Papa Johns 2015 Annual Report Download - page 27

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costs or pass along these costs to our customers or franchisees, given the significant competitive pricing
pressure.
Our dependence on a sole supplier or a limited number of suppliers for some ingredients could result in
disruptions to our business.
Domestic restaurants purchase substantially all food and related products from our QC Centers. We are
dependent on Leprino Foods Dairy Products Company (“Leprino”) as our sole supplier for cheese, one of
our key ingredients. Leprino, one of the major pizza category suppliers of cheese in the United States,
currently supplies all of our cheese domestically and substantially all of our cheese internationally. While
we have no other sole sources of supply for key ingredients, we do source other key ingredients from a
limited number of suppliers. Alternative sources of supply of cheese or other key ingredients may not be
available on a timely basis or may not be available on terms as favorable to us as under our current
arrangements.
Our corporate and franchised restaurants could also be harmed by a prolonged disruption in the supply of
products from or to our QC Centers due to weather, climate change, natural disasters, crop disease, labor
dispute or interruption of service by carriers. In particular, adverse weather or crop disease affecting the
California tomato crop could disrupt the supply of pizza sauce to our and our franchisees’ restaurants.
Insolvency of key suppliers could also cause similar business interruptions and negatively impact our
business.
Natural disasters or other catastrophic events may disrupt our operations or supply chain.
The occurrence of a natural disaster, epidemic, cyber attack or other catastrophic event may result in the
closure of Company-owned or franchised restaurants, our corporate office, any of our QC Centers or the
facilities of our suppliers, any of which could materially adversely affect our results of operations.
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 from our QC Centers tomato sauce, dough and other items we
may designate as proprietary or integral to our system. Any changes in purchasing practices by domestic
franchisees, which have become more sensitive to charges and other fees, such as seeking alternative
approved suppliers of ingredients or other food products, could adversely affect the financial results of
our QC Centers and the Company.
Our current insurance may not be adequate and we may experience claims in excess of our reserves.
Our insurance programs for workers’ compensation, owned and non-owned automobiles, general liability,
property and team member health insurance coverage are funded by the Company up to certain retention
levels, generally ranging from $100,000 to $500,000. These insurance programs or our program for cyber
insurance may not be adequate to protect us, and it may be difficult or impossible to obtain additional
coverage or maintain current coverage at a reasonable cost. We also have experienced increasing claims
volatility and higher related costs for workers’ compensation, owned and non-owned automobiles and
health claims. We estimate loss reserves based on historical trends, actuarial assumptions and other data
available to us, but we may not be able to accurately estimate reserves. If we experience claims in excess
of our projections, our business could be negatively impacted, and our franchisees could be similarly
impacted by higher claims experience.