Jack In The Box 2010 Annual Report Download - page 24

Table of Contents
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Food and packaging costs decreased to 31.8% of company restaurant sales in 2010 from 32.4% in 2009 and 33.3% in 2008. In 2010,
lower commodity costs (including beef, shortening, poultry and bakery), margin improvement initiatives and modest selling price
increases more than offset the impact of unfavorable product mix and promotions. The decline in 2009 included the benefit of selling
price increases, favorable product mix changes and margin improvement initiatives, offset in part by commodity cost increases of
approximately 2.0%.
Payroll and employee benefit costs were 30.3% of company restaurant sales in 2010 and 29.7% in 2009 and 2008. The increase in
2010 reflects the impact of same-store sales deleverage and higher workers’ compensation costs of approximately 50 basis points, which
more than offset the benefits derived from our labor productivity initiatives. Workers’ compensation costs have increased as the cost per
claim is trending higher although the number of claims is lower. In 2009 labor productivity initiatives offset minimum wage increases.
Occupancy and other costs were 23.9% of company restaurant sales in 2010, 21.7% in 2009 and 20.9% in 2008. The higher
percentage in 2010 is due primarily to sales deleverage and higher depreciation from the ongoing re-image program at Jack in the Box,
which were partially offset by lower utilities expense. The increase in 2009 was due primarily to higher depreciation expense related to the
Jack in the Box re-image program and a kitchen enhancement project completed in 2008, higher rent and depreciation related to new
restaurant development at Qdoba and sales deleverage at Jack in the Box and Qdoba restaurants, which were partially offset by lower
utility costs.
Distribution costs increased to $399.7 million in 2010 from $300.9 million in 2009 and $273.4 million in 2008, primarily reflecting
increases in the related sales. These costs increased to 100.4% of distribution sales in 2010, compared with 99.6% in 2009 and 99.3% in
2008, due primarily to deleverage from lower PSA sales at Jack in the Box franchise restaurants.
Franchise costs, principally rents and depreciation on properties leased to Jack in the Box franchisees, increased $26.4 million in 2010
and $13.4 million in 2009, due primarily to an increase in the number of franchise restaurants that sublease property from us as a result
of our refranchising activities. Franchise costs increased to 45.4% of the related revenues in 2010 from 40.6% in 2009 and 39.9% in 2008
primarily due to revenue deleverage from lower sales at franchised restaurants and higher PSA rent and depreciation expense.
The following table presents the change in selling, general and administrative (“SG&A”) expenses in each period compared with the
prior year ():

 
Advertising $ (11,689) $ (6,807)
Refranchising strategy (14,818) 4,217
Severance (1,366) 2,079
Incentive compensation (6,062) (25)
Cash surrender value of COLI policies, net (2,954) (2,731)
Pension and postretirement benefits 17,632 (2,190)
Hurricane Ike insurance proceeds (4,223) -
Pre-opening (1,540) 1,861
53rd week 3,597 -
Other 4,114 (540)
$ (17,309) $ (4,136)
Our refranchising strategy has resulted in a decrease in the number of company-operated restaurants and the related overhead expenses
to manage and support those restaurants. Advertising costs, primarily contributions to our marketing fund that are generally determined
as a percentage of company restaurant sales, decreased reflecting our refranchising strategy and lower PSA sales at Jack in the Box
company-operated restaurants, and were partially offset by incremental Company contributions of approximately $6.5 million in 2010.
The decrease in incentive compensation in 2010 reflects the decrease in the Company’s performance. Changes in 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 market adjustments of the investments include a net benefit of
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