Papa Johns 2008 Annual Report Download - page 51

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44
Domestic franchise and development fees were $1.6 million in 2008, or a decrease of $3.2 million, from
fees of $4.8 million in 2007, consisting of the following:
In thousands
2008
2007
Increase
(decrease)
Total units opened 98 140 (42)
Units opening with no fees 57 38 19
Unit opening fees 780$ 2,000$ (1,220)$
Franchise renewal fees 445 2,108 (1,663)
Cancellation, transfer and extension fees 375 650 (275)
Total franchise and development fees 1,600$ 4,758$ (3,158)$
Domestic commissary sales increased $30.0 million, or 7.5%, to $429.1 million for 2008, from $399.1
million in 2007, due to increases in the prices of certain commodities, primarily cheese and wheat. Our
commissaries charge a fixed dollar mark up on the cost of cheese and cheese cost is based upon the BIBP
block price, which increased from an average of $1.45 per pound in 2007 to an average of $1.81 per
pound in 2008, a 24.8% increase. Other sales, which include our online and print and promotions
businesses, as well as our insurance agency operations, were $61.4 million and $61.8 million for the
2008 and 2007 periods, respectively.
Our PJUK operations, denominated in British pounds sterling and converted to U.S. dollars, represent
approximately 55% and 64% of international revenues in 2008 and 2007, respectively. International
revenues increased 24.2% to $38.7 million in 2008, from $31.2 million in 2007, reflecting the increase in
both the number and average unit volumes of our Company-owned and franchised restaurants over the
past year.
Costs and Expenses. The restaurant operating margin at domestic Company-owned units was 18.5% for
2008 compared to 18.3% in 2007, consisting of the following differences as a percentage of Company-
owned restaurant sales:
• Cost of sales was 0.3% higher as a percentage of sales in 2008 compared to 2007, primarily due to an
increase in commodities (principally cheese and wheat). The consolidation of BIBP increased cost of
sales 0.4% in 2008 and 1.6% in 2007.
• Salaries and benefits were 0.5% lower as a percentage of sales in 2008 compared to 2007, as
increases resulting from federal and state minimum wage increases in the latter half of both 2007 and
2008 were more than offset by staffing efficiencies and the benefit of pricing increases.
• Advertising and related costs as a percentage of sales were 0.2% lower in 2008, as compared to 2007
reflecting leverage on the increased restaurant sales.
• Occupancy and other operating costs, on a combined basis, as a percentage of sales were 0.2% higher
in 2008 due to increases in mileage reimbursements to our delivery drivers and increased occupancy
costs, including utilities.
Domestic commissary and other margin was 9.5% in 2008, compared to 10.9% in 2007. Cost of sales
was 74.0% of revenues in 2008, compared to 72.1% for the same period in 2007. Cost of sales, as a
percentage of revenues, increased due to increases in the cost of certain commodities that were not
passed along via price increases to domestic restaurants and due to the previously mentioned fixed dollar
mark-up on the cost of cheese. We chose to mitigate certain commodity cost increases at domestic
restaurants by supporting the entire domestic system via reduced commissary margins. Salaries and
benefits were $35.1 million in 2008, which was relatively consistent with the prior comparable year.