Papa Johns 2005 Annual Report Download - page 36

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Domestic commissary sales increased $21.8 million, or 5.8%, to $398.4 million for 2005, from $376.6
million for the comparable period in 2004, primarily due to the impact of an increase in commodity
prices, primarily cheese, on commissary sales. Other sales decreased to $50.5 million for 2005, from
$53.1 million for the comparable period in 2004, primarily as a result of a decrease in revenues
associated with insurance-related services provided to franchisees.
International revenues consist primarily of the PJUK continuing operations, denominated in British
Pounds Sterling and converted to U.S. dollars (approximately 74% of total 2005 international revenues).
International revenues increased 16.7% to $18.4 million in 2005, from $15.8 million in 2004, primarily
due to increased unit openings.
Costs and Expenses. The restaurant operating margin at domestic Company-owned units was 20.3% for
2005 compared to 15.5% in 2004, consisting of the following differences as a percentage of Company-
owned restaurant sales:
• Cost of sales were 2.7% lower as a percentage of sales in 2005 partially due to the impact of
consolidating BIBP, which decreased cost of sales 0.3% in 2005 and increased cost of sales 1.5% in
2004. The remaining improvement in cost of sales not explained by the year-over-year impact of
consolidating BIBP resulted principally from increases in restaurant pricing, partially offset by
increases in commodities (primarily cheese).
• Salaries and benefits were 1.4% lower as a percentage of sales in 2005, due to staffing efficiencies
and the benefit of pricing increases.
• Advertising and related costs as a percentage of sales were 0.6% lower in 2005, as compared to the
corresponding 2004 period, reflecting leverage from increased sales.
• Occupancy and other operating costs, on a combined basis, as a percentage of sales were 0.1% lower
in 2005, reflecting the leverage from increased sales, partially offset by increased utilities.
Domestic commissary and other margin was 9.1% in 2005, compared to 8.0% in 2004. Cost of sales was
73.6% of revenues in 2005, compared to 72.1% for the same period in 2004, primarily due to higher
cheese costs incurred by our commissaries (cheese has a fixed-dollar as opposed to fixed-percentage
mark-up). Salaries and benefits as a percentage of sales were 6.4% in 2005, compared to 6.6% in 2004.
Other operating expenses decreased to 10.9% in 2005, compared to 13.3% in 2004, primarily as a result
of a decrease in claims loss reserves increases related to the franchise insurance program recorded in
2005 as compared to 2004 and the leverage from increased commissary sales, partially offset by
increased distribution costs in 2005 as a result of higher diesel fuel prices.
We recorded income from the franchise cheese-purchasing program, net of minority interest, of $4.7
million in 2005, compared to a $16.6 million loss for the comparable period in 2004. These results
represent the portion of BIBP’s operating (income) loss related to the proportion of BIBP cheese sales to
franchisees. The total impact of the consolidation of BIBP on Papa John’s pre-tax income was a gain of
$4.5 million in 2005, compared to a loss of $23.5 million in 2004 (see the previous table which
summarizes BIBP’s operating results for 2005 and 2004).
General and administrative expenses were $88.5 million, or 9.1% of revenues for 2005, as compared to
$71.0 million or 7.7% of revenues for 2004. The increase in 2005 is primarily attributable to the
previously mentioned increases in unallocated corporate expenses, including bonuses paid to corporate
and restaurant management, equity compensation expenses, employee benefits costs and professional
fees.
Other general expenses reflected net expense of $6.9 million in 2005, as compared to $2.6 million in
2004. The 2005 amount included gains of $2.2 million on the sale of 92 Company-owned restaurants