Papa Johns 2007 Annual Report Download - page 34

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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
2007, 2005, 2004 and 2003 fiscal years consisted of 52 weeks, and the 2006 fiscal year consisted of
53 weeks. The additional week resulted in additional revenues of approximately $20.0 million and
additional pre-tax income of approximately $3.5 million, or $0.07 per diluted share for 2006.
(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 $1.46 billion in 2007,
$1.51 billion in 2006, $1.38 billion in 2005, $1.30 billion in 2004 and $1.29 billion in 2003.
(4) International Royalties were derived from franchised restaurant sales of $176.2 million in 2007,
$139.3 million in 2006, $104.2 million in 2005, $67.6 million in 2004 and $65.0 million in 2003.
(5) Restaurant sales for International Company-owned restaurants were $4.0 million in 2007, $1.7
million in 2006, $642,000 in 2005, $629,000 in 2004 and $2.4 million in 2003.
(6) The operating results include the consolidation of BIBP beginning in 2004, which reduced operating
income approximately $31.0 million in 2007 and $22.9 million in 2004 and increased operating
income $19.7 million in 2006 and $5.8 million in 2005. 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 $1.4 million in 2007, ($2.0 million) in 2005 and $5.5 million in 2003 (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 30, 2007, there were 3,208 Papa John’s restaurants in
operation, consisting of 662 Company-owned and 2,546 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 2007 were 263 as compared to 211 in 2006 and 204 in 2005 and unit closings in
2007 were 70 as compared to 125 in 2006 and 113 in 2005. We expect net unit growth of approximately
160 to 190 units during 2008.
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 $836,000 for 2007 (52 weeks), compared to $865,000 for 2006 (53
weeks) and $818,000 for 2005 (52 weeks). Average sales volumes in new markets are generally lower