Jack In The Box 2011 Annual Report Download - page 27

Table of Contents
Distribution costs increased $133.8 million in 2011 and $98.8 million in 2010 primarily reflecting increases in the related sales. As a percentage of the
related sales, these costs were 100.5%, 100.4% and 99.6% in 2011, 2010 and 2009, respectively. The percent of sales increase in 2010 relates 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 $31.3 million in 2011 and $26.4 million
in 2010, due primarily to our refranchising strategy. Franchise costs increased to 48.3% of the related revenues in 2011 from 45.4% in 2010 and 40.6% in
2009. The percent of sales increase in 2011 versus 2010 is primarily due to higher PSA depreciation expense attributable to an increase in building costs for
refranchised locations relating to our re-image program, an increase in re-image contributions to franchisees and higher rent and depreciation expense resulting
from an increase in the percentage of locations we lease to franchisees. These increases were partially offset by the leverage provided from same-store sales
growth and higher franchise fee revenue. The higher percentage in 2010 as compared with 2009 is primarily due to revenue deleverage from lower sales at
franchised restaurants and higher rent and depreciation expense relating to an increase in the percentage of locations we lease to franchisees.
The following table presents the change in selling, general and administrative (“SG&A”) expenses in each year compared with the prior year ( in
thousands):

 
Advertising $ (17,867) $ (11,689)
Refranchising strategy (5,857) (14,818)
Incentive compensation 2,202 (6,062)
Cash surrender value of COLI policies, net 2,818 (2,954)
Pension and postretirement benefits (5,295) 17,632
Hurricane Ike insurance proceeds 4,223 (4,223)
Qdoba general and administrative costs 4,430 3,673
Other 45 (2,465)
53rd week (3,597) 3,597
$ (18,898) $ (17,309)
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. As such, advertising costs, which are primarily contributions to our marketing funds determined as a percentage of restaurant
sales, decreased at Jack in the Box and were partially offset by higher advertising expense at Qdoba due to an increase in the number of company-operated
restaurants and same-store sales growth. Additionally, in 2010, Jack in the Box advertising costs decreased due to lower PSA sales at company-operated
restaurants, partially offset by incremental Company contributions of approximately $6.5 million. The change in incentive compensation expense reflects an
improvement in the Company’s results compared with performance goals in 2011 and a weakening in 2010 as compared with the previous year. The cash
surrender value of our Company-owned life insurance (“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 negative impact of $0.1 million in 2011 compared with a net benefit of
$2.7 million in 2010 and a negative impact of $0.3 million in 2009. In 2011, the decrease in pension and postretirement benefits expense principally relates to
the curtailment of the Company’s qualified pension plan whereby participants will no longer accrue benefits after December 31, 2015. The increase in pension
and postretirement benefits expense in 2010 primarily relates to a decrease in the discount rate as compared with 2009. Qdoba general and administrative costs
increased in 2011 and 2010 primarily due to higher overhead to support our growing number of company-operated restaurants.
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