Papa Johns 2011 Annual Report Download - page 44

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Domestic commissary and other operating margin was 7.8% in 2011, compared to 8.6% in 2010.
Domestic commissary and other operating margin decreased 0.8% in 2011, consisting of the following
differences:
• Cost of sales was 0.9% higher as a percentage of revenues in 2011, as compared to 2010. Cost of
sales increased primarily due to the impact of higher commodities costs, primarily cheese, wheat
and meats. In addition, a reduction in online fee revenue from franchisees and an increase in
eCommerce support costs contributed to the increases in cost of sales.
• Salaries and benefits were 0.4% lower as a percentage of revenues in 2011, as compared to the
same period of 2010, reflecting the benefit of increased sales.
• Other operating expenses were 0.3% higher as a percentage of revenues in 2011, as compared to
2010, primarily due to an increase in distribution costs from increased fuel prices.
We recorded income before income taxes from the franchise cheese-purchasing program, net of
noncontrolling interest, of $5.6 million in 2010 (no impact in 2011 through February, at which time the
purchasing agreement with BIBP was terminated). The results in 2010 only represented the portion of
BIBP’s operating income related to the proportion of BIBP cheese sales to franchisees. The total impact
of the consolidation of BIBP on Papa John’s income before income taxes was $21.0 million in 2010
(including the BIBP Settlement). See the summary of BIBP’s operating results in the Variable Interest
Entities caption for additional information on BIBP’s 2011 and 2010 results.
International operating expenses in 2011 were 84.5% of international restaurant and commissary sales as
compared to 88.7% in 2010. The improvement in operating expenses, as a percentage of sales, was due
to both improvements in operating results in our Beijing and North China restaurants and our PJUK
commissary. Our 2010 results also included start-up costs associated with our PJUK commissary.
General and administrative expenses were $111.6 million, or 9.2% of revenues for 2011, as compared to
$110.0 million, or 9.8% of revenues for 2010. The increase in general and administrative expenses is due
to an increase in travel costs, payroll and other taxes, and employee incentives, partially offset by lower
short- and long-term incentive compensation costs and lower sponsorship fees.
Other general expenses reflected net expense of $9.8 million in 2011, as compared to $9.0 million in 2010
as detailed below (in thousands):
Increase
2011 2010 (Decrease)
Disposition and impairment losses (a) 1,745$ 894$ 851$
Provision (credit) for uncollectible accounts and notes receivable 379 (27) 406
Pre-opening restaurant costs 273 149 124
Franchise and development incentives and initiatives (b) 4,921 7,533 (2,612)
Perfect Pizza lease obligation (c) 832 - 832
Other expense (d) 1,617 481 1,136
Total other general expenses 9,767$ 9,030$ 737$
(a) Disposition and impairment losses include costs associated with the disposition of certain systems
and other equipment.
(b) The 2010 amounts include discretionary contributions to the Marketing Fund and other local
advertising cooperatives of $6.5 million and incentives to franchisees for opening new restaurants of
$1.0 million. The 2011 amounts include approximately $3.2 million in incentives offered to