Papa Johns 2010 Annual Report Download - page 98

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19. Segment Information (continued)
(4)
Domestic franchising operating income increased approximately $7.2 million in 2010 over the prior
comparable period. The increase was primarily due to an increase in the standard franchise royalty
rate. The impact of the royalty rate increase was partially offset by the impact of development
incentive programs offered by the Company in 2009 and 2010. Domestic franchising operating
income increased approximately $100,000 in 2009 as compared to 2008 primarily as a result of the
0.25% increase in our royalty rate in the last 4 months of 2009. The increase in royalties was
partially offset by lower franchise and development fees due to fewer unit openings and additional
development incentive programs offered by the Company in 2009. In addition, during 2008 we
collected approximately $500,000 in franchise renewal fees associated with the domestic franchise
renewal program.
(5)
The international segment reported operating losses of $3.5 million in 2010, $3.1 million in 2009 and
$7.2 million in 2008. The decline in the operating results in 2010, as compared to 2009, was
primarily due to increased personnel and franchise support costs. Additionally, the 2010 results
included start-up costs associated with our Company-owned commissary in the United Kingdom,
which opened in the second quarter of 2010. The increase in costs was partially offset by increased
revenues due to growth in the number of international units. The improvement in operating results in
2009, as compared to 2008, reflects leverage on the international organizational structure from
increased revenues due to the growth in the number of units and unit volumes. The 2008 results
included a goodwill impairment charge of $2.3 million associated with our United Kingdom
operations.
(6)
Beginning in 2011, we are realigning our Hawaii, Alaska and Canadian operations from International
to Domestic franchising (renamed as “North America Franchising”). This alignment will result in an
increase in pre-tax income for Domestic franchising of $1.3 million for both 2010 and 2009, and a
corresponding decrease in pre-tax income for the International operating segment.
(7) Represents BIBP’s operating income (loss), net of noncontrolling interest income, for each year. The
2010 operating income for BIBP includes a reduction in BIBP’s cost of sales of $14.2 million
associated with PJFS’s agreement to pay to BIBP for past cheese purchases an amount equal to its
accumulated deficit.
(8) The “All Others” operating segment reported a decrease in operating results of $850,000 in 2010 as
compared to 2009. The decrease was primarily due to an increase in infrastructure and support costs
associated with our online ordering business unit. This decline was partially offset by an
improvement in operating results at our wholly-owned print and promotions subsidiary, Preferred
Marketing Solutions, Inc. The 2009 operating results were $6.5 million lower than the 2008 results
primarily due to a $3.9 million decline in our online ordering system business based on an agreement
with our franchisees and a $1.3 million decrease in the operating results of our print and promotions
subsidiary due to lower commercial sales.
(9) Unallocated corporate expenses decreased approximately $6.5 million in 2010 as compared to 2009
and increased approximately $13.6 million in 2009 as compared to 2008. The decrease in 2010 was
primarily due to lower salaries and benefits, lower franchise incentive costs and 2009 included
$800,000 in litigation settlement costs. These reductions were partially offset by an increase in short-
term incentive compensation
expense in 2010 and 2009. The 2009 increase, as compared to 2008,
was primarily due to a $5.7 million increase in franchise support initiatives and an increase in general
and administrative costs of $10.5 million, partially offset by a $2.9 million decrease in provisions for
uncollectible accounts and notes receivable.