Papa Johns 2004 Annual Report Download - page 23

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(1) We operate on a 52-53 week fiscal year ending on the last Sunday of December of each year. All
fiscal years presented consisted of 52 weeks, except the 2000 fiscal year, which consisted of 53
weeks.
(2) We began consolidating variable interest entities (VIEs) restaurants in 2004. See “Note 4” of “Notes
to Consolidated Financial Statements.”
(3) Domestic Franchise royalties were derived from franchise restaurant sales of $1.30 billion in 2004,
$1.29 billion in 2003, $1.32 billion in 2002, $1.30 billion in 2001 and $1.21 billion in 2000.
(4) International Royalties were derived from franchise restaurant sales of $110.7 million in 2004,
$111.5 million in 2003, $104.2 million in 2002, $99.7 million in 2001 and $78.3 million in 2000.
(5) Restaurant sales for Company-owned United Kingdom restaurants were $629,000 in 2004, $2.4
million in 2003, $4.0 million in 2002, $4.5 million in 2001 and $4.3 million in 2000.
(6) The 2004 operating results include the consolidation of BIBP, which reduced operating income
approximately $22.9 million. Operating income includes restaurant closure, impairment and
disposition losses (gains) of ($203,000) in 2004, $5.5 million in 2003, $1.1 million in 2002 and
($1.2 million) in 2001. Fiscal 2000 included special charges of $20.9 million. See “Notes 4 and 7”
of “Notes to Consolidated Financial Statements.”
(7) Reflects the cumulative effect on income and earnings per share of a change in accounting principle,
net of tax, as required by Statement of Financial Accounting Standards No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity. See “Note 2” of
“Notes to Consolidated Financial Statements.”
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 26, 2004, there were 2,829 Papa John’s restaurants in
operation, consisting of 569 Company-owned and 2,260 franchised, and 118 franchised Perfect Pizza
restaurants in the United Kingdom. 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,
restaurant equipment, printing and promotional items, risk management services, and information
systems and related services used in their operations.
New unit openings in 2004 were 175 as compared to 105 in 2003 and 115 in 2002 and unit closings in
2004 were 153 as compared to 116 in 2003 and 101 in 2002. Several factors have resulted in minimal net
unit growth over the past three years, 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. We expect future unit expansion to be impacted by these and
other factors.
We have continued to produce 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 Company-owned sales for our most recent quarter’s
comparable base restaurants were $737,000 for 2004, compared to $733,000 for 2003 and $747,000 for
2002. 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 0.5% in 2004, decreased 3.0% in 2003 and increased 0.2% in 2002.