10-K 1 fy201210-k.htm FORM 10-K FY 2012 10-K


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2012
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
(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
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
The NASDAQ Stock Market LLC (NASDAQ Global Select Market)
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.
Yes þ    No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ¨    No þ
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.
Yes þ    No ¨
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).
Yes þ    No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation 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 this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ        Accelerated filer ¨        Nonaccelerated filer ¨        Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨    No þ
The aggregate market value of the common stock held by non-affiliates of the registrant, computed by reference to the closing price reported in the NASDAQ — Composite Transactions as of April 13, 2012, was approximately $969.8 million.
Number of shares of common stock, $0.01 par value, outstanding as of the close of business on November 16, 201242,908,661.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 2013 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
 
 
 
 
 

JACK IN THE BOX INC.
TABLE OF CONTENTS
 
 
 
Page
 
PART I
 
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
 
PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
 
PART IV
 
Item 15.
Exhibits, Financial Statement Schedules

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 Jack in the Box Inc. (the “Company”). A forward-looking statement is neither a prediction nor a guarantee of future events or results. In some cases, forward-looking statements can be identified by words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “should,” “will,” “would,” and similar expressions. Certain forward-looking statements are included in this Form 10-K, principally in the sections captioned “Business,” “Legal Proceedings,” “Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including statements regarding our strategic plans and operating strategies. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, such expectations and forward-looking statements 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” in this Form 10-K, as well as other possible factors not listed, could cause actual results, economic performance, financial condition or achievements to differ materially from those expressed in any 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.





PART I
ITEM 1.  BUSINESS
The Company
Overview.  Jack in the Box Inc., based in San Diego, California, operates and franchises more than 2,800 Jack in the Box® quick-service restaurants (“QSR”) and Qdoba Mexican Grill® fast-casual restaurants. References to the Company throughout this Annual Report on Form 10-K are made using the first person notations of “we,” “us” and “our.”
Jack in the Box.  The first Jack in the Box restaurant opened in 1951. Jack in the Box is one of the nation’s largest hamburger chains and, based on number of restaurants, is the second or third largest QSR hamburger chain in each of our top 10 major markets, which comprise approximately 70% of the total system. As of the end of our fiscal year on September 30, 2012, the Jack in the Box system included 2,250 restaurants in 21 states, of which 547 were company-operated and 1,703 were franchise-operated.
Qdoba Mexican Grill.  To supplement our core growth and balance the risk associated with growing solely in the highly competitive hamburger segment of the QSR industry, in 2003 we acquired Qdoba Restaurant Corporation, operator and franchisor of Qdoba Mexican Grill. As of September 30, 2012, the Qdoba system included 627 restaurants in 42 states, as well as the District of Columbia, of which 316 were company-operated and 311 were franchise-operated. Qdoba is the second largest fast-casual Mexican brand in the United States.
Strategic Plan.  Our long-term strategic plan focuses on continued growth of our two restaurant brands, increasing average unit volumes, and improving restaurant profitability and returns on invested capital. A key element of our plan is to continue expanding our Jack in the Box franchising operations to generate higher margins and returns for the Company while creating a business model that is less capital intensive and not as susceptible to cost fluctuations. Through the sale of 97 company-operated Jack in the Box restaurants to franchisees and the development of 18 new franchise restaurants in fiscal 2012, we increased franchise ownership of the Jack in the Box system to approximately 76% at fiscal year end from approximately 72% at the end of fiscal 2011. We plan to continue to refranchise our Jack in the Box restaurants and bring our franchise ownership in the Jack in the Box system to approximately 80%.
Through new unit growth and acquisitions of franchised Qdoba restaurants in select markets, and due to the refranchising of Jack in the Box restaurants, Qdoba has become a more prominent part of our company restaurant operations. As of the end of fiscal 2012, Qdoba comprised approximately 37% of our total company-operated units as compared with approximately 6% five years ago. We plan to more aggressively build out the number of Qdoba company locations over the next several years through new unit growth and acquisitions of franchise locations. Accelerating the growth of our Qdoba brand by increasing market penetration should generate heightened brand awareness.
Restaurant Concepts
Jack in the Box.  Jack in the Box restaurants offer a broad selection of distinctive, innovative products targeted primarily at the adult fast-food consumer. Our menu features a variety of items including hamburgers, tacos, specialty sandwiches, drinks, real ice cream shakes, salads and side items. Jack in the Box restaurants also offer guests the ability to customize their meals and to order any product, including breakfast items, any time of the day.
The Jack in the Box restaurant 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 open 18-24 hours a day. Drive-thru sales currently account for approximately 70% of sales at company-operated restaurants. The average check in fiscal year 2012 was $6.39 for company-operated restaurants.
With a presence in only 21 states, we believe Jack in the Box is a brand with significant growth opportunities. In fiscal 2012, we continued to expand in both existing and new markets. We opened 19 company-operated restaurants and franchisees opened 18 Jack in the Box restaurants during the year. In fiscal 2013, we plan to open 20-25 new company- and franchise-operated restaurants.

4



The following table summarizes the changes in the number of company-operated and franchise Jack in the Box restaurants over the past five years: 
 
 
Fiscal Year
 
 
2012
 
2011
 
2010
 
2009
 
2008
Company-operated restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
629

 
956

 
1,190

 
1,346

 
1,436

New
 
19

 
15

 
30

 
43

 
23

Refranchised
 
(97
)
 
(332
)
 
(219
)
 
(194
)
 
(109
)
Closed
 
(4
)
 
(10
)
 
(46
)
 
(6
)
 
(4
)
Acquired from franchisees
 

 

 
1

 
1

 

End of period total
 
547

 
629

 
956

 
1,190

 
1,346

% of system
 
24
%
 
28
%
 
43
%
 
54
%
 
62
%
Franchise restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
1,592

 
1,250

 
1,022

 
812

 
696

New
 
18

 
16

 
16

 
21

 
15

Refranchised
 
97

 
332

 
219

 
194

 
109

Closed
 
(4
)
 
(6
)
 
(6
)
 
(4
)
 
(8
)
Sold to Company
 

 

 
(1
)
 
(1
)
 

End of period total
 
1,703

 
1,592

 
1,250

 
1,022

 
812

% of system
 
76
%
 
72
%
 
57
%
 
46
%
 
38
%
System end of period total
 
2,250

 
2,221

 
2,206

 
2,212

 
2,158

Qdoba Mexican Grill.  Our Qdoba restaurants feature fresh, high quality ingredients and traditional Mexican flavors that combine to create a variety of innovative and unique flavors and products. Throughout each day, guacamole is prepared on site using fresh Hass avocados, black and pinto beans are slow-simmered, shredded beef and pork are slow-roasted and adobo-marinated chicken and steak are flame-grilled. Customer orders are prepared in full view, which gives our guests the ability to build a meal specifically suited to their individual taste preferences and nutritional needs. Our restaurants also offer a variety of catering options that can be tailored to feed groups of five to several hundred. Our restaurants generally operate from 10:30 a.m. to 10:00 p.m. and have a seating capacity that ranges from 60 to 80 persons, including outdoor patio seating at many locations. The average check, excluding catering sales, in fiscal year 2012 was $10.28 for company-operated restaurants.
We believe there is significant opportunity for continued growth at Qdoba. We estimate the long-term growth potential for Qdoba to be approximately 2,000 units across the U.S. Our company-operated restaurants are generally located in more heavily populated urban markets, while franchise development is more weighted to less densely-populated areas where local franchisees can operate more efficiently. We opened 26 company-operated restaurants and franchisees opened 32 Qdoba restaurants during fiscal 2012. In fiscal 2013, we plan to open 70-85 new company and franchise restaurants.
The following table summarizes the changes in the number of company-operated and franchise Qdoba restaurants over the past five years:
 
 
Fiscal Year
 
 
2012
 
2011
 
2010
 
2009
 
2008
Company-operated restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
245

 
188

 
157

 
111

 
90

New
 
26

 
25

 
15

 
24

 
21

Acquired from franchisees
 
46

 
32

 
16

 
22

 

Closed
 
(1
)
 

 

 

 

End of period total
 
316

 
245

 
188

 
157

 
111

% of system
 
50
%
 
42
%
 
36
%
 
31
%
 
24
%
Franchise restaurants:
 
 
 
 
 
 
 
 
 
 
Beginning of period
 
338

 
337

 
353

 
343

 
305

New
 
32

 
42

 
21

 
38

 
56

Sold to Company
 
(46
)
 
(32
)
 
(16
)
 
(22
)
 

Closed
 
(13
)
 
(9
)
 
(21
)
 
(6
)
 
(18
)
End of period total
 
311

 
338

 
337

 
353

 
343

% of system
 
50
%
 
58
%
 
64
%
 
69
%
 
76
%
System end of period total
 
627

 
583

 
525

 
510

 
454


5




Site Selection and Design
Site selections for all new company-operated Jack in the Box and Qdoba restaurants are made after an economic analysis and a review of demographic data and other information relating to population density, traffic, competition, restaurant visibility and access, available parking, surrounding businesses and opportunities for market penetration. Restaurants developed by franchisees are built to our specifications on sites we have reviewed.
We have multiple restaurant models with different seating capacities to help reduce costs and improve our flexibility in selecting locations for our restaurants. Management believes that this flexibility enables the Company to match the restaurant configuration with the specific economic, demographic, geographic or physical characteristics of a particular site. The majority of our Jack in the Box restaurants are constructed on leased land or on land that was purchased and subsequently sold, along with the improvements, in a sale and leaseback transaction. Typical costs to develop a traditional Jack in the Box restaurant, excluding the land value, range from $1.3 million to $2.1 million. Upon completion of a sale and leaseback transaction, the Company's initial cash investment is reduced to the cost of equipment, which averages approximately $0.4 million.
The majority of Qdoba restaurants are located in leased spaces ranging from conventional large-scale retail projects to smaller neighborhood retail strip centers as well as non-traditional locations such as airports, college campuses and food courts. Qdoba restaurant development costs typically range from $0.6 million to $1.0 million depending on the geographic region.
Franchising Program
Jack in the Box.  The Jack in the Box franchise agreement generally provides for an initial franchise fee of $50,000 per restaurant for a 20-year term and marketing fees at 5% of gross sales. Royalty rates, typically 5% of gross sales, range from 2% to as high as 15% of gross sales, and some existing agreements provide for variable rates. We offer development agreements to franchisees 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, which may be credited against a portion of the franchise fee due when restaurants open in the future. Developers may forfeit such fees and lose their rights to future development if they do not maintain the required schedule of openings. In fiscal 2009, we began offering our franchisees a new market development incentive that would reduce royalty rates in order to stimulate growth. We revised our incentive program in fiscal 2012 to provide all franchisees who opened restaurants within a specified time reduced franchise fees and lower royalty rates.
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 negotiated based upon the value of the restaurant as a going concern, which depends on various factors, including the sales and cash flows of the 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, typically 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 ancillary costs, and is responsible for maintaining the restaurant.
Qdoba Mexican Grill.  The current Qdoba franchise agreement generally provides for an initial franchise fee of $30,000 per restaurant, a 10-year term with a 10-year option to extend at a fee of $5,000, and marketing fees of up to 2% of gross sales. Most 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 described below. We offer development agreements to franchisees for the construction of one 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 when they are opened. If the developer does not maintain the required schedule of openings, they may forfeit such fees and lose their rights to future development. During fiscal 2010 and 2011, as an incentive to develop target markets, we entered into development agreements with an initial franchise fee of $15,000 and a royalty rate of 2.5% of gross sales for the first two years of operation for each restaurant opened within the first two years of the development agreement, subject to certain limitations. As we continue to pursue non-traditional locations, we may enter into franchise agreements that provide for a lower initial fee and lower royalty rates.
Restaurant Management and Operations
Our restaurants are operated by a company manager or franchise operator who is directly responsible for the operations of the restaurant, including product quality, service, food safety, cleanliness, inventory, cash control and the conduct and appearance of employees.
Jack in the Box. Company restaurant managers are required to attend extensive management training classes involving a combination of classroom instruction and on-the-job training in specially designated training restaurants. Restaurant managers

6



and supervisory personnel train other restaurant employees in accordance with detailed procedures and guidelines using training aids available at each location. Both company and franchise-operated restaurants also use an interactive system of computer-based training (“CBT”), with a touch-screen computer terminal. The CBT technology incorporates audio, video and text, all of which are updated via satellite. CBT is also designed to reduce the administrative demands on restaurant managers.
For Jack in the Box company operations, division vice presidents supervise directors of operations, who supervise district managers, who in turn supervise restaurant managers. Under our performance system, these management levels are all eligible for periodic bonuses based on achievement of goals related to restaurant sales, profit and/or certain other operational performance standards.
Qdoba Mexican Grill. At Qdoba company restaurants, we focus on attracting, selecting, engaging and retaining people who share our values to create long-lasting positive impacts on operating results. Our Qdoba Career Map is the core development tool used to provide employees with detailed education by position, from entry level to area manager.  High performing general managers and hourly team members are certified to train and develop employees through a series of on-the-job and classroom trainings that focus on knowledge, skills and behaviors.  The Team Member Progression program within the Career Map tool recognizes and rewards three levels of achievement for our cooks and line servers who showcase excellence in their positions.  Team members must have, or acquire, specific technical and behavioral skill sets to reach an achievement level.
For Qdoba restaurant operations, division vice presidents supervise regional operations managers, who supervise district managers, who in turn supervise restaurant managers. All levels are eligible for periodic performance bonuses based on goals related to restaurant sales, profit optimization and other operations performance standards such as guest satisfaction.
Customer Satisfaction
Company-operated and franchise-operated restaurants devote significant resources toward ensuring that all of our restaurants offer quality food and good service. To help us maintain a high level of customer satisfaction, our Voice of Guest program provides restaurant managers, district managers, and franchise operators with ongoing feedback from guests who complete a short guest satisfaction survey via an invitation provided on the register receipt. In these surveys, guests rate their satisfaction with key elements of their restaurant experience, including friendliness, food quality, cleanliness, speed of service and order accuracy.  In 2012, the Jack in the Box and Qdoba systems received more than 1.0 million and 0.2 million guest survey responses, respectively.  We also have a “mystery guest” program at Jack in the Box that provides restaurant managers, district managers, and franchise operators feedback on guest service as evaluated by “secret shoppers” who visit the restaurant.  Finally, our Guest Relations department provides feedback that guests report through our toll-free number and via our website.
Quality Assurance
Our “farm-to-fork” food safety and quality assurance program is designed to maintain high standards for the food products and food preparation procedures used by the restaurants. We maintain 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, documented restaurant practices and detailed attention to product safety and quality at every stage of the food preparation cycle. The U.S. Department of Agriculture, Food and Drug Administration and the Center for Science in the Public Interest have recognized our HACCP program as a leader in the industry.
In addition, our HACCP system uses ServSafe®, a nationally recognized food-safety training program, to train our management employees on food safety practices for our restaurants.
Supply Chain
Historically, we provided purchasing and distribution services for our company-operated restaurants and most of our franchise-operated restaurants. Our remaining franchisees purchased product from approved suppliers and distributors. In March 2012, we and approximately 90% of our Qdoba franchisees entered into a long-term contract with a third-party distributor to provide distribution services to our Qdoba restaurants through February 2017. We completed the transition of all Qdoba distribution services in the second quarter of fiscal 2012. In July 2012, we and approximately 90% of our Jack in the Box franchisees entered into a long-term contract with another third-party distributor to provide distribution services to our Jack in the Box restaurants through August 2022. In the fourth quarter of fiscal 2012, we had completed the transition of services from one distribution center and our remaining centers were transitioned by November 5, 2012.
Regardless of whether we provide purchasing services to a restaurant or not, we require our suppliers to meet our strict HACCP program standards. The primary commodities purchased by our 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 may enter into purchasing contracts and pricing arrangements when considered to be advantageous. However, certain commodities remain subject

7



to price fluctuations. We believe all essential food and beverage products are available, or can be made available, upon short notice from alternative qualified suppliers.
Information Systems
At our shared services corporate support center, we have centralized financial accounting systems, human resources and payroll systems, and a communications and network infrastructure that supports both Jack in the Box and Qdoba corporate functions. Our restaurant software allows for daily polling of sales, inventory and labor data from the restaurants directly. We use standardized Windows-based touch screen point-of-sale (“POS”) platforms in our company and traditional site franchise restaurants, which allows us to accept cash, credit cards and our re-loadable gift cards. Our Qdoba POS system is also enhanced with an integrated guest loyalty program as well as a takeout and delivery interface. The takeout and delivery interface is used to manage online and catering orders which are distributed to sites via a hosted online ordering website.
We have developed business intelligence systems that provide visibility to the key metrics in the operation of company and franchise restaurants. These systems play an integral role in accumulating and analyzing market information. We have labor scheduling systems to assist in managing labor hours based on forecasted sales volumes and inventory management systems, which enable timely and accurate deliveries of food and packaging to our restaurants. To support order accuracy and speed of service, our drive-thru restaurants use color order confirmation screens. We also have kiosks in many corporate and franchise Jack in the Box restaurants throughout our major markets that allow customers to place their order themselves using easy-to-follow steps on a touchscreen. Our Jack in the Box company and franchised restaurants utilize an interactive CBT system as the standard training tool for new hire training and periodic workstation re-certifications.
Advertising and Promotion
Jack in the Box. At Jack in the Box, we build brand awareness through our marketing and advertising programs and activities. These activities are supported primarily by contractual contributions from all company and franchise 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. Also, in recent years we began utilizing social media as a channel to better reach our target customers.
Qdoba Mexican Grill. At Qdoba, the goal of our advertising and marketing is to build brand awareness and generate traffic, and we seek to build brand advocates by delivering a great guest experience in the restaurants. While all restaurants contribute a small amount to a fund primarily used for production and development of brand assets, we do not have a national media fund. Advertising is done at the regional or local level whether company or franchise owned and operated, and is determined by the local ownership. Advertising is created at the brand level and the system operators can utilize these assets, or tap into our in-house graphic design department to create custom advertising that meets their particular communication objectives while adhering to brand standards. The majority of our marketing is done at the local level by engaging and partnering with local schools, sports teams, community organizations and businesses. We rely heavily on digital marketing and social media, and have a national presence on several social media networks.
Employees
At September 30, 2012, we had approximately 22,100 employees, of whom 20,800 were restaurant employees, 1,000 were corporate personnel, 200 were distribution employees and 100 were field management or administrative personnel. Employees are paid on an hourly basis, except certain restaurant management, operations and corporate management, and administrative personnel. We employ both full- and part-time restaurant employees in order to provide the flexibility necessary during peak periods of restaurant operations.
We have not experienced any significant work stoppages and believe our labor relations are good. We support our employees, including part-time workers, by offering competitive wages and benefits. Furthermore, we offer all hourly employees meeting certain minimum service requirements access to health coverage, including vision and dental benefits. As an additional incentive to our Jack in the Box hourly team members with more than a year of service, we pay a portion of their health insurance premiums.

8



Executive Officers
The following table sets forth the name, age, position and years with the Company of each person who is an executive officer of Jack in the Box Inc.:
Name
 
Age
 
Positions
 
Years with the
Company
Linda A. Lang
 
54
 
Chairman of the Board and Chief Executive Officer
 
25
Leonard A. Comma
 
42
 
President and Chief Operating Officer
 
11
Jerry P. Rebel
 
55
 
Executive Vice President and Chief Financial Officer
 
9
Phillip H. Rudolph
 
54
 
Executive Vice President, General Counsel and Corporate Secretary
 
4
Mark H. Blankenship, Ph.D.
 
51
 
Senior Vice President and Chief Administrative Officer
 
15
Gary J. Beisler
 
56
 
Chief Executive Officer and President, Qdoba Restaurant Corporation
 
9
Carol A. DiRaimo
 
51
 
Vice President of Investor Relations and Corporate Communications
 
4
Paul D. Melancon
 
56
 
Vice President of Finance, Controller and Treasurer
 
7
The following sets forth the business experience of each executive officer for at least the last five years:
Ms. Lang has been Chairman of the Board and Chief Executive Officer since October 2005. She was also President from February 2010 until May 2012 and served as Chief Operating Officer from November 2003 to October 2005. She was Executive Vice President from July 2002 to November 2003, and held various officer-level positions with marketing or operations responsibilities from 1996 through 2002.
Mr. Comma has been President and Chief Operating Officer since May 2012. He was previously Executive Vice President and Chief Operating Officer from November 2010 to May 2012, and served as Senior Vice President and Chief Operating Officer from February 2010 to November 2010. Mr. Comma 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.
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 in 2003, Mr. Rebel held senior level positions with Fleming Companies, CVS Corporation and People’s Drugs. He has more than 30 years of corporate finance experience.
Mr. Rudolph has been Executive Vice President since February 2010 and General Counsel and Corporate Secretary since November 2007. Prior to joining the Company, Mr. Rudolph was Vice President and General Counsel for Ethical Leadership Group. He was previously a partner in the Washington, D.C. office of Foley Hoag, LLP, and a Vice President at McDonald’s Corporation where, among other roles, he served as U.S. and International General Counsel. Before joining McDonald’s, Mr. Rudolph spent 15 years with the law firm of Gibson, Dunn & Crutcher, LLP, the last six of which he spent as a litigation partner in the firm’s Washington, D.C. office. Mr. Rudolph has more than 29 years of legal experience.
Dr. Blankenship has been Senior Vice President and Chief Administrative Officer since October 2010. He was previously Vice President, Human Resources and Operational Services from October 2005 to October 2010 and Division Vice President, Human Resources from October 2001 to September 2005. Dr. Blankenship has more than 15 years of experience with the Company in various human resource and training positions.
Mr. Beisler has been Chief Executive Officer of Qdoba Restaurant Corporation since November 2000 and President since January 1999. He was Chief Operating Officer at Qdoba from April 1998 to December 1998. Mr. Beisler has more than 34 years of experience in the restaurant industry. Mr. Beisler has announced his intention to retire from Qdoba during fiscal 2013.
Ms. DiRaimo has been Vice President of Investor Relations and Corporate Communications since July 2008. She previously spent 14 years at Applebee’s International, Inc. where she held various positions including Vice President of Investor Relations from February 2004 to November 2007. Ms. DiRaimo has more than 29 years of corporate finance and public accounting experience, including positions with Gilbert/Robinson Restaurants, Inc. and Deloitte.
Mr. Melancon has been Vice President of Finance, Controller and Treasurer since September 2008. He was previously Vice President and Controller from July 2005 to September 2008. Before joining the Company, Mr. Melancon held senior financial positions at several major companies, including Guess?, Inc., Hyper Entertainment, Inc. (a subsidiary of Sony Corporation of America) and Sears, Roebuck and Co. Mr. Melancon has more than 30 years of experience in accounting and finance, including 11 years with Price Waterhouse.

9



Trademarks and Service Marks
The Jack in the Box and Qdoba Mexican Grill names are of material importance to us and each is a registered trademark and service mark in the United State and elsewhere. In addition, we have registered numerous service marks and trade names for use in our businesses, including the Jack in the Box logo, the Qdoba logo and various product names and designs.
Seasonality
Restaurant sales and profitability are subject to seasonal fluctuations because of factors such as vacation and holiday travel and events, seasonal weather conditions and crises, which affect the public’s dining habits.
Competition and Markets
The restaurant business is highly competitive and is affected by local and national economic conditions, including unemployment levels, population and socioeconomic trends, traffic patterns, competitive changes in a geographic area, changes in consumer dining habits and preferences, and new information regarding diet, nutrition and health that affect consumer spending habits. Key elements of competition in the industry are the quality and innovation in the food products offered, price and perceived value, quality of service experience, speed of service, personnel, advertising, name identification, restaurant location, and image and attractiveness of the facilities.
Each Jack in the Box and Qdoba restaurant competes directly and indirectly with a large number of national and regional restaurant chains some of whom have significantly greater financial resources, as well as with locally-owned and/or independent restaurants in the quick-service and the fast-casual segments, as well as other “food away from home” consumer options. In selling franchises, we compete with many other restaurant franchisors, some of whom have substantially greater financial resources.
Available Information
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 on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 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 (“SEC”). You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains our reports, proxy and information statements, and other information at www.sec.gov.
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 maintaining any required permits, licensing or approval could result in closures of existing restaurants or delays or cancellations in the opening of new restaurants.
We are also subject to federal, state and international laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises, and may also apply substantive standards to the relationship between franchisor and franchisee, including limitations on the ability of franchisors to terminate franchises and alter franchise arrangements.
We are subject to the federal Fair Labor Standards Act and various state laws governing such matters as minimum wages, exempt status classification, overtime, breaks and other working conditions for company employees. A significant number of our food service personnel are paid at rates based on the federal and state minimum wage and, accordingly, increases in the minimum wage increase our labor costs. Federal and state laws may also require us to provide paid and unpaid leave to our employees, or healthcare or other employee benefits, which could result in significant additional expense to us. We are also subject to federal immigration laws requiring compliance with work authorization documentation and verification procedures.
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.
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, storm drainage control and the cost of more expensive

10



equipment necessary to decrease the amount of effluent emitted into the air, ground and surface waters.
Many of our Qdoba restaurants sell alcoholic beverages, which require licensing. The regulations governing licensing may impose requirements on licensees including minimum age of employees, hours of operation, and advertising and handling of alcoholic beverages. The failure of a Qdoba restaurant to obtain or retain a license could adversely affect the store’s results of operations.
We have processes in place to monitor compliance with applicable laws and regulations governing our operations.
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 our actual results to differ materially from our historical results and from projections in the 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 such as ours may be materially and adversely affected by changes in consumer preferences, national and regional economic, political and socioeconomic conditions and changes in consumer dining habits, whether based on new information regarding diet, nutrition and health, or otherwise. Adverse economic conditions, such as higher levels of unemployment, lower levels of consumer confidence and decreased discretionary spending may reduce restaurant traffic and sales and impose practical limits on pricing. If adverse economic conditions persist for an extended period of time, consumers may make long-lasting changes to their spending behavior. The impact of these factors may be exacerbated by the geographic profile of our Jack in the Box segment. Specifically, approximately 70% of the restaurants in our Jack in the Box system are located in the states of California and Texas. Economic conditions, state and local laws, government regulations, weather conditions or natural disasters affecting those states may therefore more greatly impact our results than would similar occurrences in other locations.
The performance of our business may also be adversely affected by factors such as:
 
seasonal sales fluctuations;
severe weather and other natural disasters;
unfavorable trends or developments concerning operating costs such as inflation, increased costs of food, labor, fuel, utilities, technology, insurance and employee benefits (including increases in hourly wages, healthcare costs, workers’ compensation and other insurance costs and premiums);
the impact of initiatives by competitors and increased competition generally;
lack of customer acceptance of new menu items or potential price increases necessary to cover higher input costs;
customers trading down to lower priced items and/or shifting to competitors with lower priced products;
the availability of qualified, experienced management and hourly employees; and
failure to anticipate or respond quickly to relevant market trends or to implement successful advertising and marketing programs.
In addition, if economic conditions deteriorate or if our operating results decline unexpectedly, we may be required to record impairment charges, which will negatively impact our results of operations for the periods in which they are recorded. Due to the foregoing or other factors, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for a full fiscal year. These fluctuations may cause our operating results to be below expectations of public market analysts and investors, and may adversely impact our stock price.
Risks Related to Food and Commodity Costs.  We are subject to volatility in food and commodity costs and availability. Accordingly, our profitability depends in part on our ability to anticipate and react to changes in food costs and availability, including changes in fuel costs and other supply and distribution costs. For example, prices for feed ingredients used to produce beef, chicken and pork could be adversely affected by changes in worldwide supply and demand or by regulatory mandates, leading to higher prices. Further, increases in fuel prices could result in increased distribution costs. In recent years, food and commodity costs increased significantly, outpacing general inflation and industry expectations, and volatile conditions are expected to continue in the future.
We seek to manage our food and commodity costs, including through extended fixed price contracts and strong category management and purchasing fundamentals. However, certain commodities such as beef and pork, which represent approximately 20% and 5%, respectively, of our overall commodity spend, do not lend themselves to fixed price contracts.

11



We cannot assure you that we will successfully enter into fixed price contracts on a timely basis or on commercially favorable pricing terms. In addition, although we have fixed price contracts for produce, we are subject to force majeure clauses resulting from weather or acts of God that may result in temporary spikes in costs.

Further, we cannot assure you that we will be able to successfully anticipate and react effectively to changing food and commodity costs by adjusting our purchasing practices or menu offerings. We also may not be able to pass along to our customers price increases as a result of adverse economic conditions, competitive pricing or other factors. Therefore, variability of food and other commodity costs could adversely affect our profitability and results of operations.
Although the number of Jack in the Box company-operated restaurants has decreased over the past several years as a result of our refranchising strategy, a significant number of our Jack in the Box restaurants and an increasing number of our Qdoba restaurants are company-operated, so we continue to have exposure to operating cost issues. Exposure to these fluctuating costs, including increases in commodity costs, could negatively impact our margins as well as franchise margins and franchisee financial health.
Risk Related to Our Brands and Reputation.  Multi-unit food service businesses such as ours can also be materially and adversely affected by widespread negative publicity of any type, particularly regarding food quality, nutritional content, safety or public health issues (such as epidemics or the prospect of a pandemic), obesity or other health concerns. Adverse publicity in these areas could damage the trust customers place in our brands. The increasingly widespread use of mobile communications and social media applications has amplified the speed and scope of adverse publicity and could hamper our ability to promptly correct misrepresentations or otherwise respond effectively to negative publicity.
To minimize the risk of foodborne illness, we have implemented a HACCP system for managing food safety and quality. Nevertheless, these risks cannot be completely eliminated. Any outbreak of such illness attributed to company or franchised 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 and our franchisees' restaurant sales and sales of franchisees, and could have a material adverse effect on our financial condition and results of operations.
In addition, the success of our business strategy depends on the value and relevance of our brands and reputation. If customers perceive that we and our franchisees fail to deliver a consistently positive and relevant experience, our brands could suffer. This could have an adverse effect on our business. Additionally, while we devote considerable efforts and resources to protecting our trademarks and other intellectual property, if these efforts are not successful, the value of our brands may be harmed. This could also have a material adverse effect on our business.
Supply and Distribution Risks.  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 supplies. Our deliveries of supplies may be affected by adverse weather conditions, natural disasters, distributor or supplier financial or solvency issues, product recalls, or other issues. In addition, if any of our distributors, suppliers, vendors or other contractors fail to meet our quality standards or otherwise do not perform adequately, or if any one or more of such entities seeks to terminate its agreement or fails to perform as anticipated, or if there is any disruption in any of our distribution or supply relationships or operations for any reason, our business, financial condition and results of operations may be materially affected.
Risks Associated with Severe Weather and Natural Disasters.  Food service businesses such as ours can be materially and adversely affected by severe weather conditions, such as severe storms, hurricanes, flooding, prolonged drought or protracted heat or cold waves, and natural disasters, such as earthquakes and wild fires, and their aftermath. Any of these can result in:
 
lost restaurant sales when consumers stay home or are physically prevented from reaching the restaurants;
property damage, loss of product, and lost sales when locations are forced to close for extended periods of time;
interruptions in supply when distributors or vendors suffer damages or transportation is negatively affected; and
increased costs if agricultural capacity is diminished or if insurance recoveries do not cover all of 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 adverse effect on our results of operations and financial condition.
Growth and Development Risks.  We intend to grow both Qdoba and Jack in the Box by developing additional company-owned restaurants and through new restaurant development by franchisees, both in existing markets and in new markets. Development involves substantial risks, including the risk of:
 
the inability to identify suitable franchisees;
limited availability of financing for the Company and for franchisees at acceptable rates and terms;
development costs exceeding budgeted or contracted amounts;

12



delays in completion of construction;
the inability to identify, or the unavailability of suitable sites on acceptable leasing or purchase terms;
developed properties not achieving desired revenue or cash flow levels once opened;
the negative impact of a new restaurant upon sales at nearby existing restaurants;
the challenge of developing in areas where competitors are more established or have greater penetration or access to suitable development sites;
incurring substantial unrecoverable costs in the event a development project is abandoned prior to completion;
impairment charges resulting from underperforming restaurants or decisions to curtail or cease investment in certain locations or markets;
in new geographic markets, where we have limited or no existing locations, the inability to successfully expand or acquire critical market presence for our brands, acquire name recognition, successfully market our products or attract new customers;
the challenge of identifying, recruiting and training qualified restaurant managers;
the inability to obtain all required permits;
changes in laws, regulations and interpretations, including interpretations of the requirements of the Americans with Disabilities Act; and
general economic and business conditions.
Although we manage our growth and development activities to help reduce such risks, we cannot assure that our present or future growth and development activities will perform in accordance with our expectations. Our inability to expand in accordance with our plans or to manage the risks associated with our growth could have a material adverse effect on our results of operations and financial condition.
Risks Related to Franchisee Financial and Business Operations.  The opening and continued success of franchise restaurants depends on various factors, including the demand for our franchises, the selection of appropriate franchisee candidates, the identification and availability of suitable sites, and 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 “Growth and Development Risks” above. Despite our due diligence performed during the recruiting process, we cannot assure you that franchisees and developers planning the opening of franchise restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants required by their agreements, or prove to be effective operators and remain aligned with us on operations, promotional or capital-intensive initiatives.
Our franchisees are contractually obligated to operate their restaurants in accordance with all applicable laws and regulations, as well as standards set forth in our agreements with them. However, franchisees are independent third parties whom we cannot and do not control. If franchisees do not successfully operate restaurants in a manner consistent with applicable laws and required standards, royalty, and in some cases rent, payments to us may be adversely affected. If customers have negative perceptions or experiences with operational execution, food quality or safety at our franchised locations, our brands' image and reputation could be harmed, which in turn could negatively impact our business and operating results.
As the number of franchised restaurants has increased and continues to increase, the percentage of 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 or Qdoba 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 that franchisees will successfully participate in our strategic initiatives or operate their restaurants in a manner consistent with our concepts and standards. As compared to some of our competitors, our Jack in the Box brand has relatively fewer franchisees who, on average, operate more restaurants per franchisee. There are significant risks to our business if a franchisee, particularly one who operates a large number of restaurants, encounters financial difficulties or fails to adhere to our standards and projects an image inconsistent with our brands.
Risk Relating to Competition, Menu Innovation and Successful Execution of our Operational Strategies and Initiatives. We are focused on increasing same-store sales and average unit volumes as part of our long-term business plan.  These results are subject to a number of risks and uncertainties, including risks related to competition, menu innovation and the successful execution of our operational strategies and initiatives. The restaurant industry is highly competitive with respect to price, service, location, personnel, advertising, brand identification and the type, quality and innovativeness of menu items. 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-owned and/or independent quick-service restaurants, fast-casual restaurants, casual dining 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

13



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. In an effort to increase same-store sales, we continue to make improvements to our facilities, to implement new service and training initiatives, and to introduce new products and discontinue other menu items. However, there can be no assurance that our facility improvements will foster increases in sales and yield the desired return on investment, that our service initiatives or our overall strategies will be successful, that our menu offerings and promotions will generate sufficient customer interest or acceptance to increase sales, or that competitive product offerings, pricing and promotions will not have an adverse effect upon our margins, sales results and financial condition. In addition, the success of our strategy depends on, among other factors, our ability to motivate restaurant personnel and franchisees to execute our initiatives and achieve sustained high service levels.
Advertising and Promotion Risks.  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 reduced sales or implementation of reduced spending strategies, or should our advertising and promotion be less effective than our competitors, there could be a material adverse effect on our results of operations and financial condition. Also, the fragmentation in the media favored by our target consumers, including growing prevalence and importance of social and mobile media, poses challenges and risks for our marketing, advertising and promotional 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 from quarter-to-quarter and year-to-year. In addition, from time to time, we may take positions for filing our tax returns that differ from the treatment for financial reporting purposes. The ultimate outcome of such positions could have an adverse impact on our effective tax rate.
Risks Related to Reducing Operating Costs. During 2012, we identified strategies and took steps to reduce operating costs to align with the increased Jack in the Box franchise ownership and further integration of Jack in the Box and Qdoba brands back office functions. These strategies include outsourcing certain functions, reducing headcount, and increasing shared back office services between our brands. We continue to evaluate and implement further cost-saving initiatives. However, the ability to reduce our operating costs through these initiatives is subject to risks and uncertainties, and we cannot assure that these activities, or any other activities that we may undertake in the future, will achieve the desired cost savings and efficiencies. Failure to achieve such desired savings could adversely affect our results of operations and financial condition.
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, Including Regulations Increasing Labor Costs.  The restaurant industry is subject to extensive federal, state and local governmental regulations. We are subject to regulations including but not limited to those related to:
the preparation, labeling, advertising and sale of food;
building and zoning requirements;
sanitation and safety standards;
employee healthcare requirements, including the implementation and uncertain legal, regulatory and cost implications of the Affordable Care Act;
labor and employment, including minimum wage, overtime, working conditions, employment eligibility and documentation, and other employee benefit and fringe benefit requirements;
the registration, offer, sale, termination and renewal of franchises;
truth-in-advertising, consumer protection and the security of information;
Americans with Disabilities Act;
payment card regulation and related industry rules;
liquor licenses; and
climate change, including the potential impact of greenhouse gases, water consumption, or a tax on carbon emissions.
The increasing amount and complexity of regulations may increase our labor costs, costs of compliance and our exposure to regulatory claims which, in turn, could have a material adverse effect on our business.
Risks Related to Computer Systems, Information Technology and Cyber Security.  We increasingly rely on computer systems and information technology to conduct our business. A material failure or interruption of service or a breach in security of our computer systems could cause reduced efficiency in operations, loss or misappropriation of data or business interruptions, or could impact delivery of food to restaurants or financial functions such as vendor payment or employee payroll. We have business

14



continuity plans that attempt to anticipate and mitigate such failures, but it is possible that significant capital investment could be required to rectify these problems, or more likely that cash flows could be impacted, in the shorter term. Our security architecture is decentralized, such that payment card information is primarily confined to the restaurant where the specific transaction took place. However, a security breach involving our point of sale, personnel, franchise operations reporting or other systems could result in disclosure or theft of confidential customer or other data, loss of consumer confidence or potential costs, fines and litigation, including costs associated with consumer fraud or privacy breach. These risks may be magnified by the increased use of mobile communications and other new technologies, and are subject to increased and changing regulation. The costs of compliance, including increased investment in technology or personnel in order to protect valuable business or consumer information, may negatively impact our margins.
Risks Related to the Failure of Internal Controls.  We maintain a documented system of internal controls, which is reviewed and monitored by an Internal Controls 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; however, we cannot be certain that our controls will be adequate in the future or that adequate controls will be effective in preventing or detecting all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. 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 and Land Risks and Regulations.  We own or lease the real properties on which our Jack in the Box company-operated restaurants are located, and either own or lease (and subsequently sublease to the franchisee) a majority of our Jack in the Box franchised restaurant sites. We lease the real properties upon which our company-operated Qdoba restaurants are located. We have engaged and may engage in real estate development projects. As is the case with any owner or operator of real property, we are subject to eminent domain proceedings that can impact the value of investments we have made in real property. In addition, 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 are unaware of any significant hazards on properties we own or have owned, or operate or have operated. Accordingly, we do not have environmental liability insurance for our restaurants, 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, and this could result in material liability.
Risks Related to Leverage.  As of September 30, 2012, the Company had a credit facility comprised of a $400 million revolving credit facility and a $165 million term loan. We could also request the issuance of up to $75.0 million in letters of credit. On November 5, 2012, we refinanced our existing facility and entered into an amended and restated credit agreement consisting of a $400.0 million revolving credit facility and a $200.0 million term loan facility. For additional information related to our new credit facility, refer to Note 21, Subsequent Events, of the notes to the consolidated financial statements. Increased leverage resulting from borrowings under our credit facility could have certain material adverse effects on the Company, including but not limited to the following:
 
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;
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;
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;
our ability to operate our business as well as our ability to repurchase stock or pay cash dividends to our stockholders may be restricted by the financial and other covenants set forth in the credit facility;
our ability to withstand competitive pressures may be decreased; and
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. In addition, to the extent that banks in our revolving credit facility become insolvent, our ability to borrow to the full level of our facility could be limited.

15



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 accountants 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.  We are subject to complaints or litigation brought by former, current or prospective employees, customers, franchisees, vendors, landlords, shareholders or others. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued if it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Because lawsuits are inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. However, the amount of ultimate loss may differ from these estimates. A judgment that is not covered by insurance or that is significantly in excess of our insurance coverage for any claims could materially adversely affect our financial condition or results of operations. In addition, regardless of whether any claims against us are valid or whether we are found to be liable, claims may be expensive to defend, and may divert management's attention away from operations and hurt our performance. Further, adverse publicity resulting from claims may harm our business or that of our franchisees.
ITEM 1B.  UNRESOLVED STAFF COMMENTS
None.
ITEM 2.  PROPERTIES
The following table sets forth information regarding our operating Jack in the Box and Qdoba restaurant properties as of September 30, 2012:
 
 
Company-
Operated
 
Franchise
 
Total     
Company-owned restaurant buildings:
 
 
 
 
 
 
On company-owned land
 
52

 
184

 
236

On leased land
 
164

 
474

 
638

Subtotal
 
216

 
658

 
874

Company-leased restaurant buildings on leased land
 
647

 
861

 
1,508

Franchise directly-owned or directly-leased restaurant buildings
 

 
495

 
495

Total restaurant buildings
 
863

 
2,014

 
2,877

Our restaurant leases generally provide for fixed rental payments (with cost-of-living index adjustments) plus real estate taxes, insurance and other expenses. In addition, approximately 15% of our leases provide for contingent rental payments between 1% and 15% 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 56 years, including optional renewal periods. The remaining lease terms of our other leases range from approximately one year to 45 years, including optional renewal periods. At September 30, 2012, our restaurant leases had initial terms expiring as follows:
 
 
Number of Restaurants
Fiscal Year
 
Ground
Leases
 
Land and
Building
Leases
2013 – 2017
 
168

 
576

2018 – 2022
 
240

 
685

2023 – 2027
 
164

 
136

2028 and later
 
66

 
111

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 Jack in the Box Innovation Center and approximately four acres of undeveloped land directly

16



adjacent to it. Qdoba’s corporate support center is located in a leased facility in Wheat Ridge, Colorado. During fiscal 2012, we also leased six distribution centers. In connection with the outsourcing of our distribution business, two of these centers have been closed and the remaining four have been subleased or assigned to our third-party distributor.
ITEM 3.  LEGAL PROCEEDINGS
The Company is subject to normal and routine litigation brought by former, current or prospective employees, customers, franchisees, vendors, landlords, shareholders or others. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability. The Company regularly reviews contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates. Although the Company currently believes that the ultimate outcome of these matters will not have a material adverse effect on the results of operations, liquidity or financial position of the Company, it is possible that the results of operations, liquidity, or financial position of the Company could be materially affected in any particular future reporting period by the unfavorable resolution of one or more of these matters or contingencies.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

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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 NASDAQ — Composite Transactions:
 
 
12 Weeks Ended
 
16 Weeks 
Ended
 
 
September 30,
2012
 
July 8,
2012
 
April 15,
2012
 
January 22,
2012
High
 
$
29.07

 
$
28.07

 
$
24.59

 
$
22.67

Low
 
$
25.39

 
$
22.04

 
$
21.01

 
$
18.65

 
 
12 Weeks Ended
 
16 Weeks 
Ended
 
 
October 2,
2011
 
July 10,
2011
 
April 17,
2011
 
January 23,
2011
High
 
$
24.17

 
$
23.85

 
$
24.51

 
$
24.18

Low
 
$
18.25

 
$
19.60

 
$
20.75

 
$
19.81

Dividends.  We did not pay any cash or other dividends during the last three fiscal years and do not anticipate paying dividends in the foreseeable future. As of September 30, 2012, our credit agreement provided for up to $229.9 million for the potential payment of cash dividends and stock repurchases, subject to certain limitations based on our leverage ratio as defined in our credit agreement.
Stock Repurchases.  In November 2011, the Board of Directors (“Board”) approved a program to repurchase up to $100.0 million in shares of our common stock expiring November 2013. As of September 30, 2012, the aggregate remaining amount authorized for repurchase was $76.9 million. In November 2012, the Board authorized an additional $100.0 million repurchase program expiring November 2014.
On November 5, 2012, we refinanced our existing agreement and entered into an amended and restated credit agreement which provides for up to $500.0 million for stock repurchases and the potential payment of cash dividends, subject to certain limitations based on our leverage ratio.
The following table summarizes shares repurchased pursuant to this program during the quarter ended September 30, 2012:
 
 
(a)
Total Number
of Shares
Purchased
 
(b)
Average
Price Paid
Per Share
 
(c)
Total Number of Shares Purchased as Part of Publicly
Announced Programs
 
(d)
Maximum Dollar Value That May Yet Be Purchased Under These Programs
 
 
 
 
 
 
 
 
$
100,000,000

July 9, 2012 - August 5, 2012
 

 
$

 

 
$
100,000,000

August 6, 2012 - September 2, 2012
 
653,012

 
$
25.92

 
653,012

 
$
83,058,675

September 3, 2012 - September 30, 2012
 
229,963

 
$
26.81

 
229,963

 
$
76,887,763

Total
 
882,975

 
$
26.15

 
882,975

 
 
Stockholders.  As of November 16, 2012, there were 614 stockholders of record.

18



Securities Authorized for Issuance Under Equity Compensation Plans.  The following table summarizes the equity compensation plans under which Company common stock may be issued as of September 30, 2012. Stockholders of the Company have approved all plans requiring such approval.
 
 
(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)
 
(b) Weighted-average exercise price of outstanding options (1)
 
(c) Number of securities remaining for future issuance under equity compensation plans (excluding securities reflected in column (a))(2)
Equity compensation plans approved by security holders (3)
 
5,826,722
 
$22.95
 
4,091,934
 ____________________________
(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 118,845 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.
Performance Graph.  The following graph compares the cumulative return to holders of the Company’s common stock at September 30th of each year to the yearly weighted cumulative return of a Peer Group Index and to the Standard & Poor’s (“S&P”) 500 Index for the same period. The below comparison assumes $100 was invested on September 30, 2007 in the Company’s common stock and in the comparison groups and assumes reinvestment of dividends. The Company paid no dividends during these periods.
 
2007
2008
2009
2010
2011
2012
Jack in the Box Inc.
$
100

$
65

$
63

$
66

$
61

$
87

S&P 500 Index
$
100

$
78

$
73

$
80

$
81

$
105

Peer Group (1)
$
100

$
65

$
72

$
96

$
113

$
147

____________________________
(1)
The Peer Group Index comprises the following companies: Brinker International, Inc.; Chipotle Mexican Grill Inc.; Cracker Barrel Old Country Store, Inc.; Darden Restaurants Inc.; DineEquity, Inc.; Panera Bread Company; Ruby Tuesday, Inc.; Sonic Corp.; The Cheesecake Factory Inc.; and The Wendy’s Company.

19



ITEM 6.  SELECTED FINANCIAL DATA
Our fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30. All years presented include 52 weeks, except 2010 which includes 53 weeks. The selected financial data reflects as discontinued operations, our distribution business for fiscal years 2008 through 2012 and Quick Stuff, a convenience store and fuel station concept sold in fiscal 2009, for fiscal years 2008 and 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. This selected financial data should be read in conjunction with our audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K. Our consolidated financial information may not be indicative of our future performance.
 
 
 
Fiscal Year
 
 
2012
 
2011
 
2010
 
2009
 
2008
 
 
(in thousands, except per share data)
Statements of Earnings Data:
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
1,545,026

 
$
1,662,339

 
$
1,899,554

 
$
2,168,961

 
$
2,264,336

 
 
 
 
 
 
 
 
 
 
 
Total operating costs and expenses
 
$
1,461,682

 
$
1,578,403

 
$
1,830,979

 
$
2,018,172

 
$
2,117,151

Gains on the sale of company-operated restaurants, net
 
(29,145
)
 
(61,125
)
 
(54,988
)
 
(78,642
)
 
(66,349
)
Total operating costs and expenses, net
 
$
1,432,537

 
$
1,517,278

 
$
1,775,991

 
$
1,939,530

 
$
2,050,802

 
 
 
 
 
 
 
 
 
 
 
Earnings from continuing operations
 
$
62,972

 
$
81,731

 
$
71,038

 
$
129,672

 
$
116,533

 
 
 
 
 
 
 
 
 
 
 
Earnings per Share and Share Data:
 
 
 
 
 
 
 
 
 
 
Earnings per share from continuing operations:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
1.43

 
$
1.66

 
$
1.29

 
$
2.28

 
$
2.00

Diluted
 
$
1.40

 
$
1.63

 
$
1.27

 
$
2.25

 
$
1.96

Weighted-average shares outstanding — Diluted (1)
 
44,948

 
50,085

 
55,843

 
57,733

 
59,445

Market price at year-end
 
$
28.11

 
$
19.92

 
$
21.47

 
$
20.07

 
$
22.06

Other Operating Data:
 
 
 
 
 
 
 
 
 
 
Jack in the Box restaurants:
 
 
 
 
 
 
 
 
 
 
Company-operated average unit volume (2)
 
$
1,557

 
$
1,405

 
$
1,297

 
$
1,420

 
$
1,439

Franchise-operated average unit volume (2)(3)
 
$
1,313

 
$
1,286

 
$
1,287

 
$
1,400

 
$
1,410

System average unit volume (2)(3)
 
$
1,379

 
$
1,331

 
$
1,292

 
$
1,412

 
$
1,429

Change in company-operated same-store sales
 
4.6
%
 
3.1
%
 
(8.6
)%
 
(1.2
)%
 
0.2
%
Change in franchise-operated same-store sales (3)
 
3.0
%
 
1.3
%
 
(7.8
)%
 
(1.3
)%
 
0.1
%
Change in system same-store sales (3)
 
3.4
%
 
1.8
%
 
(8.2
)%
 
(1.3
)%
 
0.2
%
Qdoba restaurants:
 
 
 
 
 
 
 
 
 
 
Company-operated average unit volume (2)
 
$
976

 
$
922

 
$
885

 
$
905

 
$
1,037

Franchise-operated average unit volume (2)(3)
 
$
958

 
$
987

 
$
943

 
$
905

 
$
919

System average unit volume (2)(3)
 
$
966

 
$
961

 
$
923

 
$
905

 
$
946

Change in company-operated same-store sales
 
2.8
%
 
5.1
%
 
0.8
 %
 
(5.0
)%
 
3.3
%
Change in franchise-operated same-store sales (3)
 
1.9
%
 
5.4
%
 
3.6
 %
 
(1.3
)%
 
1.0
%
Change in system same-store sales (3)
 
2.4
%
 
5.3
%
 
2.8
 %
 
(2.3
)%
 
1.6
%
Capital expenditures
 
$
80,200

 
$
129,312

 
$
95,610

 
$
153,500

 
$
178,605

Balance Sheet Data (at end of period):
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,463,725

 
$
1,432,322

 
$
1,407,092

 
$
1,455,910

 
$
1,498,418

Long-term debt
 
$
405,276

 
$
447,350

 
$
352,630

 
$
357,270

 
$
516,250

Stockholders’ equity
 
$
411,945

 
$
405,956

 
$
520,463

 
$
524,489

 
$
457,111

 ____________________________
(1)
Weighted-average shares reflect the impact of common stock repurchases under Board-approved programs.
(2)
Fiscal 2010 average unit volumes have been adjusted to exclude the 53rd week for the purpose of comparison to other years.
(3)
Changes in same-store sales and average unit volume are presented for franchise restaurants and on a system-wide basis, which includes company and franchise restaurants. Franchise sales represent sales at franchise restaurants and are revenues of 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 and average unit volume 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 changes in same-store sales include the results of all restaurants that have been open more than one year.

20




 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 on page F-1.
Comparisons under this heading refer to the 52-week periods ended September 30, 2012 and October 2, 2011 for 2012 and 2011, respectively, and the 53-week period ended October 3, 2010 for 2010, unless otherwise indicated.
Our MD&A consists of the following sections: 
Overview — a general description of our business and fiscal 2012 highlights.
Financial reporting — a discussion of changes in presentation.
Results of operations — an analysis of our consolidated statements of earnings for the three years presented in our consolidated financial statements.
Liquidity and capital resources — an analysis of cash flows including capital expenditures, aggregate contractual obligations, share repurchase activity, known trends that may impact liquidity, and the impact of inflation.
Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates.
Future application of accounting principles — a discussion of new accounting pronouncements, dates of implementation and impact on our consolidated financial position or results of operations, if any.
OVERVIEW
As of September 30, 2012, we operated and franchised 2,250 Jack in the Box restaurants, primarily in the western and southern United States, and 627 Qdoba restaurants throughout the 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 and franchise fees. Historically, we also generated revenue from distribution sales of food and packaging commodities to franchisees; however this function has been outsourced, and franchisees who previously utilized our distribution services now purchase product directly from our distribution service providers or other approved suppliers. 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 following summarizes the most significant events occurring in fiscal 2012 and certain trends compared to prior years:
 
Restaurant Sales.  Sales at restaurants open more than one year (“same-store sales”) changed as follows:
 
 
2012
 
2011
 
2010
Jack in the Box:
 
 
 
 
 
 
Company
 
4.6
%
 
3.1
%
 
(8.6
)%
Franchise
 
3.0
%
 
1.3
%
 
(7.8
)%
System
 
3.4
%
 
1.8
%
 
(8.2
)%
Qdoba:
 
 
 
 
 
 
Company
 
2.8
%
 
5.1
%
 
0.8
 %
Franchise
 
1.9
%
 
5.4
%
 
3.6
 %
System
 
2.4
%
 
5.3
%
 
2.8
 %

Commodity Costs.  Commodity costs at Jack in the Box and Qdoba company restaurants increased approximately 2.7% and 4.3%, respectively, as compared to last year. We expect overall commodity costs to increase approximately 2%-3% in fiscal 2013 compared to fiscal 2012.
New Unit Development.  We continued to grow our brands with the opening of new company and franchise-operated restaurants. In 2012, we opened 37 Jack in the Box and 58 Qdoba locations system-wide.

21



Franchising Program.  We refranchised 97 Jack in the Box restaurants, while Jack in the Box franchisees opened a total of 18 restaurants in 2012. Our Jack in the Box system was approximately 76% franchised at the end of fiscal 2012, and we plan to ultimately increase franchise ownership to approximately 80%. During fiscal 2012, we acquired 46 Qdoba franchised restaurants and Qdoba franchisees opened a total of 32 restaurants.
Restructuring Costs.  During fiscal 2012, we engaged in a comprehensive review of our organization structure, including evaluating opportunities for outsourcing, restructuring of certain functions and workforce reductions. As a result, restructuring charges of $15.5 million were recorded during fiscal 2012.
Distribution Outsourcing. During the fourth quarter of 2012, we began outsourcing our Jack in the Box distribution business. As a result, we recorded after-tax charges totaling $5.3 million, or $0.12 per diluted share, in the fourth quarter of fiscal 2012.
Share Repurchases.  Pursuant to share repurchase programs authorized by our Board of Directors, in 2012, we repurchased 1.2 million shares of our common stock at an average price of $24.36 per share, including the cost of brokerage fees.
FINANCIAL REPORTING
The losses for our distribution business are reflected as discontinued operations for all periods presented. Refer to Note 2, Discontinued Operations, in the notes to our consolidated financial statements for more information.
RESULTS OF OPERATIONS
The following table presents certain income and expense items included in our consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.
CONSOLIDATED STATEMENTS OF EARNINGS DATA 
 
 
Fiscal Year
 
 
2012
 
2011
 
2010
Revenues:
 
 
 
 
 
 
Company restaurant sales
 
78.9
 %
 
83.0
 %
 
87.8
 %
Franchise revenues
 
21.1
 %
 
17.0
 %
 
12.2
 %
Total revenues
 
100.0
 %
 
100.0
 %
 
100.0
 %
Operating costs and expenses, net:
 
 
 
 
 
 
Company restaurant costs:
 
 
 
 
 
 
Food and packaging (1)
 
32.8
 %
 
33.4
 %
 
31.8
 %
Payroll and employee benefits (1)
 
29.0
 %
 
30.0
 %
 
30.3
 %
Occupancy and other (1)
 
23.1
 %
 
23.9
 %
 
23.9
 %
Total company restaurant costs (1)
 
84.9
 %
 
87.3
 %
 
85.9
 %
Franchise costs (1)
 
51.0
 %
 
48.3
 %
 
45.4
 %
Selling, general and administrative expenses
 
14.7
 %
 
13.5
 %
 
12.8
 %
Impairment and other charges, net
 
2.1
 %
 
0.8
 %
 
2.6
 %
Gains on the sale of company-operated restaurants
 
(1.9
)%
 
(3.7
)%
 
(2.9
)%
Earnings from operations
 
7.3
 %
 
8.7
 %
 
6.5
 %
Income tax rate (2)
 
32.7
 %
 
36.3
 %
 
34.0
 %
  ____________________________
(1)
As a percentage of the related sales and/or revenues.
(2)
As a percentage of earnings from continuing operations and before income taxes.

22



The following table presents Jack in the Box and Qdoba company restaurant sales, costs and costs as a percentage of the related sales. Percentages may not add due to rounding.
SUPPLEMENTAL COMPANY-OPERATED RESTAURANTS STATEMENTS OF EARNINGS DATA
(dollars in thousands)
 
 
Fiscal Year
 
 
2012
 
2011
 
2010
Jack in the Box:
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant sales
 
$
943,990

 
 
 
$
1,181,961

 
 
 
$
1,518,434

 
 
Company restaurant costs:
 
 
 
 
 
 
 
 
 
 
 
 
Food and packaging
 
319,415

 
33.8
%
 
403,209

 
34.1
%
 
488,179

 
32.2
%
Payroll and employee benefits
 
278,464

 
29.5
%
 
358,917

 
30.4
%
 
463,625

 
30.5
%
Occupancy and other
 
205,134

 
21.7
%
 
271,432

 
23.0
%
 
353,056

 
23.3
%
Total company restaurant costs
 
$
803,013

 
85.1
%
 
$
1,033,558

 
87.4
%
 
$
1,304,860

 
85.9
%
Qdoba:
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant sales
 
$
275,224

 
 
 
$
198,312

 
 
 
$
150,093

 
 
Company restaurant costs:
 
 
 
 
 
 
 
 
 
 
 
 
Food and packaging
 
80,597

 
29.3
%
 
57,581

 
29.0
%
 
42,434

 
28.3
%
Payroll and employee benefits
 
75,677

 
27.5
%
 
55,546

 
28.0
%
 
41,513

 
27.7
%
Occupancy and other
 
76,382

 
27.8
%
 
58,334

 
29.4
%
 
45,010

 
30.0
%
Total company restaurant costs
 
$
232,656

 
84.5
%
 
$
171,461

 
86.5
%
 
$
128,957

 
85.9
%
The following table summarizes the changes in the number and mix of Jack in the Box (“JIB”) and Qdoba company and franchise restaurants in each fiscal year:
 
 
2012
 
2011
 
2010
 
 
Company
 
Franchise
 
Total
 
Company
 
Franchise
 
Total
 
Company
 
Franchise
 
Total
Jack in the Box:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning of year
 
629

 
1,592

 
2,221

 
956

 
1,250

 
2,206

 
1,190

 
1,022

 
2,212

New
 
19

 
18

 
37

 
15

 
16

 
31

 
30

 
16

 
46

Refranchised
 
(97
)
 
97

 

 
(332
)
 
332

 

 
(219
)
 
219

 

Acquired from franchisees
 

 

 

 

 

 

 
1

 
(1
)
 

Closed
 
(4
)
 
(4
)
 
(8
)
 
(10
)
 
(6
)
 
(16
)
 
(46
)
 
(6
)
 
(52
)
End of year
 
547

 
1,703

 
2,250

 
629

 
1,592

 
2,221

 
956

 
1,250

 
2,206

% of JIB system
 
24
%
 
76
%
 
100
%
 
28
%
 
72
%
 
100
%
 
43
%
 
57
%
 
100
%
% of consolidated system
 
63
%
 
85
%
 
78
%
 
72
%
 
82
%
 
79
%
 
84
%
 
79
%
 
81
%
Qdoba:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning of year
 
245

 
338

 
583

 
188

 
337

 
525

 
157

 
353

 
510

New
 
26

 
32

 
58

 
25

 
42

 
67

 
15

 
21

 
36

Acquired from franchisees
 
46

 
(46
)
 

 
32

 
(32
)
 

 
16

 
(16
)
 

Closed
 
(1
)
 
(13
)
 
(14
)
 

 
(9
)
 
(9
)
 

 
(21
)
 
(21
)
End of year
 
316

 
311

 
627

 
245

 
338

 
583

 
188

 
337

 
525

% of Qdoba system
 
50
%
 
50
%
 
100
%
 
42
%
 
58
%
 
100
%
 
36
%
 
64
%
 
100
%
% of consolidated system
 
37
%
 
15
%
 
22
%
 
28
%
 
18
%
 
21
%
 
16
%
 
21
%
 
19
%
Consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Total system
 
863

 
2,014

 
2,877

 
874

 
1,930

 
2,804

 
1,144

 
1,587

 
2,731

% of consolidated system
 
30
%
 
70
%
 
100
%
 
31
%
 
69
%
 
100
%
 
42
%
 
58
%
 
100
%

23



Revenues
As we execute our Jack in the Box refranchising strategy, which includes the sale of restaurants to franchisees, we expect the number of company-operated restaurants and the related sales to decrease while revenues from franchise restaurants increase. As such, company restaurant sales decreased $161.1 million in 2012 and $288.3 million in 2011 as compared with the respective prior year. 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, partially offset by an increase in the number of Qdoba company-operated restaurants and increases in average unit volumes (“AUVs”) at our Jack in the Box and Qdoba restaurants. The following table presents the approximate impact of these increases (decreases) on company restaurant sales and the effect of additional sales from a 53rd week in 2010 (in millions):
 
 
 
2012 vs. 2011
 
2011 vs. 2010
Decrease in the average number of Jack in the Box restaurants
 
$
(365.8
)
 
$
(431.7
)
Jack in the Box AUV increase
 
127.8

 
120.8

Increase in the average number of Qdoba restaurants
 
65.2

 
45.0

Qdoba AUV increase
 
11.7

 
6.5

53rd week
 

 
(28.9
)
Total decrease in company restaurant sales
 
$
(161.1
)
 
$
(288.3
)
Same-store sales at Jack in the Box company-operated restaurants increased 4.6% in 2012 and 3.1% in 2011, primarily driven by transaction growth and price increases. Same-store sales at Qdoba company-operated restaurants increased 2.8% in 2012 and 5.1% in 2011 primarily driven by price increases in 2012 and a combination of transaction growth, pricing and higher catering sales in 2011. The following table summarizes the change in company-operated same-store sales. 
 
 
Increase/(Decrease)
 
 
2012 vs. 2011
 
2011 vs. 2010
Jack in the Box transactions
 
2.3
%
 
3.2
 %
Jack in the Box average check (1)
 
2.3
%
 
(0.1
)%
Jack in the Box change in same-store sales
 
4.6
%
 
3.1
 %
 
 
 
 
 
Qdoba change in same-store sales (2)
 
2.8
%
 
5.1
 %
 ____________________________
(1)
Includes price increases of approximately 3.2% and 1.8% in 2012 and 2011, respectively.
(2)
Includes price increases of approximately 3.8% and 1.7% in 2012 and 2011, respectively.

24



Franchise revenues increased $43.7 million and $51.0 million in 2012 and 2011, respectively, as compared with the respective prior year. The increase in franchise revenues in both years primarily reflects an increase in the average number of Jack in the Box franchise restaurants, which contributed additional royalties and rents of approximately $48.2 million in 2012 and $53.5 million in 2011. In 2012, higher AUVs at Jack in the Box franchised restaurants also contributed to the increase and were more than offset by lower revenues from initial franchise fees of $10.4 million related to a decrease in the number of restaurants sold to and developed by franchisees. In 2011, the change in franchise revenues as compared with 2010 was also impacted by higher franchise fees from increases in the number of restaurants sold to and developed by franchises, an increase in re-image contributions to franchisees, which are recorded as a reduction of franchise revenues, and additional revenues in 2010 of $4.6 million from a 53rd week. 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):
 
 
2012
 
2011
 
2010
Royalties
 
$
127,887

 
$
109,422

 
$
91,216

Rents
 
195,746

 
161,279

 
128,143

Re-image contributions to franchisees
 
(7,124
)
 
(8,208
)
 
(1,455
)
Franchise fees and other
 
9,303

 
19,573

 
13,123

Franchise revenues
 
$
325,812

 
$
282,066

 
$
231,027

% increase
 
15.5
%
 
22.1
%
 

Average number of franchise restaurants
 
1,952

 
1,707

 
1,424

% increase
 
14.4
%
 
19.9
%
 

Increase in franchise-operated same-store sales:
 
 
 
 
 
 
Jack in the Box
 
3.0
%
 
1.3
%
 
 
Qdoba
 
1.9
%
 
5.4
%
 
 
Royalties as a percentage of estimated franchise restaurant sales:
 
 
 
 
 
 
Jack in the Box
 
5.3
%
 
5.3
%
 
5.3
%
Qdoba
 
5.0
%
 
5.0
%
 
5.0
%
Operating Costs and Expenses
Food and packaging costs were 32.8% of company restaurant sales in 2012, 33.4% in 2011 and 31.8% in 2010. In 2012, higher commodity costs were more than offset by the benefit of price increases and a greater proportion of Qdoba company restaurants which generally have lower food and packaging costs than our Jack in the Box company restaurants. The increase in 2011 primarily relates to higher commodity costs and the unfavorable impact of product mix and promotions, partially offset by the benefit of selling price increases. Commodity costs increased as follows compared with the prior year:
 
2012 vs. 2011
 
2011 vs. 2010
Jack in the Box
2.7%
 
4.7%
Qdoba
4.3%
 
7.0%
In 2012, commodity cost increases were driven by higher costs for most commodities other than produce and pork. In 2011, higher costs for beef, cheese, pork, dairy, eggs and shortening were partially offset by lower costs for poultry and bakery. Beef represents the largest portion, or approximately 20%, of the Company’s overall commodity spend, and we typically do not enter into fixed price contracts for our beef needs. For fiscal 2013, we currently expect beef costs to increase approximately 4%-5%, and overall commodities to be 2%-3% higher compared with fiscal 2012.
Payroll and employee benefit costs were 29.0% of company restaurant sales in 2012, 30.0% in 2011 and 30.3% in 2010. The decrease in 2012 reflects leverage from same-store sales increases, the benefits of refranchising and the favorable impact of recent Qdoba restaurant acquisitions. In 2011, the decrease relates to same-store sales increases and lower insurance costs, offset by increases in unemployment taxes and higher levels of staffing designed to improve the guest experience at our Jack in the Box restaurants.
Occupancy and other costs were 23.1% of company restaurant sales in 2012 and 23.9% in 2011 and 2010. The lower percent in 2012 and in 2011 are due primarily to leverage from same-store sales increases, the benefits of refranchising Jack in the Box restaurants and the favorable impact of recent acquisitions of Qdoba franchised restaurants. These benefits were partially offset in both years by higher depreciation expense related to the Jack in the Box re-image program. In 2012, the percentages were impacted by higher debit card fees and costs associated with the new menu board and uniform program at Jack in the Box restaurants.
Franchise costs, principally rents and depreciation on properties leased to Jack in the Box franchisees, increased $29.9 million in 2012 and $31.3 million in 2011, due primarily to our refranchising strategy. Franchise costs increased to 51.0% of the related

25



revenues in 2012 from 48.3% in 2011 and 45.4% in 2010. The higher percentage in 2012 as compared with 2011 is primarily due to a decline in revenue from franchise fees and higher rent and depreciation expenses resulting from an increase in the percentage of locations we lease to franchisees, partially offset by lower re-image contributions to franchisees. The percent of sales increase in 2011 versus 2010 is primarily due to higher PSA depreciation expense for refranchised locations relating to our re-image program, an increase in re-image contributions to franchisees and higher rent and depreciation expense resulting from an increase in the percentage of locations we lease to franchisees. These increases were partially offset by the leverage provided from same-store sales growth and higher franchise fee revenue.
The following table presents the change in selling, general and administrative (“SG&A”) expenses in each year compared with the prior year (in thousands):
 
 
Increase/(Decrease)
 
 
2012 vs. 2011
 
2011 vs. 2010
Advertising
 
$
(10,800
)
 
$
(17,867
)
Refranchising strategy
 
(6,277
)
 
(5,857
)
Incentive compensation
 
12,291

 
2,202

Cash surrender value of COLI policies, net
 
(6,327
)
 
2,818

Pension and postretirement benefits
 
2,893

 
(5,295
)
Pre-opening costs
 
1,902

 
(512
)
Qdoba general and administrative costs
 
4,131

 
4,430

Hurricane Ike insurance proceeds
 

 
4,223

53rd week
 

 
(3,597
)
Other
 
4,537

 
655

 
 
$
2,350

 
$
(18,800
)
Our refranchising strategy has resulted in a decrease in the number of Jack in the Box company-operated restaurants and the related overhead expenses to manage and support those restaurants, including advertising costs, which are primarily contributions to our marketing funds determined as a percentage of restaurant sales. As such, advertising costs decreased at Jack in the Box and were partially offset by higher advertising expenses at Qdoba due to an increase in the number of company-operated restaurants, as well as same-store sales growth at Jack in the Box and Qdoba restaurants.
The higher levels of incentive compensation reflect improvements in the Company’s results compared with performance goals in 2012 and 2011. The cash surrender value of our Company-owned life insurance (“COLI”) policies, net of changes in our non-qualified deferred compensation obligation supported by these policies, are subject to market fluctuations. The changes in market values had a positive impact of $6.2 million in 2012 compared with a negative impact of $0.1 million in 2011 and a positive impact of $2.7 million in 2010. In 2012, the increase in pension and postretirement benefits principally relates to a decrease in the discount rate as compared with a year ago. In 2011, the decrease in pension and postretirement benefits expense principally relates to the curtailment of the Companys qualified pension plan, whereby participants will no longer accrue benefits after December 31, 2015.
The increase in fiscal 2012 pre-opening costs primarily relates to higher expenses associated with restaurant openings in two new Jack in the Box markets, as well as an increase in the number of new Jack in the Box and Qdoba company-operated restaurants. In 2011, the decrease in pre-opening costs is primarily due to a decrease in the number of new company restaurants compared with fiscal 2010. Qdoba general and administrative costs increased primarily due to higher overhead to support our growing number of company-operated restaurants.
Impairment and other charges, net increased $20.3 million in 2012 and decreased $36.3 million in 2011 as compared to the respective prior year. The following table presents the components of impairment and other charges, net in each year (in thousands):
 
 
2012
 
2011
 
2010
Impairment charges
 
$
3,112

 
$
1,367

 
$
12,970

Losses on disposition of property and equipment, net
 
6,027

 
7,561

 
10,734

Costs of closed restaurants (primarily lease obligations) and other
 
8,332

 
3,655

 
25,160

Restructuring costs
 
15,461

 

 

 
 
$
32,932

 
$
12,583

 
$
48,864

The increase in 2012 primarily relates to restructuring costs incurred in connection with the comprehensive review of our organization structure, including evaluating opportunities for outsourcing, restructuring of certain functions and workforce reductions. Restructuring costs consist primarily of pension benefits and severance expenses related to a voluntary early retirement program (“VERP”) offered by the Company and involuntary employee termination costs. We expect to see the benefits of our

26



restructuring activities, including our early retirement plan, in our cost structure beginning in fiscal 2013. To a lesser extent, adjustments made to certain sublease assumptions associated with our lease obligations for closed locations also contributed to the increase in 2012 versus a year ago. Fiscal 2010 included a charge of $28.0 million (primarily including future lease obligations of $19.0 million and property and equipment impairment charges of $8.4 million) related to the closure of 40 underperforming Jack in the Box restaurants. After consideration of the fiscal 2010 closure charge, impairment and other charges, net decreased an additional $8.2 million in 2011 due primarily to declines in costs related to our restaurant re-image and new logo program as this program neared completion and lower impairment charges for underperforming Jack in the Box restaurants as compared with 2010.
Gains on the sale of company-operated restaurants to franchisees, net are detailed in the following table (dollars in thousands):
 
 
2012
 
2011
 
2010
Number of restaurants sold to franchisees
 
97

 
332

 
219

Gains on the sale of company-operated restaurants
 
$
29,145

 
$
61,125

 
$
54,988

Average gain on restaurants sold
 
$
300

 
$
184

 
$
251

In 2012, gains on the sale of company-operated restaurants include additional gains of $2.2 million recognized upon the extension of the underlying franchise and lease agreements related to four restaurants sold in a prior year. Gains were impacted by the number of restaurants sold and changes in average gains recognized, which relate to the specific sales and cash flows of those restaurants. The lower average gains in 2011 relate to the sale of markets with lower-than-average sales volumes and cash flows.
Interest Expense, Net
Interest expense, net is comprised of the following (in thousands):
 
 
2012
 
2011
 
2010
Interest expense
 
$
20,953

 
$
18,165

 
$
17,011

Interest income
 
(2,079
)
 
(1,310
)
 
(1,117
)
Interest expense, net
 
$
18,874

 
$
16,855

 
$
15,894

Interest expense, net increased $2.0 million in 2012 and $1.0 million in 2011. In 2012, the increase versus a year ago relates principally to higher average borrowings. The increase in 2011 is primarily attributable to an increase in the amortization of deferred finance fees related to the refinancing of our credit facility in 2010 and higher average borrowings, offset in part by lower average interest rates.
Income Taxes
The income tax provisions reflect effective tax rates of 32.7%, 36.3% and 34.0% of pretax earnings from continuing operations in 2012, 2011 and 2010, respectively. The changes in tax rates are primarily due to 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.
Earnings from Continuing Operations
Earnings from continuing operations were $63.0 million, or $1.40 per diluted share, in 2012; $81.7 million, or $1.63 per diluted share, in 2011; and $71.0 million, or $1.27 per diluted share, in 2010. We estimate that the extra week in fiscal 2010 benefited net earnings by approximately $1.8 million, or $0.03 per diluted share.
Losses from Discontinued Operations, Net
As described in Note 2, Discontinued Operations, in the notes to our consolidated financial statements, the losses from our distribution business have been reported as discontinued operations. In 2012, 2011 and 2010, losses from discontinued operations, net were $5.3 million, $1.1 million and $0.8 million, respectively. In fiscal 2012, losses from discontinued operations reflect after-tax charges of $5.3 million related to exit costs associated with outsourcing our distribution business, which reduced diluted earnings per share by approximately $0.12.
LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations, our revolving bank credit facility and the sale and leaseback of certain restaurant properties.

27



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. Our cash requirements consist principally of:
 
working capital;
capital expenditures for new restaurant construction and restaurant renovations;
income tax payments;
debt service requirements; and
obligations related to our benefit plans.
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with other financing alternatives in place or available, will be sufficient to meet our capital expenditure, working capital and debt service requirements for the foreseeable future.
As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories and our vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. As a result, we may at times maintain current liabilities in excess of current assets, which results in a working capital deficit.
Cash Flows
The table below summarizes our cash flows from operating, investing and financing activities for each of the past three fiscal years (in thousands):
 
 
2012
 
2011
 
2010
Total cash provided by (used in):
 
 
 
 
 
 
Operating activities
 
$
136,730

 
$
124,260

 
$
61,866

Investing activities
 
(81,516
)
 
(35,802
)
 
19,173

Financing activities
 
(58,169
)
 
(87,641
)
 
(123,434
)
Increase (decrease) in cash and cash equivalents
 
$
(2,955
)
 
$
817

 
$
(42,395
)
Operating Activities.  Operating cash flows increased $12.5 million in 2012 compared with 2011 due primarily to reductions in payments for income taxes ($11.8 million), an increase in minimum rent receipts from franchisees attributable to the timing of collections for October rents ($13.9 million) as well as an increase in net income adjusted for non-cash items ($19.6 million). The impact of these increases in cash flows were partially offset by an increase in payments for property rent related to fluctuations in the timing of payments for the month of October ($19.0 million) and pension contributions ($15.5 million).
In 2011, operating cash flows increased $62.4 million compared with 2010 due primarily to reductions in payments for the following: advertising due to a decrease in the number of company-operated restaurants ($30.3 million), income taxes ($33.2 million), property rent related to fluctuations in the timing of payments for the month of October ($25.0 million), pension contributions ($19.3 million) and bonuses ($13.6 million). The impact of these payment reductions were partially offset by a $20.6 million decrease in net income adjusted for non-cash items, a decrease in beverage incentives received resulting from a decline in the number of company-operated restaurants ($7.2 million) and a decrease in minimum rent receipts from franchisees attributable to the timing of collections for October rents ($10.7 million). Refer to the Results of Operations section of our MD&A for a discussion of factors leading to the changes in cash net income.
Investing Activities.  Cash flows used in investing activities increased $45.7 million in 2012 compared with 2011 due primarily to lower proceeds from the sale of Jack in the Box restaurants to franchisees and collections of notes receivable related to prior years’ refranchising activities, as well as an increase in cash used to acquire Qdoba franchise-operated restaurants. The impact of these decreases in cash flows were partially offset by a decrease in capital expenditures. In 2011, cash flows used in investing activities increased $55.0 million compared with 2010 due primarily to an increase in capital expenditures, lower proceeds from assets held for sale and leaseback and an increase in cash used to acquire Qdoba franchise-operated restaurants, partially offset by an increase in proceeds from the sale of Jack in the Box restaurants to franchisees and collections of notes receivables related to prior years’ refranchising activity.

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Capital Expenditures The composition of capital expenditures in each year follows (in thousands):
 
 
2012
 
2011
 
2010
Jack in the Box:
 
 
 
 
 
 
New restaurants
 
$
12,984

 
$
13,248

 
$
20,867

Restaurant facility improvements
 
32,961

 
73,758

 
50,724

Other, including corporate
 
10,634

 
18,070

 
10,447

 
 
$
56,579

 
$
105,076

 
$
82,038

Qdoba:
 
 
 
 
 
 
New restaurants
 
$
17,437

 
$
18,384

 
$
9,755

Other, including corporate
 
6,184

 
5,852

 
3,817

 
 
$
23,621

 
$
24,236

 
$
13,572

 
 
 
 
 
 
 
Consolidated capital expenditures
 
$
80,200

 
$
129,312

 
$
95,610

Our capital expenditure program includes, among other things, investments in new locations, restaurant remodeling, new equipment and information technology enhancements. In 2012, capital expenditures decreased $49.1 million due primarily to a decline in spending related to our Jack in the Box re-image and new logo program which was substantially completed in 2011 as well as lower spending for capital maintenance activities and corporate technology. In 2011, capital expenditures increased $33.7 million compared with 2010 due primarily to higher spending associated with our Jack in the Box restaurant re-image and new logo program, an increase in the number of new Qdoba restaurants developed, an increase in the number of Jack in the Box restaurants rebuilt and the implementation of a new supply-chain system. These increases were partially offset by a reduction in spending related to a decrease in the number of new Jack in the Box restaurants developed.
In fiscal 2013, capital expenditures are expected to be approximately $95-$105 million. We plan to open approximately 10 new Jack in the Box and 40-45 new Qdoba company-operated restaurants in 2013.
Sale of Company-Operated Restaurants We have continued to expand franchise ownership in the Jack in the Box system primarily through the sale of company-operated restaurants to franchisees. The following table details proceeds received in connection with our refranchising activities (dollars in thousands): 
 
 
2012
 
2011
 
2010
Number of restaurants sold to franchisees
 
97

 
332

 
219

Cash
 
$
47,115

 
$
119,275

 
$
66,152

Notes receivable
 
1,200

 
1,000

 
25,809

Total proceeds
 
$
48,315

 
$
120,275

 
$
91,961