Segment Information

6 Months Ended

Jun. 26, 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 is a variable interest entity in which we are 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 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 International to Domestic franchising 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 International to North America franchising to conform to the current year presentation.

Our segment information is as follows:

	Three Months Ended						Six Months Ended
(In thousands)	June 26, 2011			June 27, 2010			June 26, 2011			June 27, 2010
Revenues from external customers:
Domestic Company-owned restaurants	$	127,641		$	124,594		$	266,312		$	254,238
Domestic commissaries		121,027			113,936			248,699			226,576
North America franchising *		18,227			17,546			38,143			35,796
International *		14,269			11,548			27,030			22,287
All others		12,370			13,023			25,817			27,536
Total revenues from external customers	$	293,534		$	280,647		$	606,001		$	566,433
Intersegment revenues:
Domestic commissaries	$	35,872		$	33,234		$	73,972		$	66,878
North America franchising		535			511			1,083			1,015
International		58			356			105			689
Variable interest entities		-			37,362			25,117			76,504
All others		2,571			2,709			5,126			5,859
Total intersegment revenues	$	39,036		$	74,172		$	105,403		$	150,945
Income (loss) before income taxes:
Domestic Company-owned restaurants	$	7,421		$	8,656		$	18,304		$	20,101
Domestic commissaries		4,321			8,036			13,875			15,184
North America franchising *		16,240			15,699			34,249			32,050
International *		(250	)		(1,322	)		(1,066	)		(2,854	)
Variable interest entities		-			2,678			-			6,163
All others		(298	)		178			(676	)		1,127
Unallocated corporate expenses		(8,517	)		(12,129	)		(18,286	)		(22,959	)
Elimination of intersegment profits		150			(133	)		(553	)		(220	)
Total income before income taxes	$	19,067		$	21,663		$	45,847		$	48,592
Income attributable to noncontrolling interests		(929	)		(911	)		(2,051	)		(2,000	)
Total income before income taxes, net
of noncontrolling interests	$	18,138		$	20,752		$	43,796		$	46,592

Property and equipment:
Domestic Company-owned restaurants	$	170,386
Domestic commissaries		83,364
International		18,417
All others		35,680
Unallocated corporate assets		128,398
Accumulated depreciation and amortization		(253,457	)
Net property and equipment	$	182,788

*The results for the three and six months ended June 27, 2010 for franchised restaurants operating in Hawaii, Alaska, and Canada have been reclassified from International to North America franchising 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 $305,000 and $250,000, respectively, for the three months ended June 27, 2010, and $773,000 and $680,000, respectively, for the six months ended June 27, 2010, with corresponding decreases in the International operating segment results.