FOR THE FISCAL YEAR ENDED OCTOBER 1, 2006

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)

 

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ITEM 1. BUSINESS

The Company

           Overview . Jack in the Box Inc. (the “Company”) owns, operates and franchises J ack in the B ox ^® quick-service hamburger restaurants and Qdoba Mexican Grill ^® (“Qdoba”) fast-casual restaurants. In fiscal 2006, we generated total revenues of $2.8 billion. As of the end of our fiscal year on October 1, 2006, the J ack in the B ox system included 2,079 restaurants, of which 1,475 were company-operated and 604 were franchise-operated. J ack in the B ox restaurants are located primarily in the western and southern United States. Based on the number of units, J ack in the B ox is the second or third largest quick-service hamburger chain in most of its major markets. As of October 1, 2006, the Qdoba Mexican Grill system included 318 fast-casual restaurants in 40 states, of which 70 were company-operated and 248 were franchise-operated.

           Background . The first J ack in the B ox restaurant, which offered only drive-thru service, opened in 1951. By 1968, the J ack in the B ox chain had expanded its operations to approximately 300 restaurants. After the Company was purchased in 1968 by Ralston Purina Company, a major expansion program was initiated in an effort to penetrate the eastern and midwestern markets, and by 1979 the business had grown to over 1,000 units. In 1979, the Company decided to divest 232 restaurants in the east and midwest to concentrate its efforts and resources in the western and southwestern markets, which were believed to offer the greatest growth and profit potential at that time. In 1985, a group of private investors acquired the Company and, in 1987, a public offering of common stock was completed. In 1988, the outstanding publicly-held shares were acquired by private investors through a tender offer. In 1992, a recapitalization was completed that included a public offering of common stock and indebtedness. Since that time, we have continued to grow, primarily through the addition of new company-operated restaurants, and we entered new markets in the Southeast beginning in 1999. In addition, 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.

           Strategic Plan . We plan to grow to a national restaurant company by focusing on three key strategic initiatives: (1) reinventing the Jack in the Box brand, (2) profitably growing the business, and (3) expanding franchising activities. We are taking a holistic approach to reinventing the J ack in the B ox brand by upgrading our menu, guest service and restaurant facilities. Our multifaceted growth strategy includes increasing same-store sales at J ack in the B ox and Qdoba, and new unit growth for both of these restaurant concepts. Our third strategic initiative to expand franchising activities includes new unit development for both restaurant concepts as well as continued refranchising of company-operated J ack in the B ox restaurants.

           Strategic Plan – Brand Reinvention . We believe that brand reinvention will differentiate us from our competition and make J ack in the B ox a preferred brand by offering our guests a better restaurant experience than typically found in the QSR segment. Our JBX Grill test, which was cancelled in fiscal 2005, has been a catalyst for developing innovative new menu items, service initiatives and creative restaurant design elements for use across the more than 2,000 existing restaurants comprising our core Jack in the Box brand. Brand reinvention will include the following changes to the restaurant experience:

	•		Menu Innovation . We believe that menu innovation and our focus on higher-quality products will further differentiate J ack in the B ox from competitors, strengthen our brand and attract a broader consumer audience. In support of this initiative, in fiscal 2006 J ack in the B ox enhanced its menu in the following ways: expanded our line of burgers and sandwiches served on artisan, hearth-baked ciabatta bread to include the Chipotle Chicken Ciabatta and Breakfast Ciabatta sandwiches; introduced buttermilk biscuits with two sandwiches – a Bacon, Egg & Cheese and Sausage, Egg & Cheese; and enhanced our real ice cream shakes, including new flavors like Vanilla Malted Crunch and Orange & Cream, by adding a retro-style swirl of creamy whipped topping and a cherry. We also leveraged partnerships with several major brand-name vendors and added the following: a fresh fruit cup from Del Monte; Minute Maid orange juice, Dannon bottled water, and a Chocolate Chip Cookie Cheesecake made with Nestle Toll House semi-sweet morsels. Additional premium-quality products are in various stages of test and development as we continue to innovate and enhance product quality as a means to differentiate our menu from other quick-service chains.
	•		Improved Service . A second major aspect of brand reinvention is to improve the level and consistency of guest service. In fiscal year 2006, we continued to build upon recent internal service initiatives to help us attract higher-quality applicants for crew-member positions, which can improve employee productivity, maximize retention, and reduce new employee training costs. These initiatives include access to affordable healthcare for all crew members including part-time employees, an ESL (English-as-a-second-language) program for our Spanish team members, and computer-based training in all of our restaurants. In the field, J ack in the B ox implemented a “team” approach to management that focuses on coaching restaurant teams, not just managing them, to achieve excellence in all aspects of restaurant operations. A breakthrough three-day conference for company and franchise restaurant managers engaged them in the service vision and provided tools for improving guest service. Similar meetings in every region subsequently delivered the same messages and tools to all of our restaurant teams as well as most of our distribution centers.

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		Fiscal Year
		2006				2005				2004				2003				2002
Company-operated restaurants:
Opened			29				38				56				90				100
Sold to franchisees			(82	)			(58	)			(49	)			(36	)			(22	)
Closed			(6	)			(5	)			(2	)			(8	)			(3	)
Acquired from franchisees			—				1				—				—				1
End of period total			1,475				1,534				1,558				1,553				1,507
Franchised restaurants:
Opened			7				11				5				3				3
Acquired from Company			82				58				49				36				22
Sold to Company			—				(1	)			—				—				(1	)
Closed			—				(1	)			—				—				—
End of period total			604				515				448				394				355
System end of period total			2,079				2,049				2,006				1,947				1,862

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specifications and approve product sources. We have a comprehensive, restaurant-based Hazard Analysis & Critical Control Points (“HACCP”) system for managing food safety and quality. HACCP combines employee training, testing by suppliers, and detailed attention to product quality at every stage of the food preparation cycle. Our HACCP program has been recognized as a leader in the industry by the USDA, FDA and the Center for Science in the Public Interest. For example, in 2004, we won the Black Pearl Award, presented annually by the International Association of Food Protection to the company that most successfully advances food safety and quality in the world.

          In addition, our HACCP system uses ServSafe ^® , a nationally recognized food-safety training and certification program administered in partnership with the National Restaurant Association. Our standards require all restaurant managers and grill employees to receive special grill certification training and be certified annually.

Purchasing and Distribution

          We provide purchasing, warehouse and distribution services for all J ack in the B ox company-operated and nearly 68% of our franchise-operated restaurants. The remaining J ack in the B ox franchisees participate in a purchasing cooperative they formed in 1996 and contract with another supplier for distribution services. As of October 1, 2006, we also provided these services to approximately 43% of Qdoba’s company and franchise-operated restaurants. The remaining Qdoba restaurants purchase product from approved suppliers and distributors. Some products, primarily dairy and bakery items, are delivered directly by approved suppliers to both company and franchise-operated restaurants.

          Regardless of whether we provide distribution services to a restaurant or not, we require that all suppliers meet our strict HACCP program standards previously discussed. The primary commodities purchased by the 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 make advance purchases of commodities when considered to be advantageous. However, certain commodities still remain subject to price fluctuations. All essential food and beverage products are available, or can be made available, upon short notice from alternative qualified suppliers.

Information Systems

          We have centralized financial and accounting systems for company-operated restaurants, which we believe are important in analyzing and improving profit margins and accumulating marketing information for analysis. Our restaurant satellite-enabled software allows for daily, weekly and monthly polling of sales, inventory and labor data from the restaurants. Jack in the Box restaurants use a standardized windows based touch screen POS platform among all company and franchised restaurants, which allows us to accept credit cards and Jack’s Cash re-loadable gift cards. We have also developed several systems to assist restaurant managers in overseeing the daily operations of their restaurants. We use an interactive computer-based training system in our Jack in the Box restaurants as the standard training tool for new hire training and periodic workstation re-certifications, and have a labor scheduling system to assist in managing labor hours based on forecasted sales volumes. We also have a highly reliable inventory management system, which provides consistent deliveries to our restaurants with excellent control over food safety, and, to support order accuracy and speed of service, our drive-thru restaurants use order confirmation screens. We are currently in the process of updating our order confirmation screens with new larger, color screens. Qdoba restaurants use POS software with touch screens, accept debit and credit cards at all company-owned locations and use back-of-the-restaurant software to control purchasing, inventory, food and labor costs. These software products have been customized to meet Qdoba’s operating standards.

Advertising and Promotion

          The Company builds brand awareness through its marketing and advertising programs and activities. These activities are supported primarily by contractual contributions from all company and franchised restaurants based on a percentage of sales. We use 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, to advertise restaurant products, promote brand awareness and attract customers.

Employees

          At October 1, 2006, we had approximately 44,300 employees, of whom 42,200 were restaurant employees, 1,000 were corporate personnel, 500 were distribution employees and 600 were field management and administrative personnel. Employees are paid on an hourly basis, except most restaurant managers, operations and corporate management, and certain administrative personnel. We employ both full and part-time restaurant employees in order to provide the flexibility necessary during peak periods of restaurant operations.

          Our vision is to build an organization of people who are passionate about creating a superior restaurant experience for our guests by engaging our employees and providing them with great internal service. We have not experienced any significant work stoppages and believe our labor relations are good. Over the last few years we have realized improvements in our hourly restaurant employee retention rate and in 2005 we received the first annual Spirit Award, an honor awarded by

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Name		Age				Positions
Linda A. Lang			48			Chairman of the Board and Chief Executive Officer
Paul L. Schultz			52			President and Chief Operating Officer
Jerry P. Rebel			49			Executive Vice President and Chief Financial Officer
Lawrence E. Schauf			61			Executive Vice President and Secretary
Carlo E. Cetti			62			Senior Vice President, Human Resources and Strategic Planning
David M. Theno, Ph.D.			56			Senior Vice President, Quality and Logistics
Pamela S. Boyd			51			Vice President, Financial Planning and Analysis
Stephanie E. Cline			61			Vice President, Chief Information Officer
Terri F. Graham			41			Vice President, Chief Marketing Officer
Paul D. Melancon			50			Vice President, Controller
Harold L. Sachs			61			Vice President, Treasurer
Gary J. Beisler			50			Chief Executive Officer and President, Qdoba Restaurant Corporation

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avian flu), obesity, injury or other health concerns with respect to certain foods. To minimize the risk of food-borne illness, we have implemented a HACCP system for managing food safety and quality. Nevertheless, the risk of food-borne illness cannot be completely eliminated. Any outbreak of such illness attributed to our restaurants or within the food service industry or any widespread negative publicity regarding our brands or the restaurant industry in general could have a material adverse effect on our financial condition and results of operations.

          Dependence on frequent deliveries of fresh produce and groceries subjects food service businesses, such as ours, to the risk that shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the availability, quality and cost of ingredients. In addition, unfavorable trends or developments concerning factors such as inflation, increased cost of food, labor, fuel, utilities, technology, insurance and employee benefits (including increases in hourly wage, and workers’ compensation and other insurance premiums), increases in the number and locations of competing restaurants, regional weather conditions and the availability of experienced management and hourly employees, may also adversely affect the food service industry in general. Because our restaurants are predominantly company-operated, we may have greater exposure to operating cost issues than chains that are primarily franchised. Changes in economic conditions affecting our customers could reduce traffic in some or all of our restaurants or impose practical limits on pricing, either of which could have a material adverse effect on our financial condition and results of operations. Our continued success will depend in part on our ability to anticipate, identify and respond to changing conditions.

           Risks Associated with Our Development . We intend to grow primarily by developing additional company-owned restaurants and through new restaurants to be developed by franchisees. Development involves substantial risks, including the risk of (i ) the availability of financing for the Company and to franchisees at acceptable rates and terms, (ii) development costs exceeding budgeted or contracted amounts, (iii) delays in completion of construction, (iv) the inability to identify, or the unavailability of suitable sites, both traditional and nontraditional, on acceptable leasing or purchase terms, (v) developed properties not achieving desired revenue or cash flow levels once opened, (vi) competition for suitable development sites; (vii) incurring substantial unrecoverable costs in the event a development project is abandoned prior to completion, (viii) the inability to obtain all required governmental permits, including, in appropriate cases, liquor licenses; (ix) changes in governmental rules, regulations, and interpretations (including interpretations of the requirements of the American with Disabilities Act, (ADA) and (x) general economic and business conditions.

          Although we intend to manage our development to reduce such risks, we cannot assure you that present or future development will perform in accordance with our expectations. We cannot assure you that we will complete the development and construction of the facilities, or that any such development will be completed in a timely manner or within budget, or that any restaurants will generate our expected returns on investment. Our inability to expand in accordance with our plans or to manage our growth could have a material adverse effect on our results of operations and financial condition.

           Risks Associated with Growth. Our plans to increase our franchising activities and to further develop Qdoba and our convenience store/gas station/restaurant co-brand will require the implementation of enhanced operational and financial systems and will require additional management, operational, and financial resources. For example, we will be required to recruit franchise sales and administrative personnel; and to recruit and train managers and other personnel for each new company-owned restaurant, as well as additional development and accounting personnel. We cannot assure you that we will be able to manage our expanding operations effectively to continue to recognize value from franchising and co-branding. The failure to implement such systems and add such resources on a cost-effective basis could have a material adverse effect on our results of operations and financial condition.

           Reliance on Certain Geographic Markets. Because our business is regional, with approximately 60% of our restaurants located in the states of California and Texas, the economic conditions, state and local government regulations and weather conditions affecting those states may have a material impact upon our results.

           Risks Related to Entering New Markets . We cannot assure you that we will be able to successfully expand or acquire critical market presence for our brands in new geographical markets, as we may encounter well-established competitors with substantially greater financial resources. We may be unable to find attractive locations, acquire name recognition, successfully market our products and attract new customers. Competitive circumstances and consumer characteristics in new market segments and new geographical markets may differ substantially from those in the market segments and geographical markets in which we have substantial experience. We cannot assure you that we will be able to profitably operate new company-operated or franchised restaurants in new geographical markets. Management decisions to curtail or cease investment in certain locations or markets may result in impairment charges.

           Competition. The restaurant industry is highly competitive with respect to price, service, location, personnel and the type and quality of food , and 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 quick-service restaurants, fast-casual restaurants, sandwich shops and similar types of businesses. The trend toward convergence in grocery, deli and restaurant services may increase the number of our competitors. Such increased competition could have a material adverse effect on our financial condition and results of operations. Some of our competitors have substantially greater financial, marketing, operating and other resources than we have, which may give them a competitive advantage. Certain of our competitors have introduced a variety of new products and engaged in substantial price discounting in recent years and may continue to do so in the future. We plan to take various steps in connection with our “brand re-invention” strategy, including introducing new, higher-quality products, discontinuing certain menu items, testing new service and training initiatives, and making improvements to facility image at our restaurants. However, there can be no assurance (i) that our facility improvements will foster increases in sales and yield the desired return on investment, (ii) of the success of our new products, initiatives or our overall strategies or (iii)

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that competitive product offerings, pricing and promotions will not have an adverse effect upon our results of operations and financial condition. Our promotional strategies or other actions during unfavorable competitive conditions may adversely affect our margins.

           Risks Related to Increased Labor Costs. We have a substantial number of employees who are paid wage rates at or slightly above the minimum wage. As federal and state minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to the employees at wage rates which are above minimum wage. If competitive pressures or other factors prevent us from offsetting the increased costs by increases in prices, our profitability may decline. In addition, various proposals that would require employers to provide health insurance for all of their employees are being considered from time-to-time in Congress and various states. We offer access to healthcare benefits to our restaurant crew members. If our crew members do not find the opportunity to obtain this insurance attractive, we may not see the reductions in turnover, training costs and workers’ compensation claims that we expect. The imposition of any requirement that we provide health insurance to all employees on terms materially different from our existing programs would have a material adverse impact on the results of operations and financial condition of the Company.

           Risks Related to Advertising. Some of our competitors have greater financial resources which enable them to purchase significantly more television and radio advertising than we are able to purchase. Should our competitors increase spending on advertising and promotion, should the cost of television or radio advertising increase, or our advertising funds decrease for any reason, including implementation of reduced spending strategies, or should our advertising and promotion be less effective than our competitors, there could be a material adverse effect on our results of operations and financial condition. The trend toward fragmentation in the media favored by our target consumers may dilute the effectiveness of our advertising dollars.

           Taxes. Our income tax provision is sensitive to expected earnings and, as 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, which differ from the treatment for financial reporting purposes. The ultimate outcome of such positions could have an adverse impact on our effective tax rate.

           Risks Related to Achieving Increased Franchise Ownership and to Franchise Operations. At October 1, 2006, approximately 29% of the Jack in the Box restaurants were franchised. Our plan to achieve 35% franchise ownership by the end of 2008 and to further increase the percentage of franchised restaurants thereafter by approximately 5% annually and to move towards a range of franchise ownership more closely aligned with that of the QSR, is subject to risks and uncertainties. We may not be able to identify franchisee candidates with appropriate experience and financial resources or to negotiate mutually acceptable agreements with them. The goal of 2008 may not provide sufficient time for us to achieve the ownership mix of franchise to company-operated restaurants that we desire and we cannot assure you that we will be able to continue to expand our franchising activities thereafter. Sales of our franchises and the realization of gains from franchising may vary from quarter to quarter and may not meet expectations. Our ability to sell franchises and to realize gains from such sales is uncertain. The opening and success of franchised restaurants depends on various factors, including the demand for our franchises, and the selection of appropriate franchisee candidates, the availability of suitable sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the availability of financing, and the financial and other capabilities of our franchisees and developers. We cannot assure you that developers planning the opening of franchised restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants required by their agreements. We cannot assure you that franchisees will successfully participate in our strategic initiatives or operate their restaurants in a manner consistent with our concept and standards. In addition, certain federal and state laws govern our relationships with our franchisees. See “Risks Related to Government Regulations” below.

           Risks Related to Government Regulations. See “Business — Regulation”. The restaurant industry is subject to extensive federal, state and local governmental regulations, including those relating to the preparation, labeling, advertising and sale of food and those relating to building and zoning requirements. We and our franchisees are also subject to licensing and regulation by state and local departments relating to health, sanitation and safety standards, and liquor licenses and to laws governing our relationships with employees, including minimum wage requirements, overtime, working conditions and citizenship requirements. See “Risks Related to Increased Labor Costs” above. The inability to obtain or maintain such licenses or publicity resulting from actual or alleged violations of such laws could have an adverse effect on our results of operations. We are also subject to federal regulation and certain state laws, which govern the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on noncompetition provisions and on provisions concerning the termination or nonrenewal of a franchise. Some states require that certain materials be registered before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could adversely affect us and our franchisees. Changes in, and the cost of compliance with, government regulations could have a material adverse effect on our operations.

           Risks Related to Interest Rates. The Company has exposure to changes in interest rates based on its financing, investing and cash management activities. Changes in interest rates could materially impact the Company’s profitability.

           Risks Related to the Failure of Internal Controls . The Company maintains 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. The Company believes it has a well-designed system to maintain adequate internal controls on the business. However, there can be no assurance that there won’t be any control deficiencies in the future. Should we become aware of any significant control deficiencies, the Internal Controls Committee would recommend prompt remediation and report them to the Audit Committee. We have devoted

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ITEM 2. PROPERTIES

          Of our 2,079 J ack in the B ox and 318 Qdoba restaurants, we owned 798 restaurant buildings, including 576 located on leased land. In addition, we leased both the land and building for 1,251 restaurants, including 313 restaurants operated by franchisees. At October 1, 2006, franchisees directly owned or leased 348 restaurants.

		Number of restaurants at October 1, 2006
		Company-
		operated				Franchised				Total
Company-owned restaurant buildings:
On Company-owned land			159				63				222
On leased land			448				128				576
Subtotal			607				191				798
Company-leased restaurant buildings on leased land			938				313				1,251
Franchise directly-owned or directly-leased restaurant buildings			—				348				348
Total restaurant buildings			1,545				852				2,397

          Our leases generally provide for fixed rental payments (with cost-of-living index adjustments) plus real estate taxes, insurance and other expenses. In addition, many of the leases provide for contingent rental payments of between 1% and 10% 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 48 years, including optional renewal periods. The remaining lease terms of our other leases range from approximately one-year to 41 years, including optional renewal periods. At October 1, 2006, our leases had initial terms expiring as follows:

		Number of restaurants
		Ground				Land and
		leases				building leases
2007 – 2011			187				329
2012 – 2016			69				305
2017 – 2021			166				407
2022 and later			154				210

          Our principal executive offices are located in San Diego, California in an owned facility of approximately 150,000 square feet. We also own our 70,000 square foot Innovation Center and approximately 4 acres of undeveloped land directly next to it. Qdoba’s corporate support center is located in a leased facility in Wheat Ridge, Colorado. We also own one distribution center and lease six centers, with remaining terms ranging from 11 to 19 years, including optional renewal periods.

          Certain of our personal property is pledged as collateral under our credit agreement and certain of our real property may be pledged as collateral in the event of a ratings downgrade as defined in the credit agreement.

ITEM 3. LEGAL PROCEEDINGS

          The Company is subject to normal and routine litigation. In the opinion of management, based in part on the advice of legal counsel, the ultimate liability from all pending legal proceedings, asserted legal claims and known potential legal claims should not materially affect our operating results, financial position or liquidity.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          No matters were submitted to a vote of security holders during the fourth fiscal quarter ended October 1, 2006.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
            EQUITY SECURITIES

           Market Information. The following table sets forth the high and low sales prices for our common stock during the fiscal quarters indicated, as reported on the New York Stock Exchange — Composite Transactions:

		12 weeks ended												16 weeks ended
		Oct. 1, 2006				July 9, 2006				Apr. 16, 2006				Jan. 22, 2006
High		$	53.97			$	46.32			$	44.23			$	36.83
Low			37.85				37.97				34.80				27.99
		12 weeks ended												16 weeks ended
		Oct. 2, 2005				July 10, 2005				Apr. 17, 2005				Jan. 23, 2005
High		$	39.00			$	41.95			$	38.73			$	39.00
Low			27.35				34.95				32.75				31.80

           Dividends. We did not pay any cash or other dividends during the last two fiscal years and do not anticipate paying dividends in the foreseeable future. Our credit agreement provides for an aggregate amount of $200 million for the acquisition of our common stock or the potential payment of dividends. As of October 1, 2006, we had approximately $150 million of stock repurchase or dividend payment availability remaining.

           Stock Repurchases. On September 16, 2005, the Board of Directors authorized a $150 million stock repurchase program through the end of fiscal year 2008, which was announced September 21, 2005. No treasury stock purchases were made by the Company under this authorization during the fourth quarter, and $100 million of repurchase availability remains as of October 1, 2006.

           Holders. As of October 1, 2006, there were 534 stockholders of record.

           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 October 1, 2006. Stockholders of the Company approved all plans.

(c)

Number of securities

remaining for future

(a)

(b)

issuance under equity

Number of securities to be

Weighted-average

compensation plans

issued upon exercise of

exercise price of

(excluding securities

outstanding options, warrants and rights (1)

outstanding options(1)

reflected in column (a)(2))

Equity compensation plans approved by security holders

3,334,930

$

27.57

1,942,746

 

(1)		Includes 217,413 shares issuable in connection with the Company’s outstanding performance-vested stock awards. The weighted-average exercise price in column (b) excludes the impact of the performance-vested stock awards since their exercise price is zero.
(2)		Includes 100,000 shares that are reserved for issuance under the Company’s Employee Stock Purchase Plan.

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		Fiscal Year
		2006				2005				2004				2003(1)				2002
		(Dollars in thousands, except per share data)
Statement of Operations Data:
Revenues:
Restaurant sales		$	2,100,955			$	2,045,400			$	2,033,482			$	1,864,180			$	1,822,902
Distribution and other sales			512,907				348,482				197,762				108,738				77,445
Franchise rents and royalties			101,356				80,390				66,653				54,371				45,936
Gains on sale of company-operated restaurants and other			50,431				29,276				22,568				29,509				19,284
Total revenues			2,765,649				2,503,548				2,320,465				2,056,798				1,965,567
Costs of revenues			2,283,135				2,078,121				1,913,285				1,695,709				1,589,090
Selling, general and administrative expenses (2)			300,819				273,821				264,257				228,141				233,345
Earnings from operations			181,695				151,606				142,923				132,948				143,132
Interest expense, net (3)			12,075				13,402				25,419				23,346				22,121
Earnings before income taxes and cumulative effect of accounting change			169,620				138,204				117,504				109,602				121,011
Income taxes (4)			60,545				46,667				42,820				39,518				40,791
Earnings before cumulative effect of accounting change (5)		$	109,075			$	91,537			$	74,684			$	70,084			$	80,220
Earnings per share before cumulative effect of accounting change:
Basic		$	3.12			$	2.57			$	2.06			$	1.92			$	2.04
Diluted (6)		$	3.04			$	2.48			$	2.02			$	1.90			$	2.00
Balance Sheet Data (at end of period):
Total assets		$	1,520,461			$	1,337,986			$	1,324,666			$	1,142,481			$	1,035,845
Long-term debt			254,231				290,213				297,092				290,746				143,364
Stockholders’ equity			710,885				565,372				553,399				450,434				447,761

(1)		Fiscal year 2003 includes Qdoba results of operations since January 21, 2003, representing approximately 36 weeks.
(2)		Fiscal year 2006 includes a charge of $7.3 million due to the change in stock option expensing requirements upon the adoption of SFAS 123R, a charge of approximately $1.6 million related to the closure of 7 locations, a charge of approximately $2.5 million related to the impairment of long-lived assets, and a charge of approximately $2.4 million related to a legal settlement. Fiscal year 2005 includes a charge of approximately $3.0 million related to the cancellation of the Company’s test of a fast-casual concept called JBX Grill. Fiscal year 2003 includes $2.6 million related to lease-assumption obligations on five sites arising from the bankruptcy of the Chi-Chi’s restaurant chain, previously owned by the Company. Fiscal year 2002 includes $9.3 million for costs associated with the settlement of a class action lawsuit and $6.3 million for costs related to the closure of eight under-performing restaurants.
(3)		Fiscal year 2004 includes a $9.2 million charge related to the refinancing of the Company’s term loan and the early redemption of its senior subordinated notes.
(4)		Fiscal year 2005 includes a $2.1 million benefit related to the resolution of a prior year’s tax position .
(5)		In 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.
(6)		Fiscal year 2004 earnings per diluted share includes approximately $.03 per share related to an additional week.

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Results of Operations

          All comparisons under this heading among 2006, 2005 and 2004 refer to the 52-week periods ended October 1, 2006 and October 2, 2005, and the 53-week period ended October 3, 2004, respectively, unless otherwise indicated.

Overview

          As of October 1, 2006, Jack in the Box Inc. (the “Company”) owned, operated, and franchised 2,079 J ack in the B ox quick-service restaurants and 318 Qdoba Mexican Grill (“Qdoba”) fast-casual restaurants, primarily in the western and southern United States.

          The Company’s primary source of revenue is from retail sales at company-operated restaurants. The Company also derives revenue from sales of food and packaging to J ack in the B ox and Qdoba franchises, retail sales from fuel and convenience stores (“ Quick Stuff”), and other revenue from franchisees including royalties, franchise fees and leased real estate. The Company also recognizes gains from the sale of company-operated restaurants to franchisees.

          The quick-service restaurant industry has become more complex and challenging in recent years. Challenges presently facing the sector include higher levels of consumer expectations, intense competition with respect to market share, restaurant locations, labor, and menu and product development, the emergence of the fast-casual restaurant segment, changes in the economy, including rising oil and gas prices, and trends for healthier eating.

          To address these challenges and others, and to support our goal of becoming a national restaurant company, management has developed a strategic plan focused on three key initiatives. The first 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 to reflect the personality of Jack – the chain’s fictional founder and popular spokesman. The second initiative is a multifaceted growth strategy that includes opening new restaurants and improving the unit economics of each concept. 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 following summarizes the most significant events occurring in fiscal year 2006:

	•		Restaurant Sales . New product introductions and strong customer response to marketing messages promoting the chain’s premium products and value menu contributed to sales growth at J ack in the B ox restaurants increasing both the average check and number of transactions. This positive sales momentum resulted in an increase in same-store sales of 4.8% at J ack in the B ox company-operated restaurants and 5.9% at Qdoba system restaurants.
	•		Improved Service. We hosted a breakthrough three-day conference for all J ack in the B ox company and franchise restaurant managers to engage them in the service vision and provide them tools for improving guest service at their restaurants.
	•		New Restaurant Designs. In 2006, we completed re-imaging approximately 150 J ack in the B ox restaurants including entire markets in Seattle, Washington and Waco, Texas. The re-image program is intended to promote more in-restaurant dining by creating an inviting atmosphere that reflects the personality of Jack.
	•		Franchising. Pursuant to our strategic initiative to expand franchising activities, we sold 82 Jack in the Box company-operated restaurants to franchisees. In the fourth quarter, the Company sold all of its company-operated restaurants in Hawaii to a new franchise operator generating gains and fees on sale of approximately $15.6 million.
	•		Repurchase of Common Stock. Pursuant to a stock repurchase program authorized by our Board of Directors, the Company repurchased approximately 1.4 million shares of its common stock in the first quarter of 2006 for approximately $50 million.
	•		Interest Rate Swap. To further reduce exposure to rising interest rates, we entered into a third interest rate swap that will effectively convert $60 million of our variable rate term loan borrowings to a fixed-rate basis beginning March 2008, concurrent with the end of our existing $60 million interest rate swap, through April 2010.
	•		Effective October 1, 2006, we adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations – an interpretation of FASB Statement No. 143 (“FIN 47”), which clarifies the term conditional asset retirement obligation and requires a liability to be recorded if the fair value of the obligation can be reasonably estimated. The adoption of this statement reduced fiscal 2006 income by approximately $.03 per diluted share. This change is not expected to have a material impact on Company operations in the future.

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CONSOLIDATED STATEMENTS OF EARNINGS DATA

		Fiscal Year
		Oct. 1,				Oct. 2,				Oct. 3,
		2006				2005				2004
Revenues:
Restaurant sales			76.0	%			81.7	%			87.6	%
Distribution and other sales			18.5				13.9				8.5
Franchised rents and royalties			3.7				3.2				2.9
Gains on sale of company-operated restaurants and other			1.8				1.2				1.0
Total revenues			100.0	%			100.0	%			100.0	%
Costs of revenues:
Restaurant costs of sales (1)			31.2	%			31.7	%			31.0	%
Restaurant operating costs (1)			51.3				51.4				51.9
Costs of distribution and other sales (1)			98.7				98.7				98.2
Franchised restaurant costs (1)			43.9				43.9				47.9
Total costs of revenues			82.6				83.0				82.4
Selling, general and administrative expenses			10.9				10.9				11.4
Earnings from operations			6.6				6.1				6.2

(1)		As a percentage of the related sales and/or revenues.

		2006
Reduction in earnings from operations		$	7,270
Reduction in earnings before income taxes and cumulative effect of accounting change			7,270
Reduction in net earnings			4,432
Reduction in earnings per share:
Basic		$	0.13
Diluted		$	0.12

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SYSTEMWIDE RESTAURANT UNITS

		Oct. 1,				Oct. 2,				Oct. 3,
		2006				2005				2004
Jack in the Box:
Company-operated			1,475				1,534				1,558
Franchised			604				515				448
Total system			2,079				2,049				2,006
Qdoba:
Company-operated			70				57				47
Franchised			248				193				130
Total system			318				250				177
Consolidated:
Company-operated			1,545				1,591				1,605
Franchised			852				708				578
Total system			2,397				2,299				2,183

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		Payments Due by Period (in thousands)
						Less than												After
		Total				1 year				1-3 years				3-5 years				5 years
Contractual Obligations:
Credit facility term loan (1)		$	333,737			$	48,611			$	37,445			$	247,681			$	—
Revolving credit facility			—				—				—				—				—
Capital lease obligations (1)			32,102				7,267				10,168				4,399				10,268
Other long-term debt obligations (1)			502				239				263				—				—
Operating lease obligations			1,664,976				178,595				321,889				269,421				895,071
Guarantee (2)			1,675				1,003				517				155				—
Total contractual obligations		$	2,032,992			$	235,715			$	370,282			$	521,656			$	905,339
Other Commercial Commitments:
Stand-by letters of credit (3)		$	40,448			$	40,448			$	—			$	—			$	—

(1)		Obligations related to the Company’s credit facility term loan, capital lease obligations, and other long-term debt obligations include interest expense estimated at interest rates in effect on October 1, 2006.
(2)		Consists of a guarantee associated with one Chi-Chi’s property. Due to the bankruptcy of the Chi-Chi’s restaurant chain, previously owned by the Company, we are obligated to perform in accordance with the terms of the guarantee agreement.
(3)		Consists primarily of letters of credit for workers’ compensation and general liability insurance. Letters of credit outstanding against our credit facility totaled $0.3 million. Letters of credit outstanding under our cash-collateralized letters of credit agreement totaled $40.2 million and do not impact the borrowing capacity under our credit facility.

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change the cumulative effect of changing to the new accounting principle. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes made in fiscal years beginning after the statement was issued. We expect the adoption of this standard will not have a material impact on our consolidated financial position, results of operations or cash flows.

          In June 2006, the FASB ratified the consensuses of Emerging Issues Task Force (“EITF”) Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). EITF 06-3 indicates that the income statement presentation on either a gross basis or a net basis of the taxes within the scope of the Issue is an accounting policy decision. The Company’s accounting policy is to present the taxes within the scope of EITF 06-3 on a net basis. The guidance is effective for interim and annual periods beginning after December 15, 2006.

          In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 , which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS 109, Accounting for Income Taxes . FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. We are currently evaluating the impact of FIN 48 on our consolidated financial statements, which is effective for fiscal years beginning after December 15, 2006.

          In September 2006, the FASB issued SFAS 157, Fair Value Measurements . SFAS 157 clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. This statement applies under other accounting pronouncements that currently require or permit fair value measurements and is effective for fiscal years beginning after November 15, 2007. We are currently in the process of assessing the impact that SFAS 157 will have on our consolidated financial statements.

          In September 2006, the FASB issued SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R) . SFAS 158 requires recognition of the overfunded or underfunded status of a defined benefit plan as an asset or liability. Under SFAS 158, unrecognized prior service costs and actuarial gains and losses must be recognized as a component of accumulated other comprehensive income (loss). Additionally, SFAS 158 requires that companies measure their plan assets and benefit obligations at the end of their fiscal year. SFAS 158 is effective as of the end of fiscal years ending after December 15, 2006, except for the measurement date provisions which are effective for fiscal years ending after December 15, 2008. We will not be able to determine the impact the adoption of SFAS 158 will have on our consolidated financial statements until the end of fiscal year 2007 when such valuation is completed. However, based on valuations performed as of June 30, 2006, had we been required to adopt the provisions of SFAS 158 as of October 1, 2006, our qualified defined benefit plan and unfunded non-qualified defined benefit plan and postretirement benefit plans would have been underfunded by $10.5 million, $36.8 million and $16.7 million, respectively. To recognize our underfunded positions and to appropriately record our unrecognized prior service costs and actuarial gains and losses as a component of accumulated other comprehensive income (loss), we would have been required to decrease stockholders’ equity by $28.4 million for our defined benefit plans and increase stockholders’ equity by approximately $3.4 million for our postretirement benefit plans. As of October 1, 2006, in accordance with existing pension literature, we have recorded a prepaid benefit cost for our qualified defined benefit plan of $24.5 million.

          In September  2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for the first fiscal year ending after November 15, 2006. The adoption of this statement is not expected to have a material impact on the Company’s financial position or results of operations.

          Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.