Jack In The Box 2008 Annual Report Download - page 32

were 33.4% in 2008, 31.9% in 2007, and 31.2% in 2006. In 2008 and 2007, higher commodity costs, primarily
cheese, shortening, eggs, and beef were partially offset by selling price increases and lower packaging costs in 2007.
Restaurant operating costs were $1,063.1 million in 2008, $1,080.9 million in 2007, and $1,076.7 million in
2006 and, as a percentage of restaurant sales, were 50.6%, 50.3%, and 51.2%, respectively. In 2008, higher costs for
utilities and depreciation expense related to increased capital spending associated with our on-going re-image
program and kitchen enhancement projects were offset in part by decreased labor rates. In 2007, the percentage
improvement compared with 2006 is primarily due to fixed cost leverage on same-store sales and lower costs for
workers’ compensation insurance, utilities, and profit improvement initiatives, partially offset by higher costs
related to brand re-invention initiatives.
Costs of distribution sales increased to $273.4 million in 2008 from $220.2 million in 2007 and $168.8 million
in 2006, primarily reflecting an increase in the related sales. These costs were 99.3% of distribution sales in 2008,
and 99.0% in both 2007 and 2006. The percentage increase in 2008 compared with 2007 and 2006 relates primarily
to higher fuel and delivery costs.
Franchised restaurant costs, principally rents and depreciation on properties leased to JACK IN THE BOX
franchisees, increased to $65.0 million in 2008 from $56.5 million in 2007 and $44.5 million in 2006, due
primarily to an increase in the number of franchised restaurants. As a percentage of franchised restaurant revenues,
franchise restaurant costs decreased to 39.9% in 2008 from 40.4% in 2007 and 40.5% in 2006 benefiting from the
leverage provided by higher franchise royalties and fee revenue.
Selling, general, and administrative (“SG&A”) expenseswere $287.6 million,$291.7 million, and$298.4 million
in 2008, 2007, and 2006, respectively. SG&A expenses decreased to approximately 11.3% of revenues in 2008 from
11.6% of revenues in 2007 and 12.5% in 2006. The decrease in 2008 is due primarily to effective management offield
and corporate general and administrative expenses, the impact of our refranchising strategy, lower incentive
compensation and leverage from higher revenues. These decreases were offset in part by losses on the cash surrender
value of insurance products used to fund certain non-qualified retirement plans, losses related to hurricanes and an
increase in facility charges related to the JACK IN THE BOX re-image program, the kitchen enhancement project and the
impairment of seven restaurants we continue to operate. In 2007, increased leverage from higher revenues, lower
pension costs and insurance recoveries contributed to the percent of revenue decline compared with 2006.
Gains on the sale of company-operated restaurants were $66.3 million, $38.1 million and $40.5 million in
2008, 2007 and 2006, respectively. The change in gains relates to the number of restaurants sold and the specific
sales and cash flows of those restaurants. In 2008, we sold 109 JACK IN THE BOX restaurants, compared with 76 in
2007, and 82 in 2006, which included all 25 company-operated restaurants in Hawaii. The Hawaii transaction
represented the first sale of an entire market since we announced our intent to increase franchising activities in 2002
and contributed approximately $15.0 million to gains on sale of company-operated restaurants in 2006.
Interest Expense
Interest expense was $28.1 million, $32.1 million, and $19.6 million, in 2008, 2007 and 2006, respectively.
The decrease in interest expense in 2008 relates to lower average interest rates compared with a year ago, which also
included a $1.9 million charge in the first quarter to write-off deferred financing fees in connection with the
replacement of our credit facility. In 2007, interest expense increased compared with 2006 primarily due to higher
average bank borrowings and increased interest rates incurred on our credit facility.
Interest Income
Interest income was $0.6 million, $8.8 million, and $7.5 million, in 2008, 2007 and 2006, respectively. Interest
income decreased in 2008 compared with a year ago due to lower average cash balances. The increase in interest
income in 2007 versus 2006 reflects higher average cash balances and higher interest rates on invested cash.
Income Taxes
The income tax provisions reflect effective tax rates of 37.3%, 35.6%, and 35.6% of pretax earnings from
continuing operations in 2008, 2007 and 2006, respectively. The higher tax rate in 2008 is attributable to market
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