Papa Johns 2009 Annual Report Download - page 59

Download and view the complete annual report

Please find page 59 of the 2009 Papa Johns annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 118

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118

52
Costs and Expenses.
The restaurant operating margin at domestic Company-owned units was 18.5% in
2008 compared to 18.3% in 2007, consisting of the following differences as a percentage of Company-
owned restaurant sales:
•
Cost of sales was 0.3% higher as a percentage of sales in 2008 compared to 2007, primarily due to an
increase in commodities costs (principally cheese and wheat). The consolidation of BIBP increased
cost of sales 0.4% in 2008 and 1.6% in 2007.
•
Salaries and benefits were 0.5% lower as a percentage of sales in 2008 compared to 2007, as
increases resulting from federal and state minimum wage increases in the latter half of both 2007 and
2008 were more than offset by staffing efficiencies and the benefit of pricing increases.
•
Advertising and related costs as a percentage of sales were 0.2% lower in 2008, as compared to 2007
reflecting leverage on the increased restaurant sales.
•
Occupancy and other operating costs, on a combined basis, as a percentage of sales were 0.2% higher
in 2008 due to increases in mileage reimbursements to our delivery drivers and increased occupancy
costs, including utilities.
Domestic commissary and other margin was 9.5% in 2008, compared to 10.9% in 2007. Cost of sales
was 74.0% of revenues in 2008, compared to 72.1% for the same period in 2007. Cost of sales, as a
percentage of revenues, increased due to increases in the cost of certain commodities that were not
passed along via price increases to domestic restaurants and due to the previously mentioned fixed-dollar
markup on the cost of cheese. We chose to mitigate certain commodity cost increases at domestic
restaurants by supporting the entire domestic system via reduced commissary margins. Salaries and
benefits were $35.1 million in 2008, which was relatively consistent with the prior comparable year.
Other operating expenses increased approximately $2.0 million in 2008 as compared to 2007, reflecting
increases in distribution costs due to higher fuel prices.
We recorded pre-tax losses from the franchise cheese-purchasing program, net of minority interest, of
$6.3 million and $22.9 million in 2008 and 2007, respectively. 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 was losses of $10.5 million and
$31.7 million in 2008 and 2007, respectively (see the previous table which summarizes BIBP’s operating
results for 2008 and 2007).
General and administrative expenses were $99.7 million, or 8.8% of revenues for 2008, as compared to
$101.3 million or 9.5% of revenues for 2007. The decrease of $1.6 million in 2008 was primarily due to
our initiative to reduce administrative costs in 2008, including travel expenses and employee benefits, in
response to the economic environment. Additionally, incentive compensation expense decreased due to
non-vested awards forfeited upon resignation by our former CEO and other former members of
management and a reduction in the expected payments under certain cash and equity-based compensation
programs.