and therefore have little or no price transparency are valued using the investment manager’s best estimate.
(6)Non-government backed securities are comprised of collateralized obligations and mortgage-back securities, which the trustee values using observable, market-based inputs.
(7)Government and mortgage securities are comprised of government and municipal bonds, including treasury bills, notes and index linked bonds which are valued using an unadjusted quoted price in an active market or observable, market-based inputs.
(8)Other fixed income securities are comprised of other commingled funds invested in registered securities which are valued at the unadjusted quoted price in an active market or exchange.
(9)Interest rate swaps are derivative instruments used to reduce exposure to the impact of changing interest rates and are valued using observable, market-based inputs.
(10)Real estate is investments in a real estate investment trust for purposes of total return. These investments are valued at unit values provided by the investment managers and their consultants.


F-26

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in Level 3 investments for the qualified plan(in thousands):
                
  Fair Value Measurements Using
  Significant Unobservable Inputs (Level 3)
  Corporate
 Commercial
 Non-Government
    
  Bonds Mortgage-Backed Backed C.M.O.’s Real Estate Total
 
 
Beginning balance at September 27, 2009 $96 $542 $192 $6,872 $  7,702
Actual return on plan assets:
               
Relating to assets still held at the reporting date  13  104  24  331  472
Relating to assets sold during the period  -  7  -  (40)  (33)
Purchases, sales, and settlements  -  (242)  (21)  (109)  (372)
Transfers in and/or out of Level 3  (40)  (411)  (195)  -  (646)
                
Ending balance at October 3, 2010 $69 $- $- $7,054  7,123
                
Future cash flows— Our policy is to fund our plans at or above the minimum required by law. Contributions expected to be paid in the next fiscal year and the projected benefit payments for each of the next five fiscal years and the total aggregate amount for the subsequent five fiscal years are as follows(in thousands):
 
                
 Defined Benefit
 Postretirement
  Defined
   
 Pension Plans Health Plans(1)  Benefit
 Postretirement
 
 Pension Health Plans 
Estimated net contributions during fiscal 2010 $24,827  $1,053 
Estimated net contributions during fiscal 2011 $  13,184  $  1,193 
Estimated future year benefit payments during fiscal years:                
2010 $8,851  $1,053 
2011  9,150   1,117  $9,802  $1,193 
2012  9,561   1,169   10,187   1,249 
2013  10,136   1,221   10,639   1,305 
2014  10,786   1,296   11,207   1,384 
2015-2019  86,371   7,765 
2015  11,889   1,443 
2016-2020  79,280   8,893 
(1)Net of Medicare Part D Subsidy.
 
We will continue to evaluate contributions to our defined benefit plans based on changes in pension assets as a result of asset performance in the current market and economic environment. Expected benefit payments are based on the same assumptions used to measure our benefit obligation at September 27, 2009October 3, 2010 and include estimated future employee service.
 
12. SHARE-BASED EMPLOYEE COMPENSATION
 
Stock incentive plans— We offer share-based compensation plans to attract, retain and motivate key officers, employees and non-employee directors and employees to work toward the financial success of the Company.
 
Our stock incentive plans are administered by the Compensation Committee of the Board of Directors and have been approved by the stockholders of the Company. The terms and conditions of our share-based awards are determined by the Compensation Committee on each award date and may include provisions for the exercise price, expirations, vesting, restriction on sales and forfeitures, as applicable. We issue new shares to satisfy stock issuances under our stock incentive plans.
 
Our Amended and Restated 2004 Stock Incentive Plan authorizes the issuance of up to 6,500,0007,900,000 common shares in connection with the granting of stock options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units or performance units to key employees and directors. No more than 1,300,000 shares may be granted under this Plan as restricted stock or performance-based awards. As of September 27, 2009, 1,341,660October 3, 2010, 1,965,176 shares of common stock were available for future issuance under this Plan.plan.
 
There are four other plans under which we can no longer issue awards, although awards outstanding under these plans may still vest and be exercised: the 1992 Employee Stock Incentive Plan, the 1993 Stock Option Plan, the 2002 Stock Incentive Plan and the Non-Employee Director Stock Option Plan.


F-27

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
We also maintain a deferred compensation plan for non-management directors under which those who are eligible to receive fees or retainers may choose to defer receipt of their compensation. The deferred amounts are converted to stock equivalents. The plan requires settlement in shares of our common stock based on the number of stock equivalents at the time of a participant’s separation from the Board of Directors. This plan provides for the issuance of up to 350,000 shares of common stock in connection with the crediting of stock equivalents. As of September 27, 2009,October 3, 2010, 263,424 shares of common stock were available for future issuance under this plan.
 
In February 2006, the stockholders of the Company approved an employee stock purchase plan (“ESPP”) for all eligible employees to purchase shares of common stock at 95% of the fair market value on the date of purchase. Employees may authorize us to withhold up to 15% of their base compensation during any offering period, subject


F-26

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to certain limitations. A maximum of 200,000 shares of common stock may be issued under the plan. As of September 27, 2009, 157,637October 3, 2010, 143,072 shares of common stock were available for future issuance under this plan.
 
Compensation expense— 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. The components of share-based compensation expense recognized in each year are as follows(in thousands):
 
                        
 2009 2008 2007  2010 2009 2008 
Stock options $8,952  $7,880  $8,602  $  7,234  $  8,952  $  7,880 
Performance-vested stock awards  (1,429)  1,381   2,416   1,145   (1,429)  1,381 
Nonvested stock awards  704   1,034   1,246   923   704   1,034 
Nonvested stock units  830   —   —   1,024   830   - 
Deferred compensation for directors — equity classified  284   271   376 
Deferred compensation for directors — liability classified  —   —   324 
Deferred compensation for directors  279   284   271 
              
Total share-based compensation expense $9,341  $10,566  $12,964  $10,605  $9,341  $10,566 
              
 
In November 2008, we modified the performance periods and goals of our outstanding performance-vested stock awards to address challenges associated with establishing long-term performance measures. The modifications and changes to expectations regarding achievement levels resulted in a $2.2 million reduction in our expense.
 
Stock options— Prior to fiscal 2007, options granted had contractual terms of 10 or 11 years and employee options generally vested over a four-year period. Beginning fiscal 2007, option grants have contractual terms of 7 years and employee options vest over a three-year period. Options may vest sooner for employees meeting certain age and years of service thresholds. Options granted to non-management directors vest at six months. All option grants provide for an option exercise price equal to the closing market value of the common stock on the date of grant.
 
The following is a summary of stock option activity for fiscal 2009:2010:
 
                                
     Weighted
        Weighted
   
   Weighted
 Average
      Weighted
 Average
 Aggregate
 
   Average
 Remaining
 Aggregate
    Average
 Remaining
 Intrinsic
 
   Exercise
 Contractual
 Intrinsic
    Exercise
 Contractual
 Value (in
 
 Shares Price Term (Years) Value  Shares Price Term (Years) thousands) 
       (In thousands) 
Options outstanding at September 28, 2008  5,149,296  $20.62         
Options outstanding at September 27, 2009  4,788,326  $21.31         
Granted  24,000   23.27           550,000   19.26         
Exercised  (375,698)  12.17           (407,452)  12.73         
Forfeited  (33,417)  22.16         
Expired  (9,272)  10.43           (12,511)  13.05         
      
Options outstanding at September 27, 2009  4,788,326  $21.31   5.03  $12,977 
Options outstanding at October 3, 2010  4,884,946  $  21.81   4.47  $  25,606 
      
Options exercisable at September 27, 2009  3,717,779  $19.89   4.80  $12,977 
Options exercisable at October 3, 2010  4,068,523  $21.95   4.22  $21,483 
      
Options exercisable and expected to vest at September 27, 2009  4,772,320  $21.30   5.03  $12,977 
Options exercisable and expected to vest at October 3, 2010  4,853,860  $21.83   4.45  $25,411 
      
Effective in the fourth quarter of fiscal 2005, we began utilizing a binomial-based model to determine the fair value of options granted. The fair value of all prior options granted has been estimated on the date of grant using the Black-Scholes option-pricing model. Valuation models require the input of highly subjective assumptions,


F-27F-28

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
We use a binomial-based model to determine the fair value of options granted. Valuation models require the input of highly subjective assumptions, including the expected volatility of the stock price. The following weighted-average assumptions were used for stock option grants in each year:
 
                        
 2009 2008 2007  2010 2009 2008 
Risk-free interest rate  3.01%  2.85%  4.20%  1.97%   3.01%   2.85% 
Expected dividends yield  0.00%  0.00%  0.00%  0.00%   0.00%   0.00% 
Expected stock price volatility  45.62%  45.74%  37.85%  38.65%   45.62%   45.74% 
Expected life of options (in years)  5.23   4.38   4.65   4.46   5.23   4.38 
 
In 2010, 2009 2008, and 2007,2008, the risk-free interest rate was determined by a yield curve of risk-free rates based on published U.S. Treasury spot rates in effect at the time of grant and has a term equal to the expected life of the related options.
 
The dividend yield assumption is based on the Company’s history and expectations of dividend payouts.
 
The expected stock price volatility in all years represents an average of the implied volatility and the Company’s historical volatility.
 
The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends.
 
The weighted-average grant-date fair value of options granted was $6.54, $10.27 and $9.82 in 2010, 2009 and $11.20 in 2009, 2008, and 2007, respectively. The intrinsic value of stock options is defined as the difference between the current market value and the grant price. The total intrinsic value of stock options exercised was $4.0 million, $4.4 million and $12.5 million in 2010, 2009 and $47.6 million in 2009, 2008, and 2007, respectively.
 
As of September 27, 2009,October 3, 2010, there was approximately $7.9$4.1 million of total unrecognized compensation cost related to stock options granted under our stock incentive plans. That cost is expected to be recognized over a weighted-average period of 1.511.72 years.
 
Performance-vested stock awards —Performance awards represent a right to receive a certain number of shares of common stock upon achievement of performance goals at the end of a three-year period. The expected cost of the shares is based on the fair value of our stock on the date of grant and is reflected over the performance period with a reduction for estimated forfeitures. It is our intent to settle these awards with shares of common stock.
 
The following is a summary of performance-vested stock award activity for fiscal 2009:2010:
 
                
   Weighted-
    Weighted-
 
   Average
    Average Grant
 
   Grant Date
    Date Fair
 
 Shares Fair Value  Shares Value 
Performance-vested stock awards outstanding at September 28, 2008  329,659  $24.30 
Performance-vested stock awards outstanding at September 27, 2009  323,975  $  15.53 
Granted  117,840   15.56   225,440   19.19 
Issued  (55,230)  17.51   (47,545)  15.56 
Cancelled  (49,602)  17.63 
Canceled  (161,560)  15.56 
Forfeited  (18,692)  15.56   (46,008)  16.40 
      
Performance-vested stock awards outstanding at September 27, 2009  323,975  $15.53 
Performance-vested stock awards outstanding at October 3, 2010  294,302  $18.18 
      
Vested and subject to release at September 27, 2009  59,026  $15.39 
Vested and subject to release at October 3, 2010  40,017  $15.32 
      
 
As of September 27, 2009,October 3, 2010, there was approximately $0.6$1.8 million of total unrecognized compensation cost related to performance-vested stock awards. That cost is expected to be recognized over a weighted-average period of 1.8 years. The weighted-average grant date fair value of awards granted was $19.19, $15.56 and $15.56 in 2010, 2009 and 2008, respectively. The total fair value of awards that vested as of September 27,during 2010, 2009 and 2008 was $0.7 million. We expect to issue


F-28F-29

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
$0.6 million, $0.7 million and $0.9 million, respectively. In 2010, 2009 and 2008, the stock associated with these awards in November 2009. In 2008 and 2007, 68,939 and 146,116 awards vested with atotal grant date fair value of $0.9shares issued was $0.7 million, $1.0 million and $4.7$2.0 million, respectively.
 
Nonvested stock awards— We generally issued nonvested stock awards (“RSAs”) to certain executives under our share ownership guidelines. Effective February 2008, we are no longer issuingissue these awards which have been replaced by grants of nonvested stock units. Our nonvested stock awardsRSAs vest, subject to the discretion of our Board of Directors in certain circumstances, upon retirement or termination based upon years of service or ratably over a three-year period for non-ownership grants as provided in the award agreements. These awards are amortized to compensation expense over the estimated vesting period based upon the fair value of our common stock on the award date.
 
The following is a summary of nonvested stock awardRSA activity for fiscal 2009:2010:
 
         
     Weighted-
 
     Average
 
     Grant Date
 
  Shares  Fair Value 
 
Nonvested stock awards outstanding at September 28, 2008  549,485  $14.16 
Released  (121,200)  10.99 
Forfeited  (2,000)  20.63 
         
Nonvested stock awards outstanding at September 27, 2009  426,285  $15.04 
         
Vested at September 27, 2009  94,051  $12.46 
         
         
     Weighted-
 
     Average Grant
 
     Date Fair
 
  Shares  Value 
 
Nonvested stock awards outstanding at September 27, 2009  426,285  $  15.04 
Released  (31,168)  17.75 
         
Nonvested stock awards outstanding at October 3, 2010  395,117  $14.82 
         
Vested at October 3, 2010  104,645  $12.19 
         
 
As of September 27, 2009,October 3, 2010, there was approximately $3.6$2.7 million of total unrecognized compensation cost related to nonvested stock awards,RSAs, which is expected to be recognized over a weighted-average period of 5.75.4 years. During 2008, we granted 64,545 shares of nonvested stockRSAs with a grant date fair value of $26.35. No shares of nonvested stockRSAs were granted in 2010 or 2009. The total fair value of RSAs that vested was $0.2 million during 2010 and 2009 or 2007.and $0.4 million during 2008. In 2010, 2009 2008 and 2007,2008, the total grant date fair value of shares released was $0.6 million, $1.3 million $0.04 million and $1.1$0.04 million, respectively.
 
Nonvested stock units— In February 2009, the Board of Directors approved the issuance of a new type of stock award, nonvested stock units. Nonvested stock units will(“RSUs”). RSUs replace nonvested stock awardsRSAs previously issued to certain executives under our share ownership guidelines and annual option grants previously granted to our non-management directors. Our nonvested stock unitsRSUs vest, subject to the discretion of our Board of Directors in certain circumstances, upon retirement or termination based upon years of service. No such units were vested as of September 27, 2009.October 3, 2010. These awards are amortized to compensation expense over the estimated vesting period based upon the fair value of our common stock on the award date.
 
The following is a summary of nonvested stock unitRSU activity for fiscal 2009:2010:
 
                
   Weighted-
    Weighted-
 
   Average
    Average Grant
 
   Grant Date
    Date Fair
 
 Shares Fair Value  Shares Value 
Nonvested stock units outstanding at September 28, 2008  —  $— 
Nonvested stock units outstanding at September 27, 2009  61,854  $     21.46 
Granted  61,854   21.46   96,949   21.05 
Released  (5,000)  20.07 
      
Nonvested stock units outstanding at September 27, 2009  61,854  $21.46 
Nonvested stock units outstanding at October 3, 2010  153,803  $21.25 
      
 
As of September 27, 2009,October 3, 2010, there was approximately $0.5$1.5 million of total unrecognized compensation cost related to nonvested stock units,RSUs, which is expected to be recognized over a weighted-average period of 2.47.0 years. During 2009, we granted 61,854 shares of RSUs with a grant date fair value of $21.46. The total fair value of RSUs that vested and were released during 2010 was $0.1 million. No such awards vested or were released in 2009.
 
Non-management directors’ deferred compensation—All awards outstanding under our directors’ deferred compensation plan are accounted for as equity-based awards and deferred amounts are converted into stock


F-30

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equivalents at the then-current market price of our common stock. During fiscal 2009 and 2008, 59,949 and 26,627 shares of common stock were issued in connection with director retirements having a grant date fair value of $1.6 million and $0.4 million, respectively. No deferrals were settled in 2007.


F-29

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)2010.
 
The following is a summary of the stock equivalent activity for fiscal 2009:2010:
 
                
   Weighted-
    Weighted-
 
   Average
    Average Grant
 
 Stock
 Grant Date
  Stock
 Date Fair
 
 Equivalents Fair Value  Equivalents Value 
Stock equivalents outstanding at September 28, 2008  205,332  $11.92 
Stock equivalents outstanding at September 27, 2009  162,404  $     14.16 
Deferred directors’ compensation  17,021   19.99   7,914   20.85 
Stock distribution  (59,949)  8.15 
      
Stock equivalents outstanding at September 27, 2009  162,404  $14.16 
Stock equivalents outstanding at October 3, 2010  170,318  $14.47 
      
 
Employee stock purchase plan— In fiscal 2010, 2009 and 2008, 14,565, 15,548 and 2007, 15,548, 15,567 and 11,248 shares, respectively, were purchased through the ESPP at an average price of $19.32, $19.99 $25.65 and $32.51,$25.65, respectively.
 
13. STOCKHOLDERS’ EQUITY
 
Preferred stock— We have 15,000,000 shares of preferred stock authorized for issuance at a par value of $.01$0.01 per share. No preferred shares have been issued.
 
Repurchases of common stock— In November 2007, the Board of Directors approved a program to repurchase up to $200.0 million in shares of our common stock over three years expiring November 9, 2010. WeDuring 2010, we repurchased 3.9approximately 4.9 million shares at an aggregate cost of $100.0 million during fiscal 2008.$97.0 million. As of September 27, 2009,October 3, 2010, the aggregate remaining amount authorized and available under our credit agreement for repurchase was $97.4$3.0 million.
In fiscal 2007, pursuantNovember 2010, the Board of Directors approved a new program to a tender offer in December 2006, we accepted for purchase approximately 2.3 million shares of common stock for a total cost of $143.3 million. All shares repurchased were subsequently retired. In fiscal 2007, we also repurchased 3.2 million shares of stock for $220.1 million and 1.6 million shares forrepurchase, within the next year, up to $100.0 million in connection with stock repurchase authorizations made byshares of our Board of Directors in 2006 and 2005, respectively.common stock.
 
Comprehensive income— Our total comprehensive income, net of taxes, was as follows(in thousands):
 
                        
 2009 2008 2007  2010 2009 2008 
Net earnings $118,408  $119,279  $125,583  $  70,210  $  118,408  $  119,279 
Net unrealized gains (losses) related to cash flow hedges  42   (3,210)  (2,055)
Cash flow hedges:            
Net change in fair value of derivatives  (837)  (6,147)  (5,223)
Amount of net loss reclassified to earnings during the year  4,719   6,189   2,013 
       
Total cash flow hedges  3,882   42   (3,210)
Tax effect  (21)  1,226   801   (1,481)  (21)  1,226 
              
  21   (1,984)  (1,254)  2,401   21   (1,984)
Net realized gains reclassified into net earnings on liquidation of interest rate swaps  —   —   (371)
Tax effect  —   —   137 
       
  —   —   (234)
Unrecognized periodic benefit costs            
Effect of unrecognized net actuarial gains (losses) and prior service cost  (102,912)  11,907   3,917   3,625   (102,912)  11,907 
Tax effect  39,254   (4,628)  (1,524)  (1,371)  39,254   (4,628)
              
  (63,658)  7,279   2,393   2,254   (63,658)  7,279 
              
Total comprehensive income $54,771  $124,574  $126,488  $74,865  $54,771  $124,574 
              


F-30F-31

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The components of accumulated other comprehensive loss, net of taxes, were as follows as of October 3, 2010 and September 27, 2009 and September 28, 2008(in thousands):
 
         
  2009  2008 
 
Unrecognized periodic benefit costs, net of tax benefits of $49,750 and $10,520, respectively $(80,588) $(16,970)
Net unrealized losses related to cash flow hedges, net of tax benefits of $1,761 and $1,782, respectively  (2,854)  (2,875)
         
Accumulated other comprehensive loss $(83,442) $(19,845)
         
         
  2010  2009 
 
Unrecognized periodic benefit costs, net of tax benefits of $48,379 and $49,750, respectively $  (78,334) $(80,588)
Net unrealized losses related to cash flow hedges, net of tax benefits of $280 and $1,761, respectively  (453)  (2,854)
         
Accumulated other comprehensive loss $(78,787) $(83,442)
         
 
14. AVERAGE SHARES OUTSTANDING
 
Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive common shares include stock options, nonvested stock awards and units, non-management director stock equivalents and shares issuable under our employee stock purchase plan. Performance-vested stock awards are included in the average diluted shares outstanding each period if the performance criteria have been met at the end of the respective periods.
 
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding(in thousands):
 
                        
 2009 2008 2007  2010 2009 2008 
Weighted-average shares outstanding — basic  56,795   58,249   65,314 
Weighted-average shares outstanding – basic  55,070   56,795   58,249 
Effect of potentially dilutive securities:                        
Stock options  619   879   1,533   512   619   879 
Nonvested stock awards  169   248   270 
Nonvested stock awards and units  182   169   248 
Performance-vested stock awards  150   69   146   79   150   69 
              
Weighted-average shares outstanding — diluted  57,733   59,445   67,263 
Weighted-average shares outstanding – diluted   55,843   57,733   59,445 
              
Excluded from diluted weighted-average shares outstanding:                        
Antidilutive  2,763   1,611   557   3,266   2,763   1,611 
Performance conditions not satisfied at the end of the period  179   261   378   160   179   261 
 
15. VARIABLE INTEREST ENTITIES
The primary entities in which we possess a variable interest are franchise entities, which operate our franchised restaurants. We do not possess any ownership interests in franchise entities. We have reviewed these franchise entities and determined that we are not the primary beneficiary of the entities and therefore, these entities have not been consolidated.
We use advertising funds for both our restaurant concepts to administer our advertising programs. These funds are consolidated into our financial statements as they are deemed variable interest entities (“VIEs”) for which we are the primary beneficiary. Contributions to these funds are designated for advertising, and we administer the funds’ contributions. The Company’s maximum loss exposure for these funds is limited to its investment.


F-31

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table reflects the assets and liabilities of these VIEs that were included in our consolidated balance sheet at September 27, 2009 (in thousands):
         
  Jack in the Box  Qdoba 
 
Cash $—  $182 
Accounts receivable  —   77 
Prepaid assets  2,339   96 
Other  —   6 
         
Total assets $2,339  $361 
         
Accounts payable $—  $414 
Accrued liabilities  21,165   (53)
         
Total liabilities $21,165  $361 
         
16.  COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS
 
Commitments— We are principally liable for lease obligations on various properties subleased to third parties. We are also obligated under a lease guarantee agreement associated with a Chi-Chi’s restaurant property. Due to the bankruptcy of the Chi-Chi’s restaurant chain in 2003, previously owned by us, we are obligated to perform in accordance with the terms of a guarantee agreement, as well as fourthree other lease agreements, which expire at various dates in 2010 andduring the second quarter of fiscal 2011. During fiscal 2003, we established an accrual for these lease obligations and do not anticipate incurring any additional charges in future years related to the Chi-Chi’s bankruptcy.
 
As of October 3, 2010, we had unconditional purchase obligations of $740.8 million, which primarily includes contracts for goods related to restaurant operations.
Legal matters— We are subject to normal and routine litigation. In the opinion of management, based in part on the advice of legal counsel, the ultimate liability from all pending legal proceedings, asserted legal claims and known potential legal claims should not materially affect our operating results, financial position or liquidity.


F-32

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
17.16. SEGMENT REPORTING
 
Reflecting our vision of being a national restaurant company and the information currently being used in managing the Company as a two-branded restaurant operations business, our segments comprise results related to system restaurant operations for ourJack in the boxBox and Qdoba 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, both operating segments are considered reportable segments.


F-32

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
We measure and evaluate our segments based on segment earnings from operations. Summarized financial information concerning our reportable segmentsegments is shown in the following table(in thousands):
 
                        
 2009 2008 2007  2010 2009 2008 
Revenues by Segment:
                        
Jack in the Box restaurant operations segment $2,025,755  $2,146,595  $2,196,398  $1,731,130  $2,025,755  $2,146,596 
Qdoba restaurant operations segment  143,206   117,740   94,473   168,424   143,206   117,740 
Distribution operations  302,135   275,226   222,560   397,977   302,135   275,225 
              
Consolidated revenues $2,471,096  $2,539,561  $2,513,431  $2,297,531  $2,471,096  $2,539,561 
              
Earnings from Operations by Segment:
                        
Jack in the Box restaurant operations segment $218,740  $202,054  $203,172  $111,983  $218,740  $202,054 
Qdoba restaurant operations segment  10,690   11,481   11,005   11,580   10,690   11,481 
Distribution operations  1,838   2,353   2,819   (1,653)  1,838   2,353 
              
Consolidated earnings from operations $231,268  $215,888  $216,996  $121,910  $231,268  $215,888 
              
Total Expenditures for Long-Lived Assets by Segment:
                        
Jack in the Box restaurant operations segment $133,353  $161,803  $138,959  $80,855  $133,353  $161,803 
Qdoba restaurant operations segment  19,189   15,241   8,884   13,572   19,189   15,241 
Distribution operations  958   1,561   665   1,183   958   1,561 
              
Consolidated expenditures for long-lived assets (from continuing operations) $153,500  $178,605  $148,508  $95,610  $153,500  $178,605 
              
 
Interest income and expense, income taxes and total assets are not reported for our segments, in accordance with our method of internal reporting.
 
18.17. SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION
 
Additional information related to cash flows is as follows(in thousands):
 
                        
 2009 2008 2007  2010 2009 2008 
Cash paid during the year for:                        
Interest, net of amounts capitalized $23,008  $25,732  $28,247  $  17,719  $  23,008  $  25,732 
Income tax payments  79,392   68,454   90,709  $80,719  $79,392  $68,454 
Capital lease obligations incurred  —   —   464 


F-33

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
19.18. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION (in(in thousands)
 
                
 Sept. 27,
 Sept. 28,
  Oct. 3,
 Sept. 27,
 
 2009 2008  2010 2009 
Accounts and other receivables, net:                
Trade $38,820  $43,146  $  48,006  $  38,820 
Notes receivable  4,533   21,833   29,949   4,533 
Other  6,142   5,678   4,386   6,142 
Allowances for doubtful accounts  (459)  (367)  (1,191)  (459)
          
 $49,036  $70,290  $81,150  $49,036 
          
Other assets, net:        
Company-owned life insurance policies $76,296  $68,234 
Deferred rent receivable  19,664   14,407 
Other  55,144   32,653 
     
 $151,104  $115,294 
     
Accrued liabilities:                
Payroll and related taxes $59,900  $63,964  $31,259  $59,900 
Sales and property taxes  20,603   21,410   21,141   20,603 
Insurance  37,505   41,243   37,655   37,505 
Advertising  21,242   19,072   15,686   21,242 
Gift card liability  3,171   3,684 
Deferred franchise fees  2,541   2,190 
Other  66,850   67,942   56,733   60,976 
          
 $206,100  $213,631  $168,186  $206,100 
          
Other long-term liabilities:                
Pension $105,503  $38,183  $101,443  $105,503 
Accrued rent  49,304   47,425 
Straight-line rent accrual  52,661   52,506 
Deferred franchise fees  1,532   1,741 
Other  79,383   75,669   94,804   74,440 
          
 $234,190  $161,277  $250,440  $234,190 
          
 
Notes receivable as of September 27, 2009 and September 28, 2008 consistOctober 3, 2010 consists primarily of temporary financing provided to franchisees to facilitate the closing of certain refranchising transactions.
 
20.19. UNAUDITED QUARTERLY RESULTS OF OPERATIONS (in(in thousands, except per share data)
 
                                
 16 Weeks
    16 Weeks
   13 Weeks
 
 Ended 12 Weeks Ended  Ended 12 Weeks Ended Ended 
Fiscal Year 2009
 Jan. 18, 2009 Apr. 12, 2009 July 5, 2009 Sept. 27, 2009 
Fiscal Year 2010 Jan. 17, 2010 Apr. 11, 2010 July 4, 2010 Oct. 3, 2010 
Revenues $776,673  $578,411  $575,722  $540,290  $  681,318  $  529,706  $  523,294  $  563,213 
Earnings from operations  54,376   53,110   57,119   66,663   43,730   31,150   41,848   5,182 
Net earnings  28,397   29,861   19,558   40,592   24,247   17,680   24,242   4,041 
Net earning per share:                
Net earnings per share:                
Basic $0.50  $0.53  $0.34  $0.71  $0.43  $0.32  $0.44  $0.08 
Diluted $0.49  $0.52  $0.34  $0.70  $0.43  $0.32  $0.44  $0.07 
 


F-34

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                
 16 Weeks
    16 Weeks
   
 Ended 12 Weeks Ended  Ended 12 Weeks Ended 
Fiscal Year 2008
 Jan. 20, 2008 Apr. 13, 2008 July 6, 2008 Sept. 28, 2008 
Fiscal Year 2009 Jan. 18, 2009 Apr. 12, 2009 July 5, 2009 Sept. 27, 2009 
Revenues $776,997  $588,034  $591,863  $582,667  $  776,673  $  578,411  $  575,722  $  540,290 
Earnings from operations  67,123   48,229   54,232   46,304   54,376   53,110   57,119   66,663 
Net earnings  36,255   26,234   29,916   26,874   28,397   29,861   19,558   40,592 
Net earning per share:                
Net earnings per share:                
Basic $0.61  $0.45  $0.52  $0.48  $0.50  $0.53  $0.34  $0.71 
Diluted $0.59  $0.44  $0.51  $0.47  $0.49  $0.52  $0.34  $0.70 
The results of operations for the quarter ending October 3, 2010 includes a charge related to the closure of 40 Jack in the Box restaurants of $18.5 million, net of taxes, or $0.34 per basic and diluted share. Refer to Note 9,Impairment, Disposal of Property and Equipment, and Restaurants Closing Costs,for additional information.
 
The results of operations for the quarter ending July 5, 2009 includes a charge of $14.1 million, net of taxes, or $0.25 and $0.24 per basic and diluted share, respectively, related to the sale of our Quick Stuff convenience stores. Refer to Note 2,Discontinued Operations,for additional information.
 
21.20. FUTURE APPLICATION OF ACCOUNTING PRINCIPLES
In September 2006, the FASB issued authoritative guidance on fair value measurements. This guidance clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. This guidance applies under other accounting pronouncements that currently require or permit fair value measurements and is effective for fiscal years beginning after November 15, 2007, and interim periods within those years. We adopted the provisions of the fair value measurement guidance for our financial assets and liabilities and have elected to defer adoption for our nonfinancial assets and liabilities until fiscal year 2010. We are currently in the process of assessing the impact this guidance may have on our consolidated financial statements related.
 
In June 2009, the FASB issued authoritative guidance for consolidation, which changes the approach for determining which enterprise has a controlling financial interest in variable interest entity and requires more frequent reassessments of whether an enterprise is a primary beneficiary. This guidance is effective for annual periods beginning after November 15, 2009. We are currently in the process of assessing the impact this guidance may have on our consolidated financial statements.
 
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

F-35