Jack In The Box 2012 Annual Report Download - page 25

revenues in 2012 from 48.3% in 2011 and 45.4% in 2010. The higher percentage in 2012 as compared with 2011 is primarily due to a decline in revenue from
franchise fees and higher rent and depreciation expenses resulting from an increase in the percentage of locations we lease to franchisees, partially offset by
lower re-image contributions to franchisees. The percent of sales increase in 2011 versus 2010 is primarily due to higher PSA depreciation expense 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 following table presents the change in selling, general and administrative (“SG&A”) expenses in each year compared with the prior year ( in
thousands):



Advertising
$(10,800)
$(17,867)
Refranchising strategy
(6,277)
(5,857)
Incentive compensation
12,291
2,202
Cash surrender value of COLI policies, net
(6,327)
2,818
Pension and postretirement benefits
2,893
(5,295)
Pre-opening costs
1,902
(512)
Qdoba general and administrative costs
4,131
4,430
Hurricane Ike insurance proceeds
—
4,223
53rd week
—
(3,597)
Other
4,537
655
$2,350
$(18,800)
Our refranchising strategy has resulted in a decrease in the number of Jack in the Box company-operated restaurants and the related overhead expenses to
manage and support those restaurants, including advertising costs, which are primarily contributions to our marketing funds determined as a percentage of
restaurant sales. As such, advertising costs decreased at Jack in the Box and were partially offset by higher advertising expenses at Qdoba due to an increase
in the number of company-operated restaurants, as well as same-store sales growth at Jack in the Box and Qdoba restaurants.
The higher levels of incentive compensation reflect improvements in the Company’s results compared with performance goals in 2012 and 2011. 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 positive impact of $6.2 million in 2012 compared with a negative
impact of $0.1 million in 2011 and a positive impact of $2.7 million in 2010. In 2012, the increase in pension and postretirement benefits principally relates
to a decrease in the discount rate as compared with a year ago. 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 fiscal 2012 pre-opening costs primarily relates to higher expenses associated with restaurant openings in two new Jack in the Box markets,
as well as an increase in the number of new Jack in the Box and Qdoba company-operated restaurants. In 2011, the decrease in pre-opening costs is primarily
due to a decrease in the number of new company restaurants compared with fiscal 2010. Qdoba general and administrative costs increased primarily due to
higher overhead to support our growing number of company-operated restaurants.
Impairment and other charges, net increased $20.3 million in 2012 and decreased $36.3 million in 2011 as compared to the respective prior year. The
following table presents the components of impairment and other charges, net in each year ( in thousands):



Impairment charges
$3,112
$1,367
$12,970
Losses on disposition of property and equipment, net
6,027
7,561
10,734
Costs of closed restaurants (primarily lease obligations) and other
8,332
3,655
25,160
Restructuring costs
15,461
—
—
$32,932
$12,583
$48,864
The increase in 2012 primarily relates to restructuring costs incurred in connection with the comprehensive review of our organization structure, including
evaluating opportunities for outsourcing, restructuring of certain functions and workforce reductions. Restructuring costs consist primarily of pension benefits
and severance expenses related to a voluntary early retirement program (“VERP”) offered by the Company and involuntary employee termination costs. We
expect to see the benefits of our
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