Papa Johns 2010 Annual Report Download - page 23

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to provide health care coverage that was not previously offered to certain part-time team members.
Additional compliance with government mandates, including nutritional content and menu labeling
legislation, could increase costs and be harmful to system-wide restaurant sales.
Current credit markets may adversely impact the ability of our franchisees to obtain financing, which
may hinder our ability to achieve our planned growth in restaurant openings.
Our growth strategy depends in large part on our ability and the ability of our franchisees to expand or
open new restaurants and to operate those restaurants on a profitable basis. Delays or failures in opening
new restaurants could materially and adversely affect our planned growth. While the credit markets have
improved over the last year, our franchisees remain dependent on the availability of financing to expand
existing locations or construct and open new restaurants. If our franchisees experience difficulty in
obtaining adequate financing for these purposes, our growth strategy and franchise revenues may be
adversely affected. The reduced availability of credit has required, and may continue to require, the
Company to provide financing to certain franchisees and prospective franchisees in order to mitigate
store closings or allow new units to open. If we are unable or unwilling to provide such financing, our
results of operations may be adversely impacted.
Our expansion into emerging or under-penetrated domestic and international markets may present
increased risks.
Any or all of the risks listed above potentially adversely impacting restaurant sales or costs could be
especially harmful to the financial viability of franchisees in under-penetrated or emerging markets or
international markets with unstable political climates. A decline in or failure to improve financial
performance for this group of franchisees could lead to unit closings at greater than anticipated levels and
therefore impact contributions to marketing funds, our royalty stream, PJFS and support services
efficiencies and other system-wide results.
We may be subject to impairment charges.
Impairment charges for Company-owned operations are possible if PJUK or previously acquired
domestic restaurants perform below our expectations. This would result in a decrease in our reported
assets value and reduction in our net income.
Our business and brand may be harmed should the services of our Founder, John Schnatter, as Co-Chief
Executive Officer, Chairman or brand spokesman terminate for any reason.
John H. Schnatter, our Founder, Chairman and Co-Chief Executive Officer (Co-CEO), does not serve
under an employment agreement and we do not maintain key man life insurance on Mr. Schnatter. We
also depend on Mr. Schnatter’s image and his services as spokesman in our advertising and promotion
materials. While we have entered into a license agreement with Mr. Schnatter related to the use of certain
intellectual property, our business and brand may be harmed if Mr. Schnatter’s services as Co-CEO,
Chairman or brand spokesman were not available for any reason.
Changes in purchasing practices by our domestic franchisees could harm our commissary business.
Although our domestic franchisees currently purchase substantially all food products from our QC
Centers, they are required to purchase only tomato sauce and dough from our QC Centers. Any changes
in purchasing practices by domestic franchisees, such as seeking alternative suppliers of food products,
including cheese, could adversely affect the financial results of our QC Centers.