Segment Information

9 Months Ended

Sep. 25, 2011

Segment Information

8.  Segment Information

We have defined six reportable segments: domestic Company-owned restaurants, domestic commissaries, North America franchising, international operations, variable interest entities (“VIEs”) and all other units.

The domestic Company-owned restaurant segment consists of the operations of all domestic (“domestic” is defined as restaurants operating in the United States) Company-owned restaurants and derives its revenues principally from retail sales of pizza and other food and beverage products to the general public. The domestic commissary segment consists of the operations of our regional dough production and product distribution centers and derives its revenues principally from the sale and distribution of food and paper products to Company-owned and franchised restaurants. The North America franchising segment consists of our franchise sales and support activities and derives its revenues from the sale of franchise and development rights and the collection of royalties from our franchisees located in the United States and Canada. The international operations segment principally consists of our Company-owned restaurants and distribution sales to franchised Papa John’s restaurants located in the United Kingdom, China and Mexico and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our international franchisees. International franchisees are defined as all franchise operations outside of the United States and Canada. BIBP was a variable interest entity in which we were deemed the primary beneficiary, as defined in Note 3, and is the only activity reflected in the VIE segment. All other business units that do not meet the quantitative thresholds for determining reportable segments, which we refer to as our “all others” segment, consist of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of printing and promotional items, risk management services, and information systems and related services used in restaurant operations, including our online and other technology-based ordering platforms.

Generally, we evaluate performance and allocate resources based on profit or loss from operations before income taxes and eliminations. Certain administrative and capital costs are allocated to segments based upon predetermined rates or actual estimated resource usage. We account for intercompany sales and transfers as if the sales or transfers were to third parties and eliminate the related profit in consolidation.

Our reportable segments are business units that provide different products or services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies. No single external customer accounted for 10% or more of our consolidated revenues.

As previously noted, beginning in 2011, we realigned management responsibility for Hawaii, Alaska and Canada from the International segment to the Domestic franchising segment in order to better leverage existing infrastructure and systems. As a result, we renamed the Domestic franchising segment “North America franchising” in the first quarter of 2011. The prior year data in the following table has been reclassified from the International segment to the North America franchising segment to conform to the current year presentation.

Our segment information is as follows:

	Three Months Ended						Nine Months Ended
(In thousands)	Sept. 25, 2011			Sept. 26, 2010			Sept. 25, 2011			Sept. 26, 2010
Revenues from external customers:
Domestic Company-owned restaurants	$	128,787		$	120,414		$	395,099		$	374,652
Domestic commissaries		130,870			111,884			379,569			338,460
North America franchising *		18,122			16,802			56,265			52,598
International *		15,521			11,888			42,551			34,175
All others		12,368			12,138			38,185			39,674
Total revenues from external customers	$	305,668		$	273,126		$	911,669		$	839,559
Intersegment revenues:
Domestic commissaries	$	38,702		$	32,376		$	112,674		$	99,254
North America franchising		542			494			1,625			1,509
International		58			163			163			852
Variable interest entities		-			37,052			25,117			113,556
All others		2,793			2,854			7,919			8,713
Total intersegment revenues	$	42,095		$	72,939		$	147,498		$	223,884
Income (loss) before income taxes:
Domestic Company-owned restaurants	$	4,273		$	5,503		$	22,577		$	25,604
Domestic commissaries		7,237			5,393			21,112			20,577
North America franchising *		15,941			14,663			50,190			46,713
International *		249			(1,309	)		(817	)		(4,162	)
Variable interest entities		-			(658	)		-			5,505
All others		(66	)		60			(742	)		1,187
Unallocated corporate expenses		(11,085	)		(11,004	)		(29,371	)		(33,963	)
Elimination of intersegment profits		297			(108	)		(256	)		(329	)
Total income before income taxes	$	16,846		$	12,540		$	62,693		$	61,132
Income attributable to noncontrolling interests		(817	)		(672	)		(2,868	)		(2,672	)
Total income before income taxes, net
of noncontrolling interests	$	16,029		$	11,868		$	59,825		$	58,460
Property and equipment:
Domestic Company-owned restaurants	$	173,814
Domestic commissaries		85,264
International		18,279
All others		36,157
Unallocated corporate assets		130,287
Accumulated depreciation and amortization		(260,617	)
Net property and equipment	$	183,184

*The results for the three and nine months ended September 26, 2010 for franchised restaurants operating in Hawaii, Alaska and Canada have been reclassified from the International segment to the North America franchising segment to conform to the current year presentation. The impact of the reclassification was to increase North America franchising revenues and income before income taxes by $362,000 and $302,000, respectively, for the three months ended September 26, 2010, and $1.1 million and $982,000, respectively, for the nine months ended September 26, 2010, with corresponding decreases in the International segment.