Papa Johns 2008 Annual Report Download - page 47

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40
Excluding the impact of the consolidation of BIBP (pre-tax losses of $10.5 million or $0.24 per diluted
share in 2008 and $31.7 million or $0.68 per diluted share in 2007), 2008 income from continuing
operations before income taxes was $67.3 million (5.9% of total revenues), compared to $77.7 million
(7.3% of total revenues) in 2007. The $10.4 million decrease in income from continuing operations
before income taxes (excluding the consolidation of BIBP) was principally due to the following:
• Domestic Company-owned Restaurant Segment. Domestic Company-owned restaurants’
operating income decreased $5.4 million over the prior year, comprised of the following:
December 28, December 30, Increase
2008 2007 (Decrease)
Recurring operations 26,515$ 26,620$ (105)$
Closure, impairment and
disposition charges (6,518) (1,807) (4,711)
Gain on lease termination - 594 (594)
Total segment operating income
19,997
$
25,407
$
(5,410)
$
Year Ended
Domestic Company-owned restaurants’ income from recurring operations was comparable to the
2007 results as the significant increase in commodities costs during 2008 was offset by the fixed
cost leverage associated with the 1.7% increase in comparable sales for the year and the benefit
from units acquired in the third quarter of 2007. Restaurant operating margin on an external
basis, excluding the impact of the consolidation of BIBP, was 18.9% which was approximately
1.0% below the 2007 margin primarily due to increased commodities costs.
We recorded restaurant closure, impairment and disposition charges of $6.5 million for the year
ended December 28, 2008, compared to $1.8 million in the comparable 2007 period. The charges
were primarily associated with the divestiture of 62 Company-owned domestic units 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 resulting from increases in the cost of certain commodities
that were not passed along via price increases to domestic restaurants.
• Domestic Franchising Segment. Domestic franchising operating income increased $2.1 million
to $53.6 million for the year ended December 28, 2008, from $51.5 million in the prior
comparable period. The 2008 period benefited from the 0.25% increase in our royalty rate
implemented at the beginning of 2008 (the royalty rate for the majority of domestic franchisees
was 4.25% in 2008 as compared to 4.0% in 2007). The 2007 period included the collection of
$2.0 million in fees associated with the franchise renewal program.
• International Segment. The international segment reported an operating loss of $7.2 million in
2008 as compared to a loss of $8.7 million in 2007. The 2008 period included a goodwill
impairment charge of $2.3 million associated with our United Kingdom operations. Excluding
the PJUK impairment charge in 2008, the operating loss was $4.9 million or an improvement of
$3.8 million from the 2007 operating results. The improvement in the operating results reflects
leverage on the international organizational structure from increased revenues due to growth in
the number of units and unit volumes.