Papa Johns 2008 Annual Report Download - page 23

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form unions and labor shortages in various markets could result in higher costs. Local government
agencies have also implemented ordinances which restrict the sale of certain food products. Additional
government ordinances, including proposed menu labeling legislation, could increase costs and be
harmful to system-wide restaurant sales.
Current credit markets may adversely impact the ability of our franchisees to obtain financing, which
may hinder our ability to achieve our planned growth in restaurant openings.
Our growth strategy depends in large part on our ability and the ability of our franchisees to expand or
open new restaurants and to operate those restaurants on a profitable basis. Delays or failures in opening
new restaurants could materially and adversely affect our planned growth. In recent months, the credit
markets have experienced instability, resulting in declining real estate values, credit and liquidity
concerns and increased loan default rates. Many lenders have subsequently reduced their willingness to
make new loans and have tightened their credit requirements. Our franchisees depend on the availability
of financing to expand existing locations or construct and open new restaurants. If our franchisees
experience difficulty in obtaining adequate financing for these purposes, our growth strategy and
franchise revenues may be adversely affected. The unavailability of credit may require the Company to
provide financing to certain franchisees and prospective franchisees in order to 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 or all of the risks listed above potentially adversely impacting restaurant sales or costs could be
especially harmful to the financial viability of franchisees in under-penetrated or emerging markets. A
decline in or failure to improve financial performance for this group of franchisees could lead to unit
closings at greater than anticipated levels and therefore impact contributions to marketing funds, our
royalty stream, PJFS and support services efficiencies and other system-wide results.
We may be subject to impairment charges.
Impairment charges for Company-owned operations are possible if PJUK or previously acquired
domestic restaurants perform below our expectations. This would result in a decrease in our assets and
reduction in our net income.
Our dependence on a sole or limited number of suppliers for some ingredients could result in disruptions
to our business.
Domestically, we are dependent on sole suppliers for our cheese, flour, and thin and pan crust dough
products. Alternative sources for these ingredients may not be available on a timely basis to supply these
key ingredients or be available on terms as favorable to us as under our current arrangements. Domestic
restaurants purchase substantially all food and related products from our QC Centers. Accordingly, both
our corporate and franchised restaurants could be harmed by any prolonged disruption in the supply of
products from our QC Centers.
Changes in purchasing practices by our domestic franchisees could harm our commissary business.
Although our domestic franchisees currently purchase substantially all food products from our QC
Centers, they are only required to purchase tomato sauce and dough from our QC Centers. Any changes
in purchasing practices by domestic franchisees, such as seeking alternative suppliers of food products,