Papa Johns 2014 Annual Report Download - page 38

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(5) The operating results include the consolidation of BIBP Commodities, Inc. (“BIBP”), which
increased operating income approximately $21.4 million in 2010 (including a reduction in BIBP’s
cost of sales of $14.2 million associated with PJFS’s agreement to pay BIBP for past cheese
purchases an amount equal to its accumulated deficit). BIBP had break-even results in 2011 and was
dissolved in 2011.
(6) Represents the noncontrolling interests’ allocation of income for our joint venture arrangements.
(7) Mandatorily redeemable noncontrolling interest is included in other long-term liabilities in the
consolidated balance sheets. See “Note 6” of “Notes to Consolidated Financial Statements” for
additional information.
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 1984. At December 28, 2014, there were 4,663
Papa John’s restaurants in operation, consisting of 735 Company-owned and 3,928 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 2014 were 388 as compared to 386 in 2013 and 368 in 2012 and unit closings in
2014 were 153 as compared to 121 in 2013 and 88 in 2012. We expect net unit growth of approximately
220 to 250 units during 2015 of which approximately 75% will be international locations. 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.
We continue to generate strong sales in our North America Company-owned restaurants in a very
competitive environment. Average annual Company-owned sales for our most recent domestic
comparable restaurant base were $1.06 million for 2014 (52-week year), compared to $988,000 for 2013
(52-week year) and $953,000 for 2012 (53-week year). 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 8.2% in 2014, 6.6% in 2013 and
5.6% in 2012. “Comparable sales” represents sales generated by restaurants open for the entire twelve-
month period reported.
We are pleased with the ongoing growth in both our North America and international franchise restaurant
sales. The comparable sales for North America franchised units increased 6.2% in 2014, 3.1% in 2013
and 2.9% in 2012. The comparable sales for International franchised units increased 7.8% in 2014, 7.5%
in 2013 and 7.1% in 2012.
We strive to obtain high-quality restaurant sites with good access and visibility, and to enhance the
appearance and quality of our restaurants. We believe these factors improve our image and brand
awareness. The average cash investment for the 11 domestic traditional Company-owned restaurants
opened during 2014 was approximately $283,000, compared to the $280,000 investment for the 13
domestic traditional units opened in 2013, exclusive of land and any tenant improvement allowances we
received. We also opened two Company-owned restaurants in China, with an average investment cost of
approximately $290,000 which compares to $225,000 for the 11 restaurants opened in 2013.
Approximately 43% to 46% of our domestic revenues in each of the last three years were derived from
sales to franchisees of various items including food and paper products, printing and promotional items,