Papa Johns 2005 Annual Report Download - page 25

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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.
(2) We began consolidating variable interest entities (VIEs) restaurants in 2004. See “Note 5” of “Notes
to Consolidated Financial Statements.”
(3) Domestic Franchise royalties were derived from franchise restaurant sales of $1.38 billion in 2005,
$1.30 billion in 2004, $1.29 billion in 2003, $1.32 billion in 2002 and $1.30 billion in 2001.
(4) International Royalties were derived from franchise restaurant sales of $104.2 million in 2005, $67.6
million in 2004, $65.0 million in 2003, $52.2 million in 2002 and $42.1 million in 2001.
(5) Restaurant sales for Company-owned United Kingdom restaurants were $642,000 in 2005, $629,000
in 2004, $2.4 million in 2003, $4.0 million in 2002 and $4.5 million in 2001.
(6) The operating results include the consolidation of BIBP beginning in 2004, which increased
operating income approximately $5.8 million in 2005 and reduced operating income approximately
$22.9 million in 2004. Operating income includes restaurant closure, impairment and disposition
losses (gains) of ($2.0 million) in 2005, ($203,000) in 2004, $5.5 million in 2003, $1.1 million in
2002 and ($1.2 million) in 2001. See “Notes 5 and 8” of “Notes to Consolidated Financial
Statements.”
(7) The Perfect Pizza operations are classified as “discontinued operations” and the related assets as
“held for sale”. See “Note 4” of “Notes to Consolidated Financial Statements.”
(8) 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.
(9) Adjusted to reflect a two-for-one common stock split effected in the form of a 100% stock dividend
to stockholders of record on December 23, 2005.
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 25, 2005, there were 2,926 Papa John’s restaurants in
operation, consisting of 504 Company-owned and 2,422 franchised, and 112 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,
printing and promotional items, risk management services, and information systems and related services
used in their operations.
New unit openings in 2005 were 204 as compared to 175 in 2004 and 105 in 2003 and unit closings in
2005 were 113 as compared to 153 in 2004 and 116 in 2003. The improvement in net unit growth during
2005 reflects improved operating margins for domestic unit restaurants and our continued international
expansion. We expect net unit growth of approximately 140 to 170 units during 2006.
We have continued to produce strong average sales from our domestic 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 annual Company-owned sales for our most recent
quarter’s comparable base restaurants were $818,000 for 2005, compared to $737,000 for 2004 and
$733,000 for 2003. 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 7.4% in 2005, increased 0.5% in 2004 and decreased 3.0% in 2003.