Papa Johns 1999 Annual Report Download - page 35

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 90.5% in 1999 from 91.7% in 1998.
Cost of sales as a percentage of combined commissary sales and equipment and other sales decreased to 76.2% 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 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.
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 “Note 14”of “Notes to
Consolidated Financial Statements”for additional information.
Pre-opening and other general expenses remained fairly consistent at $3.6 million in 1999, compared to $3.5 million in 1998.
Depreciation and amortization expense as a percentage of total revenues remained consistent at 3.1% in 1999, compared to 3.0% in 1998.
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