Papa Johns 2008 Annual Report Download

Download and view the complete annual report

Please find the complete 2008 Papa Johns annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

Better Pizza.
After twenty-fi ve years, it’
s still about
Better Pizza.

Table of contents

  • Page 1
    Better Pizza. After twenty-five years, it's still about

  • Page 2
    ... and Chief Development Officer JULIE L. LARNER Senior Vice President and President PJ Food Service, Inc. CHRISTOPHER J. STERNBERG Senior Vice President, Corporate Communications and Interim General Counsel United Kingdom Ireland Canada USA Mexico Cayman Islands Dominican Republic Puerto Rico...

  • Page 3
    "As we embark on our next 25 years together, remember- it's still about better pizza." Founder Chairman and Interim Chief Executive Officer #1 IN CUSTOMER SATISFACTION - 9TH STRAIGHT YEAR! 1999-2008 HIGHEST RATING AMONG PIZZA CHAINS IN THE AMERICAN CUSTOMER SATISFACTION INDEX

  • Page 4
    ... and delivery pizza company to report positive comp sales; • International franchise system sales increased by 26.1%; and • 172 net worldwide restaurant openings. The prosperity of our franchise and corporate operators is paramount to the success of our entire company. To that end, in late 2008...

  • Page 5
    ...incorporation or organization) 61-1203323 (I.R.S. Employer Identification No.) 2002 Papa Johns Boulevard Louisville, Kentucky 40299-2367 (Address of principal executive offices) (502) 261-7272 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of...

  • Page 6
    ...Registrant, computed by reference to the closing sale price on The NASDAQ Stock Market as of the last business day of the Registrant's most recently completed second fiscal quarter, June 29, 2008, was approximately $574,220,073. As of February 17, 2009, there were 27,832,557 shares of the Registrant...

  • Page 7
    ... Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership...

  • Page 8
    ...as soon as reasonably practicable after we electronically file them with the SEC. We also make available free of charge on our website our Corporate Governance Guidelines; Board Committee Charters; and our Code of Ethics, which applies to Papa John's directors, officers and employees. Printed copies...

  • Page 9
    ...corporate team members, and offered to our franchisees at training locations across the United States and internationally. We offer performance-based financial incentives to corporate and restaurant team members at various levels. Marketing. Our marketing strategy consists of both national and local...

  • Page 10
    ...Local marketing efforts, such as sponsoring or participating in community events, sporting events and school programs, are also used to build customer awareness. Franchise System. We are committed to maintaining and developing a strong franchise system by attracting experienced operators, supporting...

  • Page 11
    ... in simplified operations, lower training and labor costs, increased efficiency and improved consistency and quality of food products. The typical interior of a Papa John's restaurant has a vibrant color scheme, and includes a bright menu board, custom counters and a carryout customer area. The...

  • Page 12
    ... of our international Papa John's restaurants are between 900 and 1,400 square feet; however, in order to meet certain local customer preferences, several international restaurants have been opened in larger spaces to accommodate both dine-in and restaurant-based delivery service, with an average of...

  • Page 13
    ...time for Papa John's national television commercials, in addition to other brand-building activities, such as consumer research and public relations activities. All domestic Company-owned and franchised Papa John's restaurants are required to contribute a certain percentage of sales to the Marketing...

  • Page 14
    ...to explore additional cross-marketing opportunities with third-party companies. We have developed a system by which domestic Papa John's restaurant customers in areas we service are able to place orders online at papajohns.com, including the "plan ahead ordering" advance ordering feature and Spanish...

  • Page 15
    ... development schedule set forth in the development agreements will be achieved. During 2008, 243 (98 domestic and 145 international) franchised Papa John's restaurants were opened. Approval. Franchisees are approved on the basis of the applicant's business background, restaurant operating experience...

  • Page 16
    ... royalty rate increases or defer them for the benefit of the system. The Company recognized approximately $3.0 million of operating income from the online ordering system business unit in 2008 and 2007. This business unit will be operated at a breakeven level in 2009 and future years. Accordingly...

  • Page 17
    ... of the support program include growing market share in a consolidating category, stabilizing transaction levels and targeting a substantial multi-year increase in online ordering percentage. International Development and Franchise Agreements. We opened our first franchised restaurant outside...

  • Page 18
    ... full business time and efforts to the operation of the franchisee's restaurants. Each franchised restaurant manager is also required to complete our Companycertified management training program. Domestically, we provide an on-site training team three days before and three days after the opening of...

  • Page 19
    ... Marketing Fund contributions, risk management services, online ordering fees and purchases from our print and promotions operations and QC Centers. This system significantly reduces the resources needed to process receivables, improves cash flow and mitigates the amount of past-due accounts related...

  • Page 20
    ... and other laws regulating franchising and the franchisor-franchisee relationship. Further national, state and local government initiatives, such as mandatory health insurance coverage, "living wage" or other proposed increases in minimum wage rates, could adversely affect Papa John's as well as the...

  • Page 21
    Employees As of December 28, 2008, we employed approximately 16,700 persons, of whom 14,500 were restaurant team members, 800 were restaurant management personnel, 600 were corporate personnel and 800 were QC Center and Preferred Marketing Solutions, Inc. personnel. Most restaurant team members work...

  • Page 22
    ... paid at rates related to the federal and state minimum wage requirements. Accordingly, further increases in the federal minimum wage or the enactment of additional state or local minimum wage increases above federal wage rates will increase labor costs for our system-wide operations. Additionally...

  • Page 23
    ... mitigate store closings, allow new units to open and continue to execute our refranchising strategy. If we are unable or unwilling to provide such financing, our results of operations may be adversely impacted. Our expansion into emerging or under-penetrated markets may present increased risks. Any...

  • Page 24
    ... are subject to increased risks and other factors that may make it more difficult to achieve or maintain profitability or meet planned growth rates. Our international operations could be negatively impacted by significant changes in international economic, political and health conditions in the...

  • Page 25
    Item 2. Properties As of December 28, 2008, there were 3,380 Papa John's restaurants system-wide. Company-owned Papa John's Restaurants Number of Restaurants Arizona...Florida...Georgia...Illinois ...Indiana...Kansas...Kentucky...Maryland...Missouri ...New Mexico...North Carolina ...South Carolina ...

  • Page 26
    Domestic Franchised Papa John's Restaurants Number of Restaurants Alabama...Arizona ...Arkansas ...California...Colorado ...Connecticut...Delaware...Florida ...Georgia ...Idaho...Illinois...Indiana ...Iowa ...Kansas ...Kentucky...Louisiana ...Maine...Maryland...Massachusetts...Michigan...Minnesota ...

  • Page 27
    ... Generally, the leases are triple net leases, which require us to pay all or a portion of the cost of insurance, taxes and utilities. Certain leases further provide that the lease payments may be increased annually, with a small number of escalations based on changes in the Consumer Price Index. 20

  • Page 28
    ... building housing our printing operations and a 247,000 square foot building, approximately 30% to 40% of which accommodates the Louisville QC Center operation and promotions division. The remainder of the larger building houses our corporate offices. The Papa John's UK management team is located...

  • Page 29
    ... First Elected Executive Officer 1985 Name John H. Schnatter Age (a) 47 Position Founder Chairman and Interim Chief Executive Officer Senior Vice President, Chief Financial Officer and Treasurer Senior Vice President and President - PJ Food Service, Inc. Senior Vice President, Domestic Operations...

  • Page 30
    ... corporate and franchised restaurant operations. Mr. Van Epps served as Senior Vice President and Chief Operations Officer from 2004 to 2006 and Managing Director, International from September 2001 to 2004. Prior to joining Papa John's, Mr. Van Epps served for two years as President, International...

  • Page 31
    ... cash dividends on our common stock, and have no current plans to do so. Papa John's Board of Directors has authorized the repurchase of up to $775.0 million of common stock under a share repurchase program that began December 9, 1999, and runs through December 31, 2009. Through December 28, 2008...

  • Page 32
    ..., 2008, the Company utilized a written trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, to facilitate the repurchase of shares of our common stock under this share repurchase program. We adopted another trading plan in December 2008, effective January 2, 2009...

  • Page 33
    ... Stock Market (U.S.) Index and a group of the Company's peers consisting of U.S. companies listed on NASDAQ with standard industry classification (SIC) codes 5800-5899 (eating and drinking places). Relative performance is compared for the five-year period extending through the end of fiscal 2008...

  • Page 34
    ... discontinued operations, net of tax (6) Earnings per common share - assuming dilution Basic weighted average shares outstanding Diluted weighted average shares outstanding Balance Sheet Data Total assets Total debt Total stockholders' equity 52 weeks $ 533,255 8,328 59,704 1,600 429,068 61,415 Year...

  • Page 35
    ... 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...

  • Page 36
    ... percentage of revenues in 2009 to be consistent with 2008. We believe that, in addition to supporting both Company and franchised growth, these activities contribute to product quality and consistency and restaurant profitability throughout the Papa John's system. Our fiscal year ends on the last...

  • Page 37
    ...We have developed plans for PJUK to continue to improve in operating results. The plans include efforts to increase Papa John's brand awareness in the United Kingdom, improve sales and profitability for individual restaurants and increase net PJUK franchised unit openings over the next several years...

  • Page 38
    ... BIBP losses previously recognized by Papa John's. Many domestic franchisees are facing financial challenges due to a recent decline in sales and continued operating margin pressures from higher commodity costs (primarily cheese and wheat) as well as increased utility costs. In addition, due to the...

  • Page 39
    ... to $14.0 million for 2009 (excluding any favorable impact from increased marketing). We believe the support program will produce long-term shareholder benefits for the Papa John's system by mitigating potential unit closures and strengthening our brand during these challenging times. In addition to...

  • Page 40
    ... the first quarter of 2008 did not have a significant impact on our financial statements. SFAS No. 157 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories Level 1: Quoted market prices in active markets for identical assets or...

  • Page 41
    ... Derivative Instruments and Hedging Activities, and how derivative instruments and related hedged items affect an entity's financial position, results of operations and cash flows. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008 or our first quarter of fiscal 2009. 34

  • Page 42
    ... the years indicated: Year Ended (1) Dec. 28, Dec. 30, Dec. 31, 2008 2007 2006 Income Statement Data: Domestic revenues: Company-owned restaurant sales Variable interest entities restaurant sales Franchise royalties Franchise and development fees Commissary sales Other sales International revenues...

  • Page 43
    ... (7) Number of Company-owned restaurants included in the most recent full year's comparable restaurant base Average sales for Company-owned restaurants included in the most recent comparable restaurant base Papa John's Restaurant Progression: U.S. Company-owned: Beginning of period Opened Closed...

  • Page 44
    ... (increase) in the "Domestic Company-owned restaurant expenses - cost of sales" line item. This approach effectively reports cost of sales for Company-owned restaurants as if the purchasing arrangement with BIBP did not exist and such restaurants were purchasing cheese at the spot market prices...

  • Page 45
    ... indicative of the principal operating activities of the Company. In addition, annual cash bonuses, and certain long-term incentive programs for various levels of management, are based on financial measures that exclude BIBP. The presentation of the non-GAAP measures in this report is made alongside...

  • Page 46
    ... wheat, as measured on domestic commodity markets, increased approximately 43% in 2008 as compared to 2007. International revenues increased $7.5 million, or 24.2%, reflecting the increase in both the number and average unit volumes of our Company-owned and franchised restaurants over the past year...

  • Page 47
    ...during 2008 and our plans to divest 17 restaurants in two markets in 2009. • Domestic Commissary Segment. Domestic commissaries' operating income decreased $5.6 million, reflecting a decline in sales volumes, increases in distribution costs due to higher fuel prices and a reduction in gross margin...

  • Page 48
    ... segment reported operating earnings of $9.2 million in 2008 compared to $6.3 million in 2007. The increase in operating income was primarily due to favorable adjustments in remaining claims loss reserves associated with our inactive captive insurance program and an increase in sales from our online...

  • Page 49
    ... annual management incentive bonus plan is based on the Company's annual operating income performance and certain sales and cost control measures as compared to pre-established targets. (b) The Company contributed discretionary contributions to the national marketing fund and other local advertising...

  • Page 50
    ... as Six Flags theme parks and Live Nation concert amphitheaters. The comparable sales base and average weekly sales for 2008 and 2007 for domestic Company-owned and domestic franchised restaurants consisted of the following: Year Ended December 28, 2008 Companyowned Franchised Total domestic units...

  • Page 51
    ... and cheese cost is based upon the BIBP block price, which increased from an average of $1.45 per pound in 2007 to an average of $1.81 per pound in 2008, a 24.8% increase. Other sales, which include our online and print and promotions businesses, as well as our insurance agency operations, were $61...

  • Page 52
    ... Company-owned domestic units during 2008 and our plans to divest 17 restaurants in two markets in 2009. In addition, we recorded a goodwill impairment charge of $2.3 million during 2008 associated with our United Kingdom operations. (b) The increase in the provisions for uncollectible accounts and...

  • Page 53
    ..., consisting of the franchise rights and leases related to the 109 franchised Perfect Pizza restaurants, as well as the related distribution operations. The total proceeds from the sale were approximately $13.0 million, with $8.0 million received in cash at closing, and the balance to be received...

  • Page 54
    ...commercial sales at our print and promotions operations and an increase in online sales. International revenues increased $8.0 million primarily as a result of the acquisition of restaurants in Beijing, China in December 2006, increased royalty revenues from additional franchised units and increased...

  • Page 55
    ... dough products and improved margin from other commodities, partially offset by a $600,000 contribution to the Papa John's Marketing Fund. Domestic Franchising Segment. Domestic franchising operating income was relatively flat year-over-year, as an increase in our field organizational support staff...

  • Page 56
    ...and health insurance programs. Net unallocated interest expense increased approximately $4.3 million in 2007, as compared to 2006, principally due to a higher average debt balance resulting from share repurchase activity under our share repurchase program and franchise restaurant acquisitions during...

  • Page 57
    ... bonus payments, reflecting a decrease in the Company's stock price, the forfeiture of units associated with certain executive departures and the change in the Founder Chairman's status from an employee director of the Company to a non-employee director during 2007. Management Incentive Bonus Plan...

  • Page 58
    ...and print and promotions businesses, as well as our insurance agency operations, were $61.8 million and $50.5 million for the 2007 and 2006 periods, respectively. Other sales increased due to expanded commercial volumes at our print and promotions operations and increased online sales. International...

  • Page 59
    .... The decrease in cost of sales was primarily due to an increase in the sales of higher margin fresh dough products. Salaries and benefits as a percentage of sales were 7.5% in 2007, compared to 7.0% in 2006. The increase was primarily due to additional staff to support additional volumes for our...

  • Page 60
    ... $600,000, respectively, related to BIBP's debt with a third-party bank. The increase in our 2007 net interest expense reflected a higher average outstanding debt balance resulting from share repurchase activity under our share repurchase program and franchise restaurant acquisitions in 2007. Income...

  • Page 61
    ...2007 and 2006 were accounted for by the purchase method of accounting, whereby operating results subsequent to the acquisition are included in our consolidated financial results. During 2008, we divested 62 Company-owned restaurants to franchisees. Total consideration for the sale of the restaurants...

  • Page 62
    ... areas of the business, including the online ordering function. We expect to fund the planned capital expenditures and any additional share repurchases of our common stock for the next twelve months from operating cash flow and approximately $31.1 million remaining availability under our line...

  • Page 63
    ... The off-balance sheet arrangements that are reasonably likely to have a current or future effect on the Company's financial condition are leases of Company-owned restaurant sites, QC Centers, office space and transportation equipment. As a condition of the sale of the Perfect Pizza operations in...

  • Page 64
    ..., fuel, employee compensation and benefits, insurance and similar costs; changes in consumer preferences; the ability of the Company to pass along such increases in or sustained high costs to franchisees; and the impact of legal claims and current proposed legislation impacting our business. These...

  • Page 65
    ...BIBP. Consolidation accounting requires the portion of BIBP operating income (loss) related to domestic Company-owned restaurants to be reflected as a reduction (increase) in the "Domestic Company-owned restaurant expenses - cost of sales" line item, thus reflecting the actual market price of cheese...

  • Page 66
    ... block market price of cheese as compared to the price charged to domestic restaurants. Many domestic franchisees are facing financial challenges due to a recent decline in sales and continued operating margin pressures from higher commodity costs (primarily cheese and wheat) as well as increased...

  • Page 67
    ...691 1.616 $ $ The following table presents the 2008, 2007 and 2006 impact by quarter on our pre-tax income due to consolidating BIBP. Additionally, based on the CME milk futures market prices as of February 17, 2009, and the projected 2009 cheese costs to restaurants as determined by the revised...

  • Page 68
    ...vary over time. Under the supervision and with the participation of our management, including our Interim Chief Executive Officer (CEO) and Chief Financial Officer (CFO), we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 28, 2008 based on...

  • Page 69
    ... respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Papa John's International, Inc.'s internal control over financial reporting as of December 28, 2008, based on criteria established...

  • Page 70
    ... effective internal control over financial reporting as of December 28, 2008, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Papa John's International...

  • Page 71
    ... sales Other sales International revenues: Royalties and franchise and development fees Restaurant and commissary sales Total revenues Costs and expenses: Domestic Company-owned restauran t expenses: Cost of sales Salaries and benefits Advertising and related costs Occupancy costs Other operating...

  • Page 72
    Papa John's International, Inc. and Subsidiaries Consolidated Balance Sheets December 28, 2008 December 30, 2007 (In thousands, except per share amounts) Assets Current assets: Cash and cash equivalents Accounts receivable (less allowance for doubtful accounts of $3,003 in 2008 and $4,431 in 2007) ...

  • Page 73
    ...Net income Change in valuation of interest rate swap agr eement, net of tax of $212 Other, net Comprehensive income Exercise of stock options Ta x benefit related to exer cise of non-qualified stock options Acquisition of C ompa ny common stock Other Balance at December 31, 2006 Cumulative effect of...

  • Page 74
    ... acquisitions: Accounts receivable Inventories Prepaid expenses Other current assets Other assets and liabilities Accounts payable Income and other taxes Accrued expenses Unearned franchise and development fees Net cash provided by operating activities from continuing operations Operating cash flows...

  • Page 75
    ..."our") operates and franchises pizza delivery and carryout restaurants under the trademark "Papa John's," currently in all 50 states, the District of Columbia, Puerto Rico and 29 countries. We also operated and franchised pizza delivery and carryout restaurants under the trademark "Perfect Pizza" in...

  • Page 76
    ... carrying value, based upon quoted market prices. Accounts Receivable Substantially all accounts receivable are due from franchisees for purchases of food, paper products, restaurant equipment, printing and promotional items, risk management services, information systems and related services, and...

  • Page 77
    ... have developed plans for PJUK to continue to improve its operating results. The plans include efforts to increase Papa John's brand awareness in the United Kingdom, improve sales and profitability for individual restaurants and increase net PJUK franchised unit openings over the next several years...

  • Page 78
    ..., as required by SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, generally expected to be at the time the closing occurs. Discontinued Operations The Company previously operated and franchised pizza delivery and carryout restaurants under the trademark "Perfect Pizza...

  • Page 79
    ... and Related Costs Advertising and related costs include the costs of domestic Company-owned restaurant activities such as mail coupons, door hangers and promotional items and contributions to the Papa John's Marketing Fund, Inc. (the "Marketing Fund") and local market cooperative advertising funds...

  • Page 80
    ... quarter of 2008 did not have a significant impact on our financial statements. SFAS No. 157 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories: • • • Level 1: Quoted market prices in active markets for identical assets...

  • Page 81
    ...,000 after tax) for such changes in fair value. The ineffective portions of our hedges were not material to our operating earnings for 2008, 2007 and 2006. Fair value is based on quoted market prices. See Note 8 for additional information on our debt and credit arrangements. Earnings per Share The...

  • Page 82
    ... Derivative Instruments and Hedging Activities, and how derivative instruments and related hedged items affect an entity's financial position, results of operations and cash flows. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008 or our first quarter of fiscal 2009. 75

  • Page 83
    3. Discontinued Operations The Company sold its Perfect Pizza operations, consisting of the franchised units and related distribution operations in March 2006. Total proceeds from the sale were approximately $13.0 million ($8.0 million received in cash and $5.0 million as a note payable to Papa John...

  • Page 84
    ...the market price and sells it to our distribution subsidiary, PJ Food Service, Inc. ("PJFS"), at a price based in part upon historical average market prices. PJFS in turn sells cheese to Papa John's restaurants (both Company-owned and franchised) at a set quarterly price. Effective in March 2009, we...

  • Page 85
    ... table summarizes the balance sheets for our consolidated VIEs as of December 28, 2008 and December 30, 2007: December 28, 2008 BIBP Franchisees Total December 30, 2007 Franchisees Total (In thousands) Assets: Cash and cash equivalents Accounts receivable - Papa John's Other current assets Net...

  • Page 86
    ... 19,173 Number of Restaurants Cash Paid Recorded Goodwill Location $ $ $ $ *Substantially all of the remaining purchase price was allocated to acquired property and equipment. The business combinations in 2007 and 2006 were accounted for by the purchase method of accounting, whereby operating...

  • Page 87
    ...-year franchise agreement as a reduction in royalty income of $360,000 annually. The intangible assets are recorded in other assets in the accompanying consolidated balance sheet at December 28, 2008. (3) During the fourth quarter of 2008, we decided to sell seven restaurants located in one market...

  • Page 88
    ...'s future profitability, which is based on the restaurant's historical financial performance, the maturing of the restaurant's market, as well as our future operating plans for the restaurant and its market. In estimating fair market value based on future cash flows, we used a discount rate of...

  • Page 89
    ... of rising interest rates on forecasted future borrowings. Amounts payable or receivable under the swaps are accounted for as adjustments to interest expense. The net fair value of the swaps was a liability balance of $6.2 million ($4.0 million net of tax) at December 28, 2008 and $2.0 million...

  • Page 90
    ... floating rates (with an average stated rate of 6.2% at December 28, 2008), and are generally secured by the fixtures, equipment, signage and, where applicable, land of each restaurant and the ownership interests in the franchisee. The carrying amounts of the loans approximate market value. Interest...

  • Page 91
    ... for workers' compensation, general liability, owned and non-owned automobiles and health insurance coverage provided to our employees are self-insured up to certain individual and aggregate reinsurance levels. Losses are accrued based upon estimates of the aggregate retained liability for claims...

  • Page 92
    ... Interest rate swaps Minority interest - variable interest entities Other Total 14. Income Taxes $ $ A summary of the provision (benefit) for income taxes, exclusive of the tax effects related to discontinued operations, follows (in thousands): 2008 Current: Federal Foreign State and local...

  • Page 93
    ... files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company, with few exceptions, is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2004. The Company is currently...

  • Page 94
    ...of full-year transactions and year-end balances with franchisees owned by related parties, the Marketing Fund and Papa Card, Inc. (in thousands): 2008 Revenues from affiliates: Commissary sales Other sales Franchise royalties Franchise and development fees Total Other income from affiliates Accounts...

  • Page 95
    ... under operating leases, which have an average term of five years and provide for at least one renewal. Certain leases further provide that the lease payments may be increased annually based on the fixed rate terms or adjustable terms such as the Consumer Price Index. PJUK, our subsidiary located in...

  • Page 96
    ... Papa John's International, Inc. 2003 Stock Option Plan for Non-Employee Directors. Approximately 3.0 million shares were available for future issuance under the Omnibus Plan as of December 28, 2008. Option awards are generally granted with an exercise price equal to the market price of the Company...

  • Page 97
    ... (continued) We recorded stock-based employee compensation expense of $2.6 million in 2008, $4.9 million in 2007 and $4.7 million in 2006. The total income tax benefit recognized in the income statement for sharebased compensation arrangements was $930,000 in 2008, $1.8 million in 2007 and...

  • Page 98
    ...compounded annual growth rate (CAGR) of consolidated corporate operating income from continuing operations, as defined. The fair value of the restricted stock is based on the market price of the Company's shares on the grant date. Information pertaining to restricted stock activity during 2008, 2007...

  • Page 99
    ... to Company-owned and franchised restaurants, of printing and promotional items, risk management services, and information systems and related services used in restaurant operations. Generally, we evaluate performance and allocate resources based on profit or loss from operations before income taxes...

  • Page 100
    21. Segment Information (continued) Our reportable segments are business units that provide different products or services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies. No single external customer accounted for ...

  • Page 101
    ...' operating income decreased approximately $5.6 million in 2008 and increased approximately $1.2 million in 2007 as compared to 2006. The 2008 decline of $5.6 million is due to a decline in sales volumes, increases in distribution costs due to higher fuel prices and a reduction in gross margin...

  • Page 102
    ... reported an operating loss of $7.2 million in 2008 as compared to $8.7 million in 2007. The improvement of $1.5 million in operating results in 2008 reflects leverage on the international organizational structure from increased revenues due to the growth in the number of units and unit volumes...

  • Page 103
    ... diluted share. All quarterly information above is presented in 13-week periods. Quarterly earnings per share on a fullyear basis may not agree to the Consolidated Statements of Income due to rounding. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None...

  • Page 104
    ... by NASDAQ. Our code of ethics can be found on our web site, which is located at www.papajohns.com. Item 11. Executive Compensation The information required by this item is omitted because we are filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of...

  • Page 105
    ... shares subject to an inducement option outside the 1999 Plan. Other information required by this item is omitted because we are filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Report, which includes the required...

  • Page 106
    ... are included in Item 8 of this Report: Reports of Independent Registered Public Accounting Firm Consolidated Statements of Income for the years ended December 28, 2008, December 30, 2007 and December 31, 2006 Consolidated Balance Sheets as of December 28, 2008 and December 30, 2007 Consolidated...

  • Page 107
    ... is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (a)(3) Exhibits: The exhibits listed in the accompanying index to Exhibits are filed as part of this...

  • Page 108
    ..., 2009 Director February 24, 2009 Director February 24, 2009 Director February 24, 2009 Director February 24, 2009 Director February 24, 2009 Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) February 24, 2009 101

  • Page 109
    ... and between Papa John's International, Inc. and National City Bank, as Rights Agent. Exhibit 10.2 to our report on Form 10-K for the fiscal year ended December 29, 2002 is incorporated herein by reference. Amended and Restated 2003 Stock Option Plan for Non-Employee Directors, Amended and Restated...

  • Page 110
    ..., Inc. Deferred Compensation Plan. Exhibit 4.4 to our Registration Statement on Form S-8 (Registration No. 333-149468) dated February 29, 2008 is incorporated herein by reference. Papa John's International, Inc. Summary of Short-Term Incentive Compensation Program. Exhibit 10.1 to our report on Form...

  • Page 111
    ... Papa John's International, Inc. and PJCOMN Acquisition Corporation. Exhibit 10.1 to our quarterly report on Form 10-Q for the quarter ended September 26, 2005 is incorporated herein by reference. Agreement for the Sale and Purchase of the Perfect Pizza Franchise Business Operated by Perfect Pizza...

  • Page 112
    ... to Item 15(c) of Form 10-K. The Exhibits to this Annual Report on Form 10-K are not contained herein. The Company will furnish a copy of any of the Exhibits to a stockholder upon written request to Investor Relations, Papa John's International, Inc., P.O. Box 99900, Louisville, KY 40269-0900. 105

  • Page 113
    ... Louisville, Kentucky 40299 502-261-7272 Information FOR MORE INFORMATION To learn more about Papa John's, or to order online, visit our website at www.papajohns.com Directors JOHN H. SCHNATTER Founder Chairman and Interim Chief Executive Officer Papa John's International, Inc. STOCK LISTING...

  • Page 114