Papa Johns 1999 Annual Report Download - page 34

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households. Hometown restaurant development agreements entered into subsequent to March 1998, generally provide for fees
equivalent to those under standard development agreements. The standard international development agreement requires total fees
of $25,000 per restaurant, while subfranchised restaurants opened pursuant to a master franchise agreement require total fees of
$15,000 per restaurant. This is compared to the standard domestic development and franchise fee of $20,000 per restaurant.
Commissary sales increased 21.1% to $309.0 million in 1999, from $255.1 million in 1998. This increase was primarily due to the
increases in equivalent franchised restaurants and comparable sales for franchised restaurants noted above, partially offset by the
impact of lower 1999 cheese costs which resulted in lower cheese pricing and sales relative to 1998 levels.
Equipment and other sales increased 16.9% to $53.1 million in 1999, from $45.4 million in 1998. This increase was primarily due
to ongoing equipment, smallwares, uniforms and print materials related to the increase in equivalent franchised restaurants open dur-
ing 1999 as compared to 1998, and the increase in the number of new restaurant equipment packages sold to franchisees that opened
restaurants in 1999 as compared to 1998.
Costs and Expenses. Restaurant cost of sales, which consists of food, beverage and paper costs, decreased as a percentage of restaurant
sales to 25.4% in 1999, from 26.9% in 1998. The primary reason for the decrease is attributable to reduced restaurant menu price
discounting and a decrease in the average cheese block price. The cost of cheese, representing approximately 40% of food cost, and
other commodities are subject to significant price fluctuations caused by weather, demand and other factors. Most of the factors
affecting the cost of cheese are beyond our control (see “Note 9”of “Notes to Consolidated Financial Statements”).
Restaurant salaries and benefits increased as a percentage of restaurant sales to 27.0% in 1999, from 26.8% in 1998. This increase
was primarily due to higher staffing levels after our 14th Anniversary promotion to support the demands of new customers and
enhanced employee benefits to select restaurant personnel. Occupancy costs as a percentage of restaurant sales remained consistent
at 5.0% for both 1999 and 1998.
Restaurant advertising and related costs increased as a percentage of restaurant sales to 9.1% in 1999, from 8.7% in 1998. The
increase in 1999 was primarily the result of increased promotional activities in the second quarter in response to significant promotional
activities by our competitors and increased activities in the fourth quarter in response to overall market conditions and sales trends.
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% 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.
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