Papa Johns 2014 Annual Report Download - page 26

13
can be subject to significant cost fluctuations due to weather, availability, global demand and other factors
that are beyond our control. Additionally, increases in fuel, utility, and insurance costs could adversely
affect the profitability of our restaurant and QC Center businesses. Most of the factors affecting costs are
beyond our control, and we may not be able to pass along these costs to our customers or franchisees.
Our domestic franchisees buy substantially all of their food products from our QC Center business.
Our dependence on a sole supplier or a limited number of suppliers for some ingredients could result in
disruptions to our business.
Domestic restaurants purchase substantially all food and related products from our QC Centers. We are
dependent on Leprino Foods Dairy Products Company (“Leprino”) as our sole supplier for cheese, one of
our key ingredients. Leprino, one of the major pizza category suppliers of cheese in the United States,
currently supplies all of our cheese domestically and substantially all of our cheese internationally. While
we have no other sole sources of supply, we do source other key ingredients from a limited number of
suppliers. Alternative sources of supply of cheese or other key ingredients may not be available on a
timely basis or be available on terms as favorable to us as under our current arrangements. Our corporate
and franchised restaurants could also be harmed by a prolonged disruption in the supply of products from
or to our QC Centers due to weather, crop disease, labor dispute, interruption of service by carriers and
other events beyond our control. Insolvency of key suppliers could also cause similar business
interruptions and negatively impact our business.
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 only required to purchase from our QC Centers tomato sauce, dough and other items we
may designate as proprietary or integral to our system. Any changes in purchasing practices by domestic
franchisees, such as seeking alternative approved suppliers of ingredients or other food products, could
adversely affect the financial results of our QC Centers and the Company.
Our international operations are subject to increased risks and other factors that may make it more
difficult to achieve or maintain profitability or meet planned growth rates.
Our international operations could be negatively impacted by changes in international economic, political
and health conditions in the countries in which the Company or our franchisees operate. In addition, there
are risks associated with differing business and social cultures and consumer preferences, diverse and
sometimes uncertain or unstable government regulations and structures, limited availability and high cost
of suitable restaurant locations, and difficulties in sourcing and importing high-quality ingredients and
other commodities in a cost-effective manner. In addition, our international operations are subject to
additional factors, including import and export controls, compliance with anti-corruption and other
foreign laws, volatility in foreign currency rates, changes in tax laws, difficulties enforcing intellectual
property and contract rights in foreign jurisdictions, and the imposition of increased or new tariffs or trade
barriers. We intend to continue to expand internationally, which would make the risks related to our
international operations more significant over time.
We are subject to numerous laws and regulations governing our workforce and our operations. Changes
in these laws, including health care legislation and minimum wage increases or additional laws and
regulations could increase costs for our system-wide operations.
We operate in an increasingly complex regulatory environment, and the cost of regulatory compliance is
increasing. Failure to comply with applicable U.S. and international labor, health care, food, safety, anti-
bribery and corruption, consumer and other laws, may result in civil and criminal liability, damages, fines