Papa Johns 2003 Annual Report Download - page 33

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32
to bear in connection with a refurbishment plan concerning our heated delivery bag systems and $1.7
million of losses related to a terminated vendor contract.
Depreciation and amortization was $31.1 million (3.4% of revenues) for 2003, as compared to $31.7
million (3.4% of revenues) for 2002.
Net Interest. Net interest expense was $6.2 million for 2003 as compared to $6.6 million in 2002 as the
lower outstanding debt balance and lower effective interest rate on debt were partially offset by lower
interest income from investments and franchise notes receivable in 2003.
Income Tax Expense. The effective income tax rate was 37.5% for both 2003 and 2002.
Operating Income and Earnings per Common Share. Operating income in 2003 was $60.5 million, or
6.6% of total revenues, compared to $81.4 million, or 8.6% of total revenues in 2002. The decrease in
operating income is primarily due to the decrease in operating results of our domestic restaurant segment,
primarily resulting from lower sales and increased costs associated with our restaurant initiatives,
compared to the same periods in 2002, increases in restaurant closure, impairment and disposition
charges and the increased claims loss reserves related to the franchise captive insurance program.
Diluted earnings per share before cumulative effect of a change in accounting principle for 2003 was
$1.88 compared to $2.31 in 2002. In December 1999, we began a repurchase program for our common
stock. Through December 28, 2003, an aggregate of $351.6 million had been repurchased (representing
13.6 million shares or approximately 44.5% of shares outstanding at the time the repurchase program was
initiated, at an average price of $25.92 per share). The repurchase of our common shares in 2003 and
2002 resulted in an increase in diluted earnings per share of approximately $0.11 in 2003 as compared to
2002.
2002 Compared to 2001
Revenues. Total revenues decreased 3.0% to $946.2 million in 2002, from $975.1 million in 2001.
Domestic Company-owned restaurant sales decreased 3.6% to $429.8 million in 2002, from $445.8
million in 2001. This decrease was primarily due to a 6.2% decrease in the number of equivalent
Company-owned units open in 2002 as compared to 2001 as a result of the sale or closure of Company-
owned units (the divested restaurants having lower than average sales). “Equivalent units” represents the
number of restaurants open at the beginning of a given period, adjusted for restaurants opened, closed,
acquired or sold during the period on a weighted average basis. This decrease is partially offset by a
0.2% increase in comparable sales for the 2002 period.
Domestic franchise sales increased 1.4% to $1.32 billion in 2002, from $1.30 billion in 2001. This
increase primarily resulted from a 2.6% increase in the number of equivalent franchised domestic
restaurants open in 2002 compared to 2001, partially offset by a 1.8% comparable sales decrease in 2002.
Domestic franchise royalties increased 1.2% to $51.4 million in 2002, from $50.8 million in 2001, due to
the increase in domestic franchise sales noted above.