Papa Johns 2000 Annual Report Download - page 36

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31
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 an increase
in mileage reimbursement for drivers, sponsorship fees and the provision for potentially uncollectible
accounts receivable.
Domestic 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 89.7% in 2000 from 90.6% in 1999. Cost of
sales as a percentage of combined commissary sales and equipment and other sales decreased to 75.2%
in 2000 from 76.3% in 1999, principally due to lower commodity costs, primarily resulting from lower
cheese costs. Salaries and benefits increased to 6.8% of sales in 2000 from 6.6% in 1999, which
primarily reflects the lower cheese prices in 2000 as compared to 1999. Other operating expenses
decreased to 7.6% in 2000 compared to 7.7% in 1999, due primarily to fixed expense leverage against a
higher sales base.
International operating expenses in 2000 are substantially comprised of the Perfect Pizza operations
acquired in November 1999.
General and administrative expenses increased to 7.7% of revenues for 2000 compared to 6.8% of
revenues in 1999. This increase is primarily due to the cost of additional support services, such as field
marketing, training and international development, required for our expanded operations as well as the
addition of Perfect Pizza.
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.
Advertising litigation expense was $1.0 million in 2000, compared to $6.1 million in 1999. These costs for
2000 consisted primarily of legal costs, and for 1999 consisted of legal costs and other costs associated
with the initial verdict, which was subsequently overturned. See “Item 3. Legal Proceedings” and “Note
14” of “Notes to Consolidated Financial Statements” for additional information.
During the fourth quarter of 2000, the Company incurred a $24.1 million special charge. The 2000 special
charge is comprised of the following non-recurring items (dollars in 000's):
Asset Accrued
Valuation Liabilities Total
• Impairment of carrying value of 52 restaurants $ 6,751 $ - $ 6,751
• Impairment or write-off of certain assets,
principally technology assets 6,728 - 6,728
• Reserve for franchise notes receivable 4,200 - 4,200
• Closure of 13 restaurants 1,866 1,247 3,113
• Closing of 20 field offices, severance and
exit costs 635 1,928 2,563
• Settlement of vendor litigation - 750 750
• Total $20,180 $3,925 $24,105