UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FormFORM 10-K
 
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2007
FOR THE FISCAL YEAR ENDED OCTOBER 3, 2010
 
COMMISSION FILE NUMBER 1-9390
 
JACK IN THE BOX INC.
(Exact name of registrant as specified in its charter)
 
   
Delaware
 95-2698708
(State of Incorporation) (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 New York Stock Exchange, Inc.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
 
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 non-accelerated filer.smaller reporting company. See definitionthe definitions of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“smaller reporting company” inRule 12b-2 of the Exchange Act.
Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o     Smaller reporting company o
 
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 New York Stock ExchangeNASDAQ — Composite Transactions as of April 15, 2007,11, 2010, was approximately $2,016.7$1,302.3 million.
 
Number of shares of common stock, $.01$0.01 par value, outstanding as of the close of business November 15, 2007- 59,886,835.18, 2010 — 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 20082011 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 11
Item 1B.
 Unresolved Staff Comments 1415
Item 2.
 Properties 1415
Item 3.
 Legal Proceedings 1516
Item 4.
Submission of Matters to a Vote of Security Holders15
     
  PARTPart II  
Item 5.
 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities		 1517
Item 6.
 Selected Financial Data 19
Item 7.
 Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
Item 7A.
 Quantitative and Qualitative Disclosures About Market Risk 3031
Item 8.
 Financial Statements and Supplementary Data 3031
Item 9.
 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 31
Item 9A.
 Controls and Procedures 31
Item 9B.
 Other Information 3334
     
  PARTPart III  
Item 10.
 Directors, Executive Officers and Corporate Governance 3334
Item 11.
 Executive Compensation 3334
Item 12.
 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 3334
Item 13.
 Certain Relationships and Related Transactions, and Director Independence 3435
Item 14.
 Principal Accountant Fees and Services 3435
     
  PARTPart IV  
Item 15.
 Exhibits, Financial Statement Schedules 3435
 EXHIBIT 10.6.4EX-10.16.4.B
 EXHIBIT 10.13.1EX-10.16.6
 EXHIBIT 23.1EX-23.1
 EXHIBIT 31.1EX-31.1
 EXHIBIT 31.2EX-31.2
 EXHIBIT 32.1EX-32.1
 EXHIBIT 32.2EX-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, is a restaurant company thatCalifornia, operates and franchises more than 2,500 quick-service and fast-casual restaurants under the brand names2,700 Jack in the Box® quick-service restaurants (“QSR”) and Qdoba Mexican Grill®. The Company also operates a proprietary chain of convenience stores called Quick Stuff®, with 60 locations, each built adjacent to a full-sizeJack in the Box restaurant and including a major-brand fuel station. fast-casual restaurants. In fiscal 2007,2010, we generated total revenues of $2.9$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 first Jack inthe BoxJack in the Box restaurant, which offered only drive-thru service, opened in 1951. Jack inthe BoxisJack in the Boxis one of the nation’s largest hamburger chains and, based on the number of units, is the second or third largest quick-serviceQSR hamburger chain in most of our major markets. As of the end of our fiscal year on September 30, 2007,October 3, 2010, the Jack inthe BoxJack in the Box system included 2,1322,206 restaurants in 1718 states, of which 1,436956 were company-operated and 6961,250 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 quick service restaurant (“QSR”)QSR industry, onin January 21, 2003 we acquired Qdoba Restaurant Corporation, operator and franchisor of Qdoba Mexican Grill, expanding our growth opportunities into the fast-casual restaurant segment.Grill. As of September 30, 2007,October 3, 2010, the Qdoba system included 395525 restaurants in 3943 states, as well as the District of Columbia, of which 90188 were company-operated and 305337 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 a Jack in the Box restaurant. In the fourth quarter of 2009, under a plan approved by our Board of Directors, we sold Quick 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 the Jack in the Box brand, (ii) expand franchising operations, (iii) improve the business model, and (iv) grow Jack inthe BoxJack in the Box and Qdoba Mexican Grill, (ii) reinvent the Jack inthe Boxbrand, (iii) expand franchising operations, and (iv) improve the business model.Grill.
 
Strategic Plan —Growth Strategy.  Our growth strategy includes increasing same-store sales and new unit growth at Jack inthe Boxand Qdoba concepts.
•Jack intheBoxGrowth.  Sales at company-operated Jack inthe Boxrestaurants open more than one year (“same-store sales”) increased 6.1% in fiscal 2007, primarily due to the progress we have made in reinventing the Jack inthe Boxbrand. We believe continued success in executing that strategy will continue to drive customer traffic and grow sales. In fiscal 2007, we opened 42 new company-operated restaurants, including five with our proprietaryQuick Stuff convenience-store and fuel-station business, and our franchisees opened 16 new restaurants. Restaurant growth in fiscal 2007 included expansion into a new contiguous market, Corpus Christi, Texas. In 2008, we plan to open35-45 new company and franchise-operated restaurants and expand into new contiguous markets, in Colorado, New Mexico and Texas, through both company investment and franchise development.
•Qdoba Growth.  In 2007, we opened 87 new company and franchise-operated Qdoba restaurants, and plan to add75-90 new units in fiscal 2008. We will continue to actively expand our fast-casual subsidiary, primarily through aggressive franchise growth. With a substantial number of new restaurants in the development pipeline and a 4.6% increase in system same-store sales in fiscal 2007, Qdoba is a leader in this segment of the restaurant industry.
Strategic Plan —Brand Reinvention. We believe that reinventing the Jack inthe BoxJack 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. We are pursuing a holistic approach in reinventing the brand by focusing on the following major initiatives of menu innovation, service and environment:segment:
 
 •Menu Innovation.Innovation. We believe that menu innovation and our use of high-quality ingredients will further differentiate Jack inthe Boxdifferentiates Jack in the Box from competitors, strengthenstrengthens our brand and appealappeals to a broader base of consumers. In supportrecent years, we have successfully leveraged premium ingredients like sirloin and artisan breads in launching new products unique to our segment of thisthe restaurant industry.
•  Service. A second major initiative of brand reinvention is to improve the level and consistency of guest service. 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 improvement in guest-satisfaction scores. Additionally, we enhancedare leveraging new technologies to improve service and guest satisfaction, such as self-serve kiosks installed at certain Jack in the Jack inthe Box menuBox locations, which offer guests an alternative method of ordering inside a restaurant. As of fiscal year end, more than 230 company and franchise restaurants had kiosks, and over time, we plan to add them to additional restaurants where the frequency of use is expected to be highest. Generally, 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. Because the restaurant environment is another driver of guest satisfaction, the third element of brand reinvention is a comprehensive re-image of our restaurant facilities. We can portray a more cohesive and consistent brand image to our guests by completely redesigning the dining room and common areas and enhancing the exteriors with new paint schemes, lighting and landscaping. At fiscal year end, nearly 68% of company restaurants – and more than 55% of the Jack in fiscal 2007 with several distinctive products, including burgersthe Box system – featured all interior and sandwiches made with sirloin steak, likeexterior elements of the Sirloin Steak ’n’re-image program. We remain focused on enhancing the entire guest


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 Cheddar Ciabatta,experience, including the Sirloin Steak ‘n’ Mushroom Ciabatta and the 100% Sirloin Burger. We were the first major QSR chain to add sirloin steak to the menu and believe this high-quality ingredient can serve as a broad platform from which we can launch additional innovative products, such as the Sirloin Steak ‘n’ Egg Burrito that we added to our breakfast menu, which unlike many other chains is served all day, every day. During the year we enhanced our line of entrée salads with a choice of warm grilled or crispy chicken strips and a new lettuce blend that’s primarily romaine and spring mix. We also expanded our finger-foods menu to include Mozzarella Cheese Sticks and Spicy Chicken Bites, which are two of the three sides featured in our new Sampler Trio, along with stuffed jalapenos. We added a bundt-style Chocolate Overload Cake to our dessert menu, and introduced several variationssubstantial completion of our popular shakes, including Andes® Mint, Blackberry and Chocolate Oreo®. The real vanilla ice cream that we use in our shakes was also used to create a new linerestaurant re-imaging program system-wide, which is targeted by the end of refreshing beverages, Real Ice Cream Floats, which our guests can customize with their choice of soda, including Barq’s® Root Beer, Dr Pepper® and Fanta® orange. We also added a Grilled Cheese Sandwich as a new option for Jack’s Kid’s Meal®. Additional premium-quality products are in various stages of test and development as we continue to innovate and enhance product quality as a means to differentiate our menu from other QSR chains.
•Service.  A second major aspect of brand reinvention is to improve the level and consistency of guest service. In fiscal 2007, we continued to build upon recent internal service initiatives to help us attract higher-quality applicants for team-member positions. These initiatives are designed to improve employee productivity, maximize retention, and reduce employee training costs. They 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 plan to leverage new technologies to improve speed of service and guest satisfaction. As an example, in 2007 the company equipped all restaurants with “contactless” credit-card readers, enabling guests to pay at the front counter or drive-thru simply by holding their cards in front of the device. We are also testing self-serve kiosks, which offer guests an alternative method of ordering inside2011. Our newest restaurant prototype distinguishes Jack in the Box restaurants. And at certain high-volume locations, team members are positioned nearfrom our competitors through innovative architectural elements and a flexible kitchen design that can accommodate future menu offerings while maximizing productivity and throughput. In 2009, we unveiled a new logo that sends a clear signal to consumers that today’s Jack in the drive-thru menu board to process orders utilizing a portable wireless communications device.
•Environment.  The third element of brand reinventionBox is not the major renovation of our restaurant facilities. In fiscal 2007, approximately 200 restaurants were re-imaged with a comprehensive program that includes a complete redesignJack of the dining roompast. The new logo now appears on packaging and common areas. Interior finishes include ceramic tile floors, a mix of seating styles, decorative pendant lighting,uniforms and graphics and wall collages. Other elementsin our advertising. At fiscal year end, nearly 15% of the program may include flat-screen televisions, music, andsystem featured the new team member uniforms and product packaging, along with new paint schemes, landscaping and other exterior enhancements. We are seeing positive sales trends in markets that have been re-imaged, and in consumer surveys conducted in those markets, our guests rated re-imaged restaurants higherlogo on attributes ranging from being trendy and a good dining destination to providing friendly, consistent customer service. We believe it is important to create a “destination dining” experience for guests while remaining consistent with our goals of upgrading the quality of our food and guest service.restaurant signage.
 
Strategic Plan — Expand Franchising Strategy.Operations. Our thirdsecond strategic initiative is to continue expanding our franchising operations to generate higher margins and returns for the Company while mitigating business-costcreating a business model that is less capital intensive and investment risks. In fiscal 2007, we sold 76not as susceptible to cost fluctuations. Through the sale of 219 company-operated Jack inthe BoxJack in the Box restaurants to franchisees. Additionally, franchisees developedand the development of 16 new Jack inthe Boxand 77 new Qdobafranchise restaurants, duringwe increased franchise ownership of the Jack in the Box system to approximately 57% at fiscal year and signed development agreementsend from approximately 46% at the end of fiscal 2009. We are ahead of our plan to expand the Jack inthe Box brand into three new contiguous markets: Albuquerque, New Mexico, Midland/Odessa, Texas, and Abilene/San Angelo, Texas. The first restaurants in these new markets are scheduledachieve our goal to open in 2008.
Through continued refranchising and development of new franchised restaurants, our long-term goal is to growincrease the percentage of franchise ownership ofin the Jack inthe Boxsystem by approximately 5% annually and move toward an ultimate goal of70-80%, which is more closely aligned with that of the QSR industry. TheJack in the Box system to approximately70-80% by the end of fiscal 2013. We also have executed development agreements with several franchisees to further expand the Jack in the Box brand in new and existing markets in 2011 and beyond. The Qdoba system is currently about 33%predominantly franchised, and we anticipate that future growth will continue to be mostly franchised. In fiscal 2010, Qdoba franchisees opened 21 restaurants.
 
Strategic Plan —Improve the Business Model. As Jack inthe BoxtransitionsThis 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 further decrease as we continue reengineering our processes and systems and transition to a business model comprised of predominantly franchised restaurant locations, this initiative is designed to improvelocations.
Strategic Plan — Grow Jack in the profitabilityBox and returns


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of our restaurants, as well as increase the long-term value of our business through the successful execution of the following:Qdoba Mexican Grill.
 
 •  Identify, developJack in the Box Growth. In fiscal 2010, 46 Jack in the Box restaurants opened, including 16 franchise locations. During the year, we expanded our presence in several new contiguous markets in Texas, Colorado, Oregon, New Mexico and implement significant process improvementsOklahoma. In fiscal 2011,30-35 new company and franchise restaurants are planned as Jack in the Box will continue to reduce our resource needs, improve timeframes and drive sales and profits.expandinto new contiguous markets, including the Kansas City metropolitan area.
 
 •  Identify, developQdoba Growth. In fiscal 2010, 36 Qdoba restaurants opened, including 21 franchise locations, and implement cost reductionsfranchisees expanded into new markets in Illinois, Texas, New Mexico, West Virginia and Mississippi. Our Qdoba system is primarily franchised and is the largest franchised Mexican-food chain in the fast-casual segment of the restaurant industry. In fiscal 2011, we plan to improve operating margins without negatively impacting the guest experience.
• Improve unit economics of all our brands through sales growth along with operating-costopen50-60 new company and investment management.franchise restaurants.
 
Restaurant Concepts
 
JackJack in the Box.Box.  Jack Jack in the Box Box restaurants offer a broad selection of distinctive, innovative products targeted primarily at the adult fast-food consumer. The Jack in the BoxmenuOurmenu 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® and, Ultimate Cheeseburger and Jack’s newest product — the 100% Sirloin Burger. JackJack in the Box Box restaurants also offer premium entrée salads, and specialty sandwiches, to appeal to a broader customer base, including more womenTeriyaki Bowls 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 inthe BoxJack in the Box restaurants also offer customers both the ability to customize their meals and to order any product, including breakfast items, anytimeany 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, as a result of our diverse menu, our restaurants are less dependent than other QSR chains on the commercial success of one or a few products.
 
The Jack inthe BoxrestaurantJack in the Boxrestaurant 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.


3

The following table summarizes the changes in the number of company-operated and franchised Jack inthefranchise Jack in the Box restaurants sinceover the beginning of fiscal 2003:past five years:
 
                                        
 Fiscal Year  Fiscal Year 
 2007 2006 2005 2004 2003  2010 2009 2008 2007 2006 
Company-operated restaurants:                                        
Opened  42   29   38   56   90 
Sold to franchisees  (76)  (82)  (58)  (49)  (36)
Beginning of period  1,190   1,346   1,436   1,475   1,534 
New  30   43   23   42   29 
Refranchised  (219)  (194)  (109)  (76)  (82)
Closed  (5)  (6)  (5)  (2)  (8)  (46)  (6)  (4)  (5)  (6)
Acquired from franchisees  —   —   1   —   —   1   1   -   -   - 
           
End of period total  1,436   1,475   1,534   1,558   1,553   956   1,190   1,346   1,436   1,475 
Franchised restaurants:                    
Opened  16   7   11   5   3 
Acquired from Company  76   82   58   49   36 
           
% of system  43%   54%   62%   67%   71% 
Franchise restaurants:                    
Beginning of period  1,022   812   696   604   515 
New  16   21   15   16   7 
Refranchised  219   194   109   76   82 
Closed  (6)  (4)  (8)  -   - 
Sold to Company  —   —   (1)  —   —   (1)  (1)  -   -   - 
Closed  —   —   (1)  —   — 
           
End of period total  696   604   515   448   394   1,250   1,022   812   696   604 
           
% of system  57%   46%   38%   33%   29% 
 
System end of period total  2,132   2,079   2,049   2,006   1,947       2,206       2,212       2,158       2,132       2,079 
           
 
Qdoba.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 its 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”flavorstm,” our ability to deliver these flavors is made possible by the commitment to professional preparation methods. Guacamole is


4

prepared throughoutThroughout 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 each day and our adobo-marinated chicken and steak isare flame-grilled. Customer orders are prepared in full view, which gives our guests the control they needdesire 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. Our Qdoba Card offers a rewards program, which allows frequent customers to accumulate points that can be redeemed toward free entrées, retail merchandise, and other rewards. The seating capacity at Qdoba restaurants ranges from 60 to 80 persons, including outdoor patio seating availability at many locations.


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The following table summarizes the changes in the number of company-operated and franchise Qdobarestaurants over the past five years:
                     
  Fiscal Year 
  2010  2009  2008  2007  2006 
 
Company-operated restaurants:                    
Beginning of period  157   111   90   70   57 
New  15   24   21   10   13 
Refranchised  -   -   -   -   - 
Closed  -   -   -   -   - 
Acquired from franchisees  16   22   -   10   - 
                     
End of period total  188   157   111   90   70 
                     
% of system  36%   31%   24%   23%   22% 
Franchise restaurants:                    
Beginning of period  353   343   305   248   193 
New  21   38   56   77   58 
Refranchised  -   -   -   -   - 
Closed  (21)  (6)  (18)  (10)  (3)
Sold to Company  (16)  (22)  -   (10)  - 
                     
End of period total  337   353   343   305   248 
                     
% of system  64%   69%   76%   77%   78% 
                     
System end of period total      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. We opened 58 new Jack in the Boxcompany-operated and franchised restaurants in fiscal 2007 and we plan to open35-45 new Jack in the Box restaurants, including franchised units in fiscal year 2008.
Qdoba’s growth is expected to come primarily from increasing the number of franchise-developed locations. In fiscal year 2007, we opened 87 new Qdoba company-operated and franchised restaurants, representing unit growth of more than 24% over the prior year. In fiscal 2008, we plan to open75-90 new Qdoba restaurants, including franchised units. 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 whichwe have been approved by us.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 our JackJack in the Box restaurants Boxrestaurants 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 $1.9 million. Whenever possible, we use leaseWhen sale and leaseback financing and other means to loweris used, the initial cash investment in a typicalJack inis reduced to the Box to an average cost of equipment, which averages approximately $0.5$0.4 million. Qdoba restaurant development costs typically range from $0.5 million to $0.6 million.$0.9 million depending on geographic region.
 
Franchising Program
 
JackJack in the Box.Box.  Our long-term strategy is to grow the percentage of franchise ownership by approximately 5% annually and move towards a level of franchise ownership The Jack in the 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 of70-80%, which is more closely aligned with thatfrom 2% to as high as 15% of the QSR industry. As of September 30, 2007, franchisees operated 696 Jack in the Boxrestaurants. We will continue to selectively expand our franchising activities, including refranchising Jack inthe Boxcompany-operated restaurantsgross sales, and the development of new restaurants by franchisees.some existing agreements provide for variable rates. We offer development agreements for construction of one or more new restaurants over a defined period of 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.
The current Jack In fiscal 2009, we began offering a new market development incentive to our franchisees whereby the first 10% of restaurants opening on schedule in the Boxfranchise agreement generally provides for an initial franchise feea new market may be eligible to receive a royalty rate reduction of $50,000 per restaurant, royalties of 5%2.5% of gross sales marketing fees of 5% of gross sales and, in most instances, a20-year term. Some existing agreements provide for royalty and marketing fees at rates as low as 4% and royalties as high as 12.5%. 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 history of the restaurant, its location and its sales and cash flow potential. In addition, the land and building are leased or subleased toflows of the


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restaurant, as well as its location and 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 Boxrestaurant businesses as a potential resource which, on a selected basis, can be sold to a franchisee, thereby providing current increased cash flows and gains 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 an initial franchise fee of $30,000 per restaurant, a10-year term with a10-year option to extend at a fee of $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 plan to continue to grow the Qdoba brand, primarily through increased franchising activities. 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 feefees and lose their rights to future development. Effective January 1, 2007, the Qdoba franchise agreement provides forIn fiscal 2010, as an incentive to develop target markets, we entered into two development agreements with an initial franchise fee of $30,000 (previously $25,000) per restaurant, royalties$15,000 and a royalty rate of 5%2.5% of gross sales marketing feesfor the first two years of upoperation for each restaurant opened within the first two years of the development agreement, subject to 2% of gross sales and,certain limitations. We may offer similar development agreements in most instances, a10-year term with a10-year option to extend.target markets during fiscal 2011.
 
Restaurant Operations
 
Restaurant Management. Restaurants are operated by a company-employed manager or a franchisee who is directly responsible for the operations of the restaurant, including product quality, service, food handling 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.
 
RegionalFor company operations, division vice presidents orsupervise regional directors, who supervise area coaches, who in turn supervise restaurant managers. Under our performance system, regionaldivision vice presidents, regional directors, area coaches and restaurant managers are eligible for periodic bonuses based on achievement of goals related to location sales, and profit improvementand/or certain other operational performance standards.
 
Customer Satisfaction. We devote significant resources toward ensuring that all restaurants offer quality food and good service. Emphasis is placedWe 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 distribution, quality assurance, facilities services and restaurant management personnel, we standardize specifications for food preparation and service, employee conduct and appearance, and the maintenance and repair of our restaurant premises. Operating specifications and procedures are documented in on-line reference manuals and CBT presentations.modules. During fiscal year 2007,2010, most JackJack in the Box Box restaurants received approximately fourat least two quality and food safety and cleanliness inspections. In addition, our “Voice of the Guest” program provides restaurant managers with guest surveys each weekperiod regarding their Jack inthe BoxJack in the Box experience. In 2007,2010, we received more than one1.2 million guest survey responses.responses, in addition to receiving guest feedback through our toll-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.
 
Quality Assurance
 
Our “farm-to-fork”“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. For example, in 2004, we won the Black Pearl Award, presented annually by the International Association of Food Protection to the company that most successfully advances food safety and quality in the world.


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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, and nearly 70%90% of our franchise-operated restaurants. The remaining JackJack in the Box franchisees participate in a purchasing cooperative they formed in 1996 Box franchise-operated restaurants, and contract with another supplier for distribution services. As of September 30, 2007, we also provided these services to 43%approximately 45% of Qdoba’s company and franchise-operated restaurants. The remaining Jack in the 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 as a means of reducing risks 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 for analysis.information. Our restaurant satellite-enabled software allows for daily, weekly and monthly polling of sales, inventory and labor data from the restaurants.Jack in the Box restaurants We use a standardized Windows-based touch screenpoint-of-sale (“POS”) platform in virtually allour Jack in the Box company and franchisedfranchise restaurants, which allows us to accept credit cards andJACK CA$H®, our re-loadable gift cards. We have recently installed new order confirmation screens with larger color screens, and contactless payment technology throughout our system, to allowwhich 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 thecompany and franchise restaurants. We use anOur interactive computer-based trainingCBT 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 provides consistentenables timely deliveries to our restaurants with excellent control over food safety, and, tosafety. 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 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 30, 2007,October 3, 2010, we had approximately 42,50029,300 employees, of whom 40,70027,600 were restaurant employees, 8001,000 were corporate personnel, 500300 were distribution employees and 500400 were field management and administrative personnel. Employees are paid on an hourly basis, except certain restaurant managers, operations and corporate


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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 are building an organization of people who are “Brand Ambassadors” and passionate about delivering on Jack’s promise of superior service. We have not experienced any significant work stoppages and believe our labor relations are good. Over the last fewseveral years, we have realized improvements in our hourly restaurant employee retention rate and in 2005, we 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.rate. 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, in September 2004, Jack in the Box began offeringwe offer all hourly employees meeting certain minimum service requirements access to health coverage, including vision and dental benefits. As an additional incentive to crewteam members with more than a year of service, we will pay a portion of their health insurance premiums. In fiscal 2005, weWe also introducedprovide 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 expectbelieve these programs will further reducehave contributed to lower turnover, as well as training costs and workers’ compensation claims.
 
Executive Officers
 
The following table sets forth the name, age, (as of September 30, 2007), 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  49  Chairman of the Board and Chief Executive Officer  20  52 Chairman of the Board, Chief Executive Officer and President 23 
Paul L. Schultz  53  President and Chief Operating Officer  34 
Jerry P. Rebel  50  Executive Vice President and Chief Financial Officer  4  53 Executive Vice President and Chief Financial Officer 7 
Phillip H. Rudolph  49  Senior Vice President, General Counsel and Secretary  —  52 Executive Vice President, General Counsel, Secretary, and Chief Ethics & Compliance Officer 2 
Carlo E. Cetti  63  Senior Vice President, Human Resources and Strategic Planning  27 
David M. Theno, Ph.D.   56  Senior Vice President, Quality and Logistics  14 
Leonard A. Comma 40 Senior Vice President, Chief Operating Officer 9 
Terri F. Graham  42  Senior Vice President, Chief Marketing Officer  17  45 Senior Vice President, Chief Marketing Officer 20 
Charles E. Watson 55 Senior Vice President, Chief Development Officer 24 
Mark H. Blankenship, Ph.D.  49 Vice President, Human Resources 13 
Carol A. DiRaimo 49 Vice President, Investor Relations and Corporate Communications 2 
Gary J. Beisler  51  Chief Executive Officer and President, Qdoba Restaurant Corporation  4  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:
 
Ms. Lang was electedhas been Chairman of the Board and promoted to Chief Executive Officer effectivesince October 3, 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 July 2002 to November 2003. From 1996 through July 2002, Ms. Lang held officer-level positions with marketing or operations responsibilities.
 
Mr. Schultz has 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.
Mr. Rebel has been Executive Vice President and Chief Financial Officer since October 2005. He was previously Senior Vice President and Chief Financial Officer from 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 President, Controller ofin 2003, Mr. Rebel held senior level positions with Fleming Companies, Inc. from February 2002 to September 2003. From January 1991 to February 2002, he held various accounting and finance positions with CVS Corporation including Executive Vice President and Chief Financial


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OfficerPeople’s Drugs and has more than 20 years of the ProCare division from September 2000 to February 2002, and Vice President, Finance from July 1995 to September 2000.corporate finance experience.
 
Mr. Rudolph has been 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 1, 2007. Prior to joining the Company hein November 2007, Mr. Rudolph was Vice President and General Counsel for Ethical Leadership Group a consulting firm based inof Wilmette, Illinois, providing strategic consulting in ethics, compliance and corporate responsibility for major corporations worldwide from January 2006 to October 2007.Ill. He was previously a partner in the Washington, D.C. office ofPartner with Foley Hoag, LLP, from August 2003 to December 2005 and in solo practice from April 2003 to July 2003. He was a Vice President and U.S. and International General Counsel at McDonald’s Corporation, from March 1998 to March 2003 where, among other roles, he served as U.S. and international general counsel. Before joining McDonalds, Mr. Rudolph spent 15 yearsa Partner with the law firm of Gibson, Dunn & Crutcher, LLP, the last seven of which he spent as a litigation partner in the firm’s Washington, D.C. office.LLP. Mr. Rudolph has more than 2425 years of legal experience.
 
Mr. CettiComma 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. Graham has been 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 20 years of experience with the Company in various marketing positions.
Mr. Watson has 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 24 years of experience with the Company in various development and franchising positions.
Dr. Blankenship has been Vice President, Human Resources and Strategic Planning since July 2002. From October 1995 to July 2002, heNovember 2009. He was previously Vice President, Human Resources and Strategic Planning.
Dr. Theno has been SeniorOperational Services since October 2005. He was Division Vice President, QualityHuman Resources from October 2001 to September 2005. Dr. Blankenship has more than 13 years experience with the Company in various human resource and Logistics since May 2001. He was Vice President, Technical Services from April 1994 to May 2001.
Ms. Grahamtraining positions. Effective the beginning of fiscal 2011, he was promoted to Senior Vice President and Chief Marketing Officer effective October 1, 2007. She wasAdministrative Officer.
Ms. DiRaimo has been Vice President Chief Marketing Officerof 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 NovemberFebruary 2004 to October 2007November 2007. Ms. DiRaimo has more than 27 years of corporate finance and Vice President, Marketing July 2002 to November 2004. She was Division Vice President, Marketing Services and Regional Marketing from April 2000 to July 2002, and Director of Marketing Services from October 1998 to July 2002.public accounting experience.
 
Mr. Beisler has 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, Quick Stuff 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.
 
Competition and Markets
 
The restaurant business is highly competitive and is affected by thepopulation trends, traffic patterns, competitive changes in a geographic area, changes in the public’sconsumer dining habits and preferences, new information regarding diet, nutrition and health, and local and national economic conditions, affectingincluding unemployment levels, that affect consumer spending habits, population trends and traffic patterns.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 ownedlocally-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.


9

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 believe we are operating in compliance with applicable laws and regulations governing our operations.
 
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 related tobased 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, principally due to the need to provide certain older restaurants with ramps, wider doors, larger restrooms and other conveniences.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 below surface storm drainage control and the cost of more expensive equipment necessary to decrease the amount of effluent emitted into the air, ground and ground.surface waters.
 
OurMany of our Qdoba restaurants andQuick Stuff convenience stores 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 aQuick Stuff convenience store 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 alcoholic beverages.
Company Website
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 — SEC Filings by Jack in the Box Inc.”) 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.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 sections captioned “Business,” “Legal Proceedings,” the “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”,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 the impact onchanges in consumer eating habits, ofwhether based on new information regarding diet, nutrition and health.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, fatnutritional content, illness or public health issues (such as epidemics or the prospect of a pandemic such as avian flu)pandemic), obesity, safety, injury or other health concerns with respectconcerns. Adverse publicity in these areas could damage the trust customers place in our brand. We have taken steps to certain foods.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, the risk of food-borne illnessthese 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.
 
Dependence on frequent deliveries of fresh produce and groceries subjects food service businesses, such as ours, to the risk that shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the availability, quality and cost of ingredients. In addition, unfavorableUnfavorable 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 predominantly company-operated, we may have greater exposure to operating cost issues than chains that are primarilymore heavily franchised. Exposure to these fluctuating costs, including anticipated increases in commodity costs, could negatively impact our margins. Changes in economic conditions affecting our customers could reduce traffic in some or all of our restaurants or impose practical limits on pricing, either of which could negatively impact profitability and have a material adverse effect on our financial condition and results of operations. 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)(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; (vii)sites, (viii) incurring substantial unrecoverable costs in the event a development project is abandoned prior to completion, (viii)(ix) the inability to obtain all required governmental permits, including, in appropriate cases, liquor licenses; (ix)licenses, (x) changes in governmental rules, regulations and interpretations (including interpretations of the requirements of the Americans with Disabilities Act,Act), and (x)(xi) general economic and business conditions.
 
Although we intend to manage our development activities to reduce such risks, we cannot assure you that present or future development will perform in accordance with our expectations. We cannot assure you that we will complete the development and construction of the facilities, or that any such development will be completed in a timely manner or within budget, or that any restaurants will generate our expected returns on investment. 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 our business is regional, with approximately 60% of our restaurants located in the states of California and Texas, the economic conditions, state and local laws and government regulations and weather conditions affecting those states may have a material impact upon our results.


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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 andor 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 you that we willcompany or franchise restaurants can be able tooperated profitably operate new company-operated or franchised restaurants 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.
 
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 statelocal 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 crew 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 programs would have a material adverse impact onbelief that our expenses incurred in providing such insurance will be substantially higher than our current expenses and could negatively 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. TheAlso, the trend toward fragmentation in the media favored by our target consumers may dilute the effectiveness ofposes challenges and risks for our marketing and advertising dollars.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 whichthat 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 to Franchise Operations.Reducing Operating Costs. At September 30, 2007,October 3, 2010, approximately 33%57% of theJack in the Box restaurants were franchised. Our plan to increase the percentage of franchisedfranchise restaurants by approximately 5% annually and to move towards a rangelevel of franchise ownership more


12

closely aligned with that of the QSRquick 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, and 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 Our 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 franchise restaurants will increase, as will the risk that earnings could be negatively impacted by defaults in the payment of royalties and rents. In addition, franchisee business obligations may not be limited to the operation of Jack 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


13

operates a large number of restaurants, fails to adhere to our standards and projects an image inconsistent with our brand.
 
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 “Businessalso “Item 1. Business — Regulation”.Regulation.” The restaurant industry is subject to extensive federal, state and local governmental regulations. The increasing amount and complexity of regulations including those relating to the preparation, labeling, advertising and salemay increase both our costs of food and those relating to building and zoning requirements. The Company and its franchisees are also subject to licensing and regulation by state and local departments relating to health, sanitation and safety standards, and liquor licenses and to laws governing our relationships with employees, including minimum wage requirements, overtime, working conditions and work eligibility requirements. See “Risks Related to Increased Labor Costs” above. The inability to obtain or maintain such licenses or publicity resulting from actual or alleged violations of such laws could have an adverse effect on our results of operations. 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 uscompliance and our franchisees.exposure to regulatory claims. We are subject to consumerregulations including but not limited to 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 other lawsInformation Technology. We rely on computer systems and regulations governing theinformation technology to conduct our business. A material failure or interruption of service or a breach in security of information. The costsour computer systems could cause reduced efficiency in operations, loss of compliance, including increaseddata and business interruptions. Significant capital investment in technology in ordercould be required to protect such information, may negatively impact our margins. Anyrectify these 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. Changes in, and the cost of compliance with, government regulations could have a material adverse effect on our operations.
 
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. We have limited environmental liability insurance only covering sites on which we operate fuel stations. In all other areas, we do not have environmental liability insurance; nor do we maintain a reserve to cover such events. We have engaged and may engage in real estate development projects and own or lease


13

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. Accordingly, 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 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 and shareholders, 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 may negatively impactcould adversely affect our results.
 
ITEM 1B.UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 2.PROPERTIES
 
AsThe following table sets forth information regarding our Jack in the Box and Qdoba restaurant properties as of September 30, 2007, of our 2,132 Jack inthe Box and 395 Qdoba restaurants, we owned 817 restaurant buildings, including 606 located on leased land. In addition, we leased both the land and building for 1,291 restaurants, including 358 restaurants operated by franchisees. Also at that date, franchisees directly owned or leased 419 restaurants.October 3, 2010:
 
            
 Number of Restaurants at September 30, 2007 
 Company-
                 
 Operated Franchised Total  Company-Operated Franchised Total 
Company-owned restaurant buildings:                        
On Company-owned land  140   71   211 
On company-owned land  101   131   232 
On leased land  453   153   606   500   330   830 
              
Subtotal  593   224   817   601   461   1,062 
Company-leased restaurant buildings on leased land  933   358   1,291   543   637   1,180 
Franchise directly-owned or directly-leased restaurant buildings  —   419   419   -   489   489 
              
Total restaurant buildings  1,526   1,001   2,527     1,144     1,587     2,731 
              


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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 of between 1% and 10%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 4758 years, including optional renewal periods. The remaining lease terms of our other leases range from approximately one year to 5047 years, including optional renewal periods. At September 30, 2007,October 3, 2010, our restaurant leases had initial terms expiring as follows:
 
         
  Number of Restaurants 
  Ground
  Land and
 
  Leases  Building Leases 
 
2008 – 2012  198   352 
2013 – 2017  67   382 
2018 – 2022  191   451 
2023 and later  150   106 
         
  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 fourseven to 1815 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.


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ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
A special meeting of stockholders was held September 21, 2007, at which the following matter was voted as indicated:
             
  For Against Abstain
1. To approve an amendment to Jack in the Box Inc.’s Restated Certificate of Incorporation, as amended, to increase the total number of shares of capital stock that Jack in the Box Inc. is authorized to issue from 90,000,000 to 190,000,000 by increasing the total number of shares of common stock from 75,000,000 to 175,000,000.  28,184,027   995,607   16,943 
The above numbers have not been adjusted to reflect the two-for-one stock split effected on October 15, 2007.
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 and


15

has been adjusted to reflect the two-for-one split of our common stock, that was effected in the form of a 100% stock dividend on October 15, 2007:Transactions:
 
                                
 12 Weeks Ended 16 Weeks Ended
  13 Weeks Ended
 12 Weeks Ended 16 Weeks Ended
 Sept. 30, 2007 July 8, 2007 Apr. 15, 2007 Jan. 21, 2007  Oct. 3, 2010 July 4, 2010 Apr. 11, 2010 Jan. 17, 2010
High $36.85  $39.77  $36.07  $32.30  $     22.54  $     26.37  $     25.04  $     21.04 
Low  26.50   32.60   30.03   25.83   18.42   19.05   19.50   17.84 
 
                                
 12 Weeks Ended 16 Weeks Ended
  12 Weeks Ended 16 Weeks Ended
 Oct. 1, 2006 July 9, 2006 Apr. 16, 2006 Jan. 22, 2006  Sept. 27, 2009 July 5, 2009 Apr. 12, 2009 Jan. 18, 2009
High $26.99  $23.16  $22.12  $18.42  $     23.87  $     28.35  $     25.78  $     23.09 
Low  18.93   18.99   17.40   14.00   19.87   21.82   16.59   11.82 
 
Dividends. We did not pay any cash or other dividends during the last two fiscal years. Effective October 15, 2007, a stock split was effected in the form of a stock dividend, with shareholders receiving an additional share of stock for each share held. Weyears and do not anticipate paying any other dividends in the foreseeable future. Our credit agreement provides for a remaining aggregate amount of $197.0 million for the repurchase of our common stock and $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. On September 16, 2005,In November 2007, the Board approved a program to repurchase up to $200 million in shares of Directorsour common stock over three years expiring November 9, 2010. As of October 3, 2010, the aggregate remaining amount authorized and available under this program for repurchase was $3.0 million. During fiscal 2010, we repurchased 4.9 million shares for a $150.0 million stock repurchase program through the endtotal of fiscal year 2008, which was announced September 21, 2005.$97.0 million. The following table summarizes shares repurchased pursuant to this program during the quarter ended September 30, 2007:October 3, 2010:
 
                 
        (c)
    
        Total Number of
  (d)
 
  (a)
  (b)
  Shares Purchased
  Maximum Dollar
 
  Total Number
  Average
  as Part of Publicly
  Value That may
 
  of Shares
  Price Paid
  Announced
  yet be Purchased
 
  Purchased  per Share  Programs  Under the Programs 
 
July 9, 2007 — August 8, 2007  —  $—   —  $100,000,000 
August 9, 2007 — September 8, 2007  1,582,881   63.15   1,582,881   — 
September 9, 2007 — September 30, 2007  —   —   —   — 
                 
Total  1,582,881  $63.15   1,582,881   — 
                 
                 
        (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     
                 
 
Shares purchased and the average price paid per share have not been adjusted for the stock split noted above as no stock dividend was paid with respect to such treasury shares.
OnIn November 9, 2007,2010, the Board of Directors authorizedapproved a new $200.0 million program to repurchase, within the next year, up to $100.0 million in shares of our common stock at prevailing market prices, in the open market or in private transactions, from time to time at management’s discretion, over the next three years.stock.
 
Holders.Stockholders. As of September 30, 2007,October 3, 2010, there were 537638 stockholders of record.


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Securities Authorized for Issuance Under Equity Compensation Plans. The following table summarizes the


17

equity compensation plans under which Company common stock may be issued as of September 30, 2007.October 3, 2010. Stockholders of the Company approved all plans.
 
             
        (c)
 
     (b)
  Number of Securities
 
  (a)
  Weighted-
  Remaining for Future
 
  Number of Securities to be
  Average
  Issuance Under Equity
 
  Issued Upon Exercise of
  Exercise Price
  Compensation Plans
 
  Outstanding Options,
  of Outstanding
  (Excluding Securities
 
  Warrants and Rights(1)  Options(1)  Reflected in Column (a))(2) 
 
Equity compensation plans approved by security holders  5,594,333  $18.19   2,982,400 
             
    (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 188,752143,072 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.


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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 year 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 2007, we changed the companies comprising our Restaurant Peer Group Index to account for changes in the industry and our business. The table below includes the cumulative returns for both our old and new restaurant peer groups.
 
The below comparison assumes $100 was invested on September 30, 20022005 in the Company’s common stock and in each of the comparison groups,group and assumes reinvestment of dividends. The Company paid no dividends during these periods.
 
 
                               
   2002   2003   2004   2005   2006   2007 
Jack in the Box Inc.   $100   $78   $139   $131   $229   $284 
S & P 500 Index  $100   $124   $142   $159   $176   $205 
Restaurant Peer Group(1)  $100   $128   $145   $148   $176   $171 
Restaurant Peer Group(2)  $100   $104   $107   $111   $118   $117 
                               
                               
   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)The old Restaurant Peer Group Index is comprised ofJack in the following companies: Applebee’s International,Box Inc.; Bob Evans Farms, Inc.; Brinker International, Inc.; CBRL Group, Inc.; CKE Restaurants, Inc.; Luby’s, Inc.; Papa John’s International, Inc.; Ruby Tuesday, Inc.; Ryan’s Family Steakhouse, Inc. and Sonic Corp.
(2)The new Restaurant Peer Group Index is comprised of the following companies: Brinker International, Inc.; CBRL Group, Inc.; Cheesecake Factory Inc.; CKE Restaurants,Cracker Barrel Old Country Store, Inc.; Darden Restaurants Inc.; DineEquity, Inc.; McDonalds Corp.; Panera Bread Company; PF ChangChang’s China Bistro Inc.; Ruby Tuesday, Inc.; Sonic Corp.; Starbucks Corp.; The Cheesecake Factory Inc.; and Wendy’s InternationalYum! Brands Inc.


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ITEM 6.SELECTED FINANCIAL DATA
 
Our fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30. Fiscal year 2004All years presented include 52 weeks, except for 2010 which includes 53 weeks; all otherweeks. The selected financial data reflects Quick Stuff as discontinued operations for fiscal years include 52 weeks.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 
  2007  2006  2005  2004(1)  2003 
  (In thousands, except per share data) 
 
Statements of Earnings Data:
                    
Total revenues(2) $2,875,978  $2,723,603  $2,480,214  $2,302,547  $2,030,236 
                     
Costs of revenues  2,401,673   2,283,135   2,078,121   1,913,285   1,695,709 
Selling, general and administrative expenses  293,881   300,819   273,821   264,257   228,141 
Gains on sale of company-operated restaurants(2)  (39,261)  (42,046)  (23,334)  (17,918)  (26,562)
                     
Total operating costs and expenses  2,656,293   2,541,908   2,328,608   2,159,624   1,897,288 
                     
Earnings from operations  219,685   181,695   151,606   142,923   132,948 
                     
Interest expense, net(3)  23,354   12,075   13,402   25,419   23,346 
Income taxes  70,027   60,545   46,667   42,820   39,518 
                     
Earnings before cumulative effect of accounting change $126,304  $109,075  $91,537  $74,684  $70,084 
                     
Earnings per Share and Share Data(4):
                    
Earnings per share before cumulative effect of accounting change:                    
Basic $1.93  $1.57  $1.28  $1.03  $0.96 
Diluted $1.88  $1.52  $1.24  $1.01  $0.95 
Weighted-average shares outstanding — Diluted(5)  67,263   71,834   73,876   73,923   73,936 
Market price at year-end $32.42  $26.09  $14.95  $16.16  $8.53 
Other Operating Data:
                    
Jack in the Box change in same-store sales
  6.1%  4.8%  2.4%  4.6%  (1.7)%
Restaurant operating margin  17.9%  17.5%  16.9%  17.0%  16.1%
SG&A rate  10.2%  11.0%  11.0%  11.5%  11.2%
Capital expenditures $154,182  $150,032  $126,134  $120,065  $111,872 
Balance Sheet Data (at end of period):
                    
Total assets $1,382,822  $1,520,461  $1,337,986  $1,324,666  $1,142,481 
Long-term debt(6)  427,516   254,231   290,213   297,092   290,746 
Stockholders’ equity(7)  414,557   710,885   565,372   553,399   450,434 
                     
  Fiscal Year 
  2010  2009  2008  2007  2006 
  (in thousands, except per share data) 
 
Statements of Earnings Data:
                    
Total revenues $ 2,297,531  $ 2,471,096  $ 2,539,561  $ 2,513,431  $ 2,381,244 
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, net  2,175,621   2,239,828   2,323,673   2,296,435   2,203,919 
                     
Earnings from operations  121,910   231,268   215,888   216,996   177,325 
                     
Interest expense, net  15,894   20,767   27,428   23,335   12,056 
Income taxes  35,806   79,455   70,251   68,982   58,845 
                     
Earnings from continuing operations $70,210  $131,046  $118,209  $124,679  $106,424 
                     
Earnings per Share and Share Data:
                    
Earnings per share from continuing operations:                    
Basic $1.27  $2.31  $2.03  $1.91  $1.52 
Diluted $1.26  $2.27  $1.99  $1.85  $1.48 
Weighted-average shares outstanding – Diluted (1)  55,843   57,733   59,445   67,263   71,834 
Market price at year-end $21.47  $20.07  $22.06  $32.42  $26.09 
Other Operating Data:
                    
Jack in the Box restaurants:                    
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 (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  10.6%   10.5%   10.4%   11.6%   12.5% 
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 $1,407,092  $1,455,910  $1,498,418  $1,374,690  $1,513,499 
Long-term debt  352,630   357,270   516,250   427,516   254,231 
Stockholders’ equity (2)  520,463   524,489   457,111   409,585   706,633 
 
 
(1)Fiscal 2004 includes 53 weeks. All other periods presented include 52 weeks. The additional week in fiscal 2004 added approximately $0.01 per diluted share to net earnings.Weighted-average shares reflect the impact of common stock repurchases under Board-approved programs.


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(2)Effective fiscal 2007, we are reporting gains as a discrete line item within operating costs and expenses, rather than within revenues, as previously presented. Prior year’s gains on sale of company-operated restaurants to franchisees have been reclassified to conform with the current year presentation.
(3)Fiscal year 2004 includes a $9.2 million charge related to the refinancing of our term loan and the early redemption of our senior subordinated notes.
(4)Earnings per share data reflects a two-for-one stock split effected in October 2007.
(5)Fiscal year 2007 includes the weighted impact of 7.1 million shares repurchased through our tender offer and share repurchase programs. The 7.1 million shares repurchased has not been adjusted for the stock split as treasury shares were not subject to the two-for-one split.
(6)Fiscal year 2007 reflects higher bank borrowings associated with our new credit facility entered into in the first quarter.
(7)Fiscal year 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.


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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 2007, 2006 and 2005 refer to the 53-week period ended October 3, 2010 and the 52-week periods ended September 30, 2007, October 1, 2006,27, 2009 and October 2, 2005,September 28, 2008 for 2010, 2009 and 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 20072010 highlights.
 
 •  Financial reporting changes— a summarydiscussion of significant financial statement reclassifications, adjustments and new accounting pronouncements adopted.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.
 
 •  NewFuture application of accounting pronouncementsprinciples— a discussion of new accounting pronouncements, dates of implementation and impact on our consolidated financial position or results of operations, if any.
 
OVERVIEW
 
As of September 30, 2007, Jack in the Box Inc. (the “Company”) owned, operated, and franchised 2,132 Jack inthe Box quick-service restaurants and 395 Qdoba Mexican Grill (“Qdoba”) fast-casual restaurants, primarily in the western and southern United States.
Our primary source of revenue is from retail sales at Jack in the Box and Qdoba company-operated restaurants. We also derive revenue from Jack in the Box and Qdoba franchise restaurants, including royalties (based upon a percent of sales), rents, franchise fees and distribution sales of food and packaging to Jack inthe Box and Qdoba franchises, retail sales from fuel and convenience stores (“Quick Stuff”),and revenue from franchisees including royalties, based upon a percent of sales, franchise


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fees and rents.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 presentlycurrently 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, high rates of unemployment, costs of commodities and trends for healthier eating.
To address these challenges and others, management has developed a strategic plan focused on four key initiatives. The first initiative is a growth strategy that includes opening new restaurants and increasing same-store sales. The second initiative is a holistic reinvention of theJack in the Box brand through menu innovation, upgrading guest service and re-imagingJack in the Box restaurant facilities to reflect the personality of Jack — the chain’s fictional founder and popular spokesman. The third strategic initiative is to expand franchising — through new restaurant development and the sales of company-operated restaurants to franchisees — to generate higher returns and higher margins, while mitigating business-cost and investment risks. The fourth initiative is to improve our business model as we transition to becoming a predominantly franchised restaurant chain.
 
The following summarizes the most significant events occurring in fiscal year 2007:2010 and certain trends compared to prior years:
 
 •  Increase in Restaurant Sales.  Progress made Sales at Jack in reinventing the Jack inthe Box brand through menu upgrades, programs aimed at improving the guest experience through service initiatives and enhancements to the restaurant environment contributed to sales growth at Jack inthe Box restaurants increasing both the average check and number of transactions. This positive sales momentum resulted in increases in “same-store” sales (thoseBox company-operated restaurants open more than one year)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 2010 and 1.3% in 2009. System same-store sales at Qdoba increased 2.8% versus a decrease of 6.1%2.3% last fiscal year. Sales at Jack inthe Box company-operated restaurants.Jack in the Box restaurants continue to be impacted by high unemployment rates in our major markets for our key customer demographics.
 
 •  Re-Image Program.Commodity Costs. Pressures from higher commodity costs, which negatively impacted our business in fiscal 2009, moderated somewhat in 2010. Overall commodity costs at Jack in the Box restaurants decreased approximately 1.4% after increasing approximately 2.0% in 2009, as lower costs for beef, shortening, poultry and bakery were partially offset by higher costs for produce and pork.


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•  Restaurant Closures. In 2007,the fourth quarter, we continuedclosed 40 underperforming Jack in the Box restaurants located primarily in the Southeast and Texas resulting in a charge of $18.5 million, net of taxes, or $0.33 per diluted share. These closures are expected to re-image our Jack inthe Box restaurants. In fiscal 2007, we re-imaged 187 restaurantshave a positive impact on future earnings and franchisees re-imaged another 13 locations with a comprehensive program that includes a complete redesign of the dining room and common areas bringing the total number of re-imaged restaurants to approximately 350 at September 30, 2007. According to a proprietary brand image and loyalty study, the newly re-imaged restaurants are expanding their customer base, generating more guest visits and gaining more loyal guests.cash flows.
 
 •  Franchising Program.New Unit Development. We continued to make progress ongrow our strategic initiative to expand franchising throughbrands with the opening of new restaurant developmentcompany-operated and sales of company-operated restaurants to franchisees.franchise restaurants. In 2007,2010, we refranchised 76 Jack inthe Box restaurantsopened 46 Jack in the Box locations, including several in our newer markets, and franchisees opened 16 new restaurants. At September 30, 2007, approximately 33% of our Jack inthe Box restaurants were franchised. Additionally, we signed franchise development agreements to expand the Jack inthe Box brand into three new contiguous markets.36 Qdoba locations.
 
 •  Stock Repurchases.Franchising Program.  Pursuant We refranchised 219 Jack in the Box restaurants, while Qdoba and Jack in the Box franchisees opened 37 restaurants in 2010. We remain on track to a modified “Dutch Auction” tender offer (“Tender Offer”)achieve our goal to increase the percentage of franchise ownership in the Jack in the Box system to70-80% by the end of fiscal year 2013, and stock repurchase programs authorized by our Board of Directors, we repurchased shares of our common stock for $463.4 million.ended fiscal 2010 at 57% franchised.
 
 •  Credit Facility.  In the first quarter, During 2010, we entered into a new credit agreement consisting of a $400 million revolving credit facility of $150.0and a $200 million term loan, both with a five-year maturity and a term loan facility of $475.0 million with a six-year maturity. Using our available cash resources, in the second quarter we prepaid without penalty $60.0 million of our term loan which is expected to result in annualized interest savings of approximately $2.0 million.
 
 •  Interest Rate Swaps.Share Repurchases.  To reduce exposure Pursuant to rising interest rates,a share repurchase program authorized by our Board of Directors, we converted $200.0repurchased 4.9 million shares of our term loancommon stock at floating rates to a fixed interest rate for the next three years by entering into two interest rate swap contracts.an average price of $19.71 per share.
 
FINANCIAL REPORTING CHANGES
 
At the beginningIn 2010, we separated impairment and other charges, net from selling, general and administrative expenses in our consolidated statements of fiscalearnings. Prior year 2006, we adopted Statementamounts have been reclassified to conform to this new presentation.
The results of Financial Accounting Standards (“SFAS”) 123 (revised 2004),Share-Based Payment(123R),operations and cash flows for Quick Stuff, which requires thatwas sold in 2009, are reflected as discontinued operations for all employee share-based compensation be measured using a fair value method and that the resulting compensation cost be recognized in the financial


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statements. In accordance with the modified prospective method of adoption, results for fiscal 2005 and prior periods were not restated.presented. Refer to Note 8,2,Share-Based Employee CompensationDiscontinued Operations, in the notes to theour consolidated financial statements for additionalmore information.
 
Historical share and per share data in our Annual Report onForm 10-K has been restated to give retroactive recognition of our two-for-one stock split that was effected in the form of a 100% stock dividend on October 15, 2007, with the exception of treasury share data as no stock dividend was paid with respect to treasury shares. In the consolidated statements of stockholders’ equity, for all periods presented, the par value of the additional shares was reclassified from capital in excess of par value to common stock. Refer to Note 9,Stockholders’ Equity, in the notes to the consolidated financial statements for additional information regarding the stock split.
Effective fiscal 2007, we are reporting gains as a discrete line item within operating costs and expenses, rather than within revenues, as previously presented. Prior year’s gains on sale of company-operated restaurants to franchisees have been reclassified to conform with the current-year presentation. This reclassification had no effect on previously reported earnings from operations, net earnings or shareholders’ equity.
Effective September 30, 2007, we adopted the recognition and measurement provision of SFAS 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS 158 requires companies to recognize the over or under funded status of their plans as an asset or liability as measured by the difference between the fair value of the plan assets and the projected benefit obligation and requires any unrecognized prior service costs and actuarial gains and losses to be recognized as a component of accumulated other comprehensive income (loss). The adoption of SFAS 158 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. See Note 7,Retirement Plans,in the notes to the consolidated financial statements for additional information.
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.earnings as a percentage of total revenues, unless otherwise indicated:
 
CONSOLIDATED STATEMENTS OF EARNINGS DATA
 
             
  Fiscal Year 
  Sept. 30,
  Oct. 1,
  Oct. 2,
 
  2007  2006  2005 
 
Revenues:            
Restaurant sales  74.8%  77.1%  82.5%
Distribution and other sales  20.3   18.9   14.0 
Franchised restaurant revenues  4.9   4.0   3.5 
             
   100.0%  100.0%  100.0%
             
Operating costs and expenses:            
Restaurant costs of sales(1)  31.8%  31.2%  31.7%
Restaurant operating costs(1)  50.3   51.3   51.4 
Distribution and other costs of sales(1)  99.0   98.7   98.7 
Franchised restaurant costs(1)  40.4   40.5   40.9 
Selling, general and administrative expenses  10.2   11.0   11.0 
Gains on sale of company-operated restaurants  (1.4)  (1.5)  (0.9)
Earnings from operations  7.6   6.7   6.1 
             
  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
As we execute our refranchising strategy, which includes the sale of restaurants to franchisees, we expect the number of company-operated restaurants and the related sales to 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 in the Box restaurants, partially offset by an increase in the number of Qdoba company-operated restaurants and, in 2010, 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 millions):
         
  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 in the Box restaurants declined 8.6% in 2010 and 1.2% in 2009. The average check decreased 1.5% in 2010 and increased 1.8% in 2009, including the impact of price increases of approximately 1.7% and 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 in the Box and Qdoba franchisees grew $95.8 million in 2010 and $26.9 million in 2009 compared with the prior year. The increase in distribution sales in both years primarily relates to an increase in the number of Jack in the Box and Qdoba franchise 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 both years. The increase in 2010 also includes sales of approximately $11.2 million from the 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 franchise revenues in each year and other information we believe is useful in analyzing the change in franchise revenues (dollars in thousands):
             
  2010  2009  2008 
 
Royalties $  91,216  $  79,690  $  68,811 
Rents  128,143   103,784   86,310 
Re-image contributions to franchisees  (1,455)   (3,700)   (2,100) 
Franchise fees and other  13,123   13,345   9,739 
             
Franchise revenues $231,027  $193,119  $162,760 
             
% change  19.6%   18.7%   16.4% 
Average number of franchised restaurants  1,424   1,215   1,068 
% 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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The following table summarizes the number of systemwide restaurants:
SYSTEMWIDE RESTAURANT UNITS
             
  Sept. 30,
  Oct. 1,
  Oct. 2,
 
  2007  2006  2005 
 
Jack in the Box:
            
Company-operated  1,436   1,475   1,534 
Franchised  696   604   515 
             
Total system  2,132   2,079   2,049 
             
Qdoba:
            
Company-operated  90   70   57 
Franchised  305   248   193 
             
Total system  395   318   250 
             
Consolidated:
            
Company-operated  1,526   1,545   1,591 
Franchised  1,001   852   708 
             
Total system  2,527   2,397   2,299 
             
In 2007 and 2006, we opened 42 and 29 company-operated Jack inthe Box restaurants, along with 5 and 11 newQuick Stuffconvenience stores, and franchisees opened 16 and 7 restaurants, respectively. In addition, we sold 76 and 82 Jack inthe Box company-operated restaurants to franchisees. Qdoba opened 87 and 71 company and franchise-operated restaurants during 2007 and 2006, respectively.
Revenues
Company-operated restaurant sales were $2,151.0 million, $2,101.0 million, and $2,045.4 million, in 2007, 2006, and 2005, respectively. The sales growth primarily reflects increases in per store average (“PSA”) sales at Jack inthe Box and Qdoba company-operated restaurants, as well as increases in the number of Qdoba company-operated restaurants. Same-store sales at Jack inthe Box company-operated restaurants increased 6.1% in 2007 on top of 4.8% in 2006 and 2.4% in 2005, reflecting an increase in both average check and transactions primarily due to the success of new product introductions and continued focus on our brand reinvention initiatives. The PSA sales growth in each year was partially offset by a decrease in the number of Jack inthe Box company-operated restaurants primarily reflecting the sale of company-operated restaurants to franchisees.
Distribution and other sales, representing distribution sales to Jack inthe Box and Qdoba franchisees, as well asQuick Stuff fuel and convenience store sales, grew to $585.1 million in 2007 from $512.9 million in 2006 and $348.5 million in 2005. Distribution sales grew primarily due to an increase in the number ofJack in the Box and Qdoba franchised restaurants serviced by our distribution centers and PSA sales growth at our franchised restaurants. Sales from ourQuick Stuff locations increased primarily due to an increase in the number of locations to 60 at the end of the fiscal year from 55 in 2006 and 44 in 2005, offset in part by a decrease in PSA fuel sales.
Franchised restaurant revenues, which include rents, royalties and fees from restaurants operated by franchisees, increased to $139.9 million in 2007 from $109.7 million in 2006 and $86.3 million in 2005, primarily reflecting an increase in the number of franchised restaurants and PSA sales growth. The number of franchised restaurants increased to 1,001 at the end of the fiscal year from 852 in 2006 and 708 in 2005, reflecting the franchising ofJack in the Box company-operated restaurants and new restaurant development by Qdoba andJack in the Boxfranchisees.


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Operating Costs and Expenses
 
Restaurant costs of sales, which include foodFood and packaging costs increaseddecreased to $683.9 million in 2007 from $654.7 million in 2006, and $647.6 million in 2005. As a percentage31.8% of company restaurant sales in 2010 from 32.4% in 2009 and 33.3% in 2008. In 2010, lower commodity costs (including beef, shortening, poultry and 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%.
Payroll and employee benefit costs were 30.3% of company restaurant sales in 2010 and 29.7% in 2009 and 2008. 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 our 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 offset minimum wage increases.
Occupancy and other costs were 23.9% of company restaurant sales were 31.8% in 2007, 31.2%2010, 21.7% in 2006,2009 and 31.7%20.9% in 2005. In 2007,2008. The higher commodity costs,percentage in 2010 is due primarily cheese, eggs, beefto sales deleverage and shorteninghigher depreciation from the ongoing re-image program at Jack in the Box, which were partially offset by lower packaging costs. In 2006, lower commodity costs, principally beef, cheese and pork, as well as favorable product mix changes contributedutilities expense. The increase in 2009 was due primarily to higher depreciation expense related to the lower rate. In 2006, beef costs were approximately 5% lower than fiscal 2005. In fiscal 2005, beef costs were high, unfavorably impacted byJack in the closing ofBox 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 at Jack in the U.S. border to Canadian cattle,Box and produce costs were up approximately 9%. The cost increases in all yearsQdoba restaurants, which were partially offset in part by modest selling price increases.lower utility costs.
 
Restaurant operatingDistribution costs were $1,082.2increased to $399.7 million in 2007, $1,078.02010 from $300.9 million in 2006,2009 and $1,051.4$273.4 million in 2005 and, as a percentage of restaurant sales, were 50.3%, 51.3%, and 51.4%, respectively. In 2007, the percentage improvement compared with 2006 is primarily due to fixed cost leverage on same-store sales and lower costs for workers’ compensation insurance, utilities, and profit improvement initiatives, partially offset by higher costs related to brand re-invention initiatives. In 2006, the lower rate is due primarily to fixed-cost leverage on same-store sales, lower costs for workers’ compensation insurance and profit improvement program initiatives, partially offset by higher costs for utilities.
Costs of distribution and other sales increased to $579.1 million in 2007 from $506.0 million in 2006 and $343.8 million in 2005,2008, primarily reflecting an increaseincreases in the related sales. These costs were 99.0%increased to 100.4% of distribution and other sales in 2007, and 98.7% in 2006 and 2005. The percentage increase in 20072010, compared with 200699.6% in 2009 and 99.3% in 2008, due primarily relates to higher retail prices per gallon of fuel, which have proportionately higher costs, but yield stable penny profits. The percentage in 2006 remained consistent with 2005 as increases in distribution volumes related to strongdeleverage from lower PSA sales atJack in the Box restaurants offset the impact of higher retail prices per gallon of fuel at ourQuick Stuff locations. franchise restaurants.
 
Franchised restaurantFranchise costs, principally rents and depreciation on properties leased to Jack inthe BoxJack in the Box franchisees, increased to $56.5$26.4 million in 2007 from $44.52010 and $13.4 million in 2006 and $35.3 million in 2005,2009, due primarily to an increase in the number of franchise 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. As a percentage of franchised restaurant revenues, franchise restaurant costs decreased to 40.4% in 2007 from 40.5% in 2006restaurants and 40.9% in 2005 benefiting from the leverage provided by higher franchise revenues.PSA rent and depreciation expense.
 
Selling,The following table presents the change in selling, general and administrative (“SG&A”) expenses were $293.9 million, $300.8 million, and $273.8 million in 2007, 2006, and 2005, respectively. SG&A expenses decreased to approximately 10.2% of revenues in 2007 from 11.0% of revenues in 2006 and 2005. In 2007, increased leverage from higher revenues, lower pension costs and insurance recoveries contributed to the percent of revenue declineeach period compared with 2006. In 2006, SG&Athe prior year (in thousands):
         
  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 our marketing fund that are generally determined as a percentpercentage of revenues remained flat compared with 2005 as thecompany restaurant sales, leverage benefit was offset by the inclusion of stock option expense of $7.3 million upon the adoption of SFAS 123R, higher pension costsdecreased reflecting our refranchising strategy and charges related to certain restaurant closures and the impairment of 8lower PSA sales at Jack in the Boxrestaurants. company-operated restaurants, and were partially offset by incremental Company contributions of approximately $6.5 million in 2010. The decrease in incentive compensation in 2010 reflects the decrease 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 are subject to market fluctuations. The market adjustments of the investments include a net benefit of


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$2.7 million in 2010 compared with negative impacts of $0.3 million in 2009 and $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 primarily relate to changes in the number of new Jack in the Box restaurants opened which decreased to 30 locations in 2010, compared with 43 in 2009 and 23 in 2008.
Impairment and other charges, net is comprised of the following(in thousands):
             
  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 the prior years. The increase in 2010 is due primarily to the closure of 40 underperforming Jack in the Box restaurants in the fourth 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 other 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 $8.4 million and $19.0 million related to 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 $39.3 million, $42.0 million and $23.3 million in 2007, 2006 and 2005, 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 2007, we sold 76Jack in the Box restaurants, compared with 82 in 2006, which included all 25 company-operated restaurants in Hawaii, and 58 in 2005. The Hawaii transaction represented the first sale of an entire market since we announced our intent to increase franchising activities in 2002 and contributed approximately $15.0 million to2009, gains 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 2006.the Box market.
 
Interest Expense, Net
 
Interest expense, net was $23.4 million, $12.1 million, and $13.4is 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 in 2007, 20062010 and 2005, respectively, and includes$6.7 million in 2009 due primarily to lower average interest expenserates. In 2010, lower average borrowings, partially offset by a $0.5 million charge to write off deferred financing fees in connection with the refinancing of $32.2 million, $19.6 million and $17.1 million, respectively, and interest income of $8.8 million, $7.5 million, and $3.7 million, respectively. The increase in interest income in each year reflectsour credit facility, also contributed to the decrease. In 2009, higher average cash balances and higher interest rates on invested cash. In 2007, interest expense increased compared with 2006 primarily due to higher average bank borrowings and increased interest rates incurred on our


24

credit facility. In 2006, interest expense increased compared with 2005 due topartially offset the impact of higher averagelower interest rates incurred on our credit facility.rates.
 
Income Taxes
 
The income tax provisions reflect effective tax rates of 35.7%33.8%, 35.7%,37.7% and 33.8%37.3% of pretax earnings before income taxesfrom continuing operations in 2010, 2009 and cumulative effect of an accounting change in 2007, 2006 and 2005,2008, respectively. The lower tax rate in 2005 relates primarily2010 is largely attributable to the resolutionimpact of a prior year’simpairment and other charges, higher work opportunity tax position.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 included in taxable income.


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Cumulative Effect of Accounting ChangeEarnings from Continuing Operations
 
In fiscal 2006, we adopted Financial Accounting Standards Board Interpretation (“FIN”) 47 which requires that we record a liability for an asset retirement obligation at the end of a lease if the amount can be reasonably estimated. As a result of adopting FIN 47, we recorded an after-tax cumulative effectEarnings from this accounting change of $1.0 million related to the depreciation and interest expense that would have been charged prior to the adoption.
Net Earnings
Net earningscontinuing operations were $126.3$70.2 million, or $1.88$1.26 per diluted share, in 2007; $108.02010; $131.0 million, or $1.50$2.27 per diluted share, in 2006;2009; and $91.5$118.2 million, or $1.24$1.99 per diluted share, in 2005.2008. We estimate that the extra 53rd week benefitted net earnings by approximately $1.8 million, or $0.03 per diluted share, in 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 in 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 and upgrades of our management information systems;renovations;
•  income tax payments;
 
 •  debt service requirements;
• working capital;
• income tax payments; 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.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.assets and not as part of working capital. As a result, we typically maintain current liabilities in excess of current assets, which results in a working capital deficit.
 
Cash and cash equivalents decreased $218.2$42.4 million to $15.7$10.6 million at September 30, 2007October 3, 2010 from $233.9$53.0 million at the beginning of the fiscal year. This decrease is primarily due to the userepurchases of cash to repurchasecommon stock, net repayments under our common stock,credit facility, and property and equipment expenditures, whichexpenditures. These uses of cash were offset in part by borrowings under our new credit facility,proceeds from the sale and leaseback of restaurant properties, cash flows provided by operating activities, and proceeds from the issuanceand collections of common stock andnotes receivable from the sale of restaurants to 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 following table below summarizes our cash flows from operating, investing and financing activities for each of the past three fiscal years(in thousands):.
 
                        
 2007 2006 2005  2010 2009 2008 
Total cash provided by (used in):                        
Operating activities $179,809  $205,139  $157,888 
Investing activities  (131,341)  (63,827)  (114,521)
Operating activities:            
Continuing operations $  64,038  $  147,324  $  167,035 
Discontinued operations  (2,172)  1,426   5,349 
Investing activities:            
Continuing operations  19,173   (71,607)  (132,406)
Discontinued operations  -   30,648   (1,964)
Financing activities  (266,672)  (11,114)  (71,359)  (123,434)  (102,673)  (5,832)
              
Increase (decrease) in cash and cash equivalents $(218,204) $130,198  $(27,992) $(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 2007, operating2009, cash flowflows from continuing operations decreased $25.3 million to $179.8$19.7 million compared with 2008 due to a year agodecrease in earnings from continuing operations adjusted for non-cash items, partially offset by fluctuations due to the timing of working capital receipts and disbursements. Operating cash flows from our discontinued operations were not material to our consolidated statements of cash flows for all fiscal years presented.
Investing Activities. 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 income tax payments.
Investing Activities.  Cashthe 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 were $131.3from continuing operations decreased $60.8 million in 2007 compared to $63.8 million in 2006 increasingwith 2008. This decrease was primarily due to a decreasean 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 higher capital expenditures and cash used in 20072009 to acquire nine Qdoba franchise-operated restaurants.
In 2009, cash flows provided by discontinued operations increased $32.6 million compared with 2008 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 previously operated by franchisees.to the cost of the equipment, whenever possible. In 2010, 20 of our new Jack in the Box 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 investments of $59.9 million in approximately 56 operating and under-construction restaurant properties that we expect to sell and lease back during fiscal 2011.
 
Capital Expenditures. The composition of capital expenditures used in continuing operations in each year follows (in thousands):
             
  2010  2009  2008 
 
Jack in the Box:            
New restaurants $  20,867  $  46,078  $  35,751 
Restaurant facility improvements  50,724   69,856   116,670 
Other, including corporate  10,447   18,377   10,943 
Qdoba  13,572   19,189   15,241 
             
Total capital expenditures used in continuing operations $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. We used cashIn 2010, capital expenditures decreased


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due primarily to a decline in the number of $154.2 millionnew 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 purchasesJack in the Box guests. As of propertyOctober 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 2007 compared with $150.0 million in 2006 and $126.1 million in 2005.2008. The kitchen enhancements were designed to increase in capital expenditures in each year primarily relates to our on-going comprehensive re-image program.restaurant capacity for new product introductions while reducing utility expense using energy-efficient equipment.
 
In fiscal year 2008,2011, capital expenditures are expected to be approximately $175 – $185$135-$145 million, including investment costs related to the JackJack in theBox Box restaurant re-image program and kitchen enhancements.the continued rollout of our new logo. We plan to open approximately 22 – 2825 new JackJack in theBox Box and 25 new Qdoba company-operated restaurants in 2008, and under our brand reinvention strategy, plan to re-image approximately 250 restaurants.2011.
 
Sale of Company-Operated Restaurants. We have continued our strategy of selectively sellingto expand franchise ownership in the Jack in the Box company-operated restaurants to franchisees, selling 76, 82, and 58 restaurants in 2007, 2006 and 2005, respectively. Proceeds from system primarily through the sale of company-operated restaurants to franchisees. The following table details proceeds received in connection with our refranchising activities(in thousands):
             
  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 presented include financing provided to facilitate the closing of certain transactions. As of October 3, 2010, notes receivable related to refranchisings were $51.3$29.8 million, $54.4of which $18.7 million and $33.5has been repaid since the end of the fiscal year. We expect total proceeds of $85-$95 million respectively.from the sale of175-225 Jack in the Box restaurants in 2011.
 
Acquisition of Franchise-Operated Restaurants. In 2010, we acquired 16 Qdoba franchise-operated restaurants in the third 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 2007,the notes to the consolidated financial statements.
In 2009, we acquired 22 Qdoba acquired nine franchise-operated restaurants for approximately $7.0$6.8 million, in cash.net of cash received. The primary assets acquired include $2.5 million in nettotal purchase price was allocated to property and equipment, goodwill and $4.5 millionother income. The restaurants acquired are located in goodwill.Michigan and California, which we believe provide good long-term growth potential consistent with our strategic goals.
 
Financing Activities. Cash used in financing activities increased $255.6$20.8 million to $266.7in 2010 and $96.8 million in 2009 compared with a year ago, duethe previous year. These increases were primarily attributable to an increasepurchases of our common stock in stock repurchases2010 and term loan principal payments, offsetthe repayment of borrowings under our revolving credit facility in part by proceeds received related to our new credit facility.2009.
 
New Financing.Credit Facility. On December 15, 2006,June 29, 2010, we replaced our existing credit facility with a new credit facility intended to provide a more flexible capital structure and facilitate the execution of our strategic plan.structure. The new credit facility wasis 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 with London Interbank Offered Rate (“LIBOR”) plus 1.3752.50%.At inception, we borrowed $475.0 million In connection with the refinancing, borrowings under the term loan and $169.0 million of borrowings under the revolving credit facility andwere used the proceeds to repay all borrowings under the prior credit facility to payand 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 to repurchase a portion of our outstanding stock. We subsequently elected to make, without penalty, a $60.0 million optional prepayment of our term loan, which will be applied to the remaining scheduled principal installmentsare included as deferred costs in other assets, net in the direct orderaccompanying consolidated balance sheet as of maturity. The prepayment reduced the interest rate on the credit facility by 25 basis points to LIBOR plus 1.125%, which is expected to result in an annualized interest savings of approximately $2.0 million. At September 30, 2007, we had no borrowings under the revolving credit facility, $415.0 million outstanding under the term loan and had letters of credit outstanding of $37.1 million.October 3, 2010.
 
As part of the new 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 obligationsWe may make voluntary prepayments of the loans under the newrevolving credit facility are secured by first priority liens and security interests in the capital stock, partnership,term loan at any time without premium or penalty. Specific events, such as asset sales, certain issuances of debt and membership interests owned by usinsurance and (or) our subsidiaries, and any proceeds thereof, subject to certain restrictions set forth in the credit agreement. Additionally, the credit agreement includescondemnation recoveries, may trigger a negative pledge on all tangible and intangible assets (including all real and personal property) with customary exceptions.mandatory prepayment.
 
Loan origination costs associated with the new credit facility were $7.4 million and are included as deferred costs in other assets, net in the consolidated balance sheet as of September 30, 2007. Deferred financing fees of $1.9 million related to the prior credit facility were written-off in the first quarter and are included in interest expense, net in the consolidated statement of earnings for the year ended September 30, 2007.
Interest Rate Swaps.  Concurrent with the termination of our prior credit facility, we liquidated three swap agreements and reversed the fair value of the swaps recorded as a component of accumulated other comprehensive loss, net. We realized a net gain of $0.4 million, included in interest expense, net in the accompanying consolidated statement of earnings for the year ended September 30, 2007. To reduce our exposure to rising interest rates under our new credit facility, in March 2007, we entered into two interest rate swap agreements that will effectively convert $200.0 million of our variable rate term loan borrowings to a fixed rate basis for three years.
Debt Covenants.We are subject to a number of customary covenants under our various debt instruments,credit facility, including limitations on additional borrowings, acquisitions, loans to franchisees, capital expenditures, lease commitments, stock repurchases, and dividend payments as well asand requirements to maintain certain financial ratios, cash flowsratios.
At October 3, 2010, we had $197.5 million outstanding under the term loan, borrowings under the revolving credit facility of $160.0 million and net worth. Asletters of September 30, 2007, we complied with all debt covenants.credit outstanding of $34.9 million. For additional information related to our credit facility, refer to Note 7,Indebtedness, of the notes to the consolidated financial statements.
 
Debt Outstanding.Interest Rate Swaps. Total debt outstanding increasedTo reduce our exposure to $433.3rising 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 atof our variable rate term loan to a fixed-rate basis beginning September 30,2011 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 from March 2007 from $291.8 million at the beginningto April 1, 2010. For additional information related to our interest rate swaps, refer to Note 6,Derivative Instruments, of the fiscal year. Current maturities of long-term debt decreased $31.8 million and long-term debt, net of current maturities increased $173.3 million duenotes to borrowings under the new credit facility. At October 1, 2006, $29.1 million was classified as current under the prior credit facility related to a clause in the agreement requiring prepayments based on an excess cash flow calculation.consolidated financial statements.
 
Repurchases of Common Stock. OnIn November 21, 2006, we announced the commencement of a Tender Offer for up to 5.5 million shares of our common stock at a price per share not less than $55.00 and not greater than $61.00, for a maximum aggregate purchase price of $335.5 million. On December 19, 2006, we accepted for purchase approximately 2.3 million shares of common stock at a purchase price of $61.00 per share, for a total cost of $143.3 million.
On December 20, 2006,2007, the Board of Directors authorizedapproved a program to repurchase up to 3.3$200.0 million shares in calendar year 2007 to complete the repurchase of the total shares authorized in the Tender Offer. In the second quarter of 2007, under a 10b5-1 plan, we repurchased 3.2 million shares for $220.1 million.
The Tender Offer and the additional repurchase program were funded through the new credit facility and available cash, and all shares repurchased were subsequently retired.
In September 2005, the Board of Directors authorized the repurchase of $150.0 million of our outstanding common stock in the open market. Pursuant to this authorization, we repurchased 1,582,881 shares of our common stock in 2007over three years expiring November 9, 2010. During fiscal 2010, we repurchased 4.9 million shares at aan aggregate cost of $97.0 million. During fiscal 2008, we repurchased 3.9 million shares at an aggregate cost of $100.0 millionmillion. As of October 3, 2010, the aggregate remaining amount authorized and 1,444,700 shares of common stock in 2006 at a cost of $50.0available under our credit agreement for repurchase was $3.0 million. TheIn November 2010, the Board of Directors also approved a sharenew program to repurchase, programwithin the next year, up to $100.0 million in fiscal year 2004. Under this authorization, we repurchased 2,578,801 shares of our common stock in 2005 at a cost of $92.9 million.stock.
 
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 2.2,Properties,and Note 4,8,Leases,of the notes to the consolidated financial statements.


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Contractual obligations and commitments. The following is a summary of our contractual obligations and commercial commitments as of September 30, 2007:October 3, 2010 (in thousands):
 
                     
  Payments Due by Period 
     Less Than
        After
 
  Total  1 Year  1-3 Years  3-5 Years  5 Years 
  (In thousands) 
 
Contractual Obligations:
                    
Credit facility term loan(1) $535,268  $27,050  $99,844  $334,802  $73,572 
Revolving credit facility  —   —   —   —   — 
Capital lease obligations(1)  25,270   7,040   5,704   3,941   8,585 
Other long-term debt obligations(1)  177   150   27   —   — 
Operating lease obligations  1,813,413   188,191   341,635   300,074   983,513 
Guarantee(2)  1,675   1,257   262   156   — 
Benefit obligations(3)  117,305   9,847   16,805   19,632   71,021 
                     
Total contractual obligations $2,493,108  $233,535  $464,277  $658,605  $1,136,691 
                     
Other Commercial Commitments:
                    
Stand-by letters of credit(4) $37,094  $37,094  $—  $—  $— 
                     
                     
  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 term loan, capital lease obligations, and other long-term debt obligations include interest expense estimated at interest rates in effect on September 30, 2007.October 3, 2010.
 
(2)Consists of a guarantee associated with one Chi-Chi’s property. Due to the bankruptcy of the Chi-Chi’s restaurant chain, previously owned by us, we are obligated to perform in accordance with the terms of the guarantee agreement.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.
We maintain a noncontributory defined benefit pension plan (“qualified plan”) covering substantially all full-time employees. Our policy is to fund our qualified 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 plan as of our last measurement date, we are not required to make a minimum contribution in 2011. However, we expect to make discretionary contributions of $10.0 million which have been included in the 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 2011 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 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 CompensationLong-lived Assets —We account Property, equipment and certain other assets, including amortized intangible assets, are reviewed for share-based compensationimpairment 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 accordance with SFAS 123R. Under the provisions of SFAS 123R, share-based compensation cost is estimatedwhich case we perform our impairment evaluations at the grant dategroup 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 award’s fair-valuespecific 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 as calculatedthe amount by an option pricing model and is recognized as expense ratably overwhich the requisite service period. The option pricing models require various highly judgmental assumptions including volatility, forfeiture rates, and expected option life. If anycarrying value of the assumptionsassets exceeds fair value. Our estimates of cash flows used in the model change significantly, share-based compensation expenseto assess impairment are subject to a high degree of judgment and may differ materiallyfrom actual cash flows due to, among other things, economic conditions or changes in the future from thatoperating performance. During fiscal year 2010, we recorded in the current period.impairment charges totaling $13.0 million to write down certain assets to their estimated fair value.
 
Retirement Benefits — We sponsor pensionOur defined benefit and other retirement plans in various forms covering those employees who meet certain eligibility requirements. Severalpostretirement plans’ costs and liabilities are determined using several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plans, including assumptions about the discount rate and expected return on plan assetsassets. 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 increase in compensation levels, asreturn on assets is determined by us using specified guidelines. In addition,taking into consideration our outsideprojected asset allocation and economic forecasts prepared with the assistance of our actuarial consultants also use certain statistical factors such as turnover, retirement and mortality rates to estimateconsultants. As of October 3, 2010, our futureassumed expected long-term rate of return was 7.75% for our qualified defined benefit obligations.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, medical and dental programs.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.
 
Long-lived AssetsRestaurant Closing Costs — Property, equipmentRestaurant closing costs consist of future lease commitments, net of anticipated sublease rentals and certain other assets, including amortized intangible assets,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 reviewed for impairment when indicators of impairment are present. This review includes a restaurant-level analysis that takes into consideration a restaurant’s operating cash flows,recorded in the period incurred. The estimates we make related to sublease income are subject to a high degree of time since a restaurant has been opened or remodeled,judgment and the maturity of the related market. When indicators of impairment are present, we perform an impairment analysis on arestaurant-by-restaurant basis. If the sum of undiscounted future cash flows is less than the net carrying value of the asset, we recognize an impairment loss by the amount which the carrying value exceeds the fair value of the asset. Our estimates of future cash flows may differ from actual cash flowssublease income due to among other things,changes in economic conditions, or changesdesirability 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 operating performance.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 2007,2010, we reviewed the carrying value of our goodwill and indefinite life intangible assets and determined that no impairment existed as of September 30, 2007.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 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 June 2006,2009, the Financial Accounting Standards Board (“FASB”)FASB issued Interpretation No. 48 (“FIN 48”),Accountingauthoritative guidance for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,consolidation, which clarifieschanges the accountingapproach for uncertainty in income taxes recognized in thedetermining which enterprise has a controlling financial statements in accordance with SFAS 109,Accounting for Income Taxes. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be takeninterest in a tax return. FIN 48 also providesvariable interest entity and requires more frequent reassessments of whether an enterprise is a primary beneficiary. This guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. We are currently evaluating the impact of FIN 48 on our consolidated financial statements, which is effective for fiscal years beginning after December 15, 2006.
In September 2006, the FASB issued SFAS 157,Fair Value Measurements. SFAS 157 clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. This statement applies under other accounting pronouncements that currently require or permit fair value measurements and is effective for fiscal yearsannual periods beginning after November 15, 2007.2009. We are currently in the process of assessing the impact that SFAS 157 willthis guidance may have on our consolidated financial statements.
In September 2006, the FASB issued SFAS 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). Effective


29

September 30, 2007, we implemented the recognition provisions of SFAS 158. SFAS 158 requires companies to recognize the over or under funded status of their plans as an asset or liability as measured by the difference between the fair value of the plan assets and the benefit obligation and requires any unrecognized prior service costs and actuarial gains and losses to be recognized as a component of accumulated other comprehensive income (loss). Additionally, SFAS 158 no longer allows companies to measure their plans as of any date other than as of the end of their fiscal year. However, this provision is not effective until fiscal years ending after December 15, 2008. We will not be able to determine the impact of adopting the measurement provision of SFAS 158 until the end of the fiscal year when such valuation is completed. See Note 7,Retirement Plans,in the notes to the consolidated financial statements for additional information regarding our retirement plans and SFAS 158.
In February 2007, the FASB issued SFAS 159,The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 permits entities to voluntarily choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently in the process of determining whether to elect the fair value measurement options available under this standard.
 
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 30, 2007,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 30, 2007,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 4.87%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 30, 2007October 3, 2010, would result in an estimated increase of $2.2$3.6 million in annual interest expense.
Changes in interest rates also impact our pension expense, as do changes in the expected long-term rate of return on our pension plan assets. An assumed discount rate is used in determining the present value of future cash outflows currently expected to be required to satisfy the pension benefit obligation when due. Additionally, an assumed long-term rate of return on plan assets is used in determining the average rate of earnings expected on the funds invested or to be invested to provide the benefits to meet our projected benefit obligation. A hypothetical 25 basis point reduction in the assumed discount rate and expected long-term rate of return on plan assets would result in an estimated increase of $2.2 million and $0.6 million, respectively, in our future annual pension 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. There were no open commodity futures and option contracts at September 30, 2007.
At September 30, 2007,October 3, 2010, we had no other material financial instruments subject to significant market exposure.such contracts in 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.


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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 30, 2007,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.
 
Changes in Internal Control Over Financial Reporting
 
There have been no significant changes in the Company’s internal control over financial reporting that occurred


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during the Company’s fiscal quarter ended September 30, 2007October 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 30, 2007.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 30, 2007,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 30, 2007,October 3, 2010, based on criteria established inInternal Control —– Integrated Framework,issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Jack in the Box Inc.’sThe 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 Overover 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 30, 2007,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 30, 2007 and October 1, 2006,27, 2009, 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 30, 2007, October 1, 2006,27, 2009 and October 2, 2005,September 28, 2008, and our report dated November 16, 200723, 2010, expressed an unqualified opinion on those consolidated financial statements.
 
/s/  KPMG LLP
 
San Diego, California
November 16, 200723, 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 — Committee– 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 30, 2007October 3, 2010 and to be used in connection with our 20082011 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.)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 year 2007.2010.
 
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 30, 2007October 3, 2010 and to be used in connection with our 20082011 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 30, 2007October 3, 2010 and to be used in connection with our 20082011 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 30, 2007October 3, 2010 is set forth in Item 5 of this Report.


33

 
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 30, 2007October 3, 2010 and to be used in connection with our 20082011 Annual Meeting of Stockholders is hereby incorporated by reference.
 
ITEM 14.PRINCIPAL ACCOUNTANTACCOUNTING 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 30, 2007October 3, 2010 and to be used in connection with our 20082011 Annual Meeting of Stockholders is hereby incorporated by reference.
 
PART IV
 
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
ITEM 15(a) (1)Financial Statements.Statements. See Index to Consolidated Financial Statements onpage F-1 of this report.Report.
 
ITEM 15(a) (2)Financial Statement Schedules.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 10-K for the fiscal year ended October 3, 1999.
 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 August 7, 2007.
 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* Supplemental Executive Retirement Plan, which is incorporated herein by reference from registrant’s Annual Report onForm 10-K for the fiscal year ended September 30, 2001.
 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.


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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.
10.6.2*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*
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.
10.7.1*10.8* Bonus Program for Fiscal 2007 Under the Performance Bonus Plan, which is incorporated herein by reference from the registrant’s Current Report onForm 8-K dated September 18, 2006.
10.8*Deferred Compensation Plan for Non-Management Directors, which is incorporated herein by reference from the registrant’s Definitive Proxy Statement dated January 17, 1995 for the Annual Meeting of Stockholders on February 17, 1995.
10.8.1*
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.


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 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.
10.11*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*
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 19, 2003.18, 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 8, 2007.5, 2009.
10.16.1*10.16.1(a)* 
Form of Restricted Stock Award for certain 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 8, 2007.5, 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 8, 2007.5, 2009.
10.16.3*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.

37

 10.21*
Number ExecutiveDescription
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 — Base Salaries effective October 2, 2006,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

35

     
Number
 
Description
 
 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
 
*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(c)  All supplemental schedules are omitted as inapplicable or because the required information is included in the consolidated financial statements or notes thereto.

3638

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
(principal financial officer)
(Duly Authorized Signatory)
Date: November 20, 200724, 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 (principaland President
(principal executive officer)		 November 20, 200724, 2010
     
/s/S/ JERRY P. REBEL

Jerry P. Rebel		 Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) November 20, 200724, 2010
     
/s/S/ MICHAEL E. ALPERT

Michael E. Alpert		 Director November 20, 200724, 2010
     
/s/  ANNE B. GUST
S/ DAVID L. GOEBEL
Anne B. GustDavid L. Goebel		 Director November 20, 200724, 2010
     
/s/  GEORGE FELLOWS
S/ MURRAY H. HUTCHISON
George FellowsMurray H. Hutchison		 Director November 20, 200724, 2010
     
/s/  ALICE B. HAYES
S/ MICHAEL W. MURPHY
Alice B. HayesMichael W. Murphy		 Director November 20, 200724, 2010
     
/s/  MURRAY H. HUTCHISON
S/ DAVID M. TEHLE
Murray H. HutchisonDavid M. Tehle		 Director November 20, 200724, 2010
     
/s/  MICHAEL W. MURPHY
S/ WINIFRED M. WEBB
Michael W. MurphyWinifred M. Webb		 Director November 20, 200724, 2010
     
/s/  DAVID M. TEHLE
S/ JOHN T. WYATT
David M. TehleJohn T. Wyatt		 Director November 20, 200724, 2010


3739

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 30, 2007 and October 1, 2006,27, 2009, 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 30, 2007, October 1, 200627, 2009 and October 2, 2005.September 28, 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 30, 2007 and October 1, 2006,27, 2009, 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 30, 2007, October 1, 200627, 2009 and October 2, 2005,September 28, 2008, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment, and Financial Accounting Standards Board Interpretation No. 47,Accounting for Conditional Asset Retirement Obligations, in fiscal year 2006. The Company adopted the provisions of Statement of Financial Accounting Standards No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R), and changed its method of quantifying errors in fiscal year 2007.
 
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 30, 2007,October 3, 2010, based on criteria established inInternal Control —– Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November 16, 2007,23, 2010, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 
/s/ KPMG LLP
 
San Diego, California
CA
November 16, 200723, 2010


F-2

JACK IN THE BOX INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
 
                
 September 30,
 October 1,
  October 3,
 September 27,
 
 2007 2006  2010 2009 
ASSETS
ASSETS
ASSETS
Current assets:                
Cash and cash equivalents (includes restricted cash of $47,655 at
October 1, 2006)		 $15,702  $233,906 
Cash and cash equivalents $10,607  $53,002 
Accounts and other receivables, net  41,091   30,874   81,150   49,036 
Inventories  46,933   41,202   37,391   37,675 
Prepaid expenses  29,311   23,489   33,563   8,958 
Deferred income taxes  47,063   43,889   46,185   44,614 
Assets held for sale and leaseback  42,583   23,059 
Assets held for sale  59,897   99,612 
Other current assets  5,383   6,711   6,129   7,152 
          
Total current assets  228,066   403,130   274,922   300,049 
          
Property and equipment, at cost:                
Land  98,962   98,962   101,206   101,576 
Buildings  836,878   759,459   965,312   936,351 
Restaurant and other equipment  582,931   574,630   437,547   506,185 
Construction in progress  67,806   72,255   58,664   58,135 
          
  1,586,577   1,505,306   1,562,729   1,602,247 
Less accumulated depreciation and amortization  (634,409)  (590,530)  (684,690)  (665,957)
          
Property and equipment, net  952,168   914,776   878,039   936,290 
          
Intangible assets, net  20,057   21,021   17,986   18,434 
Goodwill  96,665   92,187   85,041   85,843 
Other assets, net  85,866   89,347   151,104   115,294 
       ��   
 $1,382,822  $1,520,461  $1,407,092  $1,455,910 
          
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:                
Current maturities of long-term debt $5,787  $37,539  $13,781  $67,977 
Accounts payable  97,489   61,059   101,216   63,620 
Accrued liabilities  223,540   240,320   168,186   206,100 
          
Total current liabilities  326,816   338,918   283,183   337,697 
          
Long-term debt, net of current maturities  427,516   254,231   352,630   357,270 
Other long-term liabilities  168,722   145,587   250,440   234,190 
Deferred income taxes  45,211   70,840   376   2,264 
Stockholders’ equity:                
Preferred stock $.01 par value, 15,000,000 authorized, none issued  —   — 
Common stock $.01 par value, 175,000,000 shares authorized, 72,515,171 and 75,640,701 issued, respectively  725   756 
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  132,081   431,338   187,544   169,440 
Retained earnings  681,350   555,046   982,420   912,210 
Accumulated other comprehensive loss, net  (25,140)  (1,796)  (78,787)  (83,442)
Treasury stock, at cost, 12,779,609 and 11,196,728 shares, respectively  (374,459)  (274,459)
Treasury stock, at cost, 21,640,400 and 16,726,032 shares, respectively  (571,459)  (474,459)
          
Total stockholders’ equity  414,557   710,885   520,463   524,489 
          
 $1,382,822  $1,520,461  $ 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
(Dollars inIn thousands, except per share data)
 
             
  Fiscal Year 
  2007  2006  2005 
 
Revenues:            
Restaurant sales $2,150,985  $2,100,955  $2,045,400 
Distribution and other sales  585,107   512,907   348,482 
Franchised restaurant revenues  139,886   109,741   86,332 
             
   2,875,978   2,723,603   2,480,214 
             
Operating costs and expenses:            
Restaurant costs of sales  683,872   654,659   647,567 
Restaurant operating costs  1,082,178   1,078,029   1,051,400 
Distribution and other costs of sales  579,132   505,991   343,836 
Franchised restaurant costs  56,491   44,456   35,318 
Selling, general and administrative expenses  293,881   300,819   273,821 
Gains on sale of company-operated restaurants  (39,261)  (42,046)  (23,334)
             
   2,656,293   2,541,908   2,328,608 
             
Earnings from operations  219,685   181,695   151,606 
Interest expense, net  23,354   12,075   13,402 
             
Earnings before income taxes and cumulative effect of accounting change  196,331   169,620   138,204 
Income taxes  70,027   60,545   46,667 
             
Earnings before cumulative effect of accounting change  126,304   109,075   91,537 
Cumulative effect of accounting change, net  —   (1,044)  — 
             
Net earnings $126,304  $108,031  $91,537 
             
Net earnings per share — basic:            
Earnings before cumulative effect of accounting change $1.93  $1.57  $1.28 
Cumulative effect of accounting change, net  —   (0.02)  — 
             
Net earnings per share $1.93  $1.55  $1.28 
             
Net earnings per share — diluted:            
Earnings before cumulative effect of accounting change $1.88  $1.52  $1.24 
Cumulative effect of accounting change, net  —   (0.02)  — 
             
Net earnings per share $1.88  $1.50  $1.24 
             
Weighted-average shares outstanding:            
Basic  65,314   69,888   71,250 
Diluted  67,263   71,834   73,876 
             
  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  Fiscal Year 
 2007 2006 2005  2010 2009 2008 
Cash flows from operating activities:                        
Net earnings $126,304  $108,031  $91,537  $70,210  $118,408  $119,279 
Adjustments to reconcile net income to net cash provided by operating activities:            
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  94,306   88,295   86,156   101,514   100,830   96,943 
Deferred finance cost amortization  1,443   1,132   982   1,658   1,461   1,462 
Provision for deferred income taxes  (14,239)  (11,186)  (3,237)
Share-based compensation expense for equity classified awards  12,640   9,285   1,396 
Deferred income taxes  (27,554)  (15,331)  6,643 
Share-based compensation expense  10,605   9,341   10,566 
Pension and postretirement expense  15,777   25,860   18,321   29,140   12,243   14,433 
Gains on cash surrender value of company-owned life insurance  (7,639)  (3,265)  (4,127)
Gains on the sale of company-operated restaurants  (39,261)  (42,046)  (23,334)
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  15,898   9,095   6,615   10,757   11,418   17,373 
Impairment charges and other  12,970   6,586   3,507 
Loss on early retirement of debt  1,939   —   —   513   -   - 
Impairment charges and other  1,347   4,126   3,375 
Cumulative effect of change in accounting principle  —   1,044   — 
Changes in assets and liabilities:            
Decrease (increase) in receivables  (10,277)  (10,765)  162 
Increase in inventories  (5,731)  (1,195)  (5,964)
Increase in prepaid expenses and other current assets  (5,923)  (4,436)  (2,570)
Increase in accounts payable  13,075   4,995   2,561 
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  (14,795)  (16,465)  (23,658)  (24,072)  (26,233)  (25,012)
Increase (decrease) in other liabilities  (5,055)  42,634   9,673 
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  179,809   205,139   157,888   61,866   148,750   172,384 
              
Cash flows from investing activities:                        
Purchases of property and equipment  (154,182)  (150,032)  (126,134)  (95,610)  (153,500)  (178,605)
Proceeds from the sale of property and equipment  1,204   1,899   2,094 
Proceeds from the sale of company-operated restaurants  51,256   54,389   33,517   66,152   94,927   57,117 
Proceeds from (purchase of) assets held for sale and leaseback, net  (15,396)  32,891   (15,751)
Proceeds from (purchases of) assets held for sale and leaseback, net  45,348   (36,824)  (14,003)
Collections on notes receivable  122   5,389   895   8,322   31,539   7,942 
Purchase of investments  (6,097)  (7,325)  (6,284)
Acquisition of franchise-operated restaurants  (6,960)  —   —   (8,115)  (6,760)  - 
Other  (1,288)  (1,038)  (2,858)  3,076   (989)  (4,857)
              
Cash flows used in investing activities  (131,341)  (63,827)  (114,521)
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 under term loan  475,000   —   — 
Principal payments on debt  (333,931)  (8,049)  (8,204)
Payment of debt costs  (7,357)  (260)  (343)
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  (463,402)  (49,997)  (92,861)  (97,000)  -   (100,000)
Excess tax benefits from share-based compensation arrangements  2,037   664   3,346 
Change in book overdraft   17,676   —   —   34,727   (14,577)  (3,098)
Excess tax benefits from share-based compensation arrangements  17,533   12,327   — 
Proceeds from issuance of common stock  27,809   34,865   30,049 
              
Cash flows used in financing activities  (266,672)  (11,114)  (71,359)  (123,434)  (102,673)  (5,832)
    ��          
 
Net increase (decrease) in cash and cash equivalents $(218,204) $130,198  $(27,992)  (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
     
 Common Stock Capital in
   Other
            Capital in
   other
     
 Number
   Excess of
 Retained
 Comprehensive
 Unearned
 Treasury
    Number
   excess of
 Retained
 comprehensive
 Treasury
   
 of Shares Amount par Value Earnings Income (Loss) Compensation Stock Total  of shares Amount par value earnings loss, net stock Total 
   
Balance at October 3, 2004  69,413,415  $694  $338,070  $355,478  $(1,254) $(7,988) $(131,601) $553,399 
Balance at September 30, 2007  72,515,171  $725  $132,081  $676,378  $(25,140) $(374,459) $409,585 
Shares issued under stock plans, including tax benefit  3,090,678   31   41,820   —   —   (2,031)  —   39,820   990,878   10   12,376   -   -   -   12,386 
Amortization of unearned compensation, forfeitures and change in value of common stock  —   —   —   —   —   1,786   —   1,786 
Share-based compensation  -   -   10,566   -   -   -   10,566 
Purchase of treasury stock  —   —   —   —   —   —   (92,861)  (92,861)  -   -   -   -   -   (100,000)  (100,000)
Comprehensive income:                                                            
Net earnings  —   —   —   91,537   —   —   —   91,537   -   -   -   119,279   -   -   119,279 
Unrealized gains on interest rate swaps, net of taxes  —   —   —   —   417   —   —   417 
Additional minimum pension liability, net of taxes  —   —   —   —   (28,726)  —   —   (28,726)
Unrealized losses on interest rate swaps, net  -   -   -   -   (1,984)  -   (1,984)
Amortization of unrecognized actuarial gain and prior service cost, net  -   -   -   -   7,279   -   7,279 
                                
Total comprehensive income (loss)  —   —   —   91,537   (28,309)  —   —   63,228 
Total comprehensive income  -   -   -   119,279   5,295   -   124,574 
                                
Balance at October 2, 2005  72,504,093   725   379,890   447,015   (29,563)  (8,233)  (224,462)  565,372 
Balance at September 28, 2008  73,506,049   735   155,023   795,657   (19,845)  (474,459)  457,111 
Shares issued under stock plans, including tax benefit  3,136,608   31   50,396   —   —   —   —   50,427   481,021   5   5,076   -   -   -   5,081 
Share-based compensation  —   —   9,285   —   —   —   —   9,285   -   -   9,341   -   -   -   9,341 
Reclass of unearned compensation upon adoption of SFAS 123R  —   —   (8,233)  —   —   8,233   —   — 
Change in pension and postretirement plans’ measurement date, net  -   -   -   (1,855)  40   -   (1,815)
Comprehensive income:                            
Net earnings  -   -   -   118,408   -   -   118,408 
Unrealized gains on interest rate swaps, net  -   -   -   -   21   -   21 
Amortization of unrecognized actuarial loss and prior service cost, net  -   -   -   -   (63,658)  -   (63,658)
               
Total comprehensive income  -   -   -   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 
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  —   —   —   —   —   —   (49,997)  (49,997)  -   -   -   -   -   (97,000)  (97,000)
Comprehensive income:                                                            
Net earnings  —   —   —   108,031   —   —   —   108,031   -   -   -   70,210   -   -   70,210 
Unrealized gains on interest rate swaps, net of taxes  —   —   —   —   180   —   —   180 
Additional minimum pension liability, net of taxes  —   —   —   —   27,587   —   —   27,587 
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  —   —   —   108,031   27,767   —   —   135,798   -   -   -   70,210   4,655   -   74,865 
                                
Balance at October 1, 2006  75,640,701   756   431,338   555,046   (1,796)  —   (274,459)  710,885 
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 the adoption of SFAS 158, net  —   —   —   —   (24,249)  —   —   (24,249)
Comprehensive income:                                
Net earnings  —   —   —   126,304   —   —   —   126,304 
Net unrealized/realized losses on interest rate swaps, net of taxes  —   —   —   —   (1,488)  —   —   (1,488)
Additional minimum pension liability, net of taxes  —   —   —   —   2,393   —   —   2,393 
Balance at October 3, 2010   74,461,632  $     745  $ 187,544  $ 982,420  $ (78,787) $ (571,459) $    520,463 
                                
Total comprehensive income  —   —   —   126,304   905   —   —   127,209 
                 
Balance at September 30, 2007  72,515,171  $725  $132,081  $681,350  $(25,140) $—  $(374,459) $414,557 
                 
 
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”) owns, operates and franchisesJack in the Box® quick-service restaurants and Qdoba Mexican Grill® (“Qdoba”) fast-casual restaurants in 4245 states. The Company also operates 60 proprietary convenience stores called Quick Stuff®, which include a major-branded fuel station developed adjacent to a full-sizeJack infollowing summarizes the Box restaurant.number of restaurants:
             
  2010  2009  2008 
 
Jack in the Box:
            
Company-operated  956   1,190   1,346 
Franchised  1,250   1,022   812 
             
Total system  2,206   2,212   2,158 
             
Qdoba:
            
Company-operated  188   157   111 
Franchised  337   353   343 
             
Total system  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. 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 2007 presentation, including the reclassification of gains on the sale of company-operated restaurants as a reduction of operating costs2010 presentation. In 2010, we separated impairment and expensesother charges, net from revenues. Additionally, all historical shareselling, general and per share data, except for treasury stock,administrative expenses in our consolidated financial statements and notes thereto have been restated to give retroactive recognition of our two-for-one stock split. In the consolidated statements of stockholders’ equity, for all periods presented, the par value ofearnings. We believe the additional shares was reclassified from capital in excessdetail provided is useful when analyzing our results of par value to common stock. Refer to Note 9,Stockholders’ Equity, for additional information regarding the stock split.operations.
 
Fiscal year— Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 2007, 20062010 includes 53 weeks while fiscal 2009 and 20052008 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.
 
Restricted cash— To reduce our letter of credit fees incurred under our credit facility, we entered into a cash-collateralized letter of credit agreement in October 2004. At October 1, 2006, we had letters of credit outstanding under this agreement of $40.2 million, which were collateralized by approximately $47.7 million of cash and cash equivalents. Effective July 2007, we elected to terminate this arrangement. Thus, there are no restrictions on our cash and cash equivalents at September 30, 2007.
Accounts and other receivables, netis primarily comprised of receivables from franchisees, tenants and tenants.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. Changes in accounts and other receivables are classified as operating activity in the consolidated statements of cash flows.
Inventoriesare valued at the lower of cost on afirst-in, first-out basis, or market. Changes in inventories are classified as operating activity in the consolidated statements of cash flows.
Assets held for sale and leasebacktypically represent the costs for new sites that we plan to sell and lease back when construction is completed. Gains or losses realized on sale-leaseback transactions are deferred and amortized to income over the lease terms.


F-7

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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. Assets are not depreciated when classified as held for sale. Assets held for sale consisted of the following at each year-end:
         
  2010  2009 
 
Sites held for sale and leaseback $55,224  $99,612 
Assets held for sale  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 3three to 35 years;years, and equipment assets are assigned lives that range from 2two 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, that takesexcept 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. When indicatorsImpairment evaluations for a group of impairment are present, we perform an impairment analysis on arestaurant-by-restaurant basis. Ifrestaurants takes into consideration the sum of undiscountedgroup’s expected future cash flows is less thanand sales proceeds from bids received, if any, or fair market value based on, among other considerations, the net carrying valuespecific sales and cash flows of those restaurants. If the asset,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 exceeds the fair value of the asset.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. The following table summarizes goodwill by operating segment(in thousands):
         
  Sept. 30,
  Oct. 1,
 
Fiscal Year Ended
 2007  2006 
 
Jack in the Box
 $67,868  $67,868 
Qdoba  28,797   24,319 
         
Total $96,665  $92,187 
         
During fiscal year 2007, aggregate goodwill of $4.5 million was recorded in connection with the acquisition of nine Qdoba restaurants previously operated by franchisees.
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 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 year 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 year 20072010 and determined there was no impairment.


F-8

 
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred financing costs — We capitalize costs incurred in connection with borrowings or establishment of credit facilities. These costs are amortized as an adjustment to interest expense over the life of the borrowing or life of the credit facility using the interest method. In the case of early debt principal repayments, we adjust the value of the corresponding deferred financing costs with a charge to interest expense, net and similarly adjust the future amortization expense. Deferred financing costs are included in other assets, net in the accompanying consolidated balance sheets.
Company-owned life insurance— We have elected to purchasepurchased company-owned life insurance (“COLI”) policies to support our non-qualified benefit plans. The cash surrender values of these policies were $66.8$75.8 million and $54.4$66.9 million as of October 3, 2010 and September 30, 2007 and October 1, 2006,27, 2009, 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 30, 2007 and October 1, 2006,27, 2009, the trust also included cash of $0.7$0.5 million and $0.8 million, respectively, and death benefits receivable of $1.4 million, at September 30, 2007.respectively.
 
Leases— We review all leases for capital or operating classification at their inception under the guidance of Statement of Financial Accounting StandardStandards Board (“SFAS”FASB”) 13,Accountingauthoritative guidance for Leases.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.
 
Asset retirement obligations — Effective the last day of fiscal 2006, we adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 47,Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143(“FIN 47”), which clarifies the term conditional asset retirement obligation and requires a liability to be recorded if the fair value of the obligation can be reasonably estimated. The types of asset retirement obligations that are covered by FIN 47 are those for which an entity has a legal obligation to perform an asset retirement activity; however, the timingand/or method of settling the obligation are contingent on a future event that may or may not be within the control of the entity.
This interpretation only applied to legal obligations associated with the removal of improvements in surrendering our leased properties. The impact of adopting FIN 47 was the recognition of an additional asset of $0.5 million (net of accumulated amortization of $0.4 million), an asset retirement obligation of $2.2 million, and a charge of $1.7 million ($1.0 million, net of tax), which was recorded as a cumulative effect of change in accounting principle in the consolidated statement of earnings for the fiscal year ended October 1, 2006.
Fair value of financial instruments — 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. COLI policies are recorded at their cash surrender values. 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. The estimated fair values of our long-term debt at September 30, 2007 and October 1, 2006 approximate their carrying values. Our derivative instruments are carried at their fair values based upon quoted market prices.
Revenue recognition— Revenue from company restaurant and fuel and convenience store sales areis recognized when the food beverage, convenience store and fuelbeverage products are sold.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.


F-9

 
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
FranchiseOur franchise arrangements generally provide for initial franchise fees and continuing royalty payments to usfees based onupon a percentage of sales.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. Franchise fees are recorded as revenue when we have substantially performed all of our contractual obligations. Expenses associated with the issuance of the franchise are expensed as incurred. Franchise royalties are recorded in revenues on an accrual basis. Certain franchise rents, which are contingent upon sales levels, are recognized in the period in which the contingency is met. Gains on the sale of restaurant businesses to franchisees are recorded when the sales are consummated and certain other gain recognition criteria are met.
 
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 variousseveral of the jurisdictions in which we operate. We recognize income from gift cards when redeemed by the customer redeems the gift card. We have not recognized breakage oncustomer.


F-9

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
While we will continue to honor all gift cards pending,presented for payment, we may determine the likelihood of redemption to be remote for certain card balances due to, among other things, sufficientlong 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 history necessary to estimate our potential breakage. We do not believe gift card breakage will have a material impact on our future operations.balances was $0.7 million in fiscal 2010 and 2009 and $1.0 million in fiscal 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.
 
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 $109.5$89.8 million, $107.5$100.1 million and $104.6$106.9 million in 2007, 20062010, 2009 and 2005,2008, respectively.
 
Share-based compensation— AtWe account for our share-based compensation as required by the beginning of fiscal year 2006, we adopted the fair value recognition provisions of SFAS 123 (revised 2004),Share-Based Payment(“123R”)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. We selected the modified prospective method of adoption. Under this method, compensation expense in 2006 included: (a) all share-based payments granted prior to, but not yet vested as of, October 3, 2005, estimated in accordance with the original provisions of SFAS 123,Accounting for Stock-Based Compensation,and (b) all share-based payments granted on or after October 3, 2005, estimated in accordance with the provisions of SFAS 123R. Results for prior periods were not restated.
SFAS 123R also required companies to calculate an initial “pool” of excess tax benefits available at the adoption date to absorb any tax deficiencies that may be recognized under SFAS 123R. We elected to calculate the pool of excess tax benefits under the alternative transition method described in FASB Staff Position (“FSP”)123-3,Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards, which also specifies the method we must use to calculate excess tax benefits reported on the statement of cash flows.


F-10

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 under SFAS 123R would not have been materially different.


F-10

Prior to fiscal year 2006, stock awards were accounted for under Accounting Principles Board Opinion (“APB”) 25,Accounting for Stock Issued to Employees, using the intrinsic method, whereby compensation expense was recognized for the excess, if any, of the quoted market price of our stock at the date of grant over the exercise price. We applied the disclosure provisions of SFAS 123 as if the fair value based method had been applied in measuring compensation expense.JACK IN THE BOX INC. AND SUBSIDIARIES
 
Had compensation expense been recognized for our stock-based compensation plans by applying the fair value recognition provisions of SFAS 123,we would have recorded net earnings and earnings per share amounts as follows (in thousands, except per share data):
     
  2005 
 
Net earnings, as reported $91,537 
Add: Stock-based employee compensation included in reported net income, net of taxes  1,056 
Deduct: Total stock-based employee compensation expense determined under fair-value- based method for all awards, net of taxes  (7,869)
     
Pro forma net earnings $84,724 
     
Net earnings per share:    
Basic — as reported $1.28 
Basic — pro forma $1.19 
Diluted — as reported $1.24 
Diluted — pro forma $1.15 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the pro forma disclosures, the estimated fair values of the options were amortized on a straight-line basis over their vesting periods of up to five years. Refer to Note 8,Share-Based Employee Compensation, for information regarding the assumptions used by us to value our stock options.
Income taxes— Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize interest and, when applicable, penalties related to unrecognized tax benefits as a component of our income tax provision.
 
Authoritative guidance issued by the FASB prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Refer to Note 10,Income Taxes, for additional information.
Derivative instruments— From time to time, we use 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, and weinstruments. 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


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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 30, 2007, we had two interest rate swaps in effect and no outstanding commodity or utility derivatives. Refer to Note 3,5,Indebtedness,Fair Value Measurements, and Note 6,Derivative Instruments, for additional discussioninformation regarding our interest rate swaps.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 issued Interpretation No. 46 (revised 2003),Consolidation of Variable Interest Entitiesauthoritative 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.
 
The primary entities in which we possess a variable interest are franchise entities, which operate our franchisedfranchise restaurants. We do not possess any ownership interests in franchise entities and we do not generally provide financial support to our franchisees.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 two advertising funds to administer our advertising programs. These funds are consolidated into the Company’s financial statements as they are deemed variable interest entities for which we are the primary beneficiary. Contributions to these funds are designed for advertising, and the Company administers the funds’ contributions. In accordance with SFAS 45,Accounting for Franchise Fee Revenue, contributions from franchisees, when received, are recorded as offsets to advertising expense in the accompanying consolidated statements of earnings.
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 12,16,Segment Reporting, for additional discussion regarding our segments.
Effect of new accounting pronouncements — In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The provisions of SAB 108 became effective during the fourth quarter of fiscal year 2007 but had no impact on our results of operations or financial position.
In September 2006, the FASB issued SFAS 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). Effective September 30, 2007, we implemented the recognition and measurement provisions of SFAS 158. SFAS 158 requires companies to recognize the over or under funded status of their plans as an asset or liability as measured by the difference between the fair value of the plan assets and the projected benefit obligation and requires any unrecognized prior service costs and actuarial gains and losses to be recognized as a component of accumulated other comprehensive income (loss). Additionally, SFAS 158 no longer allows companies to measure their plans as of any date other than as of the end of their fiscal year. However, this provision is not effective until fiscal years ending after December 15, 2008. The adoption of SFAS 158 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


F-12F-11

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
requirement to recognize over and under fundingEffect of ournew accounting pronouncements— In December 2008, the FASB issued authoritative guidance which expands the disclosure requirements about fair value measurements of plan assets for pension and post-retirement health plans. SeeWe adopted with guidance in the fourth quarter of fiscal 2010. The additional disclosures are included in Note 7,11,Retirement Plansfor additional information..
Subsequent events—  The Company has evaluated subsequent events through the time of filing thisForm 10-K with the SEC, and determined there were no other items to disclose.
 
2. DISCONTINUED OPERATIONS
In 2009, we completed the sale of all 61 of our Quick Stuff convenience stores, which included a major-branded fuel station developed adjacent to a full-size Jack in the Box 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


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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
using significant unobservable inputs (Level 3). The following table provides detail of the allocation (in thousands):
     
Property and equipment $6,756 
Reacquired franchise rights  301 
Goodwill  1,058 
     
Total consideration $  8,115 
     
     
In 2009, we acquired 22 Qdoba restaurants from franchisees for net consideration of $6.8 million. The purchase price was allocated to property and equipment, goodwill and other 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 2010 and 2009 by operating segment were as follows(in thousands):
             
  Jack in the Box  Qdoba  Total 
 
Balance at September 28, 2008 $56,992  $28,797  $85,789 
Acquisition of franchised restaurants  -   2,536   2,536 
Sale of company-operated restaurants to franchisees  (2,482)  -   (2,482)
             
Balance at September 27, 2009  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 30, 2007 and October 1, 200627, 2009(in thousands):
 
                
 2007 2006  2010 2009 
Amortized intangible assets:                
Gross carrying amount $58,237  $59,151  $17,035  $17,679 
Less accumulated amortization  (46,980)  (46,930)  (7,849)  (8,045)
          
Net carrying amount  11,257   12,221   9,186   9,634 
          
Unamortized intangible assets:        
Non-amortized intangible assets:
        
Trademark  8,800   8,800   8,800   8,800 
          
Total intangible assets, net $20,057  $21,021 
Net carrying amount $  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 2520 years. Total amortization expense related to intangible assets was $0.9 million, $1.0 million and $1.2$0.7 million in fiscal years 2007, 20062010 and 2005, respectively.$0.8 million in fiscal 2009 and 2008.
 
The following table summarizes, as of September 30, 2007,October 3, 2010, the estimated amortization expense for each of the next five fiscal years(in thousands):
 
     
Fiscal Year
   
 
2008 $788 
2009  757 
2010  742 
2011  741 
2012  722 
     
Total $3,750 
     
3.  INDEBTEDNESS
The detail of long-term debt at each year-end follows(in thousands):
         
  2007  2006 
 
Term loan, variable interest rate based on an applicable margin plus LIBOR, 6.52% at September 30, 2007, quarterly payments of 1.25%, 2.50%, 3.75% and 15.00% of the outstanding principal amount in calendar years 2008,2009-2010, 2011 and 2012, respectively
 $415,000  $— 
Term loan, replaced in fiscal 2007  —   268,125 
Capital lease obligations, 8.74% weighted average interest rate  18,053   23,175 
Other notes, principally unsecured, 9.54% weighted average
interest rate		  250   470 
         
   433,303   291,770 
Less current portion  (5,787)  (37,539)
         
  $427,516  $254,231 
         
     
Fiscal Year
   
 
2011 $780 
2012  769 
2013  735 
2014  702 
2015  688 
     
Total $  3,674 
     


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JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. FAIR VALUE MEASUREMENTS
Financial assets and liabilities— (Continued)The following table presents the financial assets and liabilities measured at fair value on a recurring basis as of October 3, 2010 (in thousands):
                 
     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 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 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. The estimated fair values of our term loan and capital lease obligations approximated their carrying values as of 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 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-rate basis from 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 and to the extent that they are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in earnings but are included in other comprehensive income (loss).
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 
    
  Balance
     Balance
    
  Sheet
  Fair
  Sheet
  Fair
 
  Location  Value  Location  Value 
  
 
Derivatives designated hedging instruments:                
Interest rate swaps (Note 5)  Accrued
liabilities		  $    733   Accrued
liabilities		  $  4,615 
                 
Total derivatives     $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 
  2010  2009  2008 
  
 
Derivatives in cash flow hedging relationship:            
Interest rate swaps (Note 13) $3,882  $42  $(3,210)
                 
  Location of
  Amount of Loss
 
  Gain/(Loss)
  Recognized in Income 
  in Income  2010  2009  2008 
  
 
Derivatives not designated hedging instruments:                
Natural gas contracts  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.
7. INDEBTEDNESS
The detail of long-term debt at each year-end is as follows(in thousands):
         
  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 facilityFacility— On December 15, 2006, weJune 29, 2010, the Company replaced ourits existing credit facility with a new credit facility intended to provide a more flexible capital structure and facilitate the execution of our strategic plan.structure. The new credit facility wasis 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 with London Interbank Offered Rate (“LIBOR”) plus 1.375%2.50%. At inception, we borrowed $475.0 million under the term loan facility and used the proceeds to repay all borrowings under the prior credit facility, to pay related transaction fees and expenses and to repurchase a portion of our outstanding stock. We subsequently elected to make, without penalty, a $60.0 million optional prepayment of our term loan, which will be applied to the remaining scheduled principal installments in the direct order of maturity. The prepayment reduced the interest rate on the credit facility by 25 basis points to LIBOR plus 1.125%. At September 30, 2007, we had no borrowings under the revolving credit facility, $415.0 million outstanding under the term loan and letters of credit outstanding of $37.1 million.
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.exceptions as reflected in the credit agreement.
 
Loan origination costs associated with the new credit facility were $7.4 million and are included as deferred costs in other assets, net in the accompanying consolidated balance sheet as of September 30, 2007. Deferred financing fees of $1.9 million related to the prior credit facility were written-off and are included in interest expense, net in the accompanying consolidated statement of earnings in fiscal 2007.
Concurrent with the termination of our prior credit facility, we liquidated our then existing interest rate swap agreements. In connection with the liquidation, the fair value of the interest rate swaps recorded as a component of accumulated other comprehensive loss was reversed and we realized a net gain of $0.4 million, included in interest expense, net in the accompanying consolidated statement of earnings in fiscal 2007.
New interest rate swaps — 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, we entered into two interest rate swap agreements that will effectively convert $200.0 million of our variable rate term loan borrowings to a fixed rate basis for three years. These agreements have been designated as cash flow hedges under the terms of SFAS 133,Accounting for Derivative Instruments and Hedging Activities, with effectiveness assessed based on changes in the present value of interest payments on the term loan. As such, the gains or losses on these derivatives will be reported in other comprehensive income.
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 and prepay term loans with a portion of our excess cash flows, as defined therein. As of September 30, 2007, we compliedratios. We were in compliance with all debt covenants.


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JACK IN THE BOX INC. AND SUBSIDIARIES
covenants at October 3, 2010.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
      
2008 $5,787 
2009  2,390 
2010  48,169 
2011  66,605  $13,781 
2012  232,679   21,137 
2013  23,478 
2014  53,430 
2015  250,901 
      
Total principal payments $355,630  $ 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 2007, 20062010, 2009 and 20052008 was $1.4$0.3 million, $1.4$0.7 million and $1.1$0.9 million, respectively.
 
4.8. 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):
 
                        
 2007 2006 2005  2010 2009 2008 
Minimum rentals $194,889  $191,772  $184,277  $222,600  $208,091  $199,903 
Contingent rentals  3,942   3,765   3,157   1,804   2,954   3,444 
              
Total rent expense  198,831   195,537   187,434   224,404   211,045   203,347 
Less sublease rentals  (41,147)  (33,202)  (26,087)  (83,340)  (61,529)  (50,004)
              
Net rent expense $157,684  $162,335  $161,347  $ 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 
2008 $7,040  $188,191 
2009  3,420   178,141 
2010  2,284   163,494 
2011  2,120   155,025  $2,101  $219,414 
2012  1,821   145,049   1,841   209,939 
2013  1,583   195,523 
2014  1,426   185,697 
2015  1,309   171,073 
Thereafter  8,585   983,513   4,564   919,376 
          
Total minimum lease payments  25,270  $1,813,413   12,824  $ 1,901,022 
      
Less amount representing interest, 8.74% weighted average interest rate  (7,217)    
Less amount representing interest, 10.14% weighted average interest rate  (3,913)    
      
Present value of obligations under capital leases  18,053       8,911     
Less current portion  (5,620)      (1,281)    
      
Long-term capital lease obligations $12,433      $  7,630     
      


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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Total future minimum lease payments have not been reduced by minimum sublease rents of $841.0 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):
 
                
 2007 2006  2010 2009 
Buildings $23,112  $23,165  $22,733  $22,733 
Equipment  20,247   19,783   16   499 
          
  43,359   42,948   22,749   23,232 
Less accumulated amortization  (29,431)  (24,104)  (15,340)  (15,048)
          
 $13,928  $18,844  $7,409  $  8,184 
          
 
Amortization of assets under capital leases is included in depreciation and amortization expense.
Leases Of Lessor Disclosure

 
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 $74.4$133.8 million, $58.8$105.5 million and $46.8$88.6 million, including contingent rentals of $13.9$7.7 million, $11.7$13.0 million and $10.3$13.8 million, in 2007, 20062010, 2009 and 2005,2008, 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
      
2008 $63,268 
2009  60,595 
2010  57,765 
2011  56,250  $122,577 
2012  54,464   120,393 
2013  117,872 
2014  117,010 
2015  116,238 
Thereafter  614,837   1,199,605 
      
Total minimum future rentals $907,179  $ 1,793,695 
      
 
Assets held for lease consisted of the following at each year-end(in thousands):
 
                
 2007 2006  2010 2009 
Land $29,716  $25,981  $49,913  $36,507 
Buildings  160,858   131,810   410,823   256,858 
Equipment  4,172   3,109   373   - 
          
  194,746   160,900   461,109   293,365 
Less accumulated amortization  (89,535)  (70,554)
Less accumulated depreciation  (207,616)  (140,870)
          
 $105,211  $90,346  $253,493  $152,495 
          
 
5.9. IMPAIRMENT, DISPOSAL OF PROPERTY AND EQUIPMENT, AND RESTAURANT CLOSING IMPAIRMENT CHARGES AND OTHERCOSTS
 
In 2007,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 closed fiveJack inexpect to generate from such assets, we recognize an impairment loss as the Box restaurants and recognized impairmentamount 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 $1.1 million. We also recorded impairment charges of $0.2 millionprimarily relate to the write-down of the carrying value of onecertain underperforming Jack in the Box restaurant which restaurants we continue to operate.operate and restaurants we have closed.
Disposal of property and equipment— We also recognize accelerated depreciation and other costs on the disposition of property and equipment. When we decide to dispose of a long-lived asset, depreciable lives are adjusted based on the estimated disposal date and accelerated depreciation is recorded. Other disposal costs primarily relate to gains or losses recognized upon the sale of closed restaurant properties and normal ongoing capital maintenance activities.
The following impairment and disposal costs are included in impairment and other charges, net in the accompanying consolidated statements of 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-16F-18

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In 2006, we recorded impairment charges of $1.6 million related to sevenJack in the Box restaurants which we closed or the lease expired. In 2006, based upon our estimatesRestaurant closing costsconsist of future cash flows, we also recorded impairment chargeslease commitments, net of $2.5 million to write-down the carrying value of eightJack in the Box restaurants.
In fiscal 2005, we incurredanticipated sublease rentals and expected ancillary costs, of approximately $3.0 million related to the cancellation of the Company’s test of a fast-casual concept called JBX Grill.
Impairment chargesand are included in selling, generalimpairment and administrative expenses in the consolidated statements of earnings in each year.
other charges, net. Total accrued restaurant closing costs, included in accrued expensesliabilities and other long-term liabilities, changed as follows during 2007 and 2006((in thousands)thousands):
 
                
 2007 2006  2010 2009 
Balance at beginning of year $5,084  $5,495  $4,234  $4,712 
Additions and adjustments  1,298   454   22,362   834 
Cash payments  (931)  (865)  (1,576)  (1,312)
          
Balance at end of year $5,451  $5,084  $ 25,020  $    4,234 
          
 
Additions and adjustments primarily relate to revisions to certain sublease assumptions and the closureclosures of threecertain Jack in the Box restaurants restaurants. Additions in 2007 and2010 principally relate to the closure of two region offices40 restaurants at the end of the fiscal year which resulted in 2006.future lease commitment charges of $20.3 million.
 
6.10. INCOME TAXES
 
The fiscal year income taxes consist of the following(in thousands):
 
                        
 2007 2006 2005  2010 2009 2008 
Current:                        
Federal $72,781  $62,257  $44,007  $55,046  $91,088  $54,967 
State  11,485   8,828   5,897   8,314   13,442   9,061 
              
  84,266   71,085   49,904   63,360   104,530   64,028 
              
Deferred:                        
Federal  (11,875)  (9,973)  (2,948)  (24,070)  (21,846)  5,202 
State  (2,364)  (1,213)  (289)  (3,484)  (3,229)  1,021 
              
  (14,239)  (11,186)  (3,237)  (27,554)  (25,075)  6,223 
              
Subtotal income tax  70,027   59,899   46,667 
Income tax benefit related to cumulative effect of accounting change  —   646   — 
Income tax expense from continuing operations $35,806  $79,455  $70,251 
              
Total income tax expense $70,027  $60,545  $46,667 
Income tax expense (benefit) from discontinued operations $-  $(7,465) $679 
              


F-17

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
A reconciliation of the federal statutory income tax rate to our effective tax rate is as follows:
 
                        
 2007 2006 2005  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  3.5   3.2   3.0   3.2   3.2   3.3 
Benefit of jobs tax credits  (1.1)  (.8)  (1.4)  (1.8)  (0.7)  (2.5)
Benefit of research and experimentation credits  (.2)  (.8)  — 
Adjustment to estimated tax accruals  —   —   (1.9)
Other, net  (1.5)  (.9)  (.9)
Benefit of cash surrender value  (2.3)  -   (0.1)
Others, net  (0.3)  0.2   1.6 
              
  35.7%  35.7%  33.8%    33.8%     37.7%     37.3% 
              


F-19

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
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):
 
                
 2007 2006  2010 2009 
Deferred tax assets:                
Accrued pension and postretirement benefits $34,721  $18,455  $57,817  $58,256 
Accrued insurance  17,806   18,714   13,603   12,676 
Leasing transactions  14,476   14,377   11,290   13,304 
Accrued vacation pay expense  12,322   12,539   8,528   11,835 
Deferred income  3,535   4,614   2,436   2,660 
Other reserves and allowances  9,313   9,072   33,893   21,955 
Tax loss and tax credit carryforwards  3,195   2,736   4,087   3,924 
Share-based compensation  8,584   5,418   16,708   12,172 
Other, net  3,085   2,147   4,515   3,922 
          
Total gross deferred tax assets  107,037   88,072   152,877   140,704 
Valuation allowance  (3,158)  (2,560)  (4,087)  (3,924)
          
Total net deferred tax assets  103,879   85,512   148,790   136,780 
     
Deferred tax liabilities:                
Property and equipment, principally due to differences in depreciation  (77,243)  (89,172)  (38,250)  (51,734)
Intangible assets  (24,784)  (23,291)  (23,394)  (22,737)
          
Total gross deferred tax liabilities  (102,027)  (112,463)  (61,644)  (74,471)
          
Net deferred tax assets (liabilities) $1,852  $(26,951)
Net deferred tax assets $87,146  $62,309 
          
 
Deferred tax assets at September 30, 2007October 3, 2010 include state net operating loss carryforwards of approximately $48.0$63.5 million expiring at various times between 2011 and 2028. At October 3, 2010 and 2027. At September 30, 2007 and October 1, 2006,27, 2009, we recorded a valuation allowance related to state net operating losses of $3.2$4.1 million for October 3, 2010 and $2.6$3.9 million respectively.for September 27, 2009. The current year change in the valuation allowance of $0.6$0.2 million relatedrelates to state net operating 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.
At September 27, 2009, our gross unrecognized tax benefits associated with uncertain income tax positions were $0.6 million, which if recognized, would favorably affect the effective income tax 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):
         
  2010  2009 
 
Balance beginning of year $608  $4,172 
Increases to tax positions recorded during current years  200   195 
Reductions to tax positions due to settlements with taxing authorities  (179)  (3,759)
         
Balance at end of year $    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-18F-20

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
state tax jurisdictions, have not expired for tax years 2000 and 2006, respectively, and forward. Generally, the statutes of limitations for the other state jurisdictions have not expired for tax years 2007 and forward.
 
7.11. 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 $1.9$1.5 million, $1.9 million and $1.8$2.0 million in 2007, 20062010, 2009 and 2005,2008, 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 $1.0 million, $1.2 million, and $1.1 million and $1.3 million in 2007, 20062010, 2009 and 2005,2008, 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 plansplan (“qualified pension plans”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. Effectivebenefits and has been closed to new participants since January 1, 2007,2007. In connection with the SERP was closed to any new participants.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.
 
New accounting policy — As discussed in Note 1,Organization and Summary of Significant Accounting Policies, effective September 30, 2007, we adopted the recognition and disclosure provisions of SFAS 158, which required us to recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of our pension and postretirement plans in our September 30, 2007 consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income (“AOCI”), net of tax. The adjustment to AOCI at adoption represents the net unrecognized actuarial losses, unrecognized prior service costs, and unrecognized transition obligations remaining from the initial adoption of SFAS 87,Employers’ Accounting for Pensions. These amounts will be subsequently recognized as net periodic benefit costs pursuant to our historical accounting policy for amortizing such amounts.


F-19

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The adoption of SFAS 158 had no impact on the consolidated statements of earnings. The incremental effects of adopting the provisions of SFAS 158 on the consolidated balance sheet at September 30, 2007 are presented in the following table(in thousands):
             
  Before Application
  SFAS 158
  After Application
 
  of SFAS 158  Adjustments  of SFAS 158 
 
Deferred income taxes $2,500  $15,450  $17,950 
Pension asset  29,032   (27,394)  1,638 
             
Total assets  1,394,766   (11,944)  1,382,822 
             
Current liability for pension and postretirement benefits  —   (2,985)  (2,985)
Deferred income taxes  —   (2,802)  (2,802)
Long-term liability for pension and postretirement benefits  (59,467)  (2,517)  (61,984)
             
Total liabilities  (959,961)  (8,304)  (968,265)
             
AOCI, net  4,001   20,248   24,249 
             
Total stockholders’ equity $(434,805) $20,248  $(414,557)
             
SFAS 158 will also require measurement of the funded status of pension and postretirement plans as of the date of a company’s fiscal year end. Our pension and postretirement plans have June 30 measurement dates which do not coincide with our fiscal year end. We will change our measurement dates to coincide with our fiscal year end in fiscal 2009, or earlier, as allowed by SFAS 158.


F-20

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 June 30, 2007October 3, 2010 and June 30, 2006.
                         
  Qualified Pension Plans  Non-Qualified Pension Plan  Postretirement Health Plans 
  2007  2006  2007  2006  2007  2006 
  (In thousands) 
 
Change in benefit obligation:
                        
Obligation at beginning of year $196,031  $210,363  $36,753  $37,544  $16,683  $18,822 
Service cost  9,846   12,042   734   771   213   272 
Interest cost  13,201   12,258   2,401   2,067   1,081   1,023 
Participant contributions  —   —   —   —   115   102 
Actuarial loss (gain)  9,924   (35,351)  1,852   (2,326)  1,169   (2,973)
Benefits paid  (4,107)  (3,281)  (2,112)  (1,828)  (774)  (563)
Plan amendment and other  —   —   —   525   —   — 
                         
Obligation at end of year $224,895  $196,031  $39,628  $36,753  $18,487  $16,683 
                         
Change in plan assets:
                        
Fair value at beginning of year $185,540  $158,928  $—  $—  $—  $— 
Actual return on plan assets  26,246   15,893   —   —   —   — 
Participant contributions  —   —   —   —   115   102 
Employer contributions  9,000   14,000   2,112   1,828   659   461 
Benefits paid  (4,107)  (3,281)  (2,112)  (1,828)  (774)  (563)
                         
Fair value at end of year $216,679  $185,540  $—  $—  $—  $— 
                         
Reconciliation of funded status:
                        
Funded status $(8,216) $(10,491) $(39,628) $(36,753) $(18,487) $(16,683)
Unrecognized net loss (gain)  —   34,376   —   7,308   —   (6,338)
Unrecognized prior service cost  —   584   —   4,110   —   816 
Unrecognized net transition obligation  —   —   —   142   —   — 
Employer contributions after measurement date  3,000   —   —   —   —   — 
                         
Net amount recognized $(5,216) $24,469  $(39,628) $(25,193) $(18,487) $(22,205)
                         
Amounts recognized prior to the adoption of SFAS 158:
                        
Accrued benefit liability     $—      $(33,362)     $(22,205)
Prepaid benefit cost      24,469       —       — 
Minimum pension liability      —       3,917       — 
Intangible assets      —       4,252       — 
                         
Net amount recognized     $24,469      $(25,193)     $(22,205)
                         
Amounts recognized after the adoption of SFAS 158:
                        
Noncurrent assets $1,638      $—      $—     
Current liabilities  —       (2,195)      (790)    
Noncurrent liabilities  (6,854)      (37,433)      (17,697)    
                         
Net amount recognized $(5,216)     $(39,628)     $(18,487)    
                         
Amounts in AOCI not yet reflected in net periodic benefit cost:
                        
Net actuarial loss (gain) $30,339      $8,756      $(4,238)    
Prior service cost  459       3,450       631     
                         
Total $30,798      $12,206      $(3,607)    
                         
Amounts in AOCI expected to be amortized in fiscal 2008 net periodic benefit cost:
                        
Net actuarial loss (gain) $868      $533      $(821)    
Prior service cost  124       780       185     
                         
Total $992      $1,313      $(636)    
                         
September 27, 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 — (Continued)
 
benefits, which require the measurement date to be consistent with our fiscal year end. Previously, we used a June 30 measurement date.(in thousands):
                         
  Qualified Pension Plans  Non-Qualified Pension Plan  Postretirement Health Plans 
  2010  2009  2010  2009  2010  2009 
 
Change in benefit obligation:
                        
Obligation at beginning of year $  290,469  $  212,027  $  49,445  $  40,634  $  23,828  $16,979 
Service cost  11,726   9,045   829   641   106   99 
Interest cost  17,704   15,334   3,003   2,907   1,435   1,199 
Participant contributions  -   -   -   -   142   138 
Actuarial loss  26,594   55,779   3,053   7,717   4,677   6,185 
Benefits paid  (8,061)   (7,810)   (3,001)   (3,341)   (2,369)   (1,097) 
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 $321,941  $290,469  $53,505  $49,445  $27,819  $23,828 
                         
Change in plan assets:
                        
Fair value at beginning of year $231,584  $228,772  $-  $-  $-  $- 
Actual return on plan assets  27,296   (11,878)   -   -   -   - 
Participant contributions  -   -   -   -   142   138 
Employer contributions  20,000   22,500   3,001   3,341   2,227   959 
Benefits paid  (8,061)   (7,810)   (3,001)   (3,341)   (2,369)   (1,097) 
                         
Fair value at end of year $270,819  $231,584  $-  $-  $-  $- 
                         
                         
Funded status at end of year
 $(51,122)  $(58,885)  $(53,505)  $(49,445)  $(27,819)  $(23,828) 
                         
Amounts recognized on the balance sheet:
                        
Current liabilities $-  $-  $(3,184)  $(2,827)  $(1,193)  $(1,053) 
Noncurrent liabilities  (51,122)   (58,885)   (50,321)   (46,618)   (26,626)   (22,775) 
                         
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:
                        
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 $101,447  $111,075  $18,854  $17,279  $6,412  $1,984 
                         
Other changes in plan assets and benefit obligations recognized in OCI:
                        
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)   (465)   (707)   (184)   (185) 
Prior service cost due to curtailment  (56)   -   176   -   -   - 
Net gain arising due to curtailment  (16,491)   -   -   -   -   - 
                         
Total recognized in OCI  (9,628)   89,334   1,575   6,614   4,429   6,964 
Net periodic benefit cost and other losses  21,865   7,073   5,486   4,651   1,789   519 
                         
Total recognized in comprehensive income $12,237  $96,407  $7,061  $11,265  $6,218  $7,483 
                         
Amounts in AOCI expected to be amortized in fiscal 2011 net periodic benefit cost:
                        
Net actuarial loss $8,518      $1,305      $202     
Prior service cost  -       488       31     
                         
Total $8,518      $1,793      $233     
                         


F-22

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Prior to SFAS 158, the measure of whether a pension plan was underfunded for recognition of a liability under financial accounting requirements was based on a comparison of the ABO to the fair value of plan assets and amounts accrued for such benefits in the balance sheets. With the adoption of SFAS 158, the The funded status is measured as the difference between the fair value of a plan’s assets and its PBO.
 
As of June 30, 2007October 3, 2010 and 2006,September 27, 2009, the qualified plans’plan’s ABO exceeded the fair market value of its plan assets exceeded the respective accumulated benefit obligations.assets. The non-qualified plan is an unfunded plan and, as such, had no plan assets as of June 30, 2007October 3, 2010 and 2006.September 27, 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):
 
                
 2007 2006  2010 2009
Qualified plans:
        
Qualified plan:
      
Projected benefit obligation $224,895  $196,031  $  321,941  $  290,469 
Accumulated benefit obligation  190,866   164,548   302,982   254,470 
Fair value of plan assets  216,679   185,540   270,819   231,584 
 
Non-qualified plan:
              
Projected benefit obligation $39,628  $36,753  $53,505  $49,445 
Accumulated benefit obligation  37,373   33,362   53,282   46,875 
Fair value of plan assets  —   —   -   - 
 
Since our nonqualified defined benefit pension plan is not funded, we were required to recognized a minimum pension liability in our balance sheets prior to adopting SFAS 158. This minimum liability was $3.9 million at October 1, 2006.
At the end of 2007 and prior to our adoption of SFAS 158, we recorded a minimum pension liability for our non-qualified defined benefit pension plan for the amount by which the ABO exceeded the fair value of the plan assets, after adjusting for the plan’s previously recorded accrued cost. We subsequently eliminated the minimum pension liability balance related to our plan that had been recorded prior to adoption. The minimum liability eliminated at September 30, 2007 was $6.5 million.


F-22

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net periodic benefit cost— The components of the fiscal year net periodic benefit cost were as follows:follows(in thousands):
 
                             
              Amort. of
  Amort. of
    
        Expected
  Actuarial
  Unrecognized
  Unrecognized
    
  Service
  Interest
  Return on
  (Gain)
  Prior
  Net Transition
  Net Periodic
 
  Cost  Cost  Plan Assets  Loss  Service Cost  Obligation  Benefit Cost 
  (In thousands) 
 
Qualified pension plans:
                            
2007 $9,846  $13,201  $(14,541) $2,257  $124  $—  $10,887 
2006  12,042   12,258   (12,428)  8,416   124   —   20,412 
2005  8,393   10,053   (9,438)  4,072   124   —   13,204 
Non-qualified pension plan:
                            
2007 $734  $2,401  $—  $404  $707  $95  $4,341 
2006  771   2,067   —   735   671   95   4,339 
2005  644   2,043   —   442   652   95   3,876 
Postretirement health plans:
                            
2007 $213  $1,081  $—  $(930) $185  $—  $549 
2006  272   1,023   —   (371)  185   —   1,109 
2005  292   1,127   —   (372)  185   —   1,232 
             
  2010  2009  2008 
 
Qualified defined pension plan:
            
Service cost $  11,726  $  9,045  $  10,427 
Interest cost  17,704   15,334   14,539 
Expected return on plan assets  (17,714)   (17,485)   (17,010) 
Actuarial loss  9,969   55   971 
Amortization of unrecognized prior service cost  124   124   124 
Prior service cost due to curtailment  56   -   - 
             
Net periodic benefit cost $  21,865  $7,073  $9,051 
             
Non-qualified pension plan:
            
Service cost $829  $641  $802 
Interest cost  3,003   2,907   2,552 
Actuarial loss  1,189   396   533 
Amortization of unrecognized prior service cost  465   707   733 
             
Net periodic benefit cost $  5,486  $4,651  $4,620 
             
Postretirement health plans:
            
Service cost $106  $99  $222 
Interest cost  1,435   1,199   1,176 
Actuarial loss (gain)  64   (964)   (821) 
Amortization of unrecognized prior service cost  184   185   185 
             
Net periodic benefit cost $  1,789  $519  $762 
             
 
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 30, 2007, October 1, 200627, 2009 and October 2, 2005,September 28, 2008, respectively, we used the following weighted-average assumptions:
 
                        
 2007 2006 2005    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  6.50%  6.60%  5.50%  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  6.50%  6.60%  5.50%  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  6.50%  6.60%  5.50%  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  6.60%  5.50%  6.45%  6.16%   7.30%   6.50% 
Long-term rate of return on assets  7.75   7.75   7.50   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  6.60%  5.50%  6.45%  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  6.60%  5.50%  6.45%  6.16%   7.30%   6.50% 
 
 
(1)Determined as of end of year.
(2)Determined as of beginning of year.


F-23

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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.
 
For measurement purposes, the weighted-average assumed health care cost trend rates for our postretirement health plans were as follows for each fiscal year:
 
                
 2007 2006    2010     2009  
Health care cost trend rate for next year:              
Participants under age 65  8.33%  9.12%    7.75%     8.00% 
Participants age 65 or older  8.50%  9.50%  7.25%   7.50% 
Rate to which the cost trend rate is assumed to decline  4.92%  4.94%  4.50%   5.00% 
Year the rate reaches the ultimate trend rate  2013   2014   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 increasethousands):
         
  1% Point
 1% Point
  Increase Decrease
 
Total interest and service cost $211  $(178) 
Postretirement benefit obligation $ 3,727  $ (3,155) 
Plan assets— Our investment philosophy is to (1) protect the postretirement benefit obligation as of September 30, 2007 by $2.4 million and the aggregatecorpus of the service and interest cost components of net periodic benefit cost for 2007 by $0.2 million. Iffund; (2) establish investment objectives that will allow the assumed health care cost trend rates decreased by 1.0% in each year,market value to exceed the postretirement benefit obligation would decrease by $2.0 million as of September 30, 2007, and the aggregatepresent value of the servicevested and interest components of net periodic benefit cost for 2007 would decrease by $0.2 million.
Plan assets —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 new target asset allocation. The qualified pension plans had the following asset allocations at June 30, 2007 and June 30, 2006:follows:
 
         
  2007  2006 
 
U.S. equities  42%  41%
Debt securities  37   38 
International equities  15   15 
Balanced fund  6   6 
         
   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-24F-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
 
  Pension Plans  Health Plans(1) 
 
Estimated net contributions during fiscal 2008 $15,195  $790 
Estimated future year benefit payments during fiscal years:        
2008 $6,355  $790 
2009  7,237   873 
2010  7,766   929 
2011  8,405   980 
2012  9,199   1,048 
2013-2017  64,914   6,107 
         
  Defined
    
  Benefit
  Postretirement
 
  Pension  Health Plans 
 
Estimated net contributions during fiscal 2011 $  13,184  $  1,193 
Estimated future year benefit payments during fiscal years:        
2011 $9,802  $1,193 
2012  10,187   1,249 
2013  10,639   1,305 
2014  11,207   1,384 
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 30, 2007October 3, 2010 and include estimated future employee service.
 
8.12. 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 30, 2007, 2,593,648October 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;Plan, the 1993 Stock Option Plan;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 deferred are converted intoto stock equivalents at the then current market price of our common stock. Effective November 9, 2006, the deferred compensationequivalents. The plan was amended to eliminate a 25% company match of such deferred amounts and requirerequires 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. As a result of changing the method of settlement from cash to stock, the deferred compensation obligation has been reclassified from accrued liabilities to capital in excess of par value in the accompanying consolidated balance sheet as of September 30 2007. This plan provides for the issuance of up to 200,000350,000 shares of common sharesstock in connection with the crediting of stock equivalents. NoAs of October 3, 2010, 263,424 shares have been issued in connection withof common stock were available for future issuance under this plan, as amended, as of September 30, 2007.


F-25

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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 to certain limitations. A maximum of 200,000 shares of common stock may be issued under the plan. As of September 30, 2007, 188,752October 3, 2010, 143,072 shares of common stock were available for future issuance under this Plan.plan.
 
Compensation expense— The components of share-based compensation expense recognized in each year are as follows(in thousands):
 
                        
 2007 2006 2005  2010 2009 2008 
Stock options $8,602  $7,270  $—  $  7,234  $  8,952  $  7,880 
Performance-vested stock awards  2,416   1,210   838   1,145   (1,429)  1,381 
Nonvested stock awards  1,246   805   558   923   704   1,034 
Deferred compensation for directors — liability classified  324   2,885   280 
Deferred compensation for directors — equity classified  376   —   — 
Nonvested stock units  1,024   830   - 
Deferred compensation for directors  279   284   271 
              
Total share-based compensation expense $12,964  $12,170  $1,676  $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 year 2007:2010:
 
                                
     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 October 1, 2006  6,235,034  $13.78         
Options outstanding at September 27, 2009  4,788,326  $21.31         
Granted  1,008,800   30.28           550,000   19.26         
Exercised  (2,362,436)  11.77           (407,452)  12.73         
Forfeited  (13,111)  20.71           (33,417)  22.16         
Expired  (19,930)  10.91           (12,511)  13.05         
      
Options outstanding at September 30, 2007  4,848,357  $18.19   6.32  $68,990 
Options outstanding at October 3, 2010  4,884,946  $  21.81   4.47  $  25,606 
      
Options exercisable at September 30, 2007  2,926,501  $14.57   5.59  $52,234 
Options exercisable at October 3, 2010  4,068,523  $21.95   4.22  $21,483 
      
Options exercisable and expected to vest at September 30, 2007  4,753,657  $18.11   6.29  $68,008 
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-26F-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:
 
                        
 2007 2006 2005  2010 2009 2008 
Risk-free interest rate  4.20%  4.12%  4.10%  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  37.85%  34.88%  35.50%  38.65%   45.62%   45.74% 
Expected life of options (in years)  4.65   5.92   6.00   4.46   5.23   4.38 
 
In 2007, 20062010, 2009 and the fourth quarter of fiscal 2005,2008, 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. Inlife of the first three quarters of 2005, the risk-free rates were based on the grant date rate for zero coupon U.S. government issues with a remaining term similar to the expected life.related options.
 
The dividend yield assumption is based on the Company’s history and expectations of dividend payouts.
 
The expected stock price volatility in 2007, 2006 and the fourth quarter of 2005,all years represents an average of the implied volatility and the Company’s historical volatility. In 2005, prior to using a binomial-based model, the expected stock price volatility was based on the historical volatility of the Company’s stock for a period approximating the expected life.
 
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 $11.20, $10.21,$6.54, $10.27 and $6.86$9.82 in 2007, 2006,2010, 2009 and 2005,2008, 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 $47.6$4.0 million, $33.7$4.4 million and $25.5$12.5 million in 2007, 2006,2010, 2009 and 2005,2008, respectively.
 
As of September 30, 2007,October 3, 2010, there was approximately $13.7$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 1.61.72 years.
 
Performance-vested stock awards — We began granting performance-vested stock awards to certain employees in fiscal year 2005. 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 being reflected over the performance period and is reduced for estimated forfeitures. The expected cost for all awards granted is based on the fair value of our stock on the date of grant reducedand is reflected over the performance period with a reduction for estimated forfeitures, as itforfeitures. 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 year 2007:2010:
 
                
   Weighted-
    Weighted-
 
   Average
    Average Grant
 
   Grant Date
    Date Fair
 
 Shares Fair Value  Shares Value 
Performance-vested stock awards outstanding at October 1, 2006  427,612  $19.60 
Performance-vested stock awards outstanding at September 27, 2009  323,975  $  15.53 
Granted  112,320   30.69   225,440   19.19 
Issued  (1,244)  14.96   (47,545)  15.56 
Canceled  (161,560)  15.56 
Forfeited  (14,840)  19.77   (46,008)  16.40 
      
Performance-vested stock awards outstanding at September 30, 2007  523,848  $22.02 
Performance-vested stock awards outstanding at October 3, 2010  294,302  $18.18 
      
Vested and subject to release at September 30, 2007  146,116  $14.96 
Vested and subject to release at October 3, 2010  40,017  $15.32 
      


F-27

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
As of September 30, 2007,October 3, 2010, there was approximately $5.2$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 1.971.8 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 30, 2007,during 2010, 2009 and 2008 was


F-29

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$0.6 million, $0.7 million and $0.9 million, respectively. In 2010, 2009 and 2008, the end of the first three-year period, was $4.7 million. We expect to issue the stock associated with these awards in November 2007. In 2006, 1,244 awards vested with atotal grant date fair value of $0.02 million. No awards vested in 2005.shares issued was $0.7 million, $1.0 million and $2.0 million, respectively.
 
Nonvested stock awards— We generally issueissued nonvested stock awards (“RSAs”) to certain executives under our share ownership guidelines. OurEffective February 2008, we no longer issue these awards which have been replaced by grants of nonvested stock awardsunits. Our RSAs 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 stockRSA activity for fiscal year 2007:2010:
 
         
     Weighted-
 
     Average
 
     Grant Date
 
  Shares  Fair Value 
 
Nonvested stock outstanding at October 1, 2006  591,940  $12.28 
Granted  —   — 
Released  (102,000)  10.64 
Forfeited  —   — 
         
Nonvested stock outstanding at September 30, 2007  489,940  $12.62 
         
Vested at September 30, 2007  322,200  $10.64 
         
         
     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 30, 2007,October 3, 2010, there was approximately $3.7$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 5.55.4 years. NoDuring 2008, we granted 64,545 shares of nonvested stock were granted in 2007. During 2006 and 2005, we granted 11,000 and 115,740 shares of nonvested stock, respectively,RSAs with a grant date fair value of $26.35. No shares of RSAs were granted in 2010 or 2009. The total fair value of RSAs that vested was $0.2 million during 2010 and $2.02009 and $0.4 million respectively.during 2008. In 20072010, 2009 and 2006,2008, the total grant date fair value of shares released was $1.1$0.6 million, $1.3 million and $0.2$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 (“RSUs”). RSUs replace RSAs previously issued to certain executives under our share ownership guidelines and annual option grants previously granted to our non-management directors. Our RSUs 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 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 RSU activity for fiscal 2010:
         
     Weighted-
 
     Average Grant
 
     Date Fair
 
  Shares  Value 
 
Nonvested stock units outstanding at September 27, 2009  61,854  $     21.46 
Granted  96,949   21.05 
Released  (5,000)  20.07 
         
Nonvested stock units outstanding at October 3, 2010  153,803  $21.25 
         
As of October 3, 2010, there was approximately $1.5 million of total unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of 7.0 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 2005.2009.
 
Non-management directors’ deferred compensation— Effective November 9, 2006, allAll awards outstanding under our directors’ deferred compensation plan are accounted for as equity-based awards per the provisions of SFAS 123R and deferred amounts are converted into stock equivalents at the then current market price of our common stock. Prior to November 9, 2006, these awards were accounted for as liability-based awards, and in addition to converting deferrals into stock equivalents at the then current market price of our stock, our liability was adjusted at the end of each reporting period to reflect the value of the directors’ stock equivalents at the then market price of our common stock. Cash used to settle directors’ deferred compensation upon a director’s retirement from the Board in fiscal 2006 was $1.1 million. No deferrals were settled in 2007 and 2005.
The following is a summary of the stock equivalent activity for fiscal year 2007:
         
     Weighted-
 
     Average
 
  Stocks
  Grant Date
 
  Equivalents  Fair Value 
 
Stock equivalents outstanding at October 1, 2006  212,208  $10.65 
Deferred directors’ compensation  9,920   33.17 
Stock distribution  —   — 
         
Stock equivalents outstanding at September 30, 2007  222,128  $11.66 
         


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JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 2010.
The following is a summary of the stock equivalent activity for fiscal 2010:
         
     Weighted-
 
     Average Grant
 
  Stock
  Date Fair
 
  Equivalents  Value 
 
Stock equivalents outstanding at September 27, 2009  162,404  $     14.16 
Deferred directors’ compensation  7,914   20.85 
         
Stock equivalents outstanding at October 3, 2010  170,318  $14.47 
         
Employee stock purchase plan— In fiscal year 2007, 11,2482010, 2009 and 2008, 14,565, 15,548 and 15,567 shares, respectively, were purchased through the ESPP at an average price of $32.51. The first offering period concluded in the first quarter of 2007, therefore no shares were issued under this plan in 2006$19.32, $19.99 and 2005.$25.65, respectively.
 
9.13. 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.
 
Stock split — On August 3, 2007, our Board of Directors approved a2-for-1 split of our common stock, that was effected in the form of a 100% stock dividend on October 15, 2007. In connection with the stock split, our shareholders approved, on September 21, 2007, an amendment to our Certificate of Incorporation to increase the number of authorized common shares from 75.0 million to 175.0 million.
Repurchases of common stock— OnIn November 21, 2006, we announced the commencement of a modified “Dutch Auction” tender offer (“Tender Offer”) for up to 5.5 million shares of our common stock at a price per share not less than $55.00 and not greater than $61.00, for a maximum aggregate purchase price of $335.5 million. On December 19, 2006, we accepted for purchase approximately 2.3 million shares of common stock at a purchase price of $61.00 per share, for a total cost of $143.3 million.
On December 20, 2006,2007, the Board of Directors authorizedapproved a program to repurchase up to 3.3$200.0 million shares in calendar year 2007 to complete the repurchase of the total shares authorized in the Tender Offer. In the second quarter of 2007, under a 10b5-1 plan, we repurchased 3.2 million shares for $220.1 million.
The Tender Offer and the additional repurchase program were funded through the new credit facility and available cash, and all shares repurchased were subsequently retired.
Pursuant to other stock repurchase programs authorized by the Board of Directors in 2005 and 2004, we repurchased 1,582,881, 1,444,700 and 2,578,801 shares of our common stock for $100.0over three years expiring November 9, 2010. During 2010, we repurchased approximately 4.9 million $50.0 million, and $92.9 million during 2007, 2006, and 2005, respectively. These stock repurchases were recorded as treasury stockshares at cost.an aggregate cost of $97.0 million. As of September 30, 2007, we had noOctober 3, 2010, the aggregate remaining amount authorized for repurchase availability remaining.
Onwas $3.0 million. In November 9, 2007,2010, the Board of Directors authorizedapproved a new $200.0 million program to repurchase, within the next year, up to $100.0 million in shares of our common stock at prevailing market prices, in the open market or in private transactions, from time to time at management’s discretion, over the next three years.stock.
 
Comprehensive income— Our total comprehensive income, net of taxes, was as follows(in thousands):
 
             
  2007  2006  2005 
 
Net earnings $126,304  $108,031  $91,537 
Net unrealized gains (losses) related to cash flow hedges, net of taxes of ($801), $117 and $266, respectively  (1,254)  180   417 
Net realized gains reclassified into net earnings on liquidation of interest rate swaps, net of taxes of ($137)  (234)  —   — 
Minimum pension liability, net of taxes of $1,524, $17,563, and ($18,289), respectively  2,393   27,587   (28,726)
             
Total comprehensive income $127,209  $135,798  $63,228 
             
             
  2010  2009  2008 
 
Net earnings $  70,210  $  118,408  $  119,279 
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  (1,481)  (21)  1,226 
             
   2,401   21   (1,984)
Unrecognized periodic benefit costs            
Effect of unrecognized net actuarial gains (losses) and prior service cost  3,625   (102,912)  11,907 
Tax effect  (1,371)  39,254   (4,628)
             
   2,254   (63,658)  7,279 
             
Total comprehensive income $74,865  $54,771  $124,574 
             


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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 30, 2007 and October 1, 200627, 2009(in thousands):
 
         
  2007  2006 
 
Additional minimum pension liability adjustment net of taxes of ($1,524) $—  $(2,393)
Adoption of SFAS 158, net of taxes of ($15,148)  (24,249)  — 
Net unrealized gains (losses) related to cash flow hedges, net of taxes of ($556) and $382, respectively  (891)  597 
         
Accumulated other comprehensive loss $(25,140) $(1,796)
         
         
  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)
         
 
10.14. 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 ESPP.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):
 
             
  2007  2006  2005 
 
Weighted-average shares outstanding — basic  65,314   69,888   71,250 
Assumed additional shares issued upon exercise of stock options, net of shares reacquired at the average market price  1,533   1,814   2,316 
Assumed vesting of nonvested stock, net of shares reacquired at the average market price  270   132   310 
Performance based awards issuable at the end of the period  146   —   — 
             
Weighted-average shares outstanding — diluted  67,263   71,834   73,876 
             
Stock options excluded(1)  557   674   — 
Performance based awards excluded(2)  378   434   312 
             
  2010  2009  2008 
 
Weighted-average shares outstanding – basic  55,070   56,795   58,249 
Effect of potentially dilutive securities:            
Stock options  512   619   879 
Nonvested stock awards and units  182   169   248 
Performance-vested stock awards  79   150   69 
             
Weighted-average shares outstanding – diluted   55,843   57,733   59,445 
             
Excluded from diluted weighted-average shares outstanding:            
Antidilutive  3,266   2,763   1,611 
Performance conditions not satisfied at the end of the period  160   179   261 
(1)Excluded from diluted weighted-average shares outstanding because their exercise prices, unamortized compensation and tax benefits exceeded the average market price of common stock for the period.
(2)Excluded from diluted weighted-average shares outstanding because the number of shares issued is contingent on achievement of performance goals at the end of a three-year performance period.
 
11.15. 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 year 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 September 30, 2007, our accrualOctober 3, 2010, we had unconditional purchase obligations of $740.8 million, which primarily includes contracts for the lease guarantee was $1.0 million and the maximum potential amount of future payments was $1.7 million.


F-30

JACK IN THE BOX INC. AND SUBSIDIARIES
goods related to restaurant operations.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Legal Mattersmatters— 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.
12.  SEGMENT REPORTING
We operate our business in two operating segments, Jack inthe Box and Qdoba, based on our management structure and internal method of reporting. Based upon certain quantitative thresholds, only Jack in theBox is considered a reportable segment.
Summarized financial information concerning our reportable segment is shown in the following table(in thousands):
             
  2007  2006  2005 
 
Revenues $2,781,505  $2,648,659  $2,421,815 
Earnings from operations  208,680   172,485   147,188 
Cash flows used for purchases of property and equipment  145,299   142,075   117,951 
Total assets  1,341,417   1,490,536   1,319,171 
Interest expense and income taxes are not reported on an operating segment basis in accordance with our method of internal reporting.
A reconciliation of reportable segment revenues to consolidated revenues follows(in thousands):
             
  2007  2006  2005 
 
Revenues $2,781,505  $2,648,659  $2,421,815 
Qdoba revenues  94,473   74,944   58,399 
             
Consolidated revenues $2,875,978  $2,723,603  $2,480,214 
             
A reconciliation of reportable segment earnings from operations to consolidated earnings from operations follows(in thousands):
             
  2007  2006  2005 
 
Earnings from operations $  208,680  $  172,485  $  147,188 
Qdoba earnings from operations  11,005   9,210   4,418 
             
Consolidated earnings from operations $219,685  $181,695  $151,606 
             
A reconciliation of reportable segment total assets to consolidated total assets follows(in thousands):
             
  2007  2006  2005 
 
Total assets $1,341,417  $1,490,536  $1,319,171 
Qdoba total assets  86,867   74,132   67,989 
Investment in Qdoba and other  (45,462)  (44,207)  (49,174)
             
Consolidated total assets $1,382,822  $1,520,461  $1,337,986 
             


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JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
13.16. SEGMENT REPORTING
Reflecting 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 our Jack in the Box 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.
We measure and evaluate our segments based on segment earnings from operations. Summarized financial information concerning our reportable segments is shown in the following table(in thousands):
             
  2010  2009  2008 
 
Revenues by Segment:
            
Jack in the Box restaurant operations segment $1,731,130  $2,025,755  $2,146,596 
Qdoba restaurant operations segment  168,424   143,206   117,740 
Distribution operations  397,977   302,135   275,225 
             
Consolidated revenues $2,297,531  $2,471,096  $2,539,561 
             
Earnings from Operations by Segment:
            
Jack in the Box restaurant operations segment $111,983  $218,740  $202,054 
Qdoba restaurant operations segment  11,580   10,690   11,481 
Distribution operations  (1,653)  1,838   2,353 
             
Consolidated earnings from operations $121,910  $231,268  $215,888 
             
Total Expenditures for Long-Lived Assets by Segment:
            
Jack in the Box restaurant operations segment $80,855  $133,353  $161,803 
Qdoba restaurant operations segment  13,572   19,189   15,241 
Distribution operations  1,183   958   1,561 
             
Consolidated expenditures for long-lived assets (from continuing operations) $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.
17. SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION
 
Additional information related to cash flows is as follows(in thousands):
 
             
  2007  2006  2005 
 
Cash paid during the year for:            
Interest, net of amounts capitalized $28,247  $20,234  $15,654 
Income tax payments  90,709   44,285   43,678 
Capital lease obligations incurred  464   1,818   911 
14.  SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION
         
  Sept. 30,
  Oct. 1,
 
  2007  2006 
  (In thousands) 
 
Accounts and other receivables, net:        
Trade $35,149  $24,234 
Notes receivable and other  6,209   6,955 
Allowances for doubtful accounts  (267)  (315)
         
  $41,091  $30,874 
         
Accrued liabilities:        
Payroll and related taxes $75,212  $76,822 
Sales and property taxes  23,106   23,377 
Insurance  46,377   49,035 
Income taxes  1,522   19,188 
Advertising  22,337   19,976 
Other  54,986   51,922 
         
  $223,540  $240,320 
         
Other long-term liabilities:        
Pension and postretirement benefits $61,762  $51,116 
Non-qualified deferred compensation  39,249   31,096 
Deferred rent  45,144   41,594 
Other  22,567   21,781 
         
  $168,722  $145,587 
         
             
  2007  2006  2005 
  (In thousands) 
 
Interest expense, net:            
Interest expense $32,146  $19,593  $17,093 
Interest income  (8,792)  (7,518)  (3,691)
             
  $23,354  $12,075  $13,402 
             
             
  2010  2009  2008 
 
Cash paid during the year for:            
Interest, net of amounts capitalized $  17,719  $  23,008  $  25,732 
Income tax payments $80,719  $79,392  $68,454 


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JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
15.18. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION(in thousands)
         
  Oct. 3,
  Sept. 27,
 
  2010  2009 
 
Accounts and other receivables, net:        
Trade $  48,006  $  38,820 
Notes receivable  29,949   4,533 
Other  4,386   6,142 
Allowances for doubtful accounts  (1,191)  (459)
         
  $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 $31,259  $59,900 
Sales and property taxes  21,141   20,603 
Insurance  37,655   37,505 
Advertising  15,686   21,242 
Gift card liability  3,171   3,684 
Deferred franchise fees  2,541   2,190 
Other  56,733   60,976 
         
  $168,186  $206,100 
         
Other long-term liabilities:        
Pension $101,443  $105,503 
Straight-line rent accrual  52,661   52,506 
Deferred franchise fees  1,532   1,741 
Other  94,804   74,440 
         
  $250,440  $234,190 
         
Notes receivable as of October 3, 2010 consists primarily of temporary financing provided to franchisees to facilitate the closing of certain refranchising transactions.
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 2007
 Jan. 21, 2007 Apr. 15, 2007 July 8, 2007 Sept. 30, 2007 
Fiscal Year 2010 Jan. 17, 2010 Apr. 11, 2010 July 4, 2010 Oct. 3, 2010 
Revenues $856,692  $660,667  $680,203  $678,416  $  681,318  $  529,706  $  523,294  $  563,213 
Earnings from operations  63,518   48,122   59,771   48,274   43,730   31,150   41,848   5,182 
Net earnings  37,354   27,209   34,743   26,998   24,247   17,680   24,242   4,041 
Net earnings per share:                                
Basic $0.53  $0.41  $0.56  $0.44  $0.43  $0.32  $0.44  $0.08 
Diluted  0.52   0.40   0.54   0.43  $0.43  $0.32  $0.44  $0.07 
 
                 
  16 Weeks
          
  Ended
  12 Weeks Ended 
Fiscal Year 2006
 Jan. 22, 2006  Apr. 16, 2006  July 9, 2006  Oct. 1, 2006 
 
Revenues $813,003  $618,763  $643,346  $648,491 
Earnings from operations  44,049   38,000   44,901   54,745 
Earnings before cumulative effect of accounting change  25,223   21,787   27,841   34,224 
Net earnings  25,223   21,787   27,841   33,180 
Earnings before cumulative effect of accounting change:                
Basic $0.36  $0.32  $0.40  $0.49 
Diluted  0.35   0.31   0.39   0.47 
Net earnings per share:                
Basic $0.36  $0.32  $0.40  $0.48 
Diluted  0.35   0.31   0.39   0.46 
16.  NEW ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”),Accounting for Uncertainty in Income Taxes —an interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS 109,Accounting for Income Taxes. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. We are currently evaluating the impact of FIN 48 on our consolidated financial statements, which is effective for fiscal years beginning after December 15, 2006.
In September 2006, the FASB issued SFAS 157,Fair Value Measurements. SFAS 157 clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. This statement applies under other accounting pronouncements that currently require or permit fair value measurements and is effective for fiscal years beginning after November 15, 2007. We are currently in the process of assessing the impact that SFAS 157 will have on our consolidated financial statements.
In September 2006, the FASB issued SFAS 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). We adopted the recognition provisions of SFAS 158 which requires recognition of the overfunded or underfunded status of a defined benefit plan as an asset or liability. SFAS 158 also requires that companies measure their plan assets and benefit


F-33F-34

JACK IN THE BOX INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                 
  16 Weeks
    
  Ended  12 Weeks Ended 
Fiscal Year 2009 Jan. 18, 2009  Apr. 12, 2009  July 5, 2009  Sept. 27, 2009 
 
Revenues $  776,673  $  578,411  $  575,722  $  540,290 
Earnings from operations  54,376   53,110   57,119   66,663 
Net earnings  28,397   29,861   19,558   40,592 
Net earnings per share:                
Basic $0.50  $0.53  $0.34  $0.71 
Diluted $0.49  $0.52  $0.34  $0.70 
obligations at
The results of operations for the endquarter ending October 3, 2010 includes a charge related to the closure of their fiscal year. 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 measurement provisionresults of SFAS 158operations 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.
20. FUTURE APPLICATION OF ACCOUNTING PRINCIPLES
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 fiscal years ending after December 15, 2008.
In February 2007, the FASB issued SFAS 159,The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 permits entities to voluntarily choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal yearsannual periods beginning after November 15, 2007.2009. We are currently in the process of determining whether to electassessing the fair value measurement options available underimpact this standard.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.


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