Papa Johns 2012 Annual Report Download - page 31

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(5) The operating results include the consolidation of BIBP Commodities, Inc. (“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 (break-even results in 2011).
See “Note 5” of “Notes to Consolidated Financial Statements” for additional information. Operating
income also includes domestic and international restaurant closure, impairment and disposition
losses of $8.8 million in 2008.
(6) Represents the redeemable noncontrolling interests’ allocation of income for our 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 30, 2012, there were 4,163 Papa John’s restaurants in
operation, consisting of 696 Company-owned and 3,467 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 2012 were 368 as compared to 321 in 2011 and 325 in 2010 and unit closings in
2012 were 88 as compared to 84 in 2011 and 148 in 2010. We expect net unit growth of approximately
230 to 260 units during 2013. 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.
We continue to generate strong sales in our domestic Company-owned restaurants even in a very
competitive market environment. Average annual Company-owned sales for our most recent comparable
restaurant base were $953,000 for 2012 (53-week year), compared to $897,000 for 2011 and $863,000 for
2010 (2011 and 2010 are on a 52-week basis). 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 5.6% in 2012, increased 4.1% in 2011, and decreased
0.6% in 2010. The comparable sales for North America franchised units increased 2.9% in 2012, 3.1% in
2011 and 0.3% in 2010. “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 these factors improve our image and brand
awareness. The average cash investment for the eight domestic Company-owned restaurants opened
during 2012 was approximately $240,000, compared to the $260,000 investment for the eight units
opened in 2011, exclusive of land and any tenant improvement allowances we received in both years.
Approximately 43% of our revenues for 2012, compared to 47% of our revenues for 2011 and 45% of our
revenues for 2010, were derived from the sale to 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
profitability and growth, these activities contribute to product quality and consistency throughout the
Papa John’s system.