Papa Johns 2004 Annual Report Download - page 14

13
6. System-wide restaurant operations are subject to federal and state laws governing such matters as
wages, working conditions, citizenship requirements and overtime. A significant number of hourly
personnel employed by our franchisees and us are paid at rates related to the federal minimum wage.
Accordingly, further increases in the federal minimum wage or the enactment of additional state or
local “living wage” proposals will increase labor costs for our system-wide operations. Additionally,
labor shortages in various markets could result in higher required wage rates.
7. Any or all of the factors listed in 1. through 6. potentially adversely impacting restaurant sales or
costs could be especially harmful to the financial viability of franchisees in under-penetrated or
emerging markets. 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.
8. Domestically, we are dependent on sole suppliers for our cheese, flour and thin crust dough products.
Alternative sources for these ingredients may not be available on a timely basis to supply these key
ingredients or be available on terms as favorable to us as under our current arrangements. Domestic
restaurants purchase substantially all food and related products from our QC Centers. Accordingly,
both our corporate and franchised restaurants could be harmed by any prolonged disruption in the
supply of products from our QC Centers. Additionally, domestic franchisees are only required to
purchase seasoned sauce and dough from our QC Centers and changes in purchasing practices by
domestic franchisees could adversely affect the financial results of our QC Centers.
9. Beginning in October of 2004, a third party commercial insurance company began providing fully-
insured coverage to franchisees participating in our franchise insurance program, thus eliminating
our risk of loss for franchise insurance coverage written after September 2004. The Captive’s
relatively immature claims history limits the predictive value of estimating the costs of incurred and
future claims, thus our operating income is subject to potential significant adjustments for changes in
estimated insurance reserves for policies written from the Captive’s inception in October 2000
through September 2004.
10. Our domestic and international operations could be negatively impacted by significant changes in
international economic and political conditions. In addition, our international operations are subject
to additional factors, including currency regulations and fluctuations, cultures and consumer
preferences, diverse government regulations and structures, availability and cost of land and
construction, ability to source ingredients and other commodities in a cost-effective manner, and
differing interpretation of the obligations established in franchise agreements with international
franchisees. Accordingly, there can be no assurance that our operations will achieve or maintain
profitability or meet planned growth rates.