Jack In The Box 2009 Annual Report Download - page 25

Table of Contents
Distribution costs of sales increased to $300.9 million in 2009 from $273.4 million in 2008 and $220.2 million in 2007, primarily
reflecting increases in the related sales. These costs were 99.6% of distribution sales in 2009, 99.3% in 2008, and 99.0% in 2007. The
percentage increase in 2009 compared with 2008 is due primarily to costs incurred in connection with outsourcing our transportation
services and lower volumes. The percentage increase in 2008 primarily relates to higher fuel and delivery costs compared with 2007.
Franchised restaurant costs, principally rents and depreciation on properties leased to Jack in the Box franchisees, increased
$13.4 million in 2009 and $8.5 million in 2008, due primarily to an increase in the number of franchised restaurants that sublease
property from us as a result of our refranchising activities.
The following table sets forth the change in selling, general and administrative (“SG&A”) expense components between periods (in
thousands):

 
Advertising declines primarily related to refranchising strategy $ (6,807) $ (2,318)
Refranchising strategy overhead reduction (1,412) (5,006)
Severance 2,079 —
Incentive compensation (25) (9,631)
Preopening expenses 2,452 (272)
Facility charges including impairment and accelerated depreciation (667) 2,674
Cash surrender value of insurance products used to fund certain nonqualified retirement plans, net (2,731) 6,033
Insurance losses and legal settlements, net 72 4,847
Other 2,160 (517)
$ (4,879) $ (4,190)
Our contributions to the marketing fund, which are determined as a percentage of restaurant sales, decreased primarily due to our
refranchising strategy and contributed to the decline in SG&A expenses in both 2009 and 2008. Additionally, in 2009, the partial
recovery of prior year losses related to the cash surrender value of our COLI policies, net of changes in our non-qualified deferred
compensation obligation supported by these policies, also contributed to the decrease. In 2009, these decreases were partially offset by
higher preopening costs related to the opening of 43 Jack in the Box restaurants versus 23 in 2008, and severance costs. In 2008, the
decrease in SG&A expenses also relates to lower incentive compensation and the impact of our refranchising strategy on field management
and administrative expenses. These decreases were offset in part by losses on the cash surrender value of our COLI policies, net, losses
related to hurricanes and an increase in facility charges related to the Jack in the Box re-image program, the kitchen enhancement project
and the impairment of seven restaurants we continue to operate.
Gains on the sale of company-operated restaurants were $78.6 million, $66.3 million and $38.1 million in 2009, 2008 and 2007,
respectively. The change in gains relates to the number of restaurants sold and the specific sales and cash flows of those restaurants. In
2009, we sold 194 Jack in the Box restaurants, compared with 109 in 2008, and 76 in 2007.
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Interest expense was $22.2 million, $28.1 million, and $32.1 million, in 2009, 2008 and 2007, respectively. The decreases in
interest expense in 2009 and 2008 primarily relate to lower average interest rates which were partially offset by higher average borrowings
in 2009. Fiscal 2007 also included a $1.9 million charge in the first quarter to write-off deferred financing fees in connection with the
replacement of our credit facility.
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