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Article by DailyStocks_admin    (11-27-08 03:38 AM)

Jack In The Box Inc. CEO LANG LINDA bought 20000 shares on 11-21-2008 at $12.57

BUSINESS OVERVIEW

The Company

Overview. Jack in the Box Inc. (the “Company”), based in San Diego, California, is a restaurant company that operates and franchises more than 2,600 quick-service and fast-casual restaurants under the brand names Jack in the Box ® and Qdoba Mexican Grill ® . In fiscal 2008, we generated total revenues from continuing operations of $2.5 billion. 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, which offered only drive-thru service, opened in 1951. J ack in the B ox is one of the nation’s largest hamburger chains, and, based on the number of units, is the second or third largest quick-service hamburger chain in most of our major markets. As of the end of our fiscal year on September 28, 2008, the J ack in the B ox system included 2,158 restaurants in 18 states, of which 1,346 were company-operated and 812 were franchise-operated.

Qdoba Mexican Grill — To supplement our core growth and balance the risk associated with growing solely in the highly competitive hamburger segment of the quick service restaurant (“QSR”) industry, on January 21, 2003, we acquired Qdoba Restaurant Corporation, operator and franchisor of Qdoba Mexican Grill, expanding our growth opportunities into the fast-casual restaurant segment. As of September 28, 2008, the Qdoba system included 454 restaurants in 41 states, as well as the District of Columbia, of which 111 were company-operated and 343 were franchise-operated.

Discontinued Operations — We also operate a proprietary chain of convenience stores called Quick Stuff ® , with 61 locations, each built adjacent to a full-size Jack in the Box restaurant and including a major-brand fuel station. In the fourth quarter of 2008, our Board of Directors approved a plan to sell Quick Stuff to maximize the potential of the Jack in the Box and Qdoba brands. Refer to Note 2, Discontinued Operations , in the notes to the consolidated financial statements for more information.

Strategic Plan. Our Company vision of being a national restaurant company is supported by four key strategic initiatives: (i) grow J ack in the B ox and Qdoba Mexican Grill, (ii) reinvent the J ack in the B ox brand, (iii) expand franchising operations, and (iv) improve the business model.

Strategic Plan — Growth Strategy. In addition to driving increases in certain key financial metrics, such as earnings per share and restaurant operating margin, our growth strategy includes increasing same-store sales and new unit growth at J ack in the B ox and Qdoba concepts.


• J ack in the Box Growth. Sales at company-operated J ack in the B ox restaurants open more than one year (“same-store sales”) increased 0.2% in fiscal 2008. On a two-year cumulative basis, same-store sales were up 6.3%, primarily due to the progress we have made in reinventing the J ack in the B ox brand. We believe our success in executing the brand re-invention strategy will continue to drive customer traffic and grow sales. In fiscal 2008, we opened 23 company-operated restaurants and franchisees opened 15 locations. Restaurant growth in fiscal 2008 included expansion into Denver, Colorado, and three other new contiguous markets in Texas. In 2009, we plan to open 40-45 company and franchise-operated restaurants.

• Qdoba Growth. In fiscal 2008, 21 company-operated Qdoba restaurants opened, along with 56 franchised locations. Our Qdoba system is primarily franchised, and although our strategy is to continue expanding this fast-casual subsidiary primarily through franchised growth, we plan to increase the number of new company-operated locations, primarily due to the attractive returns these restaurants have generated on our investment. With a substantial number of new restaurants in the development pipeline and system same-store sales growth of 1.6% in fiscal 2008 and 6.2% on a two-year cumulative basis. Qdoba has emerged as a leader in this segment of the restaurant industry. In 2009, we plan to open 60-80 restaurants, including 30-50 franchised locations.

Strategic Plan — Brand Reinvention. We believe that reinventing the J ack in the B ox brand by focusing on the following three initiatives will differentiate us from our competition by offering our guests a better restaurant experience than typically found in the QSR segment:


• Menu Innovation. We believe that menu innovation and our use of high-quality ingredients will further differentiate J ack in the B ox from competitors, strengthen our brand and appeal to a broader base of consumers. In recent years, we have successfully leveraged premium ingredients like sirloin and artisan breads in launching new products unique to our segment of the restaurant industry. In fiscal 2008, we developed several new menu items with three new product platforms including our real fruit smoothies, pita snacks and breakfast bowls. Looking ahead, we have numerous products in various stages of ideation, development and test as we continue to innovate and enhance our menu as a means to further differentiate J ack in the B ox from other QSR chains.

• Service . A second major aspect of brand reinvention is to improve the level and consistency of guest service at our restaurants. Over the last few years we have introduced several internal service initiatives to help us attract higher-quality applicants for team-member positions, improve employee productivity and improve retention levels at our restaurants. These initiatives include access to affordable healthcare for our employees meeting certain requirements, an ESL (English-as-a-second-lang uage) program for our Spanish-speaking team members, and computer-based training in all of our restaurants. We believe these initiatives have contributed to reduce employee turnover at our restaurants to all-time-low levels. Additionally, we are leveraging new technologies to improve speed of service and guest satisfaction. In 2008, we expanded our test of self-serve kiosks, which offer guests an alternative method of ordering inside Jack in the Box restaurants. We plan on installing the kiosks where the frequency of use is expected to be highest, based on restaurants that experienced positive results in the test.

• Environment . The third element of brand reinvention is the major renovation of our restaurant facilities. In fiscal 2008, 355 restaurants were re-imaged with a comprehensive program that includes a complete redesign of the dining room and common areas. Interior finishes include ceramic tile floors, a mix of seating styles, decorative pendant lighting, and graphics and wall collages. Other elements of the program may include flat-screen televisions, music, new team member uniforms and product packaging, along with new paint schemes, landscaping and other exterior enhancements. We are accelerating the pace at which we will complete the exterior enhancements of our comprehensive restaurant re-image program. By the end of fiscal 2009, the exteriors of all restaurants, including franchise locations, are expected to be re-imaged. Interior elements of the re-image program, including a complete redesign of dining rooms and common areas, are on schedule to be completed system-wide by 2011. In fiscal 2008, we continued to develop our newest restaurant prototype, the Mark 9, which distinguishes Jack in the Box from our competitors through innovative architectural elements and a flexible kitchen design that can accommodate future menu offerings while maximizing productivity and through-put. Nineteen new locations opened during the year with the new design, which features elements of the re-image program along with such distinctive building features as poster marquees, decorative light fixtures, drive-thru viewing windows, and a fireplace with inside and outside viewing. Several energy-efficient and environmentally friendly amenities are in test in our Mark 9 prototype, including tankless hot water heaters, water-saving utilities, solar panels and solar lighting tubes.

Strategic Plan — Expand Franchising. Our third strategic initiative is to continue expanding our franchising operations to generate higher margins and returns for the Company while creating a business model that is less capital intensive and not as susceptible to cost fluctuations. Through the sale of 109 company-operated J ack in the B ox restaurants to franchisees and development of 15 new franchised restaurants, we increased franchise ownership of the J ack in the B ox system to approximately 38% at fiscal year end. We remain on track with our long-term goal to increase franchise ownership to approximately 70-80% of the system by the end of fiscal 2013. We also executed development agreements with several franchisees to further expand the J ack in the B ox brand in new and existing markets in 2009 and beyond. In fiscal 2009, we expect to refranchise 120-140 J ack in the B ox restaurants and add 14-19 new franchised locations to our system. The Qdoba system is predominantly franchised, and we anticipate that future growth will continue to be mostly franchised. In fiscal 2008, Qdoba franchisees opened 56 restaurants in existing and several new markets. We expect Qdoba franchisees to open 30-50 restaurants in fiscal 2009.

Strategic Plan — Improve the Business Model. This sweeping strategy involves all aspects of our organization to improve restaurant profitability and returns as Jack in the Box transitions to a new business model comprised of predominantly franchised restaurant locations. Our decision to sell our Quick Stuff convenience stores supports our new business model as it will allow us to direct our resources and enable us to maximize the potential of our Jack in the Box and Qdoba brands. We will focus on reducing food, packaging and labor costs through product design, menu innovation, and operations simplification, as well as pricing optimization. As the percentage of franchised locations increases, we expect our selling, general and administrative expenses to continue to decrease as we complete our refranchising strategy and continue reengineering our processes and systems.

Restaurant Concepts

J ack in the Box. J ack in the B ox restaurants offer a broad selection of distinctive, innovative products targeted primarily at the adult fast-food consumer. The J ack in the B ox menu features a variety of hamburgers, salads, specialty sandwiches, tacos, drinks, smoothies, real ice cream shakes and side items. Hamburger products include our signature Jumbo Jack ® , Sourdough Jack ® , Ultimate Cheeseburger and Jack’s 100% Sirloin Burger. J ack in the B ox restaurants also offer premium entrée salads and specialty sandwiches to appeal to a broader customer base, including more women and consumers older than the traditional QSR target market of 18-34 year old men. Furthermore, J ack in the B ox restaurants offer value-priced products, known as “Jack’s Value Menu,” to compete against price-oriented competitors and because value is important to certain fast-food customers. J ack in the B ox restaurants also offer customers both the ability to customize their meals and to order any product, including breakfast items, any time of the day. We believe that our distinctive menu has been instrumental in developing brand loyalty and is appealing to customers with a broad range of food preferences. Furthermore, we believe that, because of our diverse menu, our restaurants are less dependent than other QSR chains on the commercial success of one or a few products.

The J ack in the B ox 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.

Qdoba restaurants use fresh, high quality ingredients and traditional Mexican flavors fused with popular ingredients from other regional cuisines to give a unique “Nouveau-Mexican” taste to its broad menu. A few examples of Qdoba’s unique flavors are its signature Poblano Pesto and Ancho Chile BBQ sauces. While the great flavors start with the core philosophy of “the fresher the ingredients, the fresher the flavors tm ”, our ability to deliver these flavors is made possible by the commitment to professional preparation methods. Throughout each day guacamole is prepared onsite using fresh Hass avocados, black and pinto beans are slow-simmered, shredded beef and pork are slow-roasted and adobo-marinated chicken and steak are flame-grilled. Customer orders are prepared in full view, which gives our guests the control they desire to build a meal that is specifically suited to their individual taste preferences and nutritional needs. We also offer a variety of catering options that can be tailored to feed groups of five to several hundred. Our Hot Taco, Nacho and Naked Burrito Bars come with everything needed, including plates, napkins, serving utensils, chafing stands and sternos. Each Hot Bar is set up buffet-style so diners have the ability to prepare their meal to their liking — just like in the restaurant. The seating capacity at Qdoba restaurants ranges from 60 to 80 persons, including outdoor patio seating at many locations.


Restaurant Expansion and Site Selection and Design

Restaurant Expansion. Our long-term growth strategy for our Jack in the Box brand consists of continued restaurant expansion, including expansion into new contiguous markets through Company investment and franchise development. Qdoba’s growth is expected to come primarily from increasing the number of franchise-developed locations. We remain committed to growing our fast-casual subsidiary and believe that Qdoba has significant expansion potential.

Site Selection and Design. Site selections for all new company-operated restaurants are made after an economic analysis and a review of demographic data and other information relating to population density, traffic, competition, restaurant visibility and access, available parking, surrounding businesses and opportunities for market penetration. Restaurants developed by franchisees are built to our specifications on sites which have been approved by us.

We have a restaurant prototype with different seating capacities to help reduce costs and improve our flexibility in locating restaurants. Management believes that the flexibility provided by the alternative configurations enables the Company to match the restaurant configuration with the specific economic, demographic, geographic and physical characteristics of a particular site. The majority of our Jack in the Box restaurants are constructed on leased land. Typical costs to develop a traditional Jack in the Box restaurant, excluding the land value, range from $1.2 million to $1.8 million. Whenever possible, we use sale and leaseback financing and other means to lower the initial cash investment in a typical Jack in the Box to the cost of equipment, which averages approximately $0.4 million. Qdoba restaurant development costs typically range from $0.5 million to $1.0 million depending on geographic region.

CEO BACKGROUND

Mr. Alpert has been a director of the Company since August 1992 and is currently Chairman of the Finance Committee. Mr. Alpert was a partner in the San Diego office of the law firm of Gibson, Dunn & Crutcher LLP for more than five years prior to his retirement in August 1992. He is currently Advisory Counsel to Gibson, Dunn & Crutcher LLP, although he no longer provides services to or receives any compensation from the firm. Gibson, Dunn & Crutcher LLP provides legal services to us from time-to-time.

Mr. Fellows has been a director of the Company since November 2006. He has served as President and Chief Executive Officer of Callaway Golf, as well as one of its directors, since August 2005. Prior to joining Callaway, during the period 2000 through July 2005, he served as President and Chief Executive Officer of GF Consulting, a management consulting firm, and served as Senior Advisor to Investcorp International, Inc. and J.P. Morgan Partners, LLC. Previously, he served as President and Chief Executive Officer of Revlon, Inc.

Ms. Gust has been a director of the Company since January 2003 and currently serves as Chair of the Nominating and Governance Committee. Ms. Gust has served as Special Counsel to the Attorney General of the State of California since January 2007. She served as Executive Vice President and Chief Administrative Officer of The Gap, Inc. from March 2000 until her retirement in May 2005. She joined The Gap, Inc. in 1991 and served in various management roles prior to her appointment as Chief Administrative Officer, including General Counsel. Prior to joining The Gap, Inc., Ms. Gust was a lawyer at the firms of Orrick, Herrington & Sutcliffe LLP and Brobeck, Phleger & Harrison LLP.

Mr. Hutchison has been a director of the Company since May 1998 and serves as Lead Director. He served 24 years as Chief Executive Officer and Chairman of International Technology Corp., a large publicly traded environmental engineering firm, until his retirement in 1996. Mr. Hutchison serves as a director of Cadiz Inc., Cardium, Inc., and is Chairman of the Board of Texas Eastern Products Pipeline Co., LLC.

Ms. Lang has been a director of the Company since November 2003. Ms. Lang has been Chairman of the Board since October 3, 2005, and is currently the Chair of the Executive Committee. She has been Chief Executive Officer since October 3, 2005. Ms. Lang was President and Chief Operating Officer from November 2003 to October 2005, and Executive Vice President from July 2002, to November 2003. From 1996 through July 2002, Ms. Lang held officer level positions with responsibility for marketing or operations. Ms. Lang has 20 years of experience with the Company in various marketing, finance and operations positions. Ms. Lang serves as a director of WD-40 Company.

Mr. Murphy has been director of the Company since September 2002 and is currently Chairman of the Audit Committee. He has been President and CEO of Sharp HealthCare, San Diego’s largest integrated health system, since April 1996. Prior to his appointment to President and CEO, Mr. Murphy served as Senior Vice President of Business Development and Legal Affairs. He began his career at Sharp in 1991 as Chief Financial Officer of Grossmont Hospital before moving to Sharp’s system-wide role of Vice President of Financial Accounting and Reporting.

Mr. Tehle has been a director since December 2004. He has been Executive Vice President and Chief Financial Officer of Dollar General Corporation, a large discount retailer, since June 2004. Formerly a public company, Dollar General became a private company in 2007. Mr. Tehle served from 1997 to June 2004 as Executive Vice President and Chief Financial Officer of Haggar Corporation, a manufacturing, marketing and retail corporation. From 1996 to 1997, he was Vice President of Finance for a division of The Stanley Works, one of the world’s largest manufacturer of tools, and from 1993 to 1996, he was Vice President and Chief Financial Officer of Hat Brands, Inc.


oard Meetings and Committees of the Board of Directors

The Board held six meetings in fiscal 2007. We expect each director to attend each meeting of the Board and the committees on which he or she serves, and also expect them to attend the annual meeting. In fiscal 2007, each director attended 100% of the meetings of the Board and the committees on which he or she served, and all of the then-sitting directors attended the 2007 Annual Meeting.

The Board of Directors has five standing committees: Audit, Compensation, Nominating and Governance, Finance and Executive. The authority and responsibility of each committee is summarized below. A more detailed description of the functions of the Audit, Compensation, Nominating and Governance, and Finance Committees is included in each committee charter as adopted by the Board of Directors. All committee charters can be found in the Corporate Governance section of the Company’s corporate website www.jackinthebox.com .

Committee Member Independence. The Board has determined that each current and anticipated member of the Audit, Compensation, Nominating and Governance, and Finance Committees is independent as defined under the requirements of the New York Stock Exchange, as well as under the additional Independence Guidelines adopted by the Board. In addition, the members of the Audit Committee are all independent as required under Section 10A(m)(3) of the Securities Exchange Act of 1934, and the members of the Compensation Committee are independent as required under Section 162(m) of the Internal Revenue Code. Independence determinations reflect upon both the membership of the above committees as presently constituted and after February 15, 2008.

Audit Committee. As more fully described in its charter, included as Exhibit B to this Proxy Statement, the Audit Committee assists the Board of Directors with overseeing the integrity of the Company’s financial reports; the Company’s compliance with legal and regulatory requirements; the independent registered public accountant’s performance, qualifications and independence; the performance of the Company’s internal auditors and the Company’s processes for identifying, evaluating and addressing major financial risks. The Audit Committee has sole authority to select, evaluate and, when appropriate, replace the Company’s independent registered public accountants. The Audit Committee meets each quarter with the Company’s independent registered public accountants, KPMG LLP (“KPMG”), the Company’s Director of Internal Audit, and management to review the Company’s annual and interim consolidated financial results before the publication of quarterly earnings press releases and the filing of quarterly and annual reports with the Securities and Exchange Commission. The Audit Committee also meets separately each quarter with each of KPMG, management and the Director of Internal Audit. The Board of Directors has determined that all members of the Audit Committee satisfy the financial literacy requirements of the New York Stock Exchange and that each member of the Audit Committee qualifies as an “audit committee financial expert” as defined by Securities and Exchange Commission (“SEC”) rules. The Audit Committee held six meetings in fiscal 2007.

ompensation Committee. As more fully described in its charter, the Compensation Committee assists the Board in discharging the Board’s responsibilities relating to director and executive officer compensation and oversees the evaluation of management. The Compensation Committee reviews and approves the Company’s compensation philosophy, each of the compensation components, equity and benefit plans, and compensation of executive officers, including performance goals and objectives. The Committee approved the disclosures in the Company’s “ Compensation Discussion and Analysis ” beginning on page 13 of this Proxy Statement. The Compensation Committee held five meetings in fiscal 2007.

Executive Committee. The Executive Committee is authorized to exercise all the powers of the Board in the management of the business and affairs of the Company while the Board is not in session. The Executive Committee did not meet in fiscal 2007.

Finance Committee. The Finance Committee assists the Board in advising and consulting with management concerning financial matters of importance to the Company. Topics considered by the Committee include the Company’s capital structure, financing arrangements, stock repurchase programs, capital investment policies, oversight of the Company’s pension and 401(k) plans, the budget process and the financial implications of major acquisitions and divestitures. The Finance Committee held six meetings in fiscal 2007.

Nominating and Governance Committee. The Nominating and Governance Committee assists the Board in identifying and recommending to the Board qualified candidates to become directors, including: considering nominees properly submitted by stockholders; developing and recommending to the Board a set of corporate governance guidelines; providing oversight with respect to the annual evaluation of Board, Committee and individual director performance; and recommending to the Board director nominees for each Board committee. All nominees for election as Directors currently serve on the Board of Directors and are known to the Nominating and Governance Committee in that capacity. The Nominating and Governance Committee also assists the Board in its oversight of the Corporation’s insider trading compliance program. The Nominating and Governance Committee held six meetings in fiscal 2007.

Policy Regarding Consideration of Candidates for Director. The Nominating and Governance Committee has the responsibility to identify, screen and recommend qualified candidates to the Board. The Nominating and Governance Committee will evaluate any recommendation for director candidates proposed by a stockholder. In order to be evaluated in connection with the Nominating and Governance Committee’s established procedures, stockholder recommendations for candidates for the Board must be sent in writing to the following address at least 120 days prior to the anniversary of the date Proxy Statements were mailed to stockholders in connection with the prior year’s annual meeting of stockholders:

Nominating and Governance Committee of the Board of Directors
c/o Office of the Corporate Secretary
Jack in the Box Inc.
9330 Balboa Avenue
San Diego, CA 92123

Stockholder recommendations should include the name of the candidate, age, contact information, present principal occupation or employment, qualifications and skills, background, last five year’s employment and business experience, a description of previous service as a director of any corporation or organization, and other relevant biographical information. There are no stated minimum criteria for director candidates. However, in evaluating director candidates, the Nominating and Governance Committee considers the following factors:


• The appropriate size of the Board.

• The needs of the Company with respect to particular talents and experience.

• The knowledge, skills and experience of candidates in light of the knowledge, skills and experience already possessed by other members of the Board.

• Experience with accounting rules and practices, and executive compensation.

• Applicable regulatory and listing requirements, including independence requirements.
The benefits of constructive working relationships among directors.

• The desire to balance the considerable benefit of continuity with the periodic injection of fresh perspective provided by new members.

The Nominating and Governance Committee may also consider such other factors as it may deem are in the best interests of the Company and its stockholders. The Nominating and Governance Committee believes it appropriate for at least one member of the Board to meet the criteria for an “audit committee financial expert” as defined by SEC Rules, and for a majority of the Board to meet the definition of independence under the listing standards of the New York Stock Exchange. The Nominating and Governance Committee also believes it appropriate for certain key members of management to participate as members of the Board.

The Committee considers all candidates regardless of the source of the recommendation. In addition to stockholder recommendations, the Committee considers recommendations from current directors, Company personnel and others. From time to time the Committee may engage the services of outside search firms to help identify candidates. During fiscal year 2007, the Company engaged one such search firm, the Alexander Group, and paid approximately $1,800 in connection with identification of possible candidates.

After initial screening of a potential candidate’s qualifications, the Committee determines appropriate next steps, including requests for additional information, reference checks and interviews with potential candidates. All candidates must submit a completed form of the Company’s Directors and Officers Questionnaire as part of the consideration process.

Corporate Governance

The Board of Directors is committed to promoting ethical business practices and believes that strong corporate governance is important to ensure that the Company is managed for the long-term benefit of its stockholders. The Company regularly monitors developments in the area of corporate governance and may modify its Principles and Practices as warranted. Any modifications are reflected on the Jack in the Box Inc. website. (www.jackinthebox.com) The following Corporate Governance documents appear on the Company’s website under the “Investors,” “Corporate Governance” tabs. These materials are also available in print to any stockholder upon request.


• Corporate Governance Principles and Practices .

• Committee Charters for the Audit, Compensation, Finance and Nominating and Governance Committees.

• Code of Conduct. In 1998, the Company adopted a Code of Ethics applicable to all Jack in the Box Inc. directors, officers and employees. The Company actively promotes ethical behavior by all employees. The Company’s Director of Ethics conducts regular training sessions for all levels of employees and officers. The Company also provides significant vendors with its Code of Ethics, as well as procedures for the communication of any concerns. The Company intends to satisfy the disclosure requirements of SEC Regulation S-K Item 406(d) regarding any amendment to, or waiver of, a provision of the Code of Ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, by posting such information on the Company’s website. The Company has not made any such waivers and does not anticipate ever making any such waiver.

• Communications with the Board of Directors. Stockholders or others who wish to communicate any concern of any nature to the Board of Directors, any Committee of the Board, any individual director or group of directors, may write to the director in care of the Office of the Corporate Secretary, Jack in the Box Inc. 9330 Balboa Avenue, San Diego, CA 92123, or telephone 1-888-613-5225.

Director Independence Guidelines. In addition to the Corporate Governance Principles and Practices, the Board has adopted Independence Guidelines, which are attached as Exhibit A.

Among other matters, the Corporate Governance Principles and Practices include the following items concerning the Board:

1. Meetings of Non-Management Directors. The non-management directors of the Company meet separately on a regular basis in executive session. The Lead Director is responsible for setting the agenda and presiding at the meetings.

2. Lead Director. The non-management directors appoint a lead director each year to set the agenda for and preside at the executive sessions of the Board. The lead director acts as the primary communication channel between the Board and the CEO, and determines the format and the adequacy of information required by the Board. For fiscal 2008, the non-management directors have appointed Murray Hutchison as lead director.

3. Limitation on Other Board Service. The Company’s Corporate Governance Principles and Practices set forth the Board’s policy limiting non-management directors to simultaneous service on no more than four public companies, including Jack in the Box Inc. The Board has an approval process that generally limits each of our officers to serving on no more than one public company’s board outside of Jack in the Box Inc. affiliates. The approval process considers both the time commitment and potential business conflicts and is administered by the Nominating and Governance Committee.

4. Retirement Policy. The Board has adopted a retirement policy under which directors may not stand for election or be appointed after age 73. Dr. Alice Hayes, current Chairman of the Compensation Committee and member of the Nominating and Governance Committee, has informed the Board that she intends to retire from the Board effective February 15, 2008.

5. Board, Committee and Individual Director Evaluations. Each year the Directors complete an evaluation process focusing on an assessment of Board operations as a whole and the service of each director. Additionally, each of the Audit, Compensation, Finance and Nominating and Governance Committees conducts a separate evaluation of its own performance and the adequacy of its Charter. The Nominating and Governance Committee coordinates the evaluation of individual directors and of the Board operations and reviews and reports to the Board on the annual self-evaluations completed by the committees.

6. New-Director Orientation and Continuing Education. The Board works with management to schedule new-director orientation programs and continuing education programs for directors. Orientation is designed to familiarize new directors with the Company and the restaurant industry as well as Company personnel, facilities, strategies and challenges. Continuing education programs may include in-house and third-party presentations and programs.

7. Attendance at Annual Meetings. The Company’s Corporate Governance Principles and Practices sets forth the Board’s policy on director attendance at our Annual Meeting of stockholders. It states that all directors shall make every effort to attend the Annual Meeting.

8. Stock Ownership Guidelines. The Board has established stock ownership guidelines for non-management directors to appropriately link their interests with those of other stockholders. These guidelines provide that within a three-year period following appointment or election, the director should attain and hold an investment position of $150,000 in defined total stock value, exclusive of any outstanding stock options but including directly and indirectly held shares and the equivalent number of shares derived from deferral of director compensation. The Board has established ownership guidelines for senior officers as described in the “ Compensation Discussion and Analysis ” section of this Proxy Statement.

MANAGEMENT DISCUSSION FROM LATEST 10K


OVERVIEW

As of September 28, 2008, Jack in the Box Inc. (the “Company”) owned, operated, and franchised 2,158 J ack in the B ox quick-service restaurants and 454 Qdoba Mexican Grill (“Qdoba”) fast-casual restaurants, primarily in the western and southern United States.

Our primary source of revenue is from retail sales at company-operated restaurants. We also derive revenue from sales of food and packaging to J ack in the B ox and Qdoba franchises, and revenue from franchisees including royalties based upon a percent of sales, franchise fees and rents. 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 in the accompanying consolidated statements of earnings.

The quick-service restaurant industry is complex and challenging. Challenges presently facing the sector include higher levels of consumer expectations, intense competition with respect to market share, restaurant locations, labor, menu and product development, changes in the economy, including costs of commodities, and trends for healthier eating.

To address these challenges and others, management has developed a strategic plan focused on four key initiatives. The first initiative is a growth strategy that includes opening new restaurants and increasing same-store sales. The second initiative is a holistic reinvention of the Jack in the Box brand through menu innovation, upgrading guest service and re-imaging Jack in the Box restaurant facilities to reflect the personality of Jack — the chain’s fictional founder and popular spokesman. The third strategic initiative is to expand franchising — through new restaurant development and the sales of company-operated restaurants to franchisees — to create a business model that is less capital intensive and not as susceptible to cost fluctuations. The fourth initiative is to improve our business model as we transition to becoming a predominantly franchised restaurant chain.

The following summarizes the most significant events occurring in fiscal 2008:


• Restaurant Sales. J ack in the B ox company-operated restaurants open more than one year (“same-store”) sales increased 0.2% year-to-date, on top of an increase of 6.1% a year ago. System same-store sales at Qdoba restaurants increased 1.6% year-to-date, on top of an increase of 4.6% a year ago. Sales and traffic at both concepts continue to be impacted by the current economic environment, including higher unemployment rates, and for much of the fiscal year significantly higher gas prices, and consumers who have become more conservative in their discretionary spending.

• Commodity Costs. Our business continues to be impacted by pressures from increased commodity costs. In 2008, food and packaging costs were 150 basis points higher than last year. Beef costs, which represent the Company’s largest single commodity expense, increased by more than 5 percent and higher costs for cheese, shortening and potato items contributed to a 5.5% increase in overall commodity costs for the year.

• New Market Expansion. We expanded into a new contiguous company market in Denver, Colorado, opening three J ack in the B ox restaurants, and we opened our third restaurant in Corpus Christi, Texas, a new market we entered at the end of last fiscal year. Jack in the Box franchisees are also expanding into new contiguous markets in Texas opening four restaurants in San Angelo, Midland, Sweetwater and Odessa. Franchisees are expected to continue expanding Jack in the Box into new contiguous markets in fiscal 2009, with locations scheduled to open in Colorado Springs, Colorado, Albuquerque, New Mexico, and Wichita Falls, Texas.

• Re-Image Program. We continued to re-image our J ack in the B ox restaurants with a comprehensive program that includes a redesign of the dining room and common areas. In 2008, the Company and its franchisees re-imaged 355 restaurants. Since the current program was adopted in 2006, approximately 750 company and franchised restaurants, or more than one-third of the system, have been re-imaged. We are accelerating the pace at which we will complete the exterior enhancements of our re-image program and by the end of fiscal 2009, the exteriors of all company and franchised restaurants are expected to be re-imaged. Interior elements of the re-image program, including a complete redesign of dining rooms and common areas, are on schedule to be completed system-wide by the end of fiscal 2011.

• Franchising Program. We continued to execute our strategic initiative to expand franchising through new restaurant development and sales of company-operated restaurants to franchisees and at September 28, 2008, approximately 38% of our Jack in the Box restaurants were franchised. Our long-term goal is to grow the percentage of franchise ownership of the J ack in the B ox system to 70%-80%, which should create a business model that is less capital intensive and not as susceptible to cost fluctuations and is more closely aligned with that of the QSR industry. While the lending environment is currently much more difficult than we have seen in the past, we plan to accelerate the pace of our refranchising efforts over the next 5 years, which should allow us to reach our franchise ownership goals by the end of fiscal 2013.


• Treasury Highlights. Pursuant to a stock repurchase program authorized by our Board of Directors, we repurchased 3.9 million shares of our common stock for an aggregate of $100 million during the first three quarters of fiscal 2008. Due to uncertainty in the financial markets and the availability of credit prior to approval of the federal bailout plan, we did not repurchase any shares of our common stock in the fourth quarter and we chose to draw down additional funds under our revolving credit facility prior to fiscal year end.


• Discontinued Operations. In September 2008, the Board of Directors approved plans to sell our 61 Quick Stuff convenience stores to maximize the potential of the Jack in the Box and Qdoba Brands.

FINANCIAL REPORTING CHANGES

In the third quarter of fiscal 2008, we recorded adjustments to goodwill in connection with the sale of company-operated restaurants to franchisees from the beginning of fiscal 2003 through the second quarter of fiscal 2008. Historically, we did not write-off goodwill on the sale of company-operated restaurants to franchisees, as we did not believe it constituted the disposal of a business under the provisions of SFAS 142, Goodwill and Other Intangible Assets . It has now been interpreted that SFAS 142 requires that a portion of the entity level goodwill be written-off based on the relative fair values of the restaurants being sold and the remaining value of the entity, in our case, Jack in the Box . These adjustments did not have a material impact on our consolidated financial statements for any of the affected reporting periods. Refer to Note 3, Goodwill and Intangible Assets, net , in the notes to our consolidated financial statements for additional information.

The results of operations for Quick Stuff 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

In 2008 and 2007, we opened 23 and 42 company-operated J ack in the B ox restaurants and franchisees opened 15 and 16 restaurants, respectively. In addition, we sold 109 and 76 J ack in the B ox company-operated restaurants to franchisees, respectively. Qdoba opened 77 and 87 company and franchise-operated restaurants during 2008 and 2007, respectively.

Revenues

Company-operated restaurant sales were $2,101.6 million, $2,151.0 million, and $2,101.0 million, in 2008, 2007, and 2006, respectively. The decrease in restaurant sales in 2008 compared with a year ago primarily reflects the sale of J ack in the B ox company-operated restaurants to franchisees. Restaurant sales also include the loss of approximately 1,300 restaurant operating days due to the impact of Hurricane Ike. These decreases were partially offset by an increase in the number of Qdoba company-operated restaurants and modest increases in per store average (“PSA”) sales at J ack in the B ox and Qdoba company-operated restaurants. Same-store sales at J ack in the B ox company-operated restaurants increased 0.2% in 2008 on top of 6.1% in 2007 and 4.8% in 2006, which reflected price increases of approximately 2.2% in 2008. The sales growth in 2007 compared with 2006 primarily reflects an increase in PSA sales at J ack in the B ox and Qdoba company-operated restaurants and an increase in the number of Qdoba company-operated restaurants, offset in part by a decrease in the number of J ack in the B ox company-operated restaurants reflecting our Franchising Strategy.

Distribution sales, representing distribution sales to J ack in the B ox and Qdoba franchisees, grew to $275.2 million in 2008 from $222.6 million in 2007 and $170.5 million in 2006. The increase in distribution sales in 2008 and 2007 primarily relates to an increase in the number of Jack in the Box and Qdoba franchised restaurants serviced by our distribution centers and higher food costs.

Franchised restaurant revenues, which include rents, royalties and fees from restaurants operated by franchisees, increased to $162.8 million in 2008 from $139.9 million in 2007 and $109.7 million in 2006, primarily reflecting an increase in the number of franchised restaurants. The number of franchised restaurants increased to 1,155 at the end of the fiscal year from 1,001 in 2007 and 852 in 2006, reflecting the franchising of Jack in the Box company-operated restaurants and new restaurant development by Qdoba and Jack in the Box franchisees.

Operating Costs and Expenses

Restaurant costs of sales, which include food and packaging costs, increased to $701.1 million in 2008 from $685.2 million in 2007, and $656.0 million in 2006. As a percentage of restaurant sales, restaurant costs of sales were 33.4% in 2008, 31.9% in 2007, and 31.2% in 2006. In 2008 and 2007, higher commodity costs, primarily cheese, shortening, eggs, and beef were partially offset by selling price increases and lower packaging costs in 2007.

Restaurant operating costs were $1,063.1 million in 2008, $1,080.9 million in 2007, and $1,076.7 million in 2006 and, as a percentage of restaurant sales, were 50.6%, 50.3%, and 51.2%, respectively. In 2008, higher costs for utilities and depreciation expense related to increased capital spending associated with our on-going re-image program and kitchen enhancement projects were offset in part by decreased labor rates. In 2007, the percentage improvement compared with 2006 is primarily due to fixed cost leverage on same-store sales and lower costs for workers’ compensation insurance, utilities, and profit improvement initiatives, partially offset by higher costs related to brand re-invention initiatives.

Costs of distribution sales increased to $273.4 million in 2008 from $220.2 million in 2007 and $168.8 million in 2006, primarily reflecting an increase in the related sales. These costs were 99.3% of distribution sales in 2008, and 99.0% in both 2007 and 2006. The percentage increase in 2008 compared with 2007 and 2006 relates primarily to higher fuel and delivery costs.

Franchised restaurant costs, principally rents and depreciation on properties leased to J ack in the B ox franchisees, increased to $65.0 million in 2008 from $56.5 million in 2007 and $44.5 million in 2006, due primarily to an increase in the number of franchised restaurants. As a percentage of franchised restaurant revenues, franchise restaurant costs decreased to 39.9% in 2008 from 40.4% in 2007 and 40.5% in 2006 benefiting from the leverage provided by higher franchise royalties and fee revenue.

Selling, general, and administrative (“SG&A”) expenses were $287.6 million, $291.7 million, and $298.4 million in 2008, 2007, and 2006, respectively. SG&A expenses decreased to approximately 11.3% of revenues in 2008 from 11.6% of revenues in 2007 and 12.5% in 2006. The decrease in 2008 is due primarily to effective management of field and corporate general and administrative expenses, the impact of our refranchising strategy, lower incentive compensation and leverage from higher revenues. These decreases were offset in part by losses on the cash surrender value of insurance products used to fund certain non-qualified retirement plans, losses related to hurricanes and an increase in facility charges related to the Jack in the Box re-image program, the kitchen enhancement project and the impairment of seven restaurants we continue to operate. In 2007, increased leverage from higher revenues, lower pension costs and insurance recoveries contributed to the percent of revenue decline compared with 2006.

Gains on the sale of company-operated restaurants were $66.3 million, $38.1 million and $40.5 million in 2008, 2007 and 2006, respectively. The change in gains relates to the number of restaurants sold and the specific sales and cash flows of those restaurants. In 2008, we sold 109 Jack in the Box restaurants, compared with 76 in 2007, and 82 in 2006, which included all 25 company-operated restaurants in Hawaii. The Hawaii transaction represented the first sale of an entire market since we announced our intent to increase franchising activities in 2002 and contributed approximately $15.0 million to gains on sale of company-operated restaurants in 2006.

Interest Expense

Interest expense was $28.1 million, $32.1 million, and $19.6 million, in 2008, 2007 and 2006, respectively. The decrease in interest expense in 2008 relates to lower average interest rates compared with a year ago, which also included a $1.9 million charge in the first quarter to write-off deferred financing fees in connection with the replacement of our credit facility. In 2007, interest expense increased compared with 2006 primarily due to higher average bank borrowings and increased interest rates incurred on our credit facility.

Interest Income

Interest income was $0.06 million, $8.8 million, and $7.5 million, in 2008, 2007 and 2006, respectively. Interest income decreased in 2008 compared with a year ago due to lower average cash balances. The increase in interest income in 2007 versus 2006 reflects higher average cash balances and higher interest rates on invested cash.

Income Taxes

The income tax provisions reflect effective tax rates of 37.3%, 35.6%, and 35.6% of pretax earnings from continuing operations in 2008, 2007 and 2006, respectively. The higher tax rate in 2008 is attributable to market performance of insurance investment products used to fund certain non-qualified retirement plans. Changes in the cash value of the insurance products are not deductible or taxable.

Net Earnings and Net Earnings per Share from Continuing Operations

Net earnings from continuing operations were $118.2 million or $1.99 per diluted share, in 2008; $124.7 million or $1.85 per diluted share, in 2007; and $106.4 million or $1.48 per diluted share, in 2006.

Earnings from Discontinued Operations

As described in the “Financial Reporting Changes” section, Quick Stuff’s results of operations have been reported as discontinued operations. Earnings from discontinued operations, net were $1.1 million, $0.9 million and $1.7 million in 2008, 2007 and 2006, respectively.

Cumulative Effect of Accounting Change

In fiscal 2006, we adopted Financial Accounting Standards Board Interpretation (“FIN”) 47 which requires that we record a liability for an asset retirement obligation at the end of a lease if the amount can be reasonably estimated. As a result of adopting FIN 47, we recorded an after-tax cumulative effect from this accounting change of $1.0 million related to the depreciation and interest expense that would have been charged prior to the adoption.

LIQUIDITY AND CAPITAL RESOURCES

General. Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations, the revolving bank credit facility, the sale of company-operated restaurants to franchisees and the sale and leaseback of certain restaurant properties.

Our cash requirements consist principally of:


• working capital;

• capital expenditures for new restaurant construction, restaurant renovations and upgrades of our management information systems;

• 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.

As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories and our vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. As a result, we typically maintain current liabilities in excess of current assets that result in a working capital deficit.

Cash and cash equivalents increased $32.2 million to $47.9 million at September 28, 2008 from $15.7 million at the beginning of the fiscal year. This increase is primarily due to borrowings under our credit facility, cash flows provided by operating activities and from the sale of restaurants to franchisees. We generally reinvest available cash flows from operations to develop new restaurants or enhance existing restaurants, to repurchase shares of our common stock and to reduce debt.



MANAGEMENT DISCUSSION FOR LATEST QUARTER


OVERVIEW
As of July 6, 2008, Jack in the Box Inc. (the “Company”) operated and franchised 2,148 J ack in the B ox quick-service restaurants, primarily in the western and southern United States, and 438 Qdoba Mexican Grill (“Qdoba”) fast-casual restaurants through-out the United States.
Our primary source of revenue is from retail sales at company-operated restaurants. We also derive revenue from sales of food and packaging to J ack in the B ox and Qdoba franchised restaurants, retail sales from fuel and convenience stores (“ Quick Stuff”), and revenue from franchisees including royalties, based upon a percent of sales, franchise fees and rents. 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 in the accompanying condensed consolidated statements of earnings.
The quick-service restaurant industry is complex and challenging. Challenges presently facing the sector include higher levels of consumer expectations, intense competition with respect to market share, restaurant locations, labor, menu and product development, trends for healthier eating, and changes in the economy, including costs of commodities and changes in consumer spending which have been impacted by, among other factors, an unstable housing market, higher fuel prices and higher unemployment rates in certain markets.
To address these challenges and others, management has a strategic plan focused on four key initiatives. The first initiative is a growth strategy that includes opening new restaurants and increasing same-store sales. The second initiative is a holistic reinvention of the Jack in the Box brand through menu innovation, upgrading guest service and re-imaging Jack in the Box restaurant facilities to reflect the personality of Jack – the chain’s fictional founder and popular spokesman. The third strategic initiative is to expand franchising – through new restaurant development and the sales of company-operated restaurants to franchisees – to generate higher returns and higher margins, while mitigating business-cost and investment risks. The fourth initiative is to improve our business model to enhance restaurant profitability, margins and returns, reduce operating costs and increase the long-term value of our business.
The following summarizes the most significant events occurring in fiscal 2008:
• Restaurant Sales . J ack in the B ox company-operated restaurants open more than one year (“same-store”) sales increased 0.4% year-to-date, on top of an increase of 6.4% a year ago. Same-store sales on a two-year cumulative basis remained strong and were up 7.0% at company Jack in the Box restaurants for the third quarter, which improved upon our 6.3% two-year cumulative increase in the second quarter. Although same-store sales in certain major markets in California, Phoenix and Las Vegas remained negative during the quarter, results improved on both a one-year and two-year cumulative basis. System same-store sales at Qdoba restaurants increased 2.5% year-to-date, on top of an increase of 4.2% a year ago.

• Commodity Costs . Our business continues to be impacted by pressures from increased commodity costs. In 2008, food and packaging costs were 140 basis points higher than last year. Looking forward, we expect commodity cost pressures to continue in the fourth quarter.

• New Market Expansion. We expanded into a new contiguous company market in Denver, Colorado, opening two J ack in the B ox restaurants and we opened our third restaurant in Corpus Christi, Texas, a new market we entered at the end of last fiscal year. Jack in the Box franchisees are also expanding into new contiguous markets in Texas opening four restaurants in Abilene, San Angelo and Midland/Odessa.

• Re-Image Program . We continued to re-image our J ack in the B ox restaurants with a comprehensive program that includes a redesign of the dining room and common areas. In 2008, the Company and its franchisees have re-imaged 250 restaurants. Since the current program was adopted in 2006, more than 620 Company and franchised restaurants, representing approximately 29% of the system, have been re-imaged. The entire Jack in the Box system, including franchised locations, is expected to be re-imaged over the next 3-4 years.

• Franchising Program. We continued to execute our strategic initiative to expand franchising through new restaurant development and sales of company-operated restaurants to franchisees. Through the first three quarters of 2008, we refranchised 68 Jack in the Box restaurants, and Qdoba and Jack in the Box franchisees opened 53 new restaurants. At July 6, 2008, approximately 36% of our Jack in the Box restaurants were franchised. Our long-term goal is to grow the percentage of franchise ownership of the J ack in the B ox system by approximately 5% annually and move toward an ultimate goal of 70%-80%, which is more closely aligned with that of the QSR industry.

• Treasury Highlights . Pursuant to a stock repurchase program authorized by our Board of Directors, we repurchased 3.9 million shares of our common stock for an aggregate of $100 million.

FINANCIAL REPORTING CHANGES
Historical share and per share data for 2007 in our Quarterly Report on Form 10-Q have been restated to give retroactive recognition of our two-for-one stock split that was effected in the form of a 100% stock dividend on October 15, 2007, with the exception of treasury share data as no stock dividend was paid with respect to treasury shares. Refer to Note 7, Stockholders’ Equity , in the notes to the condensed consolidated financial statements for additional information regarding the stock split.
In 2008, we recorded adjustments to goodwill in connection with the sale of Company-operated restaurants to franchisees from the beginning of fiscal year 2003 through the second quarter of fiscal 2008. Historically, we did not write-off goodwill on the sale of Company-operated restaurants to franchisees as we did not believe it constituted the disposal of a business under the provisions of Statement of Financial Accounting Standards (“SFAS”) 142, Goodwill and Other Intangible Asset . It has now been interpreted that SFAS 142 requires that a portion of the entity level goodwill be written off based on the relative fair values of the restaurants being sold and the remaining value of the entity, in our case, Jack in the Box . These adjustments did not have a material impact on our consolidated financial statements for any of the affected reporting periods. Refer to Note 2, Adjustments Related to Goodwill , in the notes to the condensed consolidated financial statements for additional information regarding the goodwill adjustments.

RESULTS OF OPERATIONS

Since July 8, 2007, we opened 36 company-operated J ack in the B ox restaurants (along with three Quick Stuff convenience stores) and 16 company-operated Qdoba restaurants. Franchisees opened 15 J ack in the B ox and 63 Qdoba restaurants since a year ago.


Revenues
Restaurant sales decreased $13.9 million, or 2.8%, in the quarter and $27.2 million, or 1.6%, year-to-date primarily due to a decrease in the number of J ack in the B ox company-operated restaurants reflecting the sale of company-operated restaurants to franchisees. This decrease was partially offset by an increase in the number of Qdoba company-operated restaurants and increases in per store average (“PSA”) sales at J ack in the B ox and Qdoba company-operated restaurants year-to-date. Same-store sales at J ack in the B ox company-operated restaurants decreased 0.4% in the quarter and increased 0.4% year-to-date compared with a year ago, reflecting price increases of approximately 2.5% year-to-date. Same-store sales on a two-year cumulative basis remained strong, while same-store sales decreased in California, Phoenix and Las Vegas due to the downturn in the housing market, higher fuel prices and unemployment, we did see improvement in these markets in the third quarter versus the second quarter of 2008. Same-store sales outside of these markets on a combined basis in 2008 remained positive compared with 2007, improving in the quarter and year-to-date.
Distribution and other sales, representing distribution sales to J ack in the B ox and Qdoba franchisees, as well as Quick Stuff fuel and convenience store sales, grew to $183.0 million and $558.5 million, respectively in 2008 from $144.0 million and $437.5 million in 2007. Sales from our Quick Stuff locations increased $27.9 million and $78.9 million, respectively, compared with a year ago due to increases in PSA fuel sales, reflecting higher retail prices, and an increase in the number of locations to 61 at the end of the quarter from 58 a year ago. Distribution sales to Jack in the Box and Qdoba franchisees increased $11.2 million and $42.1 million, respectively, in 2008 compared with the same periods in 2007 reflecting an increase in the number of franchised restaurants serviced by our distribution centers.
Franchised restaurant revenues include rents, royalties and fees from restaurants operated by franchisees, and, in 2008, is net of company contributions of $1.0 million and $1.6 million, respectively, to franchisees related to a program where by the company contributes $25,000 to a franchisees for each re-imaged restaurant completed on schedule and to standards. Franchised restaurant revenue increased $4.1 million and $16.6 million, respectively, in 2008 to $37.3 million and $121.7 million, primarily due to an increase in the number of franchised restaurants. The number of franchised restaurants increased to 1,109 at the end of the quarter from 955 a year ago, reflecting the franchising of Jack in the Box company-operated restaurants and new restaurant development by Qdoba and Jack in the Box franchisees.
Operating Costs and Expenses
Restaurant costs of sales, which include food and packaging costs, were $162.7 million and $537.4 million, respectively, in 2008 compared with $164.7 million and $522.7 million in 2007. Restaurant costs of sales increased to 33.2% and 33.0% of sales, respectively, in 2008 compared with 32.7% and 31.6% in 2007. In both periods, higher commodity costs, including shortening, cheese, and eggs were partially offset by lower prices for pork and selling price increases.
Restaurant operating costs decreased to $245.0 million and $817.3 million, respectively, in 2008 from $250.7 million and $833.4 million in 2007. Restaurant operating costs as a percent of sales were 50.1% and 50.2%, respectively, in 2008 compared with 49.8% and 50.4%, in 2007. In the quarter, increased minimum wages in several states in which we operate, increased costs for utilities and higher depreciation expense related to increased capital spending associated with the Company’s on-going comprehensive re-image program and kitchen enhancement project were offset in part by effective labor management. Year-to-date, the benefit provided by decreased labor rates more than offset the impact of increased costs for utilities and higher depreciation expense.
Costs of distribution and other sales increased to $181.5 million and $555.5 million, respectively, in 2008 from $142.3 million and $433.5 million in 2007, primarily reflecting an increase in the related sales. As a percentage of the related sales, these costs increased to 99.2% and 99.5% in 2008 from 98.9% and 99.1% in 2007, due primarily to higher retail prices per gallon of fuel.
Franchised restaurant costs, principally rents and depreciation on properties leased to J ack in the B ox franchisees, increased to $15.3 million and $49.2 million, respectively in 2008 from $13.2 million and $42.5 million in 2007, due primarily to an increase in the number of franchised restaurants. As a percentage of franchised restaurant revenues, franchised restaurant costs increased in the quarter to 41.1% in 2008 from 39.8% in 2007 and remained fairly stable year-to-date at 40.4% in 2008 compared with 40.5% in 2007. The increased rate in the quarter primarily relates to the Company's re-image contributions to franchisees recorded as a reduction of franchised restaurant revenue.

As a percent of revenues exclusive of the prior year insurance recovery, SG&A improved to 9.2% and 9.6% of revenues in 2008 compared with 9.8% and 10.2% a year ago due primarily to the leverage from higher revenues and lower costs.
Gains on the sale of company-operated restaurants to franchisees were $15.2 million and $43.2 million, respectively, from the sale of 17 and 68 Jack in the Box restaurants, in 2008 compared with $12.3 million and $26.2 million, from the sale of 22 and 52 Jack in the Box restaurants, in 2007. The change in gains relates to the number of restaurants sold and the specific sales and cash flows of those restaurants.


Interest Expense
Interest expense decreased $1.0 million and $3.3 million, respectively, in 2008 to $6.1 million and $21.9 million from $7.1 million and $25.2 million in 2007, which included a $1.9 million charge in the first quarter to write-off deferred financing fees in connection with the replacement of our credit facility. The decrease in interest expense exclusive of the charge in the prior year relates to lower average interest rates and bank borrowings compared with a year ago.
Interest Income
Interest income decreased $0.9 million and $8.0 million, respectively, in 2008 to $0. 1 million and $0.4 million from $1.0 million and $8.4 million in 2007 primarily reflecting lower average cash balances.
Income Taxes
The income tax provisions reflect effective tax rates of 37.8% in 2008 and 35.7% in 2007. The higher tax rate was attributable to market performance of insurance investment products used to fund certain non-qualified retirement plans. Changes in the cash value of the insurance products are not deductible or taxable. We expect the annual tax rate for fiscal year 2008 to be approximately 37%. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual rate could differ from our current estimates.
Net Earnings
Net earnings in the quarter were $29.9 million, or $0.51 per diluted share, in 2008 compared to $34.5 million, or $0.54 per diluted share, in 2007. Year-to-date net earnings were $92.4 million, or $1.54 per diluted share, in 2008 compared to $98.8 million, or $1.44 per diluted share, in 2007.
LIQUIDITY AND CAPITAL RESOURCES
General. Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations, the revolving bank credit facility, the sale of company-operated restaurants to franchisees and the sale and leaseback of certain restaurant properties.
Our cash requirements consist principally of:
• working capital;

• capital expenditures for new restaurant construction, restaurant renovations and upgrades of our management information systems;

• 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.
As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories and our vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. As a result, we typically maintain current liabilities in excess of current assets that result in a working capital deficit.
Cash and cash equivalents decreased $1.2 million to $14.5 million at July 6, 2008 from $15.7 million at the beginning of the fiscal year. This decrease is primarily due to property and equipment expenditures and the use of cash to repurchase our common stock, which were offset in part by cash flows provided by operating activities, net borrowings under our revolving credit facility and proceeds from the sale of restaurants to franchisees.


CONF CALL


Carol DiRaimo

Joining me on the call today are Chairman and CEO Linda Lang, our President and Chief Operating Officer, Paul Schultz, and Executive Vice President and CFO, Jerry Rebel. During this morning's session, we'll review the company's operating results for the fourth quarter and fiscal year '08 and discuss our guidance for fiscal 2009, as well as our long-term outlook for the business. Following today's presentation we'll take questions.

Please be advised that during the course of our presentation and our question and answer session today, we may make forward-looking statements that reflect management's expectations for the future, which are based on current information. Actual results may differ materially from these expectations based on risks to the business. The Safe Harbor statement in yesterday's news release is considered a part of this conference call. Material risk factors as well as information relating to company operations, are detailed in our most recent 10-K, 10-Q and other public documents filed with the SEC.

A couple of calendar items to note that we expect to file our Form 10-K for fiscal year 2008 in the next few days and Jack in the Box management will be presenting at the JP Morgan Mid Cap Conference on December 4th and the Cowen Company Consumer's Conference on January 12th. Both conferences will be in New York and to help your planning during the busy yearend earnings season, our first quarter of 2009 ends on January 18th and we tentatively expect to release earnings the week of February 16th.

With that, I'll turn the call over to Linda.

Linda Lang

Between the slowing economy, food cost inflation, tightening credit markets and Hurricane Ike, we faced a number of challenges on several fronts during the fourth quarter, but still delivered earnings of $0.47 per diluted share. Our bottom line showed full year earnings of $2.01 per diluted share. Both the fourth quarter and the full year were negatively impacted by $0.04 to $0.05 due to Ike.

Excluding the impact that Hurricane Ike had on our restaurants, fourth quarter comparable sales growth at Jack in the Box company restaurants would have been slightly been positive for the quarter and in line with our expectations. We were pleased to see sales trends continue to improve in California where our company restaurants experienced positive sales growth in the quarter.

Our same store sales for the year were up two-tenths of a percent on top of a very strong 6.1% increase in fiscal 2007. Economic pressures are impacting our fast casual subsidiary Qdoba Mexican Grill as well, which experienced its first quarterly decrease in system wide same store sales in more than nine years. For the full year, same store sales at Qdoba were up 1.6% for the year on top of a 4.6% increase last year.

Although we remain cautious about how aggressively we raise prices in this environment as we discussed during our third quarter call, we retained a well-recognized pricing consultant to develop recommendations used in their proprietary scientific approach designed to optimize profits at each location. We saw positive sales in margin results in company and franchise restaurants and as a result, we raised prices at company locations by approximately 2.5% earlier this month.

Our focus continues to be on premium products versus deep value or discounting messages. We have a tiered menu strategy that is keeping our brand relevant to a wide range of consumers, including those trading down from other restaurant categories as well as those whose discretionary spending has been especially hard hit by the country's economic problems. We provide variety on our menu, including innovative products that are not typically offered in the QSR segment, such as the Breakfast Bowls and Pita Snacks that we introduced in the fourth quarter, and our Real Fruit Smoothies, which continue to sell well.

Another new product that we're excited about is our Teriyaki Bowls, which we added to the menu in most of our western US markets in late October. This product features a generous serving of steamed rice, broccoli, and carrots with a choice of either all-white-meat chicken or sirloin steak topped with teriyaki sauce.

Our Teriyaki Bowls are a great addition to the non-burger alternatives on our menu and have a lower than average food cost. We've been pleased by the initial reception to this unique product in the QSR segment and are looking forward to expanding them into our central US and southeast markets later in the fiscal year.

As we noted in our press release, our board of directors in September approved the continuation of our long-term strategic plan, which focuses on expanding franchising, improving our business model, growing our business and reinventing the Jack in the Box brand. Since announcing our strategic initiative to reinvent the Jack in the Box brand, our teams have done a great job of developing new products that are relevant to the evolving tastes and budgets of our guests.

We're also making progress on the other key aspects of our brand reinvention initiatives in enhancing our restaurant facilities and improving guest service. Nearly half of all company restaurants and more than 40% of the entire Jack in the Box system now reflect our new restaurant image. We remain on track to re-image all restaurants including franchised locations by the end of fiscal year 2011.

Because the restaurants exterior is very visible to the consumer, we are prioritizing the system wide completion of all exterior elements of our re-image program by the end of fiscal 2009. We think there's an opportunity for us to achieve a more cohesive brand image throughout our system by completing the exterior elements of the re-image program first.

Another initiative that we expect will have a positive impact on guest service is the recent consolidation and realignment of all company and franchise restaurant operations, which should improve communication, integration, and consistency at all locations system wide. We're also leveraging new technologies to improve speed of service and guest satisfaction at our restaurants.

In 2008, we expanded our tests of self-serve kiosks, which offer guests an alternative method of ordering inside Jack in the Box restaurants. We're seeing higher average checks with kiosk transactions and are planning to install this technology where the frequency of use is expected to be highest based on restaurants that experience positive results in the test.

Regarding re-franchising, we exceeded our forecast in the fourth quarter and despite the challenging market conditions. We continue to see high demand to purchase Jack in the Box restaurants from existing franchisee's as well as strong interest generated from our new franchisee recruiting efforts. Our plan is to accelerate the pace of our re-franchising efforts over the next five years, which would allow us to reach our goal of franchised ownership in the range of 70 to 80% by the end of fiscal year 2013. While the lending environment is currently more difficult than in the past, re-franchising is a multi-year strategy for us and with our cash flow needs met through operations, as well as our credit facility, we can afford to be patient if necessary.

Moving on to our third major strategic initiative, improving the business model, we continue to sustain improvements in labor management at our restaurants and saw turnover among team members reduced to near record low levels in 2008. Our efforts to reduce packaging and food costs, as well field and other G&A expenses, are helping to offset the high commodities and utility costs we're seeing and we'll have our organization well positioned when economic conditions improve.

As far as strategic initiatives to grow our business, Jack in the Box expanded into Denver, Colorado in fiscal 2008, as well as three other new contiguous markets in Texas. In 2009, our franchisees plan to continue expanding our brand into additional new contiguous markets in Colorado, New Mexico and Texas. Additional markets have been approved for company seating and our plan is to convert these new markets to franchise markets in the future.

Continued success in executing each of the major initiatives of our long-term strategic plan is key to our ability to grow earnings and free cash flow in order to evolve our business model to one that is less capital intensive and not as susceptible to cost fluctuations. We know it will take our full attention to realize the tremendous upside potential of our Jack in the Box and Qdoba brands. This is why we made the difficult decision to sell our chain of Quick Stuff convenience stores.

I'd like to thank everyone in our organization, including our field and store employees who have worked so hard to develop this award-winning brand. And since announcing our intent to sell Quick Stuff, I've been even more impressed by the character and integrity they've shown as we prepare that chain for sale.

Before I turn the call over to Jerry, I'd like to acknowledge a couple of exciting events that will benefit our primary charitable partner, Big Brothers Big Sisters. Since late October, we've been selling a new antenna ball called "Beanie Jack" in our restaurants with all profits going directly to Big Brothers Big Sisters. We're also very excited to showcase our partnership with Big Brothers Big Sisters at the 2009 Tournament of Roses Parade in Pasadena, California. We'll be entering our first ever float in the parade which will be seen by millions of people.

As part of this event, we're offering guests the opportunity to enter a sweepstakes online to win a football package trip to the Rose Bowl in Pasadena. We've been strong supporters of Big Brothers Big Sisters for more than a decade and we're very excited about the opportunity to promote the wonderful efforts of this worthwhile organization and give back to the community.

And now I'll turn the call over to Jerry for a closer look at the financial side of our business.

Jerry Rebel

My voice is crackling a little bit this morning so I apologize in advance. As Linda stated, 2008 presented more than a few challenges. To respond to those challenges, we decided to focus on things we could control such as labor and SG&A management and on new products like Smoothies and Breakfast Bowls, which we launched earlier than planned and which helped us to mitigate much of the impact of the down economy.

With that said, let's take a look at our Q4 results. We estimated the impact of Hurricane Ike on EPS was approximately $0.04 to $0.05 per share. On the top line, we lost approximately 1,300 company operating days, which impacted our same store sales by an estimated full percentage point in the quarter. The hurricane impacted restaurant operating margin by about 50 basis points.

Overall, food and packaging costs were about 180 basis points higher than the same quarter of last year, led by higher beef costs, which increased by more than 18% in the quarter, double what we had anticipated in early August when we announced third quarter results. Alone, beef negatively impacted restaurant operating margin by approximately 100 basis points and was driven by higher than expected costs [inaudible].

Shortening was up almost 60% and potatoes were up 8%. Combined, these commodities contributed to a 7% increase in overall food costs for the quarter, which was the highest increase for fiscal 2008 that we saw. Along with higher food costs, utilities were also up by 50 basis points in the fourth quarter, primarily due to higher gas and electricity rates as well as mark-to-market accounting on a hedging arrangement, which cost about 20 basis points.

Repairs and maintenance costs were also higher by approximately 30 basis points due to timing and extreme heat in several markets, which required the unexpected repair or replacement of HVAC units. In addition to these factors, margins were impacted by sales de-leverage from a 5.2% same store sales increase last year to a negative 0.8% in Q4 2008. The good news though is that we do not expect our restaurant operating margin to continue at this level and I'll discuss our outlook in more detail in just a couple minutes.

Our SG&A expense rate reflects lower revenues resulting from the re-class of Quick Stuff to discontinued operations net on our P&L. The impact of the re-class was to reduce the distribution and other sales line by approximately $111 million and $90 million in the fourth quarter of 2008 and 2007 respectively. For 2008, Quick Stuff revenues were $462 million versus $363 million for fiscal 2007.

The effect of the re-class raised our reported SG&A expense rate to 11.3% for the year whereas without the re-class, SG&A would have been 9.6% of revenue. Now just as a note, I believe you'll find the information that you'll deem necessary for your models in the 10-K regarding continuing operations for the quarters for the past two years. If not though, give Carol a call and we'll be happy to provide that for you or put it on the website.

On our re-franchising efforts, we exceeded our targets for both number of units and gains for the year. We sold 41 company operated Jack in the Box restaurants to franchisees with gains totaling $23.1 million in the fourth quarter compared with $11.9 million in the year ago quarter from the sale of 24 restaurants. For the full year, we sold 109 restaurants versus 76 last year and gains for the full year averaged $609,000 versus $501,000 last year and gains for the quarter averaged $564,000 this year versus $494,000 last year.

During the fourth quarter, credit for franchise financing became much tighter than we had experienced in the past, and for us and our franchisees this had the effect of slowing down deals but not stopping them. So to turn over operations to franchisees as planned, we provided bridge financing while the franchisees completed the loan process with their lenders. At fiscal year end we had approximately $20 million outstanding on two deals, of which $11 million has since been repaid and the remainder is expected to be repaid in the next couple of weeks.

CapEx in fiscal 2008 increased to approximately $181 million compared with $154 million last year with the increase due primarily to investment and kitchen enhancements, Smoothie equipment and the Jack in the Box re-image program and 11 more new company Qdoba's than in 2007.

Of the 2008 total, I'll provide you a little detail we spent about $51 million on new restaurants, $81 million on remodels and maintenance CapEx and about $37 million was spent on restaurant and other equipment. The remainder would be on IC and non-restaurant items. In this environment, it's worth noting that our balance sheet remains strong with no required debt repayments until fiscal 2010 and then only modest repayments are required until 2012. We also have ample room under our debt covenants.

Before I review our guidance for the first quarter and for fiscal 2009, I'd like to provide some insight on our commodity cost outlook for the upcoming year. We expect overall commodity costs to increase 7 to 8% in the first quarter, led by an approximate 20% increase in beef costs. Commodity costs should then moderate over the remainder of the year with a full year increase expected to be in the 3 to 4% range.

Let me give you a little more detail on some of our major commodity purchases. Beef is our single largest food cost accounting for nearly 20% of our spend. The high beef costs we're seeing are primarily driven by still high trim prices which are running over 50% higher in quarter one than a year ago, with 50's at about $0.81 a pound versus $0.53 a pound last year in the quarter. However, 90's are currently trading at levels similar to last year and we clearly view that as a positive trend. And we expect moderation in the price of 50's as we move through the rest of the year.

Chicken is our second largest commodity, accounting for 12% of our spend and we have fixed price contracts on chicken that run through March of 2010 for 80% of what we use. We also have fixed price contracts in place for bakery and potatoes with 60% of our bakery needs covered through December and contracts for the remaining 40% expiring over the course of the fiscal year. A 100% of our potato needs for the full year are contracted with an average increase of about 12%. Potatoes account for about 8% of our spend.

Two other commodities that individually account for 5% or more of our spend are cheese at 6% and produce at 5%. We have 40% of our cheese needs contracted through January at roughly current market prices, which are running about 6% lower than last year. Produce costs are currently flat year-over-year. On a positive note, we currently expect full year reduction for cheese, cooking oil and eggs versus the prior year.

Now let's move on to our guidance for fiscal 2009, and while we don't normally provide quarterly EPS guidance, we felt it important given the economy, the credit markets, and volatility in commodity costs, to provide some information regarding our thinking about the first quarter. So we expect same store sales for a Jack in the Box company restaurants to range from flat to plus 2% and system wide same store sales for Qdoba to be approximately flat.

As we've discussed, we expect overall commodity costs to increase 7 to 8%, which combined with our same store sales expectations, should drive operating margin of between 15 and 15.5% versus 17.1% in last year's first quarter. Commodity costs are expected to account for the majority of the variance in fiscal 2008 first quarter restaurant operating margin, which the 17.1% last year was the highest that we experienced in the year.

Diluted earnings per share from continuing operations for the first quarter are expected in the range of $0.50 to $0.55 including franchise gains of $15 to $18 million and given the current state of the credit markets, franchise gains are more difficult to predict but we had a good pipeline of deals that has been negotiated and loans are in process. It is possible that one or more of these deals, however could slip to a later quarter if franchisee financing is delayed.

Now for the full year, we're expecting same store sales at Jack in the Box company restaurant to range from flat to a 2% increase and same for Qdoba system restaurants. Restaurant operating margin for the full year is expected to be approximately 16%, similar to fiscal 2008 with food costs expected to increase 3 to 4%, offset by a decrease in utility costs and the impact of price increases. Gains in the sale of 120 to 140 Jack in the Box restaurants to franchisees are forecasted to range from $60 to $70 million with $80 to $90 million from cash proceeds resulting from the sales and of course are dependent on available franchise financing.

CapEx is expected to range from $175 to $185 million with key variances including reductions in spending on restaurant equipment as we completed our kitchen enhancements and Smoothie rollout in fiscal 2008 and offsetting this decrease has increased company development of Qdoba, completion of the exterior re-images of all Jack in the Box company restaurants and continued interior re-images.

Diluted earnings per share from continuing operations are expected to range from $2.00 to $2.20 including franchise gains. Now I realize our guidance has a wider range than typical so I thought it might be useful to provide our sensitivity to fluctuations in both sales and restaurant operating margin. For every 1% of same store sales growth, we estimate the annual impact earnings is roughly $0.06 to $0.08 per share depending on flow through and assuming relatively stable costs. For every 10 basis point change in restaurant operating margin, the estimated annual EPS impact is approximately $0.02 a share.

Remember that our earnings per share guidance from continuing operations exclude the results of Quick Stuff, as well as any potential insurance recoveries related to Hurricane Ike. And now I'd like to turn the call back over to Linda for closing remarks.

Linda Lang

Before opening the call to Q&A, I'd like to just thank our employees throughout the organization as well as our franchisees for all of their contributions during these challenging times. We couldn't execute our strategic plan as effectively as we have without their support and dedication. I'd also like to acknowledge the tremendous strength of the Jack in the Box brand, even in tough times our brand remains compelling to our guests as well as attractive to prospective franchise operators interested in investing in our business.

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