Papa Johns 2006 Annual Report Download - page 27

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(1) We operate on a 52-53 week fiscal year ending on the last Sunday of December of each year. The
2006 fiscal year consisted of 53 weeks, and the 2005, 2004, 2003 and 2002 fiscal years 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 franchised restaurant sales of $1.51 billion in 2006,
$1.38 billion in 2005, $1.30 billion in 2004, $1.29 billion in 2003 and $1.32 billion in 2002.
(4) International Royalties were derived from franchised restaurant sales of $139.3 million in 2006,
$104.2 million in 2005, $67.6 million in 2004, $65.0 million in 2003 and $52.2 million in 2002.
(5) Restaurant sales for International Company-owned restaurants located in the United Kingdom and
Mexico were $1.7 million in 2006, $642,000 in 2005, $629,000 in 2004, $2.4 million in 2003 and
$4.0 million in 2002.
(6) The operating results include the consolidation of BIBP beginning in 2004, which increased
operating income approximately $19.7 million in 2006, $5.8 million in 2005 and reduced operating
income approximately $22.9 million in 2004. The 2006 operating results include the benefit of the
53rd week, which increased operating income approximately $3.5 million. Operating income
includes domestic and international restaurant closure, impairment and disposition losses (gains) of
($2.0 million) in 2005, $5.5 million in 2003 and $1.1 million in 2002 (the amounts recorded in 2006
and 2004 were not significant). See “Notes 5 and 8” of “Notes to Consolidated Financial
Statements.”
(7) The Perfect Pizza operations, which were sold in March 2006, 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.
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 31, 2006, there were 3,015 Papa John’s restaurants in
operation, consisting of 588 Company-owned and 2,427 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 2006 were 211 as compared to 204 in 2005 and 175 in 2004 and unit closings in
2006 were 125 as compared to 113 in 2005 and 153 in 2004. We expect net unit growth of approximately
225 to 250 units during 2007.
We have continued to produce strong average sales from our domestic Company-owned restaurants even
in 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
comparable restaurant base were $865,000 for 2006, compared to $818,000 for 2005 and $737,000 for
2004. Average sales volumes in new markets are generally lower than in those markets in which we have