Papa Johns 2011 Annual Report Download - page 19

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14
franchise agreements with international franchisees. Accordingly, there can be no assurance that our
international operations will achieve or maintain profitability or meet planned growth rates.
We are subject to federal and state laws governing our workforce and our operations. Changes in these
laws, including minimum wage increases or additional laws could increase costs for our system-wide
operations.
System-wide restaurant operations are subject to federal and state laws governing such matters as wages,
benefits, working conditions, citizenship requirements and overtime. A significant number of hourly
personnel employed by our franchisees and us are paid at rates closely 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 would increase
labor costs for our system-wide operations. Additionally, current and proposed legislation and regulations
may make it easier for workers to form unions, resulting in higher costs. Local government agencies have
also implemented ordinances that restrict the sale of certain food products. National health care legislation
could negatively impact our domestic system in future years as our Company-owned and franchised
restaurants may have to provide health care coverage that was not previously offered to certain part-time
team members. Compliance with additional government mandates, including menu labeling requirements,
could increase costs and be harmful to system-wide restaurant sales.
Our expansion into emerging or under-penetrated domestic and international 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 in
addition to international markets with unstable political climates. A decline in or failure to improve
financial performance for such franchisees could lead to unit closings at greater than anticipated levels
and therefore impact contributions to marketing funds, our royalty stream, QC Center and support
services efficiencies and other system-wide results.
Our business and brand may be harmed should the services of our Founder, John Schnatter, as Chief
Executive Officer, Chairman or brand spokesman terminate for any reason. Failure to effectively execute
succession planning could harm our Company and brand.
John H. Schnatter, our Founder, Chairman and Chief Executive Officer (CEO), does not serve under an
employment agreement and we do not maintain key man life insurance on Mr. Schnatter. We also depend
on Mr. Schnatter’s image and his services as spokesman in our advertising and promotion materials.
While we have entered into a license agreement with Mr. Schnatter related to the use of certain
intellectual property related to his name, likeness and image, our business and brand may be harmed if
Mr. Schnatter’s services as CEO, Chairman or brand spokesman were not available for any reason.
Failure to effectively execute succession planning could harm our Company and brand.
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 required to purchase only tomato sauce, dough and other items we may designate as
proprietary or integral to our system from our QC Centers. Any changes in purchasing practices by
domestic franchisees, such as seeking alternative approved suppliers of food products or ingredients,
could adversely affect the financial results of our QC Centers and the Company.