Papa Johns 2003 Annual Report Download - page 24

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(1) We operate on a 52-53 week fiscal year ending on the last Sunday of December of each year. All
fiscal years presented consisted of 52 weeks, except the 2000 fiscal year, which consisted of 53
weeks.
(2) Domestic Franchise royalties were derived from franchise restaurant sales of $1.29 billion in 2003,
$1.32 billion in 2002, $1.30 billion in 2001, $1.21 billion in 2000 and $1.03 billion in 1999.
(3) International Royalties were derived from franchise restaurant sales of $111.5 million in 2003,
$104.2 million in 2002, $99.7 million in 2001, $78.3 million in 2000 and $12.0 million in 1999.
(4) We purchased Perfect Pizza in November 1999 (see Business – Development). Restaurant sales for
Company-owned United Kingdom restaurants were $2.4 million in 2003, $4.0 million in 2002, $4.5
million in 2001, $4.3 million in 2000 and $455,000 in 1999.
(5) Operating income includes restaurant closure, impairment and disposition losses (gains) of $5.5
million in 2003, $1.1 million in 2002 and ($1.2 million) in 2001. Fiscal 2000 includes special
charges of $20.9 million. Operating income for 1999 includes special charges of $6.1 million. See
“Note 6” of “Notes to Consolidated Financial Statements.”
(6) Reflects the cumulative effect on income and earnings per share of a change in accounting principle,
net of tax, as required by Statement of Financial Accounting Standards No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity. See “Note 2” of
“Notes to Consolidated Financial Statements.”
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s” or in the first person
notations of “we,” “us” and “our”) began operations in 1985 with the opening of the first Papa John’s
restaurant in Jeffersonville, Indiana. At December 28, 2003, there were 2,790 Papa John’s restaurants in
operation, consisting of 570 Company-owned and 2,220 franchised, and 135 franchised Perfect Pizza
restaurants in the United Kingdom. Our revenues are principally derived from retail sales of pizza to the
general public by Company-owned restaurants, franchise royalties, sales of franchise and development
rights, sales to franchisees of food and paper products, restaurant equipment, printing and promotional
items, risk management services, and information systems and related services used in their operations.
New unit openings in 2003 were 105 as compared to 115 in 2002 and 210 in 2001. Several factors have
resulted in reduced unit openings during the past three years, including the competitive sales
environment, operating margin pressures due to increased wages, insurance and other costs and the
overall economic environment including franchisees’ access to capital. The rate of future unit expansion
will also be impacted by these and other factors. Unit closings in 2003 were 116 as compared to 101 in
2002 and 105 in 2001. The closings during the past three years were due to many of the same factors
impacting unit openings and the rate of future closings will also be impacted by these and other factors.
We have continued to produce strong average sales from our Company-owned restaurants even with a
very competitive market environment. Our expansion strategy is to cluster restaurants in targeted
markets, thereby increasing consumer awareness and enabling us to take advantage of operational,
distribution and advertising efficiencies. Average sales for our most recent quarter’s comparable base
restaurants decreased to $733,000 for 2003, from $747,000 for 2002 and as compared to $739,000 for
2001. Average sales volumes in new markets are generally lower than in those markets in which we have
established a significant market position.