Papa Johns 2008 Annual Report Download - page 35

Download and view the complete annual report

Please find page 35 of the 2008 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 114

  • 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

28
(1) We operate on a 52-53 week fiscal year ending on the last Sunday of December of each year. The
2008, 2007, 2005 and 2004 fiscal years consisted of 52 weeks, and the 2006 fiscal year consisted of
53 weeks. The additional week resulted in additional revenues of approximately $20.0 million and
additional pre-tax income of approximately $3.5 million, or $0.07 per diluted share for 2006.
(2) Domestic Franchise royalties were derived from franchised restaurant sales of $1.50 billion in 2008,
$1.46 billion in 2007, $1.51 billion in 2006, $1.38 billion in 2005 and $1.30 billion in 2004.
(3) International Royalties were derived from franchised restaurant sales of $221.0 million in 2008,
$176.2 million in 2007, $139.3 million in 2006, $104.2 million in 2005 and $67.6 million in 2004.
(4) Restaurant sales for International Company-owned restaurants were $8.1 million in 2008, $4.0
million in 2007, $1.7 million in 2006, $642,000 in 2005 and $629,000 in 2004.
(5) The operating results include the consolidation of BIBP, which reduced operating income
approximately $8.6 million in 2008, $31.0 million in 2007 and $22.9 million in 2004 and increased
operating income $19.7 million in 2006 and $5.8 million in 2005. The 2006 operating results
include the benefit of the 53rd week, which increased operating income approximately $3.5 million.
Operating income includes domestic and international restaurant closure, impairment and
disposition losses of $8.8 million in 2008 and $1.8 million in 2007 and a gain of $989,000 in 2005
(the amounts recorded in 2006 and 2004 were not significant). See “Notes 4 and 7” of “Notes to
Consolidated Financial Statements.”
(6) The Perfect Pizza operations, which were sold in March 2006, are classified as “discontinued
operations.”
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, 2008, there were 3,380 Papa John’s restaurants in
operation, consisting of 615 Company-owned and 2,765 franchised restaurants. Our revenues are
principally derived from retail sales of pizza and other food and beverage products to the general public
by Company-owned restaurants, franchise royalties, sales of franchise and development rights, sales to
franchisees of food and paper products, printing and promotional items, risk management services, and
information systems and related services used in their operations.
New unit openings in 2008 were 267 as compared to 263 in 2007 and 211 in 2006 and unit closings in
2008 were 95 as compared to 70 in 2007 and 125 in 2006. We expect net unit growth of approximately
100 to 140 units during 2009.
We have continued to produce strong average sales from our domestic Company-owned restaurants even
in 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 annual Company-owned sales for our most recent
comparable restaurant base were $867,000 for 2008 (52 weeks), compared to $836,000 for 2007 (52
weeks) and $865,000 for 2006 (53 weeks). Average sales volumes in new markets are generally lower
than in those markets in which we have established a significant market position. The comparable sales
for domestic Company-owned restaurants increased 1.7% in 2008, 0.5% in 2007 and 3.6% in 2006. The
comparable sales for domestic franchised units increased 0.6% in 2008, 0.3% in 2007 and 2.9% in 2006.
We continually strive to obtain high-quality sites with good access and visibility, and to enhance the
appearance and quality of our restaurants. We believe that these factors improve our image and brand
awareness. The average property and equipment investment cost for the restaurants in our most recent