UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________

FORM 10-Q

_______________________________________________________________________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April 12,~~July 5, 2015

Commission File Number: 1-9390

JACK IN THE BOX INC.

(Exact name of registrant as specified in its charter)

_______________________________________________________________________________________



DELAWARE		95-2698708
(State of Incorporation)		(I.R.S. Employer Identification No.)

9330 BALBOA AVENUE, SAN DIEGO, CA		92123
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (858) 571-2121

_______________________________________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

As of the close of business ~~May 8,~~July 31, 2015, ~~37,380,529~~36,577,272 shares of the registrant’s common stock were outstanding.

JACK IN THE BOX INC. AND SUBSIDIARIES

INDEX



		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Earnings	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3435
Item 4.	Controls and Procedures	3435
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	3435
Item 1A.	Risk Factors	3435
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3536
Item 4.	Mine Safety Disclosures	3536
Item 5.	Other Information	3536
Item 6.	Exhibits	3637
	Signature	3637

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

(Unaudited)


	April 12, 2015			September 28, 2014			July 5, 2015			September 28, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	10,386		$	10,578		$	17,706		$	10,578
Accounts and other receivables, net	69,455			50,014			54,784			50,014
Inventories	7,335			7,481			7,448			7,481
Prepaid expenses	29,448			36,314			40,467			36,314
Deferred income taxes	36,810			36,810			37,377			36,810
Assets held for sale	10,505			4,766			13,440			4,766
Other current assets	2,097			597			1,494			597
Total current assets	166,036			146,560			172,716			146,560
Property and equipment, at cost	1,508,360			1,519,947			1,530,709			1,519,947
Less accumulated depreciation and amortization	(812,898		)	(797,818		)	(826,691		)	(797,818		)
Property and equipment, net	695,462			722,129			704,018			722,129
Intangible assets, net	15,146			15,604			14,955			15,604
Goodwill	149,042			149,074			149,042			149,074
Other assets, net	236,717			237,298			234,883			237,298
	$	1,262,403		$	1,270,665		$	1,275,614		$	1,270,665
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	10,898		$	10,871		$	18,483		$	10,871
Accounts payable	28,505			31,810			26,064			31,810
Accrued liabilities	159,633			163,626			172,484			163,626
Total current liabilities	199,036			206,307			217,031			206,307
Long-term debt, net of current maturities	592,989			497,012			640,076			497,012
Other long-term liabilities	307,433			309,435			312,309			309,435
Stockholders’ equity:
Preferred stock $0.01 par value, 15,000,000 shares authorized, none issued	—			—			—			—
Common stock $0.01 par value, 175,000,000 shares authorized, 81,036,074 and 80,127,387 issued, respectively	810			801
Common stock $0.01 par value, 175,000,000 shares authorized, 81,070,256 and 80,127,387 issued, respectively							811			801
Capital in excess of par value	395,087			356,727			399,180			356,727
Retained earnings	1,288,272			1,244,897			1,303,892			1,244,897
Accumulated other comprehensive loss	(90,285		)	(90,132		)	(91,747		)	(90,132		)
Treasury stock, at cost, 43,655,712 and 41,571,752 shares, respectively	(1,430,939		)	(1,254,382		)
Treasury stock, at cost, 44,517,922 and 41,571,752 shares, respectively							(1,505,938		)	(1,254,382		)
Total stockholders’ equity	162,945			257,911			106,198			257,911
	$	1,262,403		$	1,270,665		$	1,275,614		$	1,270,665

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(~~Dollars in~~In thousands, except per share data)

(Unaudited)


	Quarter						Year-to-date						Quarter						Year-to-date
	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Revenues:																			��
Company restaurant sales	$	268,904		$	257,773		$	620,800		$	596,602		$	270,655		$	264,398		$	891,455		$	861,000
Franchise revenues	89,218			83,097			205,943			194,350			88,851			84,094			294,794			278,444
	358,122			340,870			826,743			790,952			359,506			348,492			1,186,249			1,139,444
Operating costs and expenses, net:
Company restaurant costs:
Food and packaging	84,032			81,422			197,141			189,660			82,649			84,459			279,790			274,119
Payroll and employee benefits	73,073			71,616			168,752			165,432			72,896			71,733			241,648			237,165
Occupancy and other	56,468			56,998			131,499			131,707			56,103			57,671			187,602			189,378
Total company restaurant costs	213,573			210,036			497,392			486,799			211,648			213,863			709,040			700,662
Franchise costs	43,059			41,996			100,200			97,507			42,536			42,563			142,736			140,070
Selling, general and administrative expenses	52,472			48,660			115,567			107,816			50,986			47,422			166,553			155,238
Impairment and other charges, net	2,130			9,056			4,310			10,965			3,758			1,668			8,068			12,633
Losses (gains) on the sale of company-operated restaurants	5,020			(1,757		)	4,170			(2,218		)	183			(24		)	4,353			(2,242		)
	316,254			307,991			721,639			700,869			309,111			305,492			1,030,750			1,006,361
Earnings from operations	41,868			32,879			105,104			90,083			50,395			43,000			155,499			133,083
Interest expense, net	4,220			4,311			9,433			8,853			4,504			3,535			13,937			12,388
Earnings from continuing operations and before income taxes	37,648			28,568			95,671			81,230			45,891			39,465			141,562			120,695
Income taxes	14,286			10,304			35,211			29,956			17,528			13,338			52,739			43,294
Earnings from continuing operations	23,362			18,264			60,460			51,274			28,363			26,127			88,823			77,401
Losses from discontinued operations, net of income tax benefit	(357		)	(2,463		)	(1,620		)	(3,187		)	(1,532		)	(1,424		)	(3,152		)	(4,611		)
Net earnings	$	23,005		$	15,801		$	58,840		$	48,087		$	26,831		$	24,703		$	85,671		$	72,790

Net earnings per share - basic:
Earnings from continuing operations	$	0.62		$	0.44		$	1.58		$	1.22		$	0.76		$	0.66		$	2.34		$	1.87
Losses from discontinued operations	(0.01		)	(0.06		)	(0.04		)	(0.08		)	(0.04		)	(0.04		)	(0.08		)	(0.11		)
Net earnings per share (1)	$	0.61		$	0.38		$	1.53		$	1.14		$	0.72		$	0.62		$	2.26		$	1.76
Net earnings per share - diluted:
Earnings from continuing operations	$	0.61		$	0.43		$	1.55		$	1.18		$	0.75		$	0.64		$	2.30		$	1.82
Losses from discontinued operations	(0.01		)	(0.06		)	(0.04		)	(0.07		)	(0.04		)	(0.03		)	(0.08		)	(0.11		)
Net earnings per share (1)	$	0.60		$	0.37		$	1.51		$	1.11		$	0.71		$	0.61		$	2.22		$	1.71

Weighted-average shares outstanding:
Basic	37,970			41,464			38,353			42,018			37,106			39,692			37,980			41,320
Diluted	38,566			42,632			39,039			43,336			37,661			40,787			38,630			42,605

Cash dividends declared per common share	$	0.20		$	—		$	0.40		$	—		$	0.30		$	0.20		$	0.70		$	0.20

____________________________


(1)	Earnings per share may not add due to rounding.

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)


	Quarter						Year-to-date						Quarter						Year-to-date
	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Net earnings	$	23,005		$	15,801		$	58,840		$	48,087		$	26,831		$	24,703		$	85,671		$	72,790
Cash flow hedges:
Net change in fair value of derivatives	86			(31		)	(6,672		)	(85		)	(5,027		)	(14		)	(11,699		)	(99		)
Net loss reclassified to earnings	468			322			1,095			748			461			324			1,556			1,072
	554			291			(5,577		)	663			(4,566		)	310			(10,143		)	973
Tax effect	(212		)	(112		)	2,135			(254		)	1,748			(119		)	3,883			(373		)
	342			179			(3,442		)	409			(2,818		)	191			(6,260		)	600
Unrecognized periodic benefit costs:
Actuarial losses and prior service costs reclassified to earnings	2,276			1,210			5,311			2,825			2,276			1,210			7,587			4,035
Tax effect	(871		)	(464		)	(2,033		)	(1,084		)	(872		)	(464		)	(2,905		)	(1,548		)
	1,405			746			3,278			1,741			1,404			746			4,682			2,487
Other:
Foreign currency translation adjustments	10			—			16			7			(72		)	(2		)	(56		)	5
Tax effect	(2		)	—			(5		)	(3		)	24			1			19			(2		)
	8			—			11			4			(48		)	(1		)	(37		)	3

Other comprehensive income (loss), net of tax	1,755			925			(153		)	2,154			(1,462		)	936			(1,615		)	3,090

Comprehensive income	$	24,760		$	16,726		$	58,687		$	50,241		$	25,369		$	25,639		$	84,056		$	75,880

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Year-to-date						Year-to-date
	April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014
Cash flows from operating activities:
Net earnings	$	58,840		$	48,087		$	85,671		$	72,790
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	47,875			49,725			68,205			70,585
Deferred finance cost amortization	1,155			1,177			1,690			1,677
Excess tax benefits from share-based compensation arrangements	(17,073		)	(12,017		)	(17,781		)	(15,167		)
Deferred income taxes	(2,785		)	(384		)	(4,046		)	(84		)
Share-based compensation expense	7,367			6,348			10,041			8,128
Pension and postretirement expense	10,096			7,410			14,423			10,585
Gains on cash surrender value of company-owned life insurance	(3,635		)	(3,428		)	(1,960		)	(8,312		)
Losses (gains) on the sale of company-operated restaurants	4,170			(2,218		)	4,353			(2,242		)
Losses on the disposition of property and equipment	466			594			1,074			1,051
Impairment charges and other	2,180			8,088			4,813			8,543
Loss on early retirement of debt	—			789			—			789
Changes in assets and liabilities, excluding acquisitions and dispositions:
Accounts and other receivables	(21,841		)	(14,274		)	(6,895		)	(9,376		)
Inventories	146			(640		)	33			(516		)
Prepaid expenses and other current assets	27,181			(8,746		)	20,760			(4,647		)
Accounts payable	(1,459		)	1,725			690			(3,035		)
Accrued liabilities	(8,991		)	(13,543		)	4,215			6,950
Pension and postretirement contributions	(8,113		)	(7,831		)	(14,359		)	(14,107		)
Other	(4,659		)	(9,910		)	(5,782		)	(9,689		)
Cash flows provided by operating activities	90,920			50,952			165,145			113,923
Cash flows from investing activities:
Purchases of property and equipment	(32,959		)	(31,196		)	(54,832		)	(43,825		)
Purchases of assets intended for sale and leaseback	(5,355		)	(19		)	(8,323		)	(19		)
Proceeds from the sale of assets	—			2,105			—			5,698
Proceeds from the sale of company-operated restaurants	2,630			7,842			2,651			8,199
Collections on notes receivable	5,314			1,774			5,648			2,555
Acquisitions of franchise-operated restaurants	—			(1,750		)	—			(1,750		)
Other	1,786			36			1,888			2,838
Cash flows used in investing activities	(28,584		)	(21,208		)	(52,968		)	(26,304		)
Cash flows from financing activities:
Borrowings on revolving credit facilities	264,000			509,000			742,000			618,000
Repayments of borrowings on revolving credit facilities	(160,000		)	(379,000		)	(698,000		)	(460,000		)
Proceeds from issuance of debt	—			200,000			300,000			200,000
Principal repayments on debt	(7,996		)	(190,549		)	(198,217		)	(193,262		)
Debt issuance costs	—			(3,527		)	(1,942		)	(3,607		)
Dividends paid on common stock	(15,395		)	—			(26,556		)	(7,990		)
Proceeds from issuance of common stock	13,894			22,457			14,590			27,069
Repurchases of common stock	(174,115		)	(205,453		)	(254,668		)	(284,258		)
Excess tax benefits from share-based compensation arrangements	17,073			12,017			17,781			15,167
Change in book overdraft	—			4,774			—			1,507
Cash flows used in financing activities	(62,539		)	(30,281		)	(105,012		)	(87,374		)
Effect of exchange rate changes on cash and cash equivalents	11			5			(37		)	3
Net decrease in cash and cash equivalents	(192		)	(532		)
Net increase in cash and cash equivalents							7,128			248
Cash and cash equivalents at beginning of period	10,578			9,644			10,578			9,644
Cash and cash equivalents at end of period	$	10,386		$	9,112		$	17,706		$	9,892

See accompanying notes to condensed consolidated financial statements.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

Nature of operations — Founded in 1951, Jack in the Box Inc. (the “Company”) operates and franchises Jack in the Box^® quick-service restaurants and Qdoba Mexican Grill^® (“Qdoba”) fast-casual restaurants. The following table summarizes the number of restaurants as of the end of each period:


	April 12, 2015	April 13, 2014	July 5, 2015	July 6, 2014
Jack in the Box:
Company-operated	412	455	413	455
Franchise	1,836	1,799	1,835	1,797
Total system	2,248	2,254	2,248	2,252
Qdoba:
Company-operated	310	303	314	308
Franchise	334	323	334	324
Total system	644	626	648	632

References to the Company throughout these Notes to Condensed Consolidated Financial Statements are made using the first person notations of “we,” “us” and “our.”

Basis of presentation — The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission (“SEC”). During fiscal 2012, we entered into an agreement to outsource our Jack in the Box distribution business. In the third quarter of fiscal 2013, we closed 62 Qdoba restaurants (the “2013 Qdoba Closures”) as part of a comprehensive Qdoba market performance review. The results of operations for our distribution business and for the 2013 Qdoba Closures are reported as discontinued operations for all periods presented. Refer to Note 2, Discontinued Operations, for additional information. Unless otherwise noted, amounts and disclosures throughout these Notes to Condensed Consolidated Financial Statements relate to our continuing operations. In our opinion, all adjustments considered necessary for a fair presentation of financial condition and results of operations for these interim periods have been included. Operating results for one interim period are not necessarily indicative of the results for any other interim period or for the full year.

These financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended September 28, 2014. The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our Form 10-K with the exception of new accounting pronouncements adopted in fiscal 2015 which are described below.

Principles of consolidation — The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the accounts of any variable interest entities (“VIEs”) where we are deemed the primary beneficiary. All significant intercompany accounts and transactions are eliminated. For information related to the VIE included in our condensed consolidated financial statements, refer to Note ~~12,~~13, Variable Interest Entities.

Reclassifications and adjustments — Certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform to the fiscal 2015 presentation.

Fiscal year — Our fiscal year is 52 or 53 weeks ending the Sunday closest to September 30. Fiscal years 2015 and 2014 include 52 weeks. Our first quarter includes 16 weeks and all other quarters include 12 weeks. All comparisons between 2015 and 2014 refer to the 12-weeks (“quarter”) and ~~28-weeks~~40-weeks (“year-to-date”) ended ~~April 12,~~July 5, 2015 and ~~April 13,~~July 6, 2014, respectively, unless otherwise indicated.

Use of estimates — In preparing the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles, management is required to make certain assumptions and estimates that affect reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management may from time to time seek advice and consider information provided by actuaries and other experts in a particular area. Actual amounts could differ materially from these estimates.

Effect of new accounting pronouncements — In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which modifies the definition of discontinued operations to include only disposals of an entity that represent strategic shifts that have or will have a major effect on an entity's operations and financial results. This ASU also expands the disclosure requirements for disposals which meet the definition of a discontinued operation and requires entities to

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. The standard is effective prospectively for annual and interim periods beginning after December 15, 2014, with early adoption permitted. We early adopted this standard on September 29, 2014. This pronouncement did not have a material impact on our condensed consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides a comprehensive new revenue recognition model that requires a company to recognize revenue in an amount that reflects the consideration it expects to receive for the transfer of promised goods or services to its customers. The standard also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This ASU is effective for annual periods and interim periods beginning after December 15, 2016. The ASU is to be applied retrospectively or using a cumulative effect transition method and early adoption is not permitted. In ~~April~~July 2015, the FASB ~~proposed a deferral of~~affirmed its proposal to defer this ASU's effective date by one year, to December 15, 2017. The ~~proposed~~ deferral allows early adoption at the original effective date. We are currently evaluating the effect that this pronouncement will have on our consolidated financial statements and related disclosures.

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments when the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which requires a reporting entity to treat a performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. This standard is to be applied prospectively for annual and interim periods beginning after December 15, 2015, with early adoption permitted. We early adopted this standard on September 29, 2014. This pronouncement did not have a material impact on our condensed consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. Under this ASU, an entity presents such costs on the balance sheet as a direct deduction from the related debt liability rather than as an asset. This new standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with early adoption permitted. We do not plan to adopt this standard early and do not expect that it will have a material impact on our consolidated financial statements or disclosures upon adoption.

In April 2015, the FASB issued ASU 2015-04, Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets, which provides a practical expedient that permits a company to measure defined benefit plan assets and obligations using the month-end date that is closest to the company's fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if the company has more than one plan. This ASU is effective prospectively for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. We do not expect this standard to have a material impact our consolidated financial statements upon adoption.


2.	DISCONTINUED OPERATIONS

Distribution business — During fiscal 2012, we entered into an agreement with a third party distribution service provider pursuant to a plan approved by our board of directors to sell our Jack in the Box distribution business. During the first quarter of fiscal 2013, we completed the transition of our distribution centers. The operations and cash flows of the business have been eliminated and in accordance with the provisions of ASC 205, Presentation of Financial Statements, the results are reported as discontinued operations for all periods presented.

WeIn 2015 and 2014, we recognized operating losses before taxes of ~~$0.1 million in both periods of 2015, and $0.1~~$0.3 million and ~~$0.7~~$0.6 million, respectively, in the quarter, and $0.5 million and $1.3 million, respectively, year-to-date. In the year-to-date ~~respectively, in 2014. Year-to-date,~~period, operating losses before taxes include ~~$0.1~~$0.3 million and ~~$0.2~~$0.9 million in 2015 and 2014, respectively, related to insurance and other settlements, and $0.2 million and $0.3 million, respectively, related to our lease ~~commitments, and $0.4 million in 2014 related to insurance settlements.~~commitments.

Our liability for lease commitments related to our distribution centers is included in accrued liabilities and other long-term liabilities, and was $0.3 million and $0.5 million as of ~~April 12,~~July 5, 2015 and September 28, 2014, respectively. The lease commitment balance as of ~~April 12,~~July 5, 2015 relates to one distribution center subleased at a loss.

2013 Qdoba Closures — During the third quarter of fiscal 2013, we closed 62 Qdoba restaurants. The decision to close these restaurants was based on a comprehensive analysis that took into consideration levels of return on investment and other key operating performance metrics. Since the closed locations were not predominantly located near those remaining in operation, we did not expect the majority of cash flows and sales lost from these closures to be recovered. In addition, we did not anticipate any ongoing involvement or significant direct cash flows from the closed stores. Therefore, in accordance with the provisions of ASC 205, Presentation of Financial Statements, the results of operations for these restaurants are reported as discontinued operations for all periods presented. In the quarter and year-to-date periods, we recognized operating losses before income taxes of ~~$0.5~~$2.2 million and ~~$2.5~~$4.6 million, respectively, in 2015, and ~~$3.8~~$1.7 million and ~~$4.4~~$6.1 million, respectively, in 2014.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In 2015, the year-to-date operating losses include ~~$2.2~~$3.9 million of unfavorable lease commitment adjustments, $0.3 million of bad debt expense related to a subtenant, $0.2 million of ongoing facility related costs and ~~$0.1~~$0.2 million of broker commissions. In 2014, the year-to-date operating losses include ~~$3.0~~$4.2 million of unfavorable lease commitment adjustments, $0.4 million for asset impairments, ~~$0.6~~$0.7 million of ongoing facility related costs and ~~$0.3~~$0.5 million of broker commissions. We do not expect the remaining costs to be incurred related to these closures to be material; however, the estimates we make related to our future lease obligations, primarily the sublease income we anticipate, are subject to a high degree of judgment and may differ from actual sublease income due to changes in economic conditions, desirability of the sites and other factors.

Our liability for lease commitments related to the 2013 Qdoba Closures is included in accrued liabilities and other long-term liabilities and changed as follows in 2015 (in thousands):


	Year-to-date
Balance as of September 28, 2014	$	5,737		$	5,737
Adjustments	2,185			3,853
Cash payments	(4,060		)	(5,225		)
Balance as of April 12, 2015	$	3,862
Balance as of July 5, 2015				$	4,365

Adjustments primarily relate to revisions to certain sublease and cost assumptions due to changes in market conditions as well as charges to terminate four lease agreements. These amounts were partially offset by favorable adjustments for locations that we have subleased.

3. INDEBTEDNESS

Amended credit facility — On July 1, 2015, the Company amended its credit facility to increase our overall borrowing capacity. The amended credit facility was increased to $1.2 billion, consisting of (i) a $900.0 million revolving credit facility and (ii) a $300.0 million term loan facility. The interest rate did not change as a result of the amendment and continues to be based on the Company’s leverage ratio and can range from London Interbank Offered Rate (“LIBOR”) plus 1.25% to 2.00%. Both the revolving credit facility and the term loan facility maturity dates of March 19, 2019 did not change as part of the amendment. As part of the existing credit agreement, we may also request the issuance of up to $75.0 million in letters of credit, the outstanding amount of which reduces our net borrowing capacity under the agreement. The amendment also, among other things, amended certain covenants already contained in the credit agreement.

Use of proceeds — The Company borrowed $300.0 million under the amended term loan and approximately $360.0 million under the amended revolving credit facility. The proceeds from the amendment were used to repay all borrowings under the credit facility prior to the amendment and pay related transaction fees and expenses associated with amending the credit facility, and will also be available for permitted share repurchases, permitted dividends, permitted acquisitions, ongoing working capital requirements and other general corporate purposes. At July 5, 2015, we had borrowings under the revolving credit facility of $350.0 million, $300.0 million outstanding under the term loan and letters of credit outstanding of $22.1 million.

Collateral — The Company’s obligations under the credit facility are secured by first priority liens and security interests in the capital stock, partnership, and membership interests owned by the Company and/or its subsidiaries, and any proceeds thereof, subject to certain restrictions. Additionally, there is a negative pledge on all tangible and intangible assets (including all real and personal property), with customary exceptions.

Covenants — We are subject to a number of customary covenants under our credit facility, including limitations on additional borrowings, acquisitions, loans to franchisees, lease commitments, stock repurchases and dividend payments, and requirements to maintain certain financial ratios defined in the credit agreement.

Repayments — The amended term loan requires amortization in the form of quarterly installments of $3.91 million from September 2015 through March 2016, $5.86 million million from June 2016 through March 2018, and $7.81 million from June 2018 through December 2018 with the remainder due at the expiration of the term loan agreement in March 2019. We are required to make certain mandatory prepayments under certain circumstances and we have the option to make certain prepayments without premium or penalty. The credit facility includes events of default (and related remedies, including acceleration and increased interest rates following an event of default) that are customary for facilities and transactions of this type.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


3.4.	SUMMARY OF REFRANCHISINGS, FRANCHISEE DEVELOPMENT AND ACQUISITIONS

Refranchisings and franchisee development — The following is a summary of the number of restaurants sold to franchisees, number of restaurants developed by franchisees and the related gains or losses and fees recognized (dollars in thousands):


	Quarter						Year-to-date						Quarter						Year-to-date
	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Restaurants sold to Jack in the Box franchisees	20			14			21			14			—			—			21			14
New restaurants opened by franchisees	10			6			22			19
New restaurants opened by franchisees:
Jack in the Box													1			3			12			10
Qdoba													4			5			15			17

Initial franchise fees	$	608		$	755		$	983		$	1,154		$	130		$	207		$	1,113		$	1,361

Proceeds from the sale of company-operated restaurants (1)	$	1,456		$	7,374		$	2,630		$	7,842		$	21		$	357		$	2,651		$	8,199
Net assets sold (primarily property and equipment)	(1,945		)	(2,240		)	(2,434		)	(2,240		)	(204		)	(7		)	(2,638		)	(2,247		)
Goodwill related to the sale of company-operated restaurants	(16		)	(120		)	(32		)	(129		)	—			(5		)	(32		)	(134		)
Other (2)	(4,515		)	(142		)	(4,334		)	(140		)	—			1			(4,334		)	(139		)
(Losses) gains on the sale of company-operated restaurants	$	(5,020	)	$	4,872		$	(4,170	)	$	5,333		$	(183	)	$	346		$	(4,353	)	$	5,679

Losses on expected sale of Jack in the box company-operated markets (3)	—			(3,115		)	—			(3,115		)
Losses on expected sale of Jack in the Box company-operated markets (3)													—			(322		)	—			(3,437		)

Total (losses) gains on the sale of company-operated restaurants	$	(5,020	)	$	1,757		$	(4,170	)	$	2,218		$	(183	)	$	24		$	(4,353	)	$	2,242

____________________________


(1)	Amounts in 2015 and 2014 include additional proceeds recognized upon the extension of the underlying franchise and lease agreements related to restaurants sold in a prior year of ~~$0.0~~$0.1 million and ~~$0.7~~$0.4 million, respectively, in the quarter, and ~~$0.1~~$0.2 million and ~~$1.2~~$1.5 million, respectively, year-to-date.


(2)	Amounts in 2015 include lease commitment charges related to restaurants closed in connection with the sale of the related market, and charges for operating restaurant leases with lease commitments in excess of our sublease rental income.


(3)	Amounts in 2014 relate to losses on the expected sale of approximately 3043 company-operated restaurants in ~~two~~three Jack in the Box markets sold in the fourth quarter of 2014 and the second quarter of 2015.

Franchise acquisitions — In 2015, we acquired ~~six~~seven Jack in the Box franchise restaurants in ~~one market,~~two markets, and during 2014, we repurchased four Jack in the Box franchise restaurants in another market. We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). Acquisitions were not material to our condensed consolidated financial statements in either year.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


4.5.	FAIR VALUE MEASUREMENTS

Financial assets and liabilities — The following table presents the financial assets and liabilities measured at fair value on a recurring basis (in thousands):


	Total			Quoted Prices in Active Markets for Identical Assets (3) (Level 1)			Significant Other Observable Inputs (3) (Level 2)			Significant Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (3) (Level 1)			Significant Other Observable Inputs (3) (Level 2)			Significant Unobservable Inputs (Level 3)
Fair value measurements as of April 12, 2015:
Fair value measurements as of July 5, 2015:
Non-qualified deferred compensation plan (1)	$	(37,701	)	$	(37,701	)	$	—		$	—	$	(37,182	)	$	(37,182	)	$	—		$	—
Interest rate swaps (Note 5) (2)	(7,366		)	—			(7,366		)	—
Interest rate swaps (Note 6) (2)												(11,932		)	—			(11,932		)	—
Total liabilities at fair value	$	(45,067	)	$	(37,701	)	$	(7,366	)	$	—	$	(49,114	)	$	(37,182	)	$	(11,932	)	$	—
Fair value measurements as of September 28, 2014:
Non-qualified deferred compensation plan (1)	$	(35,602	)	$	(35,602	)	$	—		$	—	$	(35,602	)	$	(35,602	)	$	—		$	—
Interest rate swaps (Note 5) (2)	(1,789		)	—			(1,789		)	—
Interest rate swaps (Note 6) (2)												(1,789		)	—			(1,789		)	—
Total liabilities at fair value	$	(37,391	)	$	(35,602	)	$	(1,789	)	$	—	$	(37,391	)	$	(35,602	)	$	(1,789	)	$	—

____________________________


(1)	We maintain an unfunded defined contribution plan for key executives and other members of management excluded from participation in our qualified savings plan. The fair value of this obligation is based on the closing market prices of the participants’ elected investments.


(2)	We entered into interest rate swaps to reduce our exposure to rising interest rates on our variable debt. The fair values of our interest rate swaps are based upon Level 2 inputs which include valuation models as reported by our counterparties. The key inputs for the valuation models are quoted market prices, interest rates and forward yield curves.


(3)	We did not have any transfers in or out of Level 1, 2 or ~~Level 2.~~3.

The fair values of our debt instruments are based on the amount of future cash flows associated with each instrument discounted using our borrowing rate. At ~~April 12,~~July 5, 2015, the carrying value of all financial instruments was not materially different from fair value, as the borrowings are prepayable without penalty. The estimated fair values of our capital lease obligations approximated their carrying values as of ~~April 12,~~July 5, 2015.

Non-financial assets and liabilities — Our non-financial instruments, which primarily consist of property and equipment, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on ~~a periodic~~an annual basis ~~(at least annually for goodwill and intangible assets, and semi-annually for property and equipment)~~ or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial instruments are assessed for impairment. If applicable, the carrying values are written down to fair value.

In connection with our impairment reviews performed during 2015, no material fair value adjustments were required. Refer to Note 6,7, Impairment and Other Charges, Net for additional information regarding impairment charges.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


5.6.	DERIVATIVE INSTRUMENTS

Objectives and strategies — We are exposed to interest rate volatility with regard to our variable rate debt. To reduce our exposure to rising interest rates, in August 2010, we entered into two interest rate swap agreements that effectively converted $100.0 million of our variable rate term loan borrowings to a fixed-rate basis from September 2011 through September 2014. In April 2014, we entered into nine forward-starting interest rate swap agreements that effectively convert ~~$300.0~~$300.0 million of our variable rate borrowings to a fixed rate basis from October 2014 through October 2018. In June 2015, we entered into 11 forward-starting interest rate swap agreements that effectively convert an additional $200.0 million of our variable rate borrowings to a fixed rate from October 2015 through October 2018, and $500.0 million from October 2018 through October 2022. These agreements have been designated as cash flow hedges under the terms of the FASB authoritative guidance for derivatives and hedging. To the extent that they are effective in offsetting the variability of the hedged cash flows, changes in the fair values of the derivatives are not included in earnings, but are included in other comprehensive income (“OCI”). These changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are made on our term debt.

Financial position — The following derivative instruments were outstanding as of the end of each period (in thousands):


	April 12, 2015				September 28, 2014				July 5, 2015				September 28, 2014
	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps (Note 4)	Accrued liabilities	$	(7,366	)	Accrued liabilities	$	(1,789	)
Interest rate swaps (Note 5)									Accrued liabilities	$	(2,341	)	Accrued liabilities	$	(1,789	)
Interest rate swaps (Note 5)									Other long-term liabilities	$	(9,591	)	Other long-term liabilities	$	—
Total derivatives		$	(7,366	)		$	(1,789	)		$	(11,932	)		$	(1,789	)

Financial performance — The following is a summary of the OCI activity related to our interest rate swap derivative instruments (in thousands):


	Location of Loss in Income	Quarter						Year-to-date						Location of Loss in Income	Quarter						Year-to-date
	Location of Loss in Income	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			Location of Loss in Income	July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Gain (loss) recognized in OCI	N/A	$	86		$	(31	)	$	(6,672	)	$	(85	)	N/A	$	(5,027	)	$	(14	)	$	(11,699	)	$	(99	)
Loss reclassified from accumulated OCI into net earnings	Interest expense, net	$	(468	)	$	(322	)	$	(1,095	)	$	(748	)	Interest expense, net	$	461		$	324		$	1,556		$	1,072

Amounts reclassified from accumulated OCI into interest expense represent payments made to the counterparties for the effective portions of the interest rate swaps. During the periods presented, our interest rate swaps had no hedge ineffectiveness.


6.7.	IMPAIRMENT AND OTHER CHARGES, NET

Impairment and other charges, net in the accompanying condensed consolidated statements of earnings is comprised of the following (in thousands):


	Quarter					Year-to-date				Quarter				Year-to-date
	April 12, 2015			April 13, 2014		April 12, 2015		April 13, 2014		July 5, 2015		July 6, 2014		July 5, 2015		July 6, 2014
Accelerated depreciation	$	1,387		$	487	$	2,139	$	1,151	$	2,610	$	152	$	4,749	$	1,302
Restaurant impairment charges	27			85		41		180		24		146		65		326
(Gains) losses on the disposition of property and equipment, net	(269		)	262		352		550
Losses on the disposition of property and equipment, net										228		491		580		1,042
Costs of closed restaurants (primarily lease obligations) and other	973			731		1,759		1,295		886		318		2,645		1,613
Restructuring costs	12			7,491		19		7,789		10		561		29		8,350
	$	2,130		$	9,056	$	4,310	$	10,965	$	3,758	$	1,668	$	8,068	$	12,633

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Accelerated depreciation — When a long-lived asset will be replaced or otherwise disposed of prior to the end of its estimated useful life, the useful life of the asset is adjusted based on the estimated disposal date and accelerated depreciation is recognized. Accelerated depreciation primarily relates to expenses at our Jack in the Box company restaurants for the replacement of technology and beverage equipment in 2015 and restaurant facility enhancement programs in 2014. In the third quarter of 2015, we recognized a $2.2 million charge related to the replacement of our beverage equipment at Jack in the Box restaurants.

Impairment charges — When events and circumstances indicate that our long-lived assets might be impaired and their carrying amount is greater than the undiscounted cash flows we expect to generate from such assets, we recognize an impairment loss as the amount by which the carrying value exceeds the fair value of the assets. Impairment charges in

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

all periods ~~include~~were not material and primarily relate to charges for restaurants we intend to or have closed.

Disposition of property and equipment — Disposal costs primarily relate to gains or losses recognized upon the sale of closed restaurant properties. In 2015, losses on the disposition of property and equipment includes a gain of $0.9 million from the resolution of one eminent domain matter involving a Jack in the Box restaurant.

Costs of closed restaurants — Costs of closed restaurants primarily ~~consists~~consist of future lease commitments, net of anticipated sublease rentals and expected ancillary ~~costs.~~costs related to our Jack in the Box restaurant operations. Accrued restaurant closing costs, included in accrued liabilities and other long-term liabilities, changed as follows in 2015 (in thousands):


	Year-to-date
Balance as of September 28, 2014	$	13,173		$	13,173
Adjustments (1)	1,427			2,141
Cash payments	(3,319		)	(4,760		)
Balance as of April 12, 2015	$	11,281
Balance as of July 5, 2015				$	10,554

___________________________

(1) Adjustments relate primarily to revisions to certain sublease and cost ~~assumptions~~assumptions. The estimates we make related to our future lease obligations, primarily the sublease income we anticipate, are subject to a high degree of judgment and may differ from actual sublease income due to changes in ~~market conditions.~~economic conditions, desirability of the sites and other factors.

Restructuring costs — Since the beginning of 2012, we have been engaged in efforts to improve our cost structure and identify opportunities to reduce general and administrative expenses as well as improve profitability across both brands. The following is a summary of the costs incurred in connection with these activities (in thousands):


	Quarter				Year-to-date				Quarter				Year-to-date
	April 12, 2015		April 13, 2014		April 12, 2015		April 13, 2014		July 5, 2015		July 6, 2014		July 5, 2015		July 6, 2014
Severance costs	$	12	$	1,098	$	19	$	1,396	$	10	$	468	$	29	$	1,864
Other	—		6,393		—		6,393		—		93		—		6,486
	$	12	$	7,491	$	19	$	7,789	$	10	$	561	$	29	$	8,350

In 2014, other costs ~~represent a $6.4 million~~represents an impairment charge recognized in the second quarter of fiscal 2014 related to a restaurant software asset we no longer planned to place in service as we integrate certain systems across both of our brands. We may incur additional charges related to our restructuring activities; however, we are unable to make a reasonable estimate at this time.


7.8.	INCOME TAXES

The income tax provisions reflect tax rates of ~~37.9%~~38.2% in the quarter and ~~36.8%~~37.3% year-to-date in 2015, compared with ~~36.1%~~33.8% and ~~36.9%~~35.9%, respectively, a year ago. The ~~quarter~~major component of the year-over-year change in tax rates ~~reflect the timing of the benefit recognized from the reenactment of the Work Opportunity Tax Credit~~was an increase in operating earnings before income taxes and ~~the benefit of~~a decrease in the market performance of insurance products used to fund certain non-qualified retirement plans which are excluded from taxable income. The quarter tax rate reflects the conclusion of a state audit and the impact of the completion of the federal income tax return completed during the quarter. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2015 rate could differ from our current estimates.

At July 5, 2015, the Company no longer has any gross unrecognized tax benefits associated with uncertain income tax positions. During the quarter, the Company concluded an audit regarding a specific claim with California. The conclusion of this audit eliminated our unrecognized tax benefits associated with uncertain income tax positions. The Company’s gross unrecognized tax benefits associated with uncertain tax positions were $0.4 million before the conclusion of this audit.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We file income tax returns in the United States and all state and local jurisdictions in which we operate that impose an income tax. The federal statutes of limitations have not expired for fiscal years 2012 and forward. The Company’s federal statute of limitations for fiscal years 2009 and 2011 were extended and remain open. The statutes of limitations for California and Texas, which constitute the Company’s major state tax jurisdictions, have not expired for fiscal years 2010 and forward.


8.9.	RETIREMENT PLANS

Defined benefit pension plans — We sponsor two defined benefit pension plans: a qualified plan covering substantially all full-time Jack in the Box employees hired prior to January 1, 2011, and an unfunded supplemental executive plan which provides certain employees additional pension benefits and was closed to new participants effective January 1, 2007. In fiscal 2011, the Board of Directors approved changes to our qualified plan whereby participants will no longer accrue benefits effective December 31, 2015. Benefits under both plans are based on the employees’ years of service and compensation over defined periods of employment.

Postretirement healthcare plans — We also sponsor two healthcare plans, closed to new participants, that provide postretirement medical benefits to certain employees who have met minimum age and service requirements. The plans are contributory, with retiree contributions adjusted annually, and contain other cost-sharing features such as deductibles and coinsurance.

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Net periodic benefit cost — The components of net periodic benefit cost in each period were as follows (in thousands):


	Quarter						Year-to-date						Quarter						Year-to-date
	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Defined benefit pension plans:
Service cost	$	1,908		$	1,875		$	4,452		$	4,374		$	1,908		$	1,875		$	6,360		$	6,249
Interest cost	5,237			5,364			12,220			12,516			5,237			5,364			17,457			17,880
Expected return on plan assets	(5,370		)	(5,652		)	(12,531		)	(13,188		)	(5,370		)	(5,652		)	(17,901		)	(18,840		)
Actuarial loss(1)	2,172			1,024			5,068			2,388			2,172			1,023			7,240			3,411
Amortization of unrecognized prior service costs(1)	62			62			145			145			62			62			207			207
Net periodic benefit cost	$	4,009		$	2,673		$	9,354		$	6,235		$	4,009		$	2,672		$	13,363		$	8,907
Postretirement healthcare plans:
Interest cost	$	276		$	379		$	644		$	883		$	276		$	379		$	920		$	1,261
Actuarial loss(1)	42			125			98			292			42			125			140			417
Net periodic benefit cost	$	318		$	504		$	742		$	1,175		$	318		$	504		$	1,060		$	1,678

___________________________

(1) Amounts were reclassified from accumulated OCI into net earnings as a component of selling, general and administrative expenses.

Future cash flows — Our policy is to fund our plans at or above the minimum required by law. As of the date of our last actuarial funding valuation, there was no minimum contribution funding requirement. Details regarding fiscal 2015 contributions are as follows (in thousands):


	Defined Benefit Pension Plans		Postretirement Healthcare Plans		Defined Benefit Pension Plans		Postretirement Healthcare Plans
Net year-to-date contributions	$	7,543	$	570	$	13,707	$	652
Remaining estimated net contributions during fiscal 2015	$	17,000	$	700	$	11,000	$	600

We will continue to evaluate contributions to our qualified defined benefit pension plan based on changes in pension assets as a result of asset performance in the current market and economic environment.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


9.10.	SHARE-BASED COMPENSATION

We offer share-based compensation plans to attract, retain and motivate key officers, employees and non-employee directors to work toward the financial success of the Company. In fiscal 2015, we granted the following shares related to our share-based compensation awards:



Stock options	123,042
Performance share awards	40,594
Nonvested stock units	93,570

The components of share-based compensation expense recognized in each period are as follows (in thousands):


	Quarter				Year-to-date				Quarter				Year-to-date
	April 12, 2015		April 13, 2014		April 12, 2015		April 13, 2014		July 5, 2015		July 6, 2014		July 5, 2015		July 6, 2014
Stock options	$	555	$	489	$	1,554	$	1,778	$	585	$	347	$	2,139	$	2,125
Performance share awards	991		999		2,072		2,496		1,335		891		3,407		3,386
Nonvested stock awards	35		45		96		218		31		46		127		264
Nonvested stock units	1,638		796		3,382		1,638		723		497		4,105		2,135
Deferred compensation for non-management directors	263		218		263		218		—		—		263		218
Total share-based compensation expense	$	3,482	$	2,547	$	7,367	$	6,348	$	2,674	$	1,781	$	10,041	$	8,128

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~10.~~11. STOCKHOLDERS’ EQUITY

Repurchases of common stock — In February 2014 and July 2014, the Board of Directors approved two programs, both expiring in November 2015, which provided repurchase authorizations for up to $200.0 million and $100.0 million, respectively, in shares of our common stock. Additionally, in November 2014 and May 2015, the Board of Directors approved ~~another~~two $100.0 million stock buyback ~~program~~programs that ~~expires~~expire in November 2016. During fiscal 2015, we repurchased ~~2.08~~2.95 million shares at an aggregate cost of ~~$176.6~~$251.6 million and fully utilized the February, July and ~~July~~November 2014 authorizations. As of ~~April 12,~~July 5, 2015, there was ~~$40.5~~$65.5 million remaining under our ~~November 2014~~May 2015 stock-buyback program which expires in November 2016.

Repurchases of common stock included in our condensed consolidated statements of cash flows for 2015 and 2014 include $3.1 million and $7.3 million, respectively, related to repurchase transactions traded in the prior fiscal year and settled in the subsequent quarter. ~~Additionally, these cash flows exclude $5.6 million and $3.9 million related to repurchase transactions traded in the second quarter and settled in the third quarter of 2015 and 2014, respectively.~~

Dividends — During the third quarter of fiscal 2014, the Board of Directors approved the initiation of a regular quarterly cash dividend. In fiscal 2015, the Board of Directors declared two cash dividends of $0.20 per share each, and one cash dividend of $0.30 per share, which were paid to shareholders of record as of December 1, 2014, ~~and~~ March 6, 2015, and June 1, 2015, respectively, and totaled ~~$15.5~~$26.7 million. Future dividends are subject to approval by our Board of Directors.


~~11.~~12.	AVERAGE SHARES OUTSTANDING

Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive common shares include stock options, nonvested stock awards and units, non-management director stock equivalents and shares issuable under our employee stock purchase plan. Performance share awards are included in the average diluted shares outstanding each period if the performance criteria have been met at the end of the respective periods.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding (in thousands):


	Quarter		Year-to-date		Quarter		Year-to-date
	April 12, 2015	April 13, 2014	April 12, 2015	April 13, 2014	July 5, 2015	July 6, 2014	July 5, 2015	July 6, 2014
Weighted-average shares outstanding – basic	37,970	41,464	38,353	42,018	37,106	39,692	37,980	41,320
Effect of potentially dilutive securities:
Stock options	246	640	337	725	213	576	301	684
Nonvested stock awards and units	190	243	195	318	196	247	197	327
Performance share awards	160	285	154	275	146	272	152	274
Weighted-average shares outstanding – diluted	38,566	42,632	39,039	43,336	37,661	40,787	38,630	42,605
Excluded from diluted weighted-average shares outstanding:
Antidilutive	—	185	78	152	99	178	85	145
Performance conditions not satisfied at the end of the period	6	20	14	30	23	31	17	29


~~12.~~13.	VARIABLE INTEREST ENTITIES

In January 2011, we formed Jack in the Box Franchise Finance, LLC (“FFE”) for the purpose of operating a franchisee lending program to assist Jack in the Box franchisees in re-imaging their restaurants. We are the sole equity investor in FFE. The lending program was comprised of a $20.0 million commitment from the Company in the form of a capital note and an $80.0 million Senior Secured Revolving Securitization Facility entered into with a third party. The lending period and the revolving period expired in June 2012. At ~~April 12,~~July 5, 2015, we had no borrowings under the FFE Facility and we do not plan to make any further contributions.

We have determined that FFE is a VIE, and that we are the primary beneficiary. We considered a variety of factors in identifying the primary beneficiary of FFE including, but not limited to, who holds the power to direct matters that most significantly impact FFE’s economic performance (such as determining the underwriting standards and credit management policies), as well as what party has the obligation to absorb the losses of FFE. Based on these considerations, we have

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

determined that we are the primary beneficiary and the entity is reflected in the accompanying condensed consolidated financial statements.

FFE’s assets consolidated by us represent assets that can be used only to settle obligations of the consolidated VIE. Likewise, FFE’s liabilities consolidated by us do not represent additional claims on our general assets; rather they represent claims against the specific assets of FFE. The impacts of FFE’s results were not material to our condensed consolidated statements of earnings.

The FFE’s balance sheet consisted of the following at the end of each period (in thousands):


	April 12, 2015		September 28, 2014		July 5, 2015		September 28, 2014
Cash	$	—	$	—	$	159	$	—
Other current assets (1)	1,072		2,494		1,041		2,494
Other assets, net (1)	2,539		5,776		2,216		5,776
Total assets	$	3,611	$	8,270	$	3,416	$	8,270

Current liabilities (2)	$	1,203	$	2,833	$	1,153	$	2,833
Other long-term liabilities (2)	2,276		5,367		2,127		5,367
Retained earnings	132		70		136		70
Total liabilities and stockholders’ equity	$	3,611	$	8,270	$	3,416	$	8,270

____________________________


(1)	Consists primarily of amounts due from franchisees.


(2)	Consists primarily of the capital note contribution from Jack in the Box which is eliminated in consolidation.

In 2015, we received $3.9 million of early prepayments on notes receivable due from franchisees, which increased our cash flows from investing activities in the year-to-date period.

Our maximum exposure to loss is equal to its outstanding contributions as of ~~April 12,~~July 5, 2015. This amount represents estimated losses that would be incurred should all franchisees default on their loans without any consideration of recovery.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

To offset the credit risk associated with our variable interest in FFE, we hold a security interest in the assets of FFE subordinate and junior to all other obligations of FFE.

~~13.~~14. CONTINGENCIES AND LEGAL MATTERS

Legal matters — The Company assesses contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in its financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. We regularly review contingencies to determine the adequacy of the accruals and related disclosures. The ultimate amount of loss may differ from these estimates.

Gessele v. Jack in the Box Inc. — In August 2010, five former employees instituted litigation ~~in federal court in Oregon~~ alleging claims under the federal Fair Labor Standards Act and Oregon wage and hour laws. The plaintiffs alleged that the Company failed to pay non-exempt employees for certain meal breaks and improperly made payroll deductions for shoe purchases and for workers’ compensation ~~expenses. In April 2014, the district court granted our motion for summary judgment,~~expenses, and ~~dismissed all claims without prejudice to re-filing in state court. In July 2014, the plaintiffs re-filed similar claims, and~~later added additional claims relating to timing of final pay and related wage and hour claims involving employees of a ~~franchisee, in Oregon state court.~~franchisee. The amended complaint seeks damages of $45.0 million but does not provide a basis for that amount. In fiscal 2012, we accrued for a single claim for which we believe a loss is both probable and estimable; this accrued loss contingency did not have a material effect on our results of operations. We have not established a loss contingency accrual for those claims as to which we believe liability is not probable or estimable, and we plan to vigorously defend against this lawsuit. Nonetheless, an unfavorable resolution of this matter in excess of our current accrued loss contingencies could have a material adverse effect on our business, results of operations, liquidity or financial condition.

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Other legal matters — In addition to the matter described above, we are subject to normal and routine litigation brought by former, current or prospective employees, customers, franchisees, vendors, landlords, shareholders or others, whether individually, collectively or on behalf of a proposed class. We intend to defend ourselves in any such matters. Some of these matters may be covered, at least in part, by insurance. Our insurance liability (undiscounted) and reserves are established in part by using independent actuarial estimates of expected losses for reported claims and for estimating claims incurred but not reported. As of ~~April 12,~~July 5, 2015, our estimated liability for general liability and workers’ compensation claims exceeded our self-insurance retention limits by $24.6 million. We expect to be fully covered for these amounts by surety bond issuers or our insurance providers. Although we currently believe that the ultimate determination of liability in connection with legal claims pending against ~~it,~~the company, if any, in excess of amounts already provided for ~~these~~such matters in the consolidated financial statements, will not have a material adverse effect on our business, our annual results of operations, liquidity or financial position, it is possible that our results of operations, liquidity, or financial position could be materially affected in a particular future reporting period by the unfavorable resolution of one or more ~~of these~~ matters or contingencies during such period.

Lease guarantees — In connection with the sale of the Jack in the Box distribution business, we have assigned the ~~leases~~lease at ~~two of our~~one distribution ~~centers~~center to a third ~~parties.~~party. Under ~~these agreements,~~this agreement, which ~~expire~~expires in ~~2015 and~~ 2017, we remain secondarily liable for the lease payments for which we were responsible under the original lease. As of ~~April 12,~~July 5, 2015, the amount remaining under ~~these~~the lease ~~guarantees~~guarantee totaled ~~$1.5~~$1.4 million. We have not recorded a liability for the ~~guarantees~~guarantee as the likelihood of the third party defaulting on the assignment agreements was deemed to be less than probable.


~~14.~~15.	SEGMENT REPORTING

Our principal business consists of developing, operating and franchising our Jack in the Box and Qdoba restaurant concepts, each of which we consider reportable operating segments. This segment reporting structure reflects our current management structure, internal reporting method and financial information used in deciding how to allocate our resources. Based upon certain quantitative thresholds, each operating segment is considered a reportable segment.

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We measure and evaluate our segments based on segment revenues and earnings from operations. The reportable segments do not include an allocation of the costs related to shared service functions, such as accounting/finance, human resources, audit services, legal, tax and treasury; nor do they include unallocated costs such as pension expense and share-based compensation. These costs are reflected in the caption “Shared services and unallocated costs,” and therefore, the measure of segment profit or loss is before such items. The following table provides information related to our segments in each period (in thousands):


	Quarter						Year-to-date						Quarter						Year-to-date
	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Revenues by segment:
Jack in the Box restaurant operations	$	269,444		$	260,089		$	621,395		$	609,912		$	263,339		$	259,737		$	884,734		$	869,650
Qdoba restaurant operations	88,678			80,781			205,348			181,040			96,167			88,755			301,515			269,794
Consolidated revenues	$	358,122		$	340,870		$	826,743		$	790,952		$	359,506		$	348,492		$	1,186,249		$	1,139,444
Earnings from operations by segment:
Jack in the Box restaurant operations	$	64,313		$	53,617		$	145,168		$	129,920		$	62,355		$	54,413		$	207,523		$	184,333
Qdoba restaurant operations	8,778			7,105			23,460			16,713			13,805			9,641			37,265			26,354
Shared services and unallocated costs	(26,203		)	(29,600		)	(59,354		)	(58,768		)	(25,582		)	(21,078		)	(84,936		)	(79,846		)
(Losses) gains on the sale of company-operated restaurants	(5,020		)	1,757			(4,170		)	2,218			(183		)	24			(4,353		)	2,242
Consolidated earnings from operations	41,868			32,879			105,104			90,083			50,395			43,000			155,499			133,083
Interest expense, net	4,220			4,311			9,433			8,853			4,504			3,535			13,937			12,388
Consolidated earnings from continuing operations and before income taxes	$	37,648		$	28,568		$	95,671		$	81,230		$	45,891		$	39,465		$	141,562		$	120,695
Total depreciation expense by segment:
Jack in the Box restaurant operations	$	14,699		$	15,418		$	34,314		$	36,269		$	14,737		$	15,110		$	49,051		$	51,379
Qdoba restaurant operations	1,612			3,906			3,872			9,136			3,864			3,893			13,179			13,029
Shared services and unallocated costs	4,035			1,785			9,315			3,924			1,573			1,688			5,445			5,612
Consolidated depreciation expense	$	20,346		$	21,109		$	47,501		$	49,329		$	20,174		$	20,691		$	67,675		$	70,020

Income taxes and total assets are not reported for our segments in accordance with our method of internal reporting.

~~JACK IN THE BOX INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The following table provides detail of the change in the balance of goodwill for each of our reportable segments (in thousands):


	Qdoba		Jack in the Box			Total			Qdoba		Jack in the Box			Total
Balance at September 28, 2014	$	100,597	$	48,477		$	149,074		$	100,597	$	48,477		$	149,074
Disposals	—		(32		)	(32		)	—		(32		)	(32		)
Balance at April 12, 2015	$	100,597	$	48,445		$	149,042
Balance at July 5, 2015									$	100,597	$	48,445		$	149,042

Refer to Note 3,4, Summary of Refranchisings, Franchisee Development and Acquisitions, for information regarding the transactions resulting in the changes in goodwill.


~~15.~~16.	SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION (in thousands)


	Year-to-date				Year-to-date
	April 12, 2015		April 13, 2014		July 5, 2015			July 6, 2014
Cash paid during the year for:
Interest, net of amounts capitalized	$	9,166	$	9,114	$	13,433		$	12,100
Income tax payments	$	1,087	$	28,701	$	18,685		$	28,913
Non-cash transactions:
Equipment capital lease obligations incurred					$	4,894		$	—
Increase in dividends accrued at period end	$	70	$	—	$	121		$	34
Increase in property and equipment through accrued purchases at period end	$	5,395	$	9,070
Change in obligation for purchases of property and equipment					$	(53	)	$	6,183

JACK IN THE BOX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


~~16.~~17.	SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION (in thousands)


	April 12, 2015		September 28, 2014		July 5, 2015		September 28, 2014
Prepaid expenses:
Prepaid income taxes	$	13,493	$	27,956	$	17,720	$	27,956
Prepaid rent	8,961		178		13,591		178
Other	6,994		8,180		9,156		8,180
	$	29,448	$	36,314	$	40,467	$	36,314
Other assets, net:
Company-owned life insurance policies	$	104,388	$	100,753	$	102,713	$	100,753
Deferred tax assets	48,953		50,807		46,986		50,807
Other	83,376		85,738		85,184		85,738
	$	236,717	$	237,298	$	234,883	$	237,298
Accrued liabilities:
Payroll and related taxes	$	49,404	$	54,905	$	54,014	$	54,905
Insurance	33,569		34,834		34,588		34,834
Advertising	17,029		21,452		14,147		21,452
Deferred rent income	11,044		2,432		15,418		2,432
Lease commitments related to closed or refranchised locations	10,383		10,258		10,188		10,258
Sales and property taxes	8,958		11,760		10,805		11,760
Other	29,246		27,985		33,324		27,985
	$	159,633	$	163,626	$	172,484	$	163,626
Other long-term liabilities:
Pension plans	$	140,436	$	143,838	$	136,047	$	143,838
Straight-line rent accrual	47,052		48,835		46,955		48,835
Other	119,945		116,762		129,307		116,762
	$	307,433	$	309,435	$	312,309	$	309,435


~~17.~~18.	SUBSEQUENT EVENTS

Declaration of dividend — On ~~May 7,~~July 30, 2015, the Board of Directors declared a cash dividend of $0.30 per share, to be paid on ~~June 12,~~September 9, 2015 to shareholders of record as of the close of business on ~~June 1,~~August 26, 2015. Future dividends will be subject to approval by our Board of Directors.

~~On May 7, 2015, the Board of Directors authorized an additional $100.0 million stock-buyback program that expires in November 2016.~~


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

All comparisons between 2015 and 2014 refer to the 12-weeks (“quarter”) and ~~28-weeks~~40-weeks (“year-to-date”) ended ~~April 12,~~July 5, 2015 and ~~April 13,~~July 6, 2014, respectively, unless otherwise indicated.

For an understanding of the significant factors that influenced our performance during the quarterly periods ended ~~April 12,~~July 5, 2015 and ~~April 13,~~July 6, 2014, our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes included in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended September 28, 2014.

Our MD&A consists of the following sections:

Overview — a general description of our business and 2015 highlights.

Financial reporting — a discussion of changes in presentation, if any.

Results of operations — an analysis of our consolidated statements of earnings for the periods presented in our condensed consolidated financial statements.

Liquidity and capital resources — an analysis of our cash flows including capital expenditures, share repurchase activity, dividends, known trends that may impact liquidity and the impact of inflation, if applicable.

Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates.

New accounting pronouncements — a discussion of new accounting pronouncements, dates of implementation and the impact on our consolidated financial position or results of operations.

Cautionary statements regarding forward-looking statements — a discussion of the risks and uncertainties that may cause our actual results to differ materially from any forward-looking statements made by management.

We have included in our MD&A certain performance metrics that management uses to assess Company performance and which we believe will be useful in analyzing and understanding our results of operations. These metrics include the following:

Changes in sales at restaurants open more than one year (“same-store sales”) and average unit volumes (“AUVs”) are presented for franchised restaurants and on a system-wide basis, which includes company and franchise restaurants. Franchise sales represent sales at franchise restaurants and are revenues of our franchisees. We do not record franchise sales as revenues; however, our royalty revenues and percentage rent revenues are calculated based on a percentage of franchise sales. We believe franchise and system sales and AUV information is useful to investors as a significant indicator of the overall strength of our business.

Company restaurant margin (“restaurant margin”) is defined as Company restaurant sales less expenses incurred directly by our restaurants in generating those sales (food and packaging costs, payroll and employee benefits, and occupancy and other costs). We also present restaurant margin as a percentage of Company restaurant sales.

Franchise margin is defined as franchise revenues less franchise costs and is also presented as a percentage of franchise revenues.

Restaurant margin and franchise margin are not measurements determined in accordance with generally accepted accounting principles (“GAAP”) and should not be considered in isolation, or as an alternative, to income from operations, or other similarly titled measures of other companies.

OVERVIEW

As of ~~April 12,~~July 5, 2015, we operated and franchised 2,248 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam, and ~~644~~648 Qdoba ~~Mexican Grill (“Qdoba”)~~ fast-casual restaurants throughout the United States, including four in Canada.

Our primary source of revenue is from retail sales at Jack in the Box and Qdoba company-operated restaurants. We also derive revenue from Jack in the Box and Qdoba franchise restaurants, including royalties (based upon a percent of sales), franchise fees, and rents from Jack in the Box franchisees. In addition, we recognize gains or losses from the sale of company-operated restaurants to franchisees, which are included as a line item within operating costs and expenses, net in the accompanying condensed consolidated statements of earnings.

The following summarizes the most significant events occurring in 2015, and certain trends compared to a year ago:

Qdoba’s New Pricing Structure — In October 2014, Qdoba restaurants rolled out a new simplified pricing structure system-wide where guests pay a set price per entrée based on the protein chosen and without being charged extra for additional items such as guacamole or queso. This resulted in an increase in the average check.

Same-Store Sales Growth — Same-store sales grew ~~5.3%~~5.4% year-to-date at company-operated Jack in the Box restaurants driven by ~~a combination of average check~~favorable product mix changes, transaction growth ~~including~~and price ~~increases, and transaction growth.~~increases. Qdoba’s year-to-date same-store sales increase of ~~10.2%~~9.1% at company-operated restaurants was driven primarily by our new simplified pricing structure ~~as well as menu innovation, catering~~ and ~~lower discounting.~~catering.

Commodity Costs — Commodity costs increased approximately ~~3.3%~~2.0% and ~~4.4%~~2.4% year-to-date at our Jack in the Box and Qdoba restaurants, respectively, in 2015 compared with a year ago. We expect our overall commodity costs to increase approximately 1.5% - 2.0% in fiscal 2015. Beef represents the largest portion, or approximately 20%, of the Company’s overall commodity spend. We typically do not enter into fixed price contracts for our beef needs. For the full year, we currently expect beef costs to increase approximately 10% - 15%.

Restaurant Margin Expansion — Our year-to-date consolidated company-operated restaurant margin increased ~~150~~190 basis points in 2015 to ~~19.9%~~20.5%. Jack in the Box’s company-operated restaurant margin improved ~~140~~200 basis points to ~~20.3%~~20.8% due primarily to leverage from same-store sales increases and benefits from refranchising activities. ~~Company -operated~~Company-operated restaurant margins at our Qdoba restaurants improved ~~190~~150 basis points to ~~19.1%~~19.8% primarily reflecting benefits from the new simplified pricing structure and leverage from same-store sales growth.

Jack in the Box Franchising Program — We essentially completed our Jack in the Box refranchising strategy with the sale of 20 company-operated restaurants in the ~~Southeast.~~Southeast during the second quarter. Year-to-date, franchisees opened a total of 1112 restaurants. In fiscal 2015, we expect franchisees to open 13-18 Jack in the Box restaurants. Our Jack in the Box system was 82% franchised at the end of the ~~second~~third quarter and we plan to maintain franchise ownership in the Jack in the Box system at a level between 80% to 85%.

Qdoba New Unit Growth — Year-to-date, we opened ~~three~~eight company-operated restaurants and franchisees opened 1115 restaurants. Of the new restaurants, ~~six~~seven were in non-traditional locations such as airports and college campuses. In fiscal 2015, we plan to open ~~50-60~~40-45 Qdoba restaurants, of which approximately ~~half~~15-20 are expected to be company-operated restaurants. We expect the majority of our franchise new unit development to be in non-traditional locations.

Credit Facility— In July 2015, we completed an amendment to our existing credit agreement to increase overall borrowing capacity to $1.2 billion, consisting of a $900.0 million revolving credit facility and a $300.0 million term loan, both maturing in March 2019.

Return of Cash to Shareholders — During 2015 we returned cash to shareholders in the form of share repurchases and cash dividends. We repurchased ~~2.1~~2.95 million shares of our common stock at an average price of ~~$84.72~~$85.38 per share, totaling ~~$176.6~~$251.6 million, including the costs of brokerage ~~fees, and~~fees. We also declared dividends of ~~$0.40~~$0.70 per share totaling ~~$15.5 million.~~$26.7 million, and raised the quarterly dividend by 50% in the third quarter.

FINANCIAL REPORTING

The condensed consolidated statements of earnings for all periods presented have been prepared reflecting the results of operations for the 62 Qdoba restaurants we closed in the third quarter of fiscal 2013 (the “2013 Qdoba Closures”) and charges incurred as a result of closing these restaurants as discontinued operations. During fiscal 2012, we entered into an agreement to outsource our Jack in the Box distribution business, the results of operations and costs incurred to outsource our distribution business are also reflected as discontinued operations for all periods presented. Refer to Note 2, Discontinued Operations, in the Notes to our Condensed Consolidated Financial Statements for more information.

RESULTS OF OPERATIONS

The following table presents certain income and expense items included in our condensed consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.

CONSOLIDATED STATEMENTS OF EARNINGS DATA


	Quarter				Year-to-date				Quarter				Year-to-date
	April 12, 2015		April 13, 2014		April 12, 2015		April 13, 2014		July 5, 2015		July 6, 2014		July 5, 2015		July 6, 2014
Revenues:
Company restaurant sales	75.1	%	75.6	%	75.1	%	75.4	%	75.3	%	75.9	%	75.1	%	75.6	%
Franchise revenues	24.9	%	24.4	%	24.9	%	24.6	%	24.7	%	24.1	%	24.9	%	24.4	%
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Operating costs and expenses, net:
Company restaurant costs:
Food and packaging (1)	31.2	%	31.6	%	31.8	%	31.8	%	30.5	%	31.9	%	31.4	%	31.8	%
Payroll and employee benefits (1)	27.2	%	27.8	%	27.2	%	27.7	%	26.9	%	27.1	%	27.1	%	27.5	%
Occupancy and other (1)	21.0	%	22.1	%	21.2	%	22.1	%	20.7	%	21.8	%	21.0	%	22.0	%
Total company restaurant costs (1)	79.4	%	81.5	%	80.1	%	81.6	%	78.2	%	80.9	%	79.5	%	81.4	%
Franchise costs (1)	48.3	%	50.5	%	48.7	%	50.2	%	47.9	%	50.6	%	48.4	%	50.3	%
Selling, general and administrative expenses	14.7	%	14.3	%	14.0	%	13.6	%	14.2	%	13.6	%	14.0	%	13.6	%
Impairment and other charges, net	0.6	%	2.7	%	0.5	%	1.4	%	1.0	%	0.5	%	0.7	%	1.1	%
Losses (gains) on the sale of company-operated restaurants	1.4	%	(0.5	)%	0.5	%	(0.3	)%	0.1	%	—	%	0.4	%	(0.2	)%
Earnings from operations	11.7	%	9.6	%	12.7	%	11.4	%	14.0	%	12.3	%	13.1	%	11.7	%
Income tax rate (2)	37.9	%	36.1	%	36.8	%	36.9	%	38.2	%	33.8	%	37.3	%	35.9	%

____________________________


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


(2)	As a percentage of earnings from continuing operations and before income taxes.

CHANGES IN SAME-STORE SALES


	Quarter		Year-to-date		Quarter		Year-to-date
	April 12, 2015	April 13, 2014	April 12, 2015	April 13, 2014	July 5, 2015	July 6, 2014	July 5, 2015	July 6, 2014
Jack in the Box:
Company	7.4%	0.9%	5.3%	1.5%	5.5%	2.4%	5.4%	1.8%
Franchise	9.4%	0.6%	6.7%	1.3%	7.9%	2.4%	7.0%	1.7%
System	8.9%	0.7%	6.3%	1.4%	7.3%	2.4%	6.6%	1.7%
Qdoba:
Company	7.0%	7.2%	10.2%	4.3%	6.6%	7.2%	9.1%	5.2%
Franchise	9.6%	6.8%	12.6%	4.4%	9.0%	7.7%	11.4%	5.6%
System	8.3%	7.0%	11.4%	4.3%	7.7%	7.5%	10.2%	5.4%

The following table summarizes the changes in the number and mix of Jack in the Box (“JIB”) and Qdoba company and franchise restaurants:


	April 12, 2015						April 13, 2014						July 5, 2015						July 6, 2014
	Company		Franchise		Total		Company		Franchise		Total		Company		Franchise		Total		Company		Franchise		Total
Jack in the Box:
Beginning of year	431		1,819		2,250		465		1,786		2,251		431		1,819		2,250		465		1,786		2,251
New	2		11		13		—		7		7		2		12		14		—		10		10
Refranchised	(21	)	21		—		(14	)	14		—		(21	)	21		—		(14	)	14		—
Acquired from franchisees	6		(6	)	—		4		(4	)	—		7		(7	)	—		4		(4	)	—
Closed	(6	)	(9	)	(15	)	—		(4	)	(4	)	(6	)	(10	)	(16	)	—		(9	)	(9	)
End of period	412		1,836		2,248		455		1,799		2,254		413		1,835		2,248		455		1,797		2,252
% of JIB system	18	%	82	%	100	%	20	%	80	%	100	%	18	%	82	%	100	%	20	%	80	%	100	%
% of consolidated system	57	%	85	%	78	%	60	%	85	%	78	%	57	%	85	%	78	%	60	%	85	%	78	%
Qdoba:
Beginning of year	310		328		638		296		319		615		310		328		638		296		319		615
New	3		11		14		8		12		20		8		15		23		13		17		30
Closed	(3	)	(5	)	(8	)	(1	)	(8	)	(9	)	(4	)	(9	)	(13	)	(1	)	(12	)	(13	)
End of period	310		334		644		303		323		626		314		334		648		308		324		632
% of Qdoba system	48	%	52	%	100	%	48	%	52	%	100	%	48	%	52	%	100	%	49	%	51	%	100	%
% of consolidated system	43	%	15	%	22	%	40	%	15	%	22	%	43	%	15	%	22	%	40	%	15	%	22	%
Consolidated:
Total system	722		2,170		2,892		758		2,122		2,880		727		2,169		2,896		763		2,121		2,884
% of consolidated system	25	%	75	%	100	%	26	%	74	%	100	%	25	%	75	%	100	%	26	%	74	%	100	%

Jack in the Box Brand

Company Restaurant Operations

The following table presents Jack in the Box company restaurant sales, costs and margin, and restaurant costs and margin as a percentage of the related sales. Percentages may not add due to rounding (dollars in thousands):


	Quarter								Year-to-date								Quarter								Year-to-date
	April 12, 2015				April 13, 2014				April 12, 2015				April 13, 2014				July 5, 2015				July 6, 2014				July 5, 2015				July 6, 2014
Company restaurant sales	$	184,992			$	181,206			$	426,335			$	425,077			$	179,451			$	180,129			$	605,786			$	605,206
Company restaurant costs:
Food and packaging	58,495		31.6	%	58,644		32.4	%	137,688		32.3	%	138,510		32.6	%	55,218		30.8	%	58,909		32.7	%	192,906		31.8	%	197,419		32.6	%
Payroll and employee benefits	50,885		27.5	%	50,971		28.1	%	117,628		27.6	%	118,453		27.9	%	49,599		27.6	%	49,860		27.7	%	167,227		27.6	%	168,313		27.8	%
Occupancy and other	36,051		19.5	%	37,831		20.9	%	84,682		19.9	%	87,818		20.7	%	35,115		19.6	%	38,147		21.2	%	119,797		19.8	%	125,965		20.8	%
Total company restaurant costs	145,431		78.6	%	147,446		81.4	%	339,998		79.7	%	344,781		81.1	%	139,932		78.0	%	146,916		81.6	%	479,930		79.2	%	491,697		81.2	%
Restaurant margin	$	39,561	21.4	%	$	33,760	18.6	%	$	86,337	20.3	%	$	80,296	18.9	%	$	39,519	22.0	%	$	33,213	18.4	%	$	125,856	20.8	%	$	113,509	18.8	%

~~In the quarter and year-to-date,~~ Jack in the Box company restaurant sales decreased $0.7 million in the quarter and increased ~~$3.8~~$0.6 million ~~and $1.3 million, respectively,~~year-to-date as compared with the prior ~~year due to an increase in AUVs.~~year. Higher AUV growth was more than offset in the quarter, and partially offset year-to-date by a decrease in sales attributable to a reduction in the average number of company-operated restaurants resulting from the execution of our refranchising strategy. The following table presents the approximate impact of these increases (decreases) on company restaurant sales (in thousands):


	Quarter			Year-to-date			Quarter			Year-to-date
Jack in the Box AUV increase	$	19,800		$	36,800		$	18,300		$	55,000
Decrease in the average number of Jack in the Box company restaurants	(16,000		)	(35,500		)	(19,000		)	(54,400		)
Total increase in company restaurant sales	$	3,800		$	1,300
Total (decrease) increase in company restaurant sales							$	(700	)	$	600

Same-store sales at Jack in the Box company-operated restaurants increased ~~7.4%~~5.5% in the quarter and ~~5.3%~~5.4% year-to-date, primarily driven by favorable product mix changes, transaction growth and price increases. The following table summarizes the change in company-operated same-store sales:


	Quarter				Year-to-date				Quarter				Year-to-date
	April 12, 2015		April 13, 2014		April 12, 2015		April 13, 2014		July 5, 2015		July 6, 2014		July 5, 2015		July 6, 2014
Transactions	2.4	%	(1.7	)%	1.4	%	(1.1	)%	1.6	%	(1.3	)%	1.5	%	(1.2	)%
Average check (1)	5.0	%	2.6	%	3.9	%	2.6	%	3.9	%	3.7	%	3.9	%	3.0	%
Change in same-store sales	7.4	%	0.9	%	5.3	%	1.5	%	5.5	%	2.4	%	5.4	%	1.8	%

____________________________


(1)	Amounts in 2015 and 2014 include price increases of approximately ~~2.1%~~2.0% and ~~2.5%~~2.9%, respectively, in the quarter, and 2.1% and ~~2.6%~~2.7%, respectively, year-to-date.

Food and packaging costs as a percentage of company restaurant sales decreased to ~~31.6%~~30.8% in the quarter and ~~32.3%~~31.8% year-to-date, compared with ~~32.4%~~32.7% and 32.6%, respectively, in ~~2014,~~2014. In the quarter, menu price increases, lower costs for commodities and favorable product mix contributed to the decrease in food and packaging costs as a percentage of company restaurant sales. Year-to-date, the benefits of ~~selling~~menu price increases and product mix changes more than offset ~~increases in~~higher commodity costs. In 2015, commodity costs ~~increased 2.6%~~decreased 1.1% in the quarter and ~~3.3%~~increased 2.0% year-to-date ~~primarily reflecting~~as higher costs for beef, eggs and cheese, were more than offset in ~~addition to produce year-to-date. Beef~~the quarter and partially offset year-to-date by lower costs for pork and shortening. Eggs and beef increased most significantly by approximately ~~17.0%~~58% and 6%, respectively, in the quarter and ~~22.0%~~32% and 17%, respectively, year-to-date. We expect commodity costs for fiscal 2015 to increase approximately 1.5% - 2.0%.

Payroll and employee benefit costs as a percentage of company restaurant sales decreased to ~~27.5%~~27.6% in both periods of 2015 compared with 27.7% in the quarter and ~~27.6%~~27.8% year-to-date ~~compared with 28.1% and 27.9%, respectively, in 2014.~~last year. In 2015, sales leverage, the benefits of refranchising and lower costs for group insurance driven by favorable claim trends were partially offset by higher wages from minimum wage increases, ~~and higher levels of~~an increase in incentive compensation driven by strong operating ~~performance.~~performance and in the quarter higher costs due to unfavorable development trends associated with workers’ compensation claims.

As a percentage of company restaurant sales, occupancy and other costs decreased to ~~19.5%~~19.6% in the quarter and ~~19.9%~~19.8% year-to-date, compared with ~~20.9%~~21.2% and ~~20.7%~~20.8%, respectively ~~in 2014 primarily~~a year ago due to sales leverage and the benefits of refranchising. These benefits were partially offset by higher costs for credit card fees, maintenance and repair expenses, security, supplies and ~~utilities, in addition to uniforms year-to-date.~~electricity.

Franchise Operations

The following table presents Jack in the Box franchise revenues and costs in each period and other information we believe is useful in analyzing the change in franchise operations (dollars in thousands):


	Quarter						Year-to-date						Quarter						Year-to-date
	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Royalties	$	31,529		$	28,529		$	71,781		$	66,641		$	31,377		$	28,984		$	103,158		$	95,625
Rental income	52,167			49,272			121,549			116,247			52,325			50,276			173,874			166,523
Franchise fees and other	756			1,082			1,730			1,947			186			347			1,916			2,294
Total franchise revenues	$	84,452		$	78,883		$	195,060		$	184,835		$	83,888		$	79,607		$	278,948		$	264,442

Rental expense	$	31,659		$	30,997		$	73,799		$	72,124		$	31,388		$	31,318		$	105,187		$	103,442
Depreciation and amortization	7,609			7,857			17,829			18,347			7,656			7,784			25,485			26,131
Other franchise support costs	2,776			2,194			6,404			4,906			2,506			2,526			8,910			7,432
Total franchise costs	42,044			41,048			98,032			95,377			41,550			41,628			139,582			137,005
Franchise margin	$	42,408		$	37,835		$	97,028		$	89,458		$	42,338		$	37,979		$	139,366		$	127,437
Franchise margin as a % of franchise revenues	50.2		%	48.0		%	49.7		%	48.4		%	50.5		%	47.7		%	50.0		%	48.2		%

Average number of franchise restaurants	1,823			1,791			1,822			1,788			1,834			1,798			1,826			1,791
% increase	1.8		%				1.9		%				2.0		%				2.0		%
Franchise restaurant AUVs	$	336		$	307		$	765		$	717		$	334		$	310		$	1,099		$	1,027
Increase in franchise-operated same-store sales	9.4		%	0.6		%	6.7		%	1.3		%	7.9		%	2.4		%	7.0		%	1.7		%
Royalties as a percentage of estimated franchise restaurant sales	5.1		%	5.2		%	5.2		%	5.2		%	5.1		%	5.2		%	5.1		%	5.2		%

Franchise revenues increased ~~$5.6~~$4.3 million, or ~~7.1%~~5.4% in the quarter and ~~$10.2~~$14.5 million, or 5.5% year-to-date primarily reflecting higher AUVs resulting in an increase in revenues from royalties and percentage rent. ~~To a lesser extent, an increase in the average number of franchise restaurants also contributed to the increase.~~

Franchise costs, principally including rents and depreciation on properties leased to Jack in the Box franchisees, ~~increased $1.0 million~~decreased slightly in the quarter, and ~~$2.7~~increased $2.6 million year-to-date. The year-to-date increase in franchise costs was primarily driven by ~~an increase~~rent and depreciation expense associated with the restaurants we sold to franchisees in the ~~number of franchised restaurants~~last 12 months and the recognition of bad debt expense in 2015 of ~~$0.3 million in the quarter and~~ $0.8 ~~million year-to-date.~~million.

Qdoba Brand

Company Restaurant Operations

The following table presents Qdoba company restaurant sales, costs and margin, and restaurant costs and margin as a percentage of the related sales (dollars in thousands):


	Quarter								Year-to-date								Quarter								Year-to-date
	April 12, 2015				April 13, 2014				April 12, 2015				April 13, 2014				July 5, 2015				July 6, 2014				July 5, 2015				July 6, 2014
Company restaurant sales	$	83,912			$	76,567			$	194,465			$	171,525			$	91,204			$	84,269			$	285,669			$	255,794
Company restaurant costs:
Food and packaging	25,537		30.4	%	22,778		29.7	%	59,453		30.6	%	51,150		29.8	%	27,431		30.1	%	25,550		30.3	%	86,884		30.4	%	76,700		30.0	%
Payroll and employee benefits	22,188		26.4	%	20,645		27.0	%	51,124		26.3	%	46,979		27.4	%	23,297		25.5	%	21,873		26.0	%	74,421		26.1	%	68,852		26.9	%
Occupancy and other	20,417		24.3	%	19,167		25.0	%	46,817		24.1	%	43,889		25.6	%	20,988		23.0	%	19,524		23.2	%	67,805		23.7	%	63,413		24.8	%
Total company restaurant costs	68,142		81.2	%	62,590		81.7	%	157,394		80.9	%	142,018		82.8	%	71,716		78.6	%	66,947		79.4	%	229,110		80.2	%	208,965		81.7	%
Restaurant margin	$	15,770	18.8	%	$	13,977	18.3	%	$	37,071	19.1	%	$	29,507	17.2	%	$	19,488	21.4	%	$	17,322	20.6	%	$	56,559	19.8	%	$	46,829	18.3	%

Company restaurant sales increased ~~$7.3~~$6.9 million in the quarter, and ~~$22.9~~$29.9 million year-to-date as compared with the prior year due primarily to growth in AUVs. To a lesser extent, an increase in the number of Qdoba company-operated restaurants also contributed to the increase. The following table presents the approximate impact of these increases on company restaurant sales (in thousands):


	Quarter		Year-to-date		Quarter		Year-to-date
Qdoba AUV increase	$	5,100	$	16,200	$	5,200	$	21,300
Increase in the average number of Qdoba company restaurants	2,200		6,700		1,700		8,600
Total increase in company restaurant sales	$	7,300	$	22,900	$	6,900	$	29,900

Same-store sales at Qdoba company-operated restaurants increased ~~7.0%~~6.6% in the quarter and ~~10.2%~~9.1% year-to-date primarily driven by the new simplified menu pricing ~~structure. Lower discounting, catering~~structure and ~~menu innovation in both periods and transaction growth year-to-date also contributed to the same-store sales increases.~~catering. Same-store sales ~~and~~were negatively impacted by a decrease in transactions in the quarter, and ~~as a result the 2015 year-to-date period, were negatively impacted by weather.~~weather year-to-date. The following table summarizes the change in company-operated same-store sales:


	Quarter				Year-to-date				Quarter				Year-to-date
	April 12, 2015		April 13, 2014		April 12, 2015		April 13, 2014		July 5, 2015		July 6, 2014		July 5, 2015		July 6, 2014
Average check (1)									6.4	%	3.6	%	7.9	%	4.2	%
Transactions	(1.3	)%	1.3	%	0.5	%	(0.7	)%	(1.1	)%	2.7	%	—	%	0.3	%
Average check (1)	7.4	%	5.1	%	8.6	%	4.3	%
Catering	0.9	%	0.8	%	1.1	%	0.7	%	1.3	%	0.9	%	1.2	%	0.7	%
Change in same-store sales	7.0	%	7.2	%	10.2	%	4.3	%	6.6	%	7.2	%	9.1	%	5.2	%

____________________________


(1)	Amounts in 2015 and 2014 include price increases of approximately ~~0.5%~~0.0% and ~~0.8%~~1.3%, respectively, in the quarter and ~~0.4%~~0.3% and ~~0.6%~~0.8%, respectively, year-to-date.

Food and packaging costs as a percentage of company restaurant sales decreased to 30.1% in the quarter from 30.3% in 2014 and increased to 30.4% ~~of company restaurant sales~~year-to-date from 30.0% a year ago. Both periods benefited from the new pricing structure, which was more than offset by higher commodity costs year-to-date. Commodity costs decreased 2.2% in the quarter and ~~30.6% year-to-date, compared with 29.7% and 29.8%, respectively, in 2014, due primarily to higher commodity~~increased 2.4% year-to-date. In the quarter, lower costs for produce, pork and cheese were partially offset by higher beef ~~in addition to cheese year-to-date,~~costs. Year-to-date, costs were higher for most commodities except produce and ~~changes in product mix related to the new pricing structure. Commodity~~pork. In 2015, beef costs increased ~~2.0% in the quarter and 4.4% year-to-date with beef costs increasing~~ the most significantly, by approximately ~~12.0%~~7% in the quarter and ~~18.0%~~14% year-to-date. ~~These increases were partially offset by growth in the average check related to the new pricing structure.~~ We expect commodity costs for fiscal 2015 to increase approximately ~~2.0%~~1.5%-2.0%.

Payroll and employee benefit costs as a percentage of company restaurant sales ~~improved~~decreased to ~~26.4%~~25.5% in the quarter and ~~26.3%~~26.1% year-to-date from ~~27.0%~~26.0% and ~~27.4%~~26.9%, respectively, in 2014 driven by leverage from same-store sales increases and lower levels of incentive compensation, partially offset by increases in labor staffing. Year-to-date, a change in our staffing mix made in the second quarter of last year that utilizes a more variable labor ~~model. Additionally,~~model also contributed to the decrease in ~~the quarter, lower levels~~payroll and employee benefit costs as a percentage of ~~incentive compensation were partially offset by increases in labor staffing.~~company restaurant sales.

~~Occupancy~~As a percentage of company restaurant sales, occupancy and other costs decreased to ~~24.3% of company restaurant sales~~23.0% in the quarter, and ~~24.1%~~23.7% year-to-date, compared with ~~25.0%~~23.2% and ~~25.6%~~24.8%, respectively, in 2014. The decrease was primarily due to sales leverage, partially offset by higher costs for credit card fees ~~smallwares,~~ and ~~property taxes, in addition to utilities year-to-date.~~start up costs associated with a new catering call center.

Franchise Operations

The following table presents our Qdoba franchise revenues and costs in each period and other information we believe is useful in analyzing the change in franchise operations (dollars in thousands):


	Quarter						Year-to-date						Quarter						Year-to-date
	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Royalties	$	4,365		$	3,750		$	9,942		$	8,339		$	4,559		$	4,030		$	14,501		$	12,369
Franchise fees and other	401			464			941			1,176			404			457			1,345			1,633
Total franchise revenues	4,766			4,214			10,883			9,515			4,963			4,487			15,846			14,002

Franchise support costs and other	1,015			948			2,168			2,130			986			935			3,154			3,065
Franchise margin	$	3,751		$	3,266		$	8,715		$	7,385		$	3,977		$	3,552		$	12,692		$	10,937
Franchise margin as a % of franchise revenues	78.7		%	77.5		%	80.1		%	77.6		%	80.1		%	79.2		%	80.1		%	78.1		%

Average number of franchise restaurants	332			321			331			320			333			323			332			321
% increase	3.4		%				3.4		%				3.1		%				3.4		%
Franchise restaurant AUVs	$	263		$	238		$	598		$	529		$	272		$	249		$	870		$	778
Increase in franchise-operated same-store sales	9.6		%	6.8		%	12.6		%	4.4		%	9.0		%	7.7		%	11.4		%	5.6		%
Royalties as a percentage of estimated franchise restaurant sales	5.0		%	4.9		%	5.0		%	4.9		%	5.0		%	5.0		%	5.0		%	5.0		%

Franchise revenues increased ~~$0.6~~$0.5 million or ~~13.1%~~10.6%, in the quarter, and ~~$1.4~~$1.8 million or ~~14.4%~~13.2%, year-to-date, primarily reflecting higher AUVs at Qdoba franchise restaurants. To a lesser extent, an increase in the average number of Qdoba franchise restaurants also contributed to the increase in franchise revenues.

Franchise costs, principally support costs, increased slightly in both ~~periods.~~periods versus a year ago.

Selling, general and administrative (“SG&A”) expenses

The following table presents the change in SG&A expenses compared with the prior year (in thousands):


	Increase / (Decrease)						Increase / (Decrease)
	Quarter			Year-to-date			Quarter			Year-to-date
Incentive compensation	$	4,321		$	4,396
Cash surrender value of COLI policies, net	(1,111		)	496
Incentive compensation (including share-based compensation)							$	(112	)	$	4,284
Pension and postretirement benefits	1,150			2,686			1,151			3,837
Insurance	(1,449		)	(1,791		)	299			(1,492		)
Cash surrender value of COLI policies, net							3,769			4,265
Advertising	(348		)	498			(1,653		)	(1,155		)
Employee relocation costs	297			(588		)	277			(311		)
Other, including restaurant pre-opening costs	952			2,054			(167		)	1,887
	$	3,812		$	7,751		$	3,564		$	11,315

Incentive compensation ~~increased primarily~~decreased slightly in the quarter due to ~~higher levels of performance at both brands as compared~~a decrease in costs related to ~~target bonus levels and~~our annual incentive compensation plans, partially offset by an increase in share-based compensation expense. Year-to-date, increases in expenses related to our annual incentive compensation plans and share-based compensation drove the increase in incentive compensation. Costs associated with our annual compensation plans came in lower in the quarter but higher year-to-date as we began accruing for higher levels of performance earlier in the year based on performance compared to target. Year-to-date incentive compensation is higher than a year ago due to higher levels of performance. The increase in share-based compensation in both periods primarily relates to our annual grant of nonvested stock units which vest over five years. As this is our fifth year of offering such grants, we are expensing one additional year of grants compared to a year ago.

The cash surrender value of our COLI policies, net of changes in our non-qualified deferred compensation obligation supported by these policies, are subject to market fluctuations. The changes in market values had a positive impact of $1.6 million in the quarter, $1.3 million year-to-date, compared with $0.5 million and $1.9 million respectively, a year ago.

In 2015, pension and postretirement benefits increased, principally driven by the change in discount rates as compared with a year ago.

Insurance costs ~~decreased~~increased in ~~2015~~the quarter due to unfavorable workers’ compensation and general liability claim developments. Year-to-date, a $1.0 million general liability legal settlement recognized in the prior ~~year.~~year and lower costs for group insurance in the current year contributed to the decrease in insurance costs compared to a year ago.

The cash surrender value of our COLI policies, net of changes in our non-qualified deferred compensation obligations supported by these policies, are subject to market fluctuations. The changes in market values had a negative impact of $1.0 million in the quarter, and a positive impact of $0.4 million year-to-date, compared with positive impacts of $2.8 million and $4.7 million respectively, a year ago.

Advertising costs associated with our Qdoba brand were ~~$0.5~~$1.7 million and $1.2 million lower in the quarter and ~~$0.5 million higher~~ year-to-date, respectively, versus a year ago, fluctuating due to the timing of ~~spending and changes in the number of restaurants.~~spending. Advertising costs related to our Jack in the Box brand were flat in both periods compared with last year and remained consistent as a percentage of the related restaurant sales at 5.4% in all periods.

Impairment and other charges, net

Impairment and other charges, net is comprised of the following (in thousands):


	Quarter					Year-to-date				Quarter				Year-to-date
	April 12, 2015			April 13, 2014		April 12, 2015		April 13, 2014		July 5, 2015		July 6, 2014		July 5, 2015		July 6, 2014
Accelerated depreciation	$	1,387		$	487	$	2,139	$	1,151	$	2,610	$	152	$	4,749	$	1,302
Restaurant impairment charges	27			85		41		180		24		146		65		326
(Gains) losses on the disposition of property and equipment, net	(269		)	262		352		550
Losses on the disposition of property and equipment, net										228		491		580		1,042
Costs of closed restaurants (primarily lease obligations) and other	973			731		1,759		1,295		886		318		2,645		1,613
Restructuring costs	12			7,491		19		7,789		10		561		29		8,350
	$	2,130		$	9,056	$	4,310	$	10,965	$	3,758	$	1,668	$	8,068	$	12,633

Impairment and other charges, net ~~decreased $6.9~~increased $2.1 million in the quarter and ~~$6.7~~decreased $4.6 million year-to-date versus a year ~~ago~~ago. In the quarter, the increase in impairment and other charges primarily ~~attributable~~relates to accelerated depreciation of $2.2 million recognized in the current year in connection with upgrading the beverage equipment at our Jack in the Box restaurants. Year-to-date, impairment and other charges decreased due to a decrease in restructuring costs ~~incurred~~ of $8.3 million, partially offset by an increase

in ~~connection~~accelerated depreciation associated with ~~the comprehensive review of~~various projects designed to upgrade certain technology and beverage equipment in our ~~organizational structure. Restructuring costs decreased $7.5 million~~Jack in the ~~quarter and $7.8 million year-to-date primarily due~~Box company-operated restaurants, which we plan to incur throughout the remainder of the fiscal year. In 2014, we recognized a $6.4 million impairment charge ~~recognized~~ in the second quarter of fiscal 2014 related to a restaurant software asset we no longer planned to place in service as a result of our efforts to integrate certain systems across both of our brands. The decrease in restructuring costs was partially offset by an increase in accelerated depreciation associated with various projects designed to upgrade certain technology and beverage equipment in our Jack in the Box company-operated restaurants. We expect to continue to recognize accelerated depreciation related to the replacement of our Jack in the Box beverage equipment through the remainder of the fiscal year. Refer to Note 6,7, Impairment and Other Charges, Net of the notes to the condensed consolidated financial statements for additional information regarding these costs.

(Losses) gains on the sale of company-operated restaurants

(Losses) gains on the sale of company-operated restaurants to franchisees are detailed in the following table (dollars in thousands):


	Quarter						Year-to-date						Quarter						Year-to-date
	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Number of restaurants sold to franchisees	20			14			21			14
Restaurants sold to Jack in the Box franchisees													—			—			21			14

(Losses) gains on the sale of company-operated restaurants	$	(5,020	)	$	4,872		$	(4,170	)	$	5,333		$	(183	)	$	346		$	(4,353	)	$	5,679
(Losses) gains on expected sale of company-operated restaurants	—			(3,115		)	—			(3,115		)
Losses on expected sale of company-operated restaurants													—			(322		)	—			(3,437		)
Total (losses) gains on the sale of company-operated restaurants	$	(5,020	)	$	1,757		$	(4,170	)	$	2,218		$	(183	)	$	24		$	(4,353	)	$	2,242

(Losses) gains on the sale of company-operated restaurants are impacted by the number of restaurants sold and changes in average gains or losses recognized, which relate to the specific sales and cash flows of those restaurants. In 2015 and 2014, (losses) gains on the sale of company-operated restaurants include additional gains of ~~$0.0~~$0.1 million and ~~$0.7~~$0.4 million, respectively, in the quarter, and ~~$0.1~~$0.2 million and ~~$1.2~~$1.5 million, respectively, year-to-date, recognized upon the extension of the underlying franchise and lease agreements related to Jack in the Box restaurants sold in previous years. During the second quarter of 2015, we essentially completed our Jack in the Box refranchising strategy with the sale of 20 company-operated restaurants in the Southeast. Refer to Note 3,4, Summary of Refranchisings, Franchisee Development and Acquisitions, of the notes to the condensed consolidated financial statements for additional information regarding these (losses) gains.

Interest Expense, Net

Interest expense, net is comprised of the following (in thousands):


	Quarter						Year-to-date						Quarter						Year-to-date
	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Interest expense	$	4,288		$	4,500		$	9,692		$	9,239		$	4,564		$	3,746		$	14,256		$	12,985
Interest income	(68		)	(189		)	(259		)	(386		)	(60		)	(211		)	(319		)	(597		)
Interest expense, net	$	4,220		$	4,311		$	9,433		$	8,853		$	4,504		$	3,535		$	13,937		$	12,388

Interest expense, net ~~decreased $0.1~~increased $1.0 million in the quarter, and ~~increased $0.6~~$1.5 million year-to-date compared with a year ~~ago. Interest expense decreased in the quarter and increased year-to-date in 2015~~ago due primarily to higher average borrowings. Year-to-date, the impact of higher average borrowings ~~that were more than offset in the quarter and~~was partially offset ~~year-to-date~~ by a charge of $0.8 million in 2014 to write-off deferred financing fees in connection with the refinancing of our credit facility.

Income Taxes

The tax rate in 2015 was ~~37.9%~~38.2% in the quarter and ~~36.8%~~37.3% year-to-date, compared with ~~36.1%~~33.8% and ~~36.9%~~35.9%, respectively, a year ago. The ~~quarter~~major component of the year-over-year change in tax rates ~~reflect the timing of the benefit recognized from the reenactment of the Work Opportunity Tax Credit~~was an increase in operating earnings before income taxes and ~~the benefit of~~a decrease in the market performance of insurance products used to fund certain non-qualified retirement plans which are excluded from taxable income. The quarter tax rate reflects the conclusion of a state audit and the impact of the completion of the federal income tax return completed during the quarter. We expect the fiscal year tax rate to be approximately 37.0% - 37.5%. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual 2015 rate could differ from our current estimates.

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Losses from Discontinued Operations, Net

As described in Note 2, Discontinued Operations, in the notes to the condensed consolidated financial statements, the results of operations from our distribution business and the 2013 Qdoba Closures have been reported as discontinued operations for all periods presented.

Losses from discontinued operations, net of tax are as follows for each discontinued operation (in thousands):


	Quarter						Year-to-date						Quarter						Year-to-date
	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Distribution business	$	(44	)	$	(77	)	$	(80	)	$	(434	)	$	(203	)	$	(353	)	$	(283	)	$	(787	)
2013 Qdoba Closures	(313		)	(2,386		)	(1,540		)	(2,753		)	(1,329		)	(1,071		)	(2,869		)	(3,824		)
	$	(357	)	$	(2,463	)	$	(1,620	)	$	(3,187	)	$	(1,532	)	$	(1,424	)	$	(3,152	)	$	(4,611	)

In both years, losses from discontinued operations ~~related to~~associated with our distribution business ~~include lease commitment charges in addition~~primarily relate to insurance settlement ~~costs in 2014.~~costs. In 2015 and 2014, ~~the loss~~losses from discontinued operations ~~related to~~incurred in connection with the 2013 Qdoba Closures primarily ~~includes~~relate to unfavorable lease commitment adjustments ~~ongoing facility costs~~ and broker ~~commissions, and in 2014, asset impairment charges.~~commissions.

Losses from discontinued operations reduced diluted earnings per share by the following in each ~~period:~~period (earnings per share may not add due to rounding):


	Quarter						Year-to-date						Quarter						Year-to-date
	April 12, 2015			April 13, 2014			April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014			July 5, 2015			July 6, 2014
Distribution business	$	—		$	—		$	—		$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.02	)
2013 Qdoba Closures	(0.01		)	(0.06		)	(0.04		)	(0.06		)	(0.04		)	(0.03		)	(0.07		)	(0.09		)
	$	(0.01	)	$	(0.06	)	$	(0.04	)	$	(0.07	)	$	(0.04	)	$	(0.03	)	$	(0.08	)	$	(0.11	)

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LIQUIDITY AND CAPITAL RESOURCES

General

Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and our revolving bank credit facility.

We generally reinvest available cash flows from operations to improve our restaurant facilities and develop new restaurants, to reduce debt, to repurchase shares of our common stock and to pay cash dividends. Our cash requirements consist principally of:

working capital;

capital expenditures for new restaurant construction and restaurant renovations;

income tax payments;

debt service requirements; and

obligations related to our benefit plans.

Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with other financing alternatives in place or available, will be sufficient to meet our capital expenditure, working capital and debt service requirements and fund expected dividend payments and share repurchases for at least the next twelve ~~months and the foreseeable future.~~months.

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, current liabilities are in excess of current assets, which results in a working capital deficit.

Cash Flows

The table below summarizes our cash flows from operating, investing and financing activities (in thousands):


	Year-to-date						Year-to-date
	April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014
Total cash provided by (used in):
Operating activities	$	90,920		$	50,952		$	165,145		$	113,923
Investing activities	(28,584		)	(21,208		)	(52,968		)	(26,304		)
Financing activities	(62,539		)	(30,281		)	(105,012		)	(87,374		)
Effect of exchange rate changes	11			5			(37		)	3
Net decrease in cash and cash equivalents	$	(192	)	$	(532	)
Net increase in cash and cash equivalents							$	7,128		$	248

Operating Activities. Operating cash flows increased ~~$40.0~~$51.2 million compared with a year ago due primarily to a ~~$27.6~~$10.2 million decrease in payments for income taxes and an increase in net earnings in fiscal 2015. The decrease in income tax payments was primarily driven by tax benefits realized as a result of a fixed asset cost segregation study that was completed in the third quarter of 2014 and tax deductions recognized in connection with our stock-based compensation arrangements which contributed to a $28.0 million prepaid income tax balance at the end of fiscal year 2014.

2930

Investing Activities. Cash used in investing activities increased ~~$7.4~~$26.7 million compared with a year ago due primarily to an increase in capital expenditures and cash used to purchase assets intended for sale and leaseback, and a decrease in proceeds from assets held for sale and leaseback and the sale of company-operated ~~restaurants, partially offset by an increase in collections on notes receivable.~~restaurants.

Capital Expenditures — The composition of capital expenditures in each period follows (in thousands):


	Year-to-date				Year-to-date
	April 12, 2015		April 13, 2014		July 5, 2015		July 6, 2014
Jack in the Box:
New restaurants	$	2,699	$	1,570	$	2,598	$	3,134
Restaurant facility expenditures	12,106		13,043		21,101		16,544
Other, including information technology	342		966		3,245		2,178
	15,147		15,579		26,944		21,856
Qdoba:
New restaurants	8,663		11,386		15,073		13,723
Restaurant facility expenditures	2,038		2,629		2,032		3,608
Other, including information technology	2,008		—		2,614		91
	12,709		14,015		19,719		17,422
Shared Services:
Information technology	3,222		1,072		5,824		3,674
Other, including facility improvements	1,881		530		2,345		873
	5,103		1,602		8,169		4,547

Consolidated capital expenditures	$	32,959	$	31,196	$	54,832	$	43,825

Our capital expenditure program includes, among other things, investments in new locations, restaurant remodeling, new equipment and information technology enhancements. Capital expenditures increased compared to a year ago as a result of an increase in spending related to ~~new Jack in the Box restaurants and information technology infrastructure, partially offset by a decrease in spending related to building new Qdoba restaurants, remodels, and~~ exterior ~~re-images~~enhancements at our Jack in the Box ~~restaurants.~~restaurants, building new Qdoba restaurants and information technology infrastructure at both brands. We expect fiscal 2015 capital expenditures to be approximately $90 -$100 million. In 2015, we plan to open ~~50-60~~40-45 Qdoba restaurants, of which approximately ~~half~~15-20 are expected to be company-operated locations. Additionally, we plan to open approximately 15-20 Jack in the Box franchise and company-operated restaurants in fiscal 2015, of which 2 are expected to be company-operated locations.

Sale of Company-Operated Restaurants — We have expanded our franchise ownership in the Jack in the Box system primarily through the sale of company-operated restaurants to franchisees. During the second quarter of 2015, we essentially completed our refranchising strategy with the sale of 20 company-operated restaurants in the Southeast. The following table details proceeds received in connection with our refranchising activities in each period (dollars in thousands):


	Year-to-date				Year-to-date
	April 12, 2015		April 13, 2014		July 5, 2015		July 6, 2014
Number of restaurants sold to franchisees	21		14		21		14

Total proceeds	$	2,630	$	7,842	$	2,651	$	8,199

For additional information, refer to Note 4, Summary of Refranchisings, Franchisee Development and Acquisitions, of the notes to the condensed consolidated financial statements.

Assets Held for Sale and Leaseback — We use sale and leaseback financing to lower the initial cash investment in our restaurants to the cost of the equipment, whenever possible. In 2015, we ~~did not~~exercised our right of first refusal related to four leased properties which we intend to sell and leaseback ~~any properties.~~within the next 12 months. The following table summarizes the cash flow activity related to sale and leaseback transactions in each period (dollars in thousands):


	Year-to-date						Year-to-date
	April 12, 2015			April 13, 2014			July 5, 2015			July 6, 2014
Number of restaurants sold and leased back	—			1			—			3

Proceeds from sale and leaseback transactions	$	—		$	1,807		$	—		$	5,397
Purchases of assets intended for sale and leaseback	$	(5,355	)	$	(19	)	$	(8,323	)	$	(19	)

As of ~~April 12,~~July 5, 2015, we had investments of ~~$9.8~~$12.8 million in ~~five~~six operating restaurant properties that we expect to sell and leaseback during the next 12 months.

Acquisition of Franchise-Operated Restaurants — The following table details franchise-operated restaurant acquisition activity in each period (dollars in thousands):


	Year-to-date				Year-to-date
	April 12, 2015		April 13, 2014		July 5, 2015		July 6, 2014
Number of Jack in the Box restaurants acquired from franchisees	6		4		7		4
Cash used to acquire franchise-operated restaurants	$	—	$	1,750	$	—	$	1,750

For additional information, refer to Note 3,4, Summary of Refranchisings, Franchisee Development and Acquisitions, of the notes to the condensed consolidated financial statements.

Financing Activities. Cash flows used in financing activities increased ~~$32.3~~$17.6 million compared with a year ago primarily due to ~~decreases~~a net increase in ~~borrowings and payments made under~~cash outflows related to our ~~revolving~~ credit facility, ~~and term loan,~~ an increase in cash used to pay dividends and a decrease in proceeds from the issuance of our common stock, partially offset by a decrease in cash used to repurchase shares of our common ~~stock, and an increase in excess tax benefits from share-based compensation arrangements.~~stock.

Credit Facility— ~~Our~~ On July 1, 2015, the Company amended its credit facility ~~is comprised~~to increase our overall borrowing capacity. The amended credit facility was increased to $1.2 billion, consisting of (i) a ~~$600.0~~$900.0 million revolving credit facility and (ii) a ~~$200.0~~$300.0 million term loan facility. In connection with the amendment, the Company borrowed $300.0 million under the term loan and approximately $360.0 million under the revolving credit facility. The ~~interest rate on~~proceeds from the amendment were used to repay all borrowings under the credit facility ~~is based on~~prior to the ~~Company’s leverage ratio~~amendment and ~~can range from London Interbank Offered Rate (“LIBOR”) plus~~ ~~1.25%~~ to ~~2.00%~~pay related transaction fees and expenses associated with ~~no floor. The current interest rate is LIBOR plus~~ ~~1.75%. As part of~~amending the credit ~~agreement, we may request the issuance of up to~~ ~~$75.0 million~~ ~~in letters of credit, the outstanding amount of which reduces our net borrowing capacity under the agreement.~~

The revolving credit facility and the term loan facility both have maturity dates of March 19, 2019. The term loan requires amortization in the form of quarterly installments of $2.5 million from June 2014 through March 2016, $3.75 million from June 2016 through March 2018, and $5.0 million from June through December 2018 with the remainder due at the maturity date. We are required to make certain mandatory prepayments under certain circumstances and we have the option to make certain prepayments without premium or penalty. The credit facility includes events of default (and related remedies, including acceleration and increased interest rates following an event of default) that are customary for facilities and transactions of this type.

~~As of April 12,~~facility. At July 5, 2015, we had ~~$190.0 million outstanding under the term loan,~~ borrowings under the revolving credit facility of ~~$410.0~~$350.0 million, $300.0 million outstanding under the term loan and letters of credit outstanding of ~~$22.2~~$22.1 million.

~~We are subject~~ Refer to ~~a number~~Note 3, Indebtedness, of ~~customary covenants under our~~the notes to the condensed consolidated financial statements for additional information regarding the credit facility, including limitations on additional borrowings, acquisitions, loans to franchisees, capital expenditures, lease commitments, stock repurchases, dividend payments and requirements to maintain certain financial ratios defined in our credit agreement. We were in compliance with all covenants as of ~~April 12, 2015~~.facility.

Interest Rate Swaps — To reduce our exposure to rising interest rates, in April 2014, we entered into nine forward-starting interest rate swap agreements that effectively convert $300.0 million of our variable rate borrowings to a fixed rate basis from October 2014 through October 2018. In June 2015, we entered into eleven forward-starting interest rate swap agreements that effectively convert an additional $200.0 million of our variable rate borrowings to a fixed rate from October 2015 through October 2018, and $500.0 million from October 2018 through October 2022. For additional information, refer to Note 5,6, Derivative Instruments, of the notes to the condensed consolidated financial ~~statements.~~statements and Item 3, Quantitative and Qualitative Disclosures About Market Risk, of this Report.

Repurchases of Common Stock —In February 2014 and July 2014, the Board of Directors approved two programs, both expiring in November 2015, which provided repurchase authorizations for up to $200.0 million and $100.0 million, respectively, in shares of our common stock. Additionally, in November 2014, the Board of Directors approved another $100.0 million stock buyback program that expires in November 2016. During fiscal 2015, we repurchased ~~2.08~~2.95 million shares at an aggregate cost of ~~$176.6~~$251.6 million ~~and fully utilized the February 2014 and July 2014 authorizations.~~compared with 4.95 million shares repurchased at an aggregate cost of $277.0 million a year ago. As of ~~April 12,~~July 5, 2015, there was ~~$40.5~~$65.5 million remaining under ~~our November 2014~~a May 2015 stock-buyback program which expires in November 2016. ~~On May 7, 2015, the Board of Directors authorized an additional $100.0 million stock buyback program that expires in November 2016.~~

Repurchases of common stock included in our condensed consolidated statements of cash flows for 2015 and 2014, include $3.1 million and ~~$7.3~~$7.3 million,, respectively, related to repurchase transactions traded in the prior fiscal year and settled in the subsequent quarter. Additionally, in 2015 and 2014, repurchases of common stock exclude $5.6 million and $3.9 million, respectively, related to repurchase transactions traded in the second quarter and settled in the third quarter.

Dividend — The Board of Directors approved the initiation of a regular quarterly cash dividend in the third quarter of fiscal 2014. In fiscal 2015, ~~the Board of Directors declared~~ two quarterly cash dividends of $0.20 per share each ~~which~~and one quarterly cash dividend of $0.30 per share were ~~paid to shareholders of record as of December 1, 2014 and March 6, 2015 and totaled $15.5~~declared totaling $26.7 million. Future dividends are subject to approval by our Board of Directors.

3132

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those the Company believes are most important for the portrayal of the Company’s financial condition and results and that require management’s most subjective and complex judgments. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2014.

NEW ACCOUNTING PRONOUNCEMENTS

Refer to Note 1, Basis of Presentation, of the notes to the condensed consolidated financial statements.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the federal securities laws. Any statements contained herein that are not historical facts may be deemed to be forward-looking statements. Forward-looking statements may be identified by words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” ~~��intend,~~“intend,” “plan,” “project,” “may,” “will,” “would”, “should” and similar expressions. These statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate. These estimates and assumptions involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause our actual results to differ materially from any forward-looking statements include, but are not limited to:

Food service businesses such as ours may be materially and adversely affected by changes in consumer preferences or dining habits, and economic, political and socioeconomic conditions. Adverse economic conditions such as unemployment and decreased discretionary spending may result in reduced restaurant traffic and sales and impose practical limits on pricing. We are also subject to geographic concentration risks, with nearly 70% of system Jack in the Box restaurants located in California and Texas.

Our profitability depends in part on food and commodity costs and availability, including animal feed costs and fuel costs and other supply and distribution costs. The risks of increased commodities costs and volatility in costs could adversely affect our profitability and results of operations.

The success of our business strategy depends on the value and relevance of our brands. Multi-unit food service businesses such as ours can be materially and adversely affected by widespread negative publicity of any type, particularly regarding food quality or public health issues. Negative publicity regarding our brands or the restaurant industry in general could cause a decline in system restaurant sales and could have a material adverse effect on our financial condition and results of operations.

We are reliant on third party suppliers and distributors, and any shortages or interruptions in supply could adversely affect the availability, quality and cost of ingredients.

Our business can be materially and adversely affected by severe weather conditions or natural disasters, which can result in lost restaurant sales, supply chain interruptions and increased costs.

Growth and new restaurant development involve substantial risks, including risks associated with unavailability of suitable franchisees, limited financing availability, cost overruns and the inability to secure suitable sites on acceptable terms. In addition, our growth strategy includes opening restaurants in new or existing markets where we cannot assure that we will be able to successfully expand or acquire critical market presence, attract customers or otherwise operate profitably.

There are risks associated with our franchise business model, including the demand for our franchises, the selection of appropriate franchisees and whether our franchisees and new restaurant developers will have the capabilities to be effective operators and remain aligned with us on operating, promotional and capital-intensive initiatives, in an ever-changing competitive environment. Additionally, our franchisees and operators could experience operational, financial or other challenges that could affect payments to us of rents and/or royalties, or could damage our ~~brand~~brands and reputation.

The restaurant and take-away food industry is highly competitive with respect to price, service, location, brand identification and menu quality and innovation. We cannot assure that we will be able to effectively respond to aggressive competitors (including competitors with significantly greater financial resources); or that our competitive strategies will

3233

increase our same-store sales and AUVs; or that our new products, service initiatives, overall strategies or execution of those strategies will be successful.

Should our advertising and promotions be less effective than our competitors, there could be a material adverse effect on our results of operations and financial condition.

The cost-saving initiatives planned or taken in recent years, including the outsourcing of our distribution business and integration of the Jack in the Box and Qdoba technology systems, are subject to risks and uncertainties, and we cannot assure that these activities, or any other activities we undertake in the future, will achieve the desired savings and efficiencies.

The loss of key personnel could have a material adverse effect on our business.

The costs of compliance with government regulations, including those resulting in increased labor costs, could negatively affect our results of operations and financial condition.

A material failure or interruption of service or a breach in security of our information technology systems or databases could cause reduced efficiency in operations, loss or misappropriation of data or business interruptions, which in turn could affect cash flows or our operating results. In addition, the costs of information security, regulatory compliance, investment in technology and risk mitigation measures may negatively affect our margins or financial results.

We maintain a documented system of internal controls, which is reviewed and monitored by an Internal Controls Committee and tested by the Company’s full-time internal audit department. Any failures in the effectiveness of our internal controls could have a material adverse effect on our operating results or cause us to fail to meet our reporting obligations.

We are subject to risks of owning, operating and leasing property, including but not limited to environmental risks, which could result in the imposition of severe penalties or restrictions on operations by governmental agencies or courts of law, which could adversely affect operations.

We have a significant amount of indebtedness, which could adversely affect our business and our ability to meet our obligations. Our ability to repay expected borrowings under our credit facility and to meet our other debt or contractual obligations will depend upon our future performance and our cash flows from operations, both of which are subject to prevailing economic conditions and financial, business and other known and unknown risks and uncertainties, certain of which are beyond our control.

Changes in accounting standards, policies or related interpretations by accountants or regulatory entities may negatively impact our results.

We are subject to litigation which is inherently unpredictable and can result in unfavorable resolutions where the amount of ultimate loss may exceed our estimated loss contingencies, impose other costs related to defense of claims, or distract management from our operations.

These and other factors are identified and described in more detail in our filings with the Securities and Exchange Commission, including, but not limited to: the “Discussion of Critical Accounting Estimates” and other sections in this Form 10-Q and the “Risk Factors” section of our most recent Annual Report on Form 10-K for the fiscal year ended September 28, 2014 (“Form 10-K”). These documents may be read free of charge on the SEC’s website at www.sec.gov. Potential investors are urged to consider these factors, more fully described in our Form 10-K, carefully in evaluating any forward-looking statements, and are cautioned not to place undue reliance on the forward-looking statements. All forward-looking statements are made only as of the date issued, and we do not undertake any obligation to update any forward-looking statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary exposure to risks relating to our financial instruments is changes in interest rates. Our credit facility, which is comprised of a revolving credit facility and a term loan, bears interest at an annual rate equal to the prime rate of LIBOR plus an applicable margin based on a financial leverage ratio. As of ~~April 12,~~July 5, 2015, the applicable margin for the LIBOR-based revolving loans and term loan was set at 1.75%.

We use interest rate swap agreements to reduce exposure to interest rate fluctuations. In April 2014, we entered into nine forward-starting interest rate swap agreements that effectively convert $300.0 million of our variable rate borrowings to a fixed rate basis from October 2014 through October 2018. In June 2015, we entered into eleven forward-starting interest rate swap agreements that effectively convert an additional $200.0 million of our variable rate borrowings to a fixed rate from October 2015 through October 2018, and $500.0 million from October 2018 through October 2022. Based on the applicable margin in effect as of ~~April 12,~~July 5, 2015, these ~~nine~~twenty interest rate swaps would yield average fixed rates of 2.60%, ~~3.13%~~2.93%, ~~3.80% and 4.28%~~3.64%, 4.16%, 4.37%, 4.64%, 4.82%, 4.92% in years one through ~~four,~~eight, respectively.

~~A hypothetical 100 basis point increase in short-term interest rates, based on the outstanding unhedged balance of our revolving credit facility and term loan at~~ ~~April 12, 2015, would result in an estimated increase of $3.0 million in annual interest expense.~~

We are also exposed to the impact of commodity and utility price fluctuations. Many of the ingredients we use are commodities or ingredients that are affected by the price of other commodities, weather, seasonality, production, availability and various other factors outside our control. In order to minimize the impact of fluctuations in price and availability, we monitor the primary commodities we purchase and may enter into purchasing contracts and pricing arrangements when considered to be advantageous. However, certain commodities remain subject to price fluctuations. We are exposed to the impact of utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. Our ability to recover increased costs for commodities and utilities through higher prices is limited by the competitive environment in which we operate.

ITEM 4. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a - 15 and 15d - 15 of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s quarter ended ~~April 12,~~July 5, 2015, the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) have concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended ~~April 12,~~July 5, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

There is no information required to be reported for any items under Part II, except as follows:

ITEM 1. LEGAL PROCEEDINGS

See Note ~~13,~~14, Contingencies and Legal Matters, of the notes to the unaudited condensed consolidated financial statements for a discussion of our contingencies and legal matters.

ITEM 1A. RISK FACTORS

When evaluating our business and our prospects, you should consider the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended September 28, 2014, which we filed with the SEC on November 20, 2014. You should also consider the risks and uncertainties discussed under the heading “Cautionary Statements Regarding Forward-Looking Statements” in Item 2 of this Quarterly Report on Form 10-Q. You should also refer to the other information set forth in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended September 28, 2014, including our financial statements and the related notes. There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2014. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the risks or uncertainties actually occurs, our business and financial results could be harmed. In that case, the market price of our common stock could decline.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Our credit agreement provides for the potential payment of cash dividends and stock repurchases, subject to certain limitations based on our leverage ratio as defined in our credit agreement.

Stock Repurchases — In February 2014 and July 2014, the Board of Directors approved two programs, both expiring in November 2015, which provided repurchase authorizations for up to $200.0 million and $100.0 million, respectively, in shares of our common stock. Additionally, in November 2014 and May 2015, the Board of Directors approved ~~an additional~~two $100.0 million stock buyback ~~program~~programs that ~~expires~~expire in November 2016. During fiscal 2015, we repurchased ~~2.08~~2.95 million shares at an aggregate cost of ~~$176.6~~$251.6 million and fully utilized the February 2014, July 2014 and ~~July~~November 2014 authorizations. As of ~~April 12,~~July 5, 2015, there was ~~$40.5~~$65.5 million remaining under the ~~November 2014~~May 2015 stock-buyback program which expires in November 2016.

The following table summarizes shares repurchased during the quarter ended ~~April 12, 2015~~.July 5, 2015. The average price paid per share in column (b) below does not include the cost of brokerage fees.

(a)
Total number
of shares
purchased

(b)
Average
price paid
per share

(c)
Total number
of shares
purchased as
part of publicly
announced
programs

(d)
Maximum dollar
value that may yet
be purchased under
these programs
$ 115,520,148
January 19, 2015 - February 15, 2015 —
$ —
—
$ 115,520,148
February 16, 2015 - March 15, 2015 52,000
$ 96.47
52,000
$ 110,502,320
March 16, 2015 - April 12, 2015 724,924
$ 96.51
724,924
$ 40,520,207
Total 776,924
$ 96.51
776,924



	(a) Total number of shares purchased	(b) Average price paid per share		(c) Total number of shares purchased as part of publicly announced programs	(d) Maximum dollar value that may yet be purchased under these programs
					$	140,520,207
April 13, 2015 - May 10, 2015	—	$	—	—	$	140,520,207
May 11, 2015 - June 7, 2015	481,459	$	86.61	481,459	$	98,807,835
June 8, 2015 - July 5, 2015	380,751	$	87.40	380,751	$	65,521,071
Total	862,210	$	86.96	862,210

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS



Number	Description	Form	Filed with SEC
3.1	Restated Certificate of Incorporation, as amended, dated September 21, 2007	10-K	11/20/2009
3.1.1	Certificate of Amendment of Restated Certificate of Incorporation, dated September 21, 2007	8-K	9/24/2007
3.2	Amended and Restated Bylaws, dated August 7, 2013	10-Q	8/8/2013
~~10.3~~10.1	~~Form~~Waiver, Joinder and Second Amendment, dated as of ~~Restricted Stock Unit Grant Agreement for Non-Employee Directors under~~July 1, 2015, among Jack in the ~~2004 Stock Incentive Plan (dated Feb. 11, 2015)~~Box Inc., the Guarantors party thereto, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.	~~10-Q~~8-K	~~Filed herewith~~7/7/2015
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	—	Filed herewith
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	—	Filed herewith
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	—	Filed herewith
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	—	Filed herewith
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	JACK IN THE BOX INC.

	By:	/S/ JERRY P. REBEL
		Jerry P. Rebel
		Executive Vice President and Chief Financial Officer (principal financial officer) (Duly Authorized Signatory)

Date: ~~May 14,~~August 6, 2015

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