Papa Johns 2010 Annual Report Download - page 57

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50
adjusted 40 lb. cheddar block price, which decreased from an average of $1.81 per pound in 2008 to an
average of $1.55 per pound in 2009, a 14.4% decrease. The cost of wheat, as measured on domestic
commodity markets, decreased approximately 37% in 2009 as compared to 2008.
Other sales, which include our online and print and promotions businesses as well as our insurance
agency operations, decreased $7.4 million to $54.0 million from $61.4 million in 2008. The decline was
due to a decrease in revenues from our online ordering system business unit, reflecting a reduction in the
online fee percentage charged to our franchisees and a decrease in sales at our print and promotions
business reflecting the deterioration of the U.S. economic environment.
Our PJUK operations, denominated in British pounds sterling and converted to U.S. dollars, represent
approximately 50% and 55% of international revenues in 2009 and 2008, respectively. International
revenues increased 7.1% to $41.5 million in 2009, from $38.7 million in 2008, reflecting the increase in
both the number and average unit volumes of our Company-owned and franchised restaurants over the
prior year.
Costs and Expenses.
The restaurant operating margin at domestic Company-owned units was 21.8% in
2009 compared to 18.5% in 2008. Excluding the impact of consolidating BIBP, restaurant operating
margin increased 1.8% to 20.7% for the year ended December 27, 2009 as compared to the
corresponding period in 2008, consisting of the following differences:
•
Cost of sales was 1.1% lower (excluding the consolidation of BIBP) in 2009 compared to 2008,
primarily due to lower commodities costs.
•
Salaries and benefits were 0.7% lower as a percentage of sales in 2009 compared to 2008, primarily
due to the divestiture in late 2008 of 62 restaurants that had a higher labor cost as a percentage of
sales.
•
Advertising and related costs as a percentage of sales were relatively consistent with the 2008 period.
•
Occupancy and other operating costs, on a combined basis, as a percentage of sales were relatively
consistent with the 2008 period.
Domestic commissary and other margin was 9.8% in 2009, compared to 9.6% in 2008. Cost of sales was
73.8% of revenues in 2009, compared to 74.0% for the same period in 2008. Salaries and benefits were
7.2% of revenues in 2009, which was relatively consistent with the prior comparable year. Other
operating expenses decreased approximately $2.1 million in 2009 as compared to 2008, reflecting a
decrease in distribution costs from lower fuel prices. The favorable impact that a lower cheese cost
would be expected to have on gross margin percentage (given a fixed-dollar markup per pound) was
offset by additional margin reductions on non-cheese products at the commissary during the year.
We recorded pre-tax income from the franchise cheese-purchasing program, net of noncontrolling
interest, of $18.1 million and a pre-tax loss of $6.3 million in 2009 and 2008, 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
pre-tax income of $22.5 million in 2009 and a pre-tax loss of $10.5 million in 2008.
General and administrative expenses were $111.4 million, or 10.3% of revenues for 2009, as compared to
$99.3 million or 8.8% of revenues for 2008. The increase is primarily due to the items noted as
comprising the increases in unallocated general and administrative expenses for the Unallocated
Corporate Segment in the Summary of Operating Results section, as well as certain management
transition costs recorded by our domestic commissaries segment.