Papa Johns 2007 Annual Report Download - page 49

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42
Costs and Expenses. The restaurant operating margin at domestic Company-owned units was 18.3% for
2007 compared to 22.4% in 2006, consisting of the following differences as a percentage of Company-
owned restaurant sales:
• Cost of sales was 2.6% higher as a percentage of sales in 2007 compared to 2006, due to the impact
of consolidating BIBP, which increased cost of sales 1.6% in 2007 and decreased cost of sales 1.0%
in 2006.
• Salaries and benefits were 0.7% higher as a percentage of sales in 2007 compared to 2006 reflecting
increased labor costs, including the impact of a federal minimum wage increase effective in July
2007 and minimum wage increases in certain states.
• Advertising and related costs as a percentage of sales were 0.1% higher in 2007, as compared to the
corresponding 2006 period.
• Occupancy and other operating costs, on a combined basis, as a percentage of sales were 0.7% higher
in 2007 due to increases in rent costs and credit card expenses associated with increased use by our
customers.
Domestic commissary and other margin was 10.9% in 2007, compared to 10.7% in 2006. Cost of sales
was 72.1% of revenues in 2007, compared to 72.6% for the same period in 2006. The decrease in cost of
sales was primarily due to an increase in the sales of higher margin fresh dough products. Salaries and
benefits as a percentage of sales were 7.5% in 2007, compared to 7.0% in 2006. The increase was
primarily due to additional staff to support additional volumes for our commissary operations. Other
operating expenses decreased to 9.5% in 2007, compared to 9.7% in 2006.
We recorded a pre-tax loss from the franchise cheese-purchasing program, net of minority interest, of
$22.9 million in 2007, compared to income of $15.2 million for the comparable period in 2006. These
results only represent the portion of BIBP’s operating income or 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
from continuing operations was a loss of $31.7 million in 2007, compared to income of $19.0 million in
2006 (see the previous table which summarizes BIBP’s operating results for 2007 and 2006).
General and administrative expenses were $101.3 million, or 9.5% of revenues for 2007, as compared to
$102.9 million or 10.3% of revenues for 2006. The decrease of $1.6 million in 2007 was primarily
attributable to lower management incentive and insurance costs, substantially offset by an increase in
costs associated with our field organization support staff and an increase in personnel and infrastructure
investment costs.
Minority interests and other general expenses reflected net expense of $7.9 million in 2007, as compared
to $4.4 million in 2006 as detailed below (in thousands):
Increase
2007 2006 (Decrease)
Minority interests income 1,268$ 1,647$ (379)$
Disposition and valuation-related costs of other assets 2,981 1,699 1,282
Restaurant impairment and closure reserves 1,444 (260) 1,704
Provision for uncollectible accounts and notes receivable 218 908 (690)
Pre-opening costs 371 467 (96)
Contribution to Marketi ng Fund 1,0 00 - 1,000
Other 6 57 (52) 709
Total minority interests and other general expenses 7,939$ 4,409$ 3,530