Papa Johns 2010 Annual Report Download - page 22

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Our results of operations and the operating results of our franchisees may be adversely impacted by
increases in the cost of food ingredients and other commodities.
An increase in the cost, or sustained high levels of the cost, of cheese or other commodities could
adversely affect the profitability of our system-wide restaurant operations. Cheese, historically
representing 35% to 40% of our food cost, and other commodities are subject to cost fluctuations due to
weather, availability, global demand and other factors that are beyond our control. Additionally,
increases in fuel and utility costs could adversely affect the profitability of our restaurant and QC Center
businesses. Our domestic franchisees buy substantially all of their food products from our QC Center
business. Changes in franchisee buying patterns for food products not required to be purchased from our
QC Center business could adversely impact the sales and profitability of that business.
Our dependence on a sole or limited number of suppliers for some ingredients could result in disruptions
to our business.
Domestically, we are dependent on sole suppliers for our cheese, flour and thin crust dough products.
Alternative sources may not be available on a timely basis to supply these key ingredients or be available
on terms as favorable to us as under our current arrangements. Domestic restaurants purchase
substantially all food and related products from our QC Centers. Accordingly, both our corporate and
franchised restaurants could be harmed by any prolonged disruption in the supply of products from or to
our QC Centers.
Changes in consumer preferences or discretionary consumer spending or negative publicity could
adversely impact our results.
Changes in consumer taste (for example, changes in dietary preferences that could cause consumers to
avoid pizza in favor of foods that are perceived as more healthful), demographic trends, traffic patterns
and the type, number and location of competing restaurants could adversely affect our restaurant
business. Also, our success depends to a significant extent on numerous factors affecting discretionary
consumer spending, including economic conditions, disposable consumer income and consumer
confidence. Further adverse changes in these factors could reduce sales or impose practical limits on
pricing, either of which could materially adversely affect our results of operations. Like other food
industry competitors, we can also be materially adversely affected by negative publicity concerning food
quality, product recalls, illness, injury, publication of government or industry findings concerning food
products served by us, or other health concerns or operating issues stemming from one or more
restaurants.
We are subject to federal and state laws governing our workforce and our operations. Changes in these
laws, including minimum wage increases, or additional laws could increase costs for our system-wide
operations.
System-wide restaurant operations are subject to federal and state laws governing such matters as wages,
benefits, working conditions, citizenship requirements and overtime. A significant number of hourly
personnel employed by our franchisees and us are paid at rates closely related to the federal and state
minimum wage requirements. Accordingly, further increases in the federal minimum wage or the
enactment of additional state or local minimum wage increases above federal wage rates would increase
labor costs for our system-wide operations. Additionally, future legislation may make it easier for
workers to form unions, resulting in higher costs. Local government agencies have also implemented
ordinances that restrict the sale of certain food products. National health care legislation could negatively
impact our domestic system in future years as our Company-owned and franchised restaurants may have