Papa Johns 2011 Annual Report Download - page 32

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27
(6) The operating results include the consolidation of BIBP, which increased operating income
approximately $21.4 million in 2010 (including a reduction in BIBP’s cost of sales of $14.2 million
associated with PJFS’s agreement to pay to BIBP for past cheese purchases an amount equal to its
accumulated deficit). BIBP increased operating income by $23.3 million in 2009 and reduced
operating income by $8.6 million in 2008 and $31.0 million in 2007 (breakeven results in 2011).
Operating income includes domestic and international restaurant closure, impairment and disposition
gains of $86,000 in 2011 and losses of $253,000 in 2010, $657,000 in 2009, $8.8 million in 2008 and
$1.8 million in 2007. See “Notes 3 and 6” of “Notes to Consolidated Financial Statements” for
additional information.
(7) Represents the noncontrolling interests’ ownership in two joint venture arrangements.
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 25, 2011, there were 3,883 Papa John’s restaurants in
operation, consisting of 628 Company-owned and 3,255 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 2011 were 321 as compared to 325 in 2010 and 216 in 2009 and unit closings in
2011 were 84 as compared to 148 in 2010 and 127 in 2009. We expect net unit growth of approximately
240 to 280 units during 2012.
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 $897,000 for 2011, compared to $863,000 for 2010 and $869,000 for
2009. Average sales volumes in new markets are generally lower than in those markets in which we have
established a significant market position. The comparable sales for domestic Company-owned restaurants
increased 4.1% in 2011, decreased 0.6% in 2010, and decreased 0.5% in 2009. The comparable sales for
North America franchised units increased 3.1% in 2011, 0.3% in 2010 and 0.1% in 2009. “Comparable
sales” represents sales generated by restaurants open for the entire twelve-month period reported.
We strive to obtain high-quality restaurant sites with good access and visibility, and to enhance the
appearance and quality of our restaurants. We believe that these factors improve our image and brand
awareness. The average cash investment for the eight domestic Company-owned restaurants opened
during 2011 was approximately $260,000, compared to the $250,000 investment for the five units opened
in 2010, exclusive of land and any tenant improvement allowances that we received in both years.
Approximately 47% of our revenues for 2011, compared to 45% of our revenues for 2010 and 40% of our
revenues for 2009, were derived from the sale to our domestic and international franchisees of food and
paper products, printing and promotional items, risk management services and information systems
equipment and software and related services by us. 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.