Papa Johns 2000 Annual Report Download - page 40

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Other restaurant operating expenses increased as a percentage of restaurant sales to 13.6% in 1999, from
13.0% in 1998. Other operating expenses include an allocation of commissary operating expenses equal to
3.0% of Company-owned restaurant sales in order to assess a portion of the costs of dough production
and food and equipment purchasing and storage to Company-owned restaurants. The increase in other
operating expenses as a percentage of restaurant sales was primarily due to increased costs associated
with our 14th Anniversary promotion and increased repair and maintenance costs. Repair and maintenance
costs are expected to increase as existing units mature.
Commissary, equipment and other expenses include cost of sales, salaries and benefits, and other
operating expenses associated with sales of food, paper, equipment, information systems and printing and
promotional items to franchisees and other customers. These costs decreased as a percentage of
combined commissary sales and equipment and other sales to 90.6% in 1999 from 91.7% in 1998. Cost of
sales as a percentage of combined commissary sales and equipment and other sales decreased to 76.3%
in 1999 from 78.5% in 1998, principally due to the timing of certain favorable commodity price changes
(primarily cheese) and the change in classification of certain expenses to salaries and benefits previously
reported as cost of sales. Salaries and benefits increased to 6.6% in 1999 from 5.7% in 1998 due to the
change in classification of certain expenses previously reported in cost of sales and general and
administrative expenses. Other operating expenses increased to 7.7% in 1999 compared to 7.5% in 1998
due primarily to higher delivery costs related to the transition to a new distribution vendor and higher costs
related to the 14th Anniversary promotion, partially offset by a reduction in rent expense due to the opening
of the Dallas, Texas and relocation of the Louisville, Kentucky commissaries. Additionally, delivery costs
as a percentage of sales will fluctuate with cheese prices. Although the change in cheese price has an
effect on sales, the costs to deliver remain relatively consistent regardless of cheese prices.
The international operating expenses in 1999 rela te to Perfect Pizza which was acquired on November 29,
1999.
General and administrative expenses decreased as a percentage of total revenues to 6.8% in 1999 from
7.8% in 1998. This decrease was due to the following: (1) leveraging expenses on a higher sales base; (2)
the resolution of certain economic incentives related to the construction of the new corporate headquarters
facility; (3) reduction in payroll processing fees due to bringing payroll processing in-house; and (4) the
change in classification of certain expenses to commissary, equipment and other salaries and benefits
previously reported as general and administrative expenses. The change in classification represented
approximately 0.2% of the total improvement.
Advertising litigation expense represents costs associated with the lawsuit filed against us by Pizza Hut,
Inc. claiming that our “Better Ingredients. Better Pizza.” slogan is false and deceptive advertising. The
$6.1 million in advertising litigation expense consists primarily of legal costs and costs to discontinue the
“Better Ingredients. Better Pizza.” slogan. See “Item 3. Legal Proceedings” and “Note 14” of “Notes to
Consolidated Financial Statements” for additional information.
Pre-opening and other general expenses were $3.4 million in 1999, compared to $2.8 million in 1998. The
increase is primarily due to an increase in the net losses on restaurant and other asset dispositions in 1999,
as compared to 1998.
Depreciation and amortization expense as a percentage of total revenues remained consistent at 3.1% in
1999, compared to 3.0% in 1998.