Papa Johns 2002 Annual Report Download - page 23

Download and view the complete annual report

Please find page 23 of the 2002 Papa Johns annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 80

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80

22
(3) Prior year commissary sales have been restated to conform to the current year presentation.
(4) Operating income for 2000 includes special charges of $20.9 million as well as a provision for
uncollectible notes receivable of $4.2 million. Operating income for 1999 includes special charges of
$6.1 million. See “Note 7” of Notes to Consolidated Financial Statements.
(5) Reflects the cumulative effect on income and earnings per share of a change in accounting principle,
net of tax, as required by Statement of Position 98-5 “Reporting the Costs of Start-Up Activities”.
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 1985 with the opening of the first Papa John’s
restaurant in Jeffersonville, Indiana. At December 29, 2002, there were 2,792 Papa John’s restaurants in
operation, consisting of 594 Company-owned and 2,198 franchised, and 144 franchised Perfect Pizza
restaurants in the United Kingdom. Our revenues are principally derived from retail sales of pizza to the
general public by Company-owned restaurants, franchise royalties, sales of franchise and development
rights, sales to franchisees of food and paper products, restaurant equipment, printing and promotional
items, risk management services, and information systems and related services used in their operations.
New unit openings in 2002 were 115 as compared to 210 in 2001. Several factors impacted this reduction
in unit openings, including the competitive sales environment, operating margin pressures due to
increased wages, insurance and other costs and the overall economic environment including franchisees’
access to capital. The rate of future unit expansion will also be impacted by these and other factors. Unit
closings in 2002 were 101 as compared to 105 in 2001. The closings in 2002 and 2001 were due to many
of the same factors impacting unit openings and the rate of future closings will also be impacted by these
and other factors.
We believe our strategy has allowed us to continue to enjoy strong average sales from our Company-
owned restaurants even with a very competitive market environment. 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. Average sales for our most recent quarter’s
comparable base restaurants increased to $747,000 for 2002 (52-week year), from $739,000 for 2001 (52-
week year), as compared to $782,000 for 2000 (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 annual sales for Company-owned restaurants increased 0.2% in 2002, decreased 2.9% in
2001 and increased 3.0% in 2000. The relatively flat comparable sales in 2002 and the decrease in
comparable sales during 2001 is the result of an increased competitive market. The decrease in 2001 also
reflects our decision to decrease our advertising expenditures as we concentrated on improving restaurant
operations.
We continually strive to obtain high-quality sites with good access and visibility, and to enhance the
appearance and quality of our restaurants. We believe that these factors improve our image and brand
awareness. The average cash investment for the 10 domestic Company-owned restaurants opened during
2002, exclusive of land, decreased to approximately $250,000 from $273,000 for the 20 units opened in
2001. We expect the average cash investment for restaurants opening in 2003 to be approximately
$260,000.
Approximately 48% of our revenues for 2002, 47% for 2001 and 45% for 2000 were derived from the
sale to franchisees of food and paper products, restaurant equipment, printing and promotional items, risk
management services and information systems equipment and software and related services by us, our