Jack In The Box 2012 Annual Report Download - page 26

restructuring activities, including our early retirement plan, in our cost structure beginning in fiscal 2013. To a lesser extent, adjustments made to certain
sublease assumptions associated with our lease obligations for closed locations also contributed to the increase in 2012 versus a year ago. Fiscal 2010 included
a charge of $28.0 million (primarily including future lease obligations of $19.0 million and property and equipment impairment charges of $8.4 million)
related to the closure of 40 underperforming Jack in the Box restaurants. After consideration of the fiscal 2010 closure charge, impairment and other charges,
net decreased an additional $8.2 million in 2011 due primarily to declines in costs related to our restaurant re-image and new logo program as this program
neared completion and lower impairment charges for underperforming Jack in the Box restaurants as compared with 2010.
Gains on the sale of company-operated restaurants to franchisees, net are detailed in the following table ( dollars in thousands):



Number of restaurants sold to franchisees
97
332
219
Gains on the sale of company-operated restaurants
$29,145
$61,125
$54,988
Average gain on restaurants sold
$300
$ 184
$251
In 2012, gains on the sale of company-operated restaurants include additional gains of $2.2 million recognized upon the extension of the underlying
franchise and lease agreements related to four restaurants sold in a prior year. Gains were impacted by the number of restaurants sold and changes in average
gains recognized, which relate to the specific sales and cash flows of those restaurants. The lower average gains in 2011 relate to the sale of markets with
lower-than-average sales volumes and cash flows.

Interest expense, net is comprised of the following ( in thousands):



Interest expense
$20,953
$18,165
$17,011
Interest income
(2,079)
(1,310)
(1,117)
Interest expense, net
$18,874
$16,855
$15,894
Interest expense, net increased $2.0 million in 2012 and $1.0 million in 2011. In 2012, the increase versus a year ago relates principally to higher average
borrowings. The increase in 2011 is primarily attributable to an increase in the amortization of deferred finance fees related to the refinancing of our credit
facility in 2010 and higher average borrowings, offset in part by lower average interest rates.

The income tax provisions reflect effective tax rates of 32.7%, 36.3% and 34.0% of pretax earnings from continuing operations in 2012, 2011 and 2010,
respectively. The changes in tax rates are primarily due to the market performance of insurance investment products used to fund certain non-qualified
retirement plans. Changes in the cash value of the insurance products are not included in taxable income.

Earnings from continuing operations were $63.0 million, or $1.40 per diluted share, in 2012; $81.7 million, or $1.63 per diluted share, in 2011; and
$71.0 million, or $1.27 per diluted share, in 2010. We estimate that the extra week in fiscal 2010 benefited net earnings by approximately $1.8 million, or
$0.03 per diluted share.

As described in Note 2, Discontinued Operations, in the notes to our consolidated financial statements, the losses from our distribution business have
been reported as discontinued operations. In 2012, 2011 and 2010, losses from discontinued operations, net were $5.3 million, $1.1 million and $0.8 million,
respectively. In fiscal 2012, losses from discontinued operations reflect after-tax charges of $5.3 million related to exit costs associated with outsourcing our
distribution business, which reduced diluted earnings per share by approximately $0.12.


Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations, our revolving bank credit facility and the sale and
leaseback of certain restaurant properties.
27