Papa Johns 2008 Annual Report Download - page 57

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50
Equity Compensation
The adoption of SFAS No. 123(R) did not have a significant impact on our 2007 and 2006
operating results since we adopted SFAS No. 123, Accounting and Disclosure of Stock-Based
Compensation, in 2002.
Performance Unit Plan
The total expense (income) related to the 2005 and 2006 performance unit programs was income
of approximately $1.2 million in 2007 compared to expense of $2.5 million in 2006. The
decrease in the executive performance unit incentive plan expense in 2007, as compared to 2006,
was due to a reduction in expected bonus payments, reflecting a decrease in the Company’s stock
price, the forfeiture of units associated with certain executive departures and the change in the
Founder Chairman’s status from an employee director of the Company to a non-employee
director during 2007.
Management Incentive Bonus Plan
The decrease in the expense in 2007 as compared to the corresponding period was primarily due
to below-target sales and operating income for the year and the transition of the Founder
Chairman to a non-employee director status.
• Variable Interest Entities. BIBP incurred an operating loss of $31.7 million in 2007, which was
composed of losses associated with cheese sold to domestic Company-owned restaurants and
franchise restaurants of $8.0 million and $22.9 million, respectively. The remainder of the 2007
loss was primarily composed of interest expense on outstanding debt with a third-party bank and
Papa John’s. For 2006, BIBP reported operating income of $19.0 million, which was composed
of income associated with cheese sold to domestic Company-owned restaurants and franchise
restaurants of $4.6 million and $15.2 million, respectively. The 2006 income from the sale of
cheese was partially offset by interest expense on outstanding debt.
Diluted earnings per share from continuing operations were $1.09 (including a $0.68 per diluted share
loss from the consolidation of BIBP and an $0.11 gain from the finalization of certain income tax issues)
in 2007, compared to $1.91 (including a $0.36 per diluted share gain from the consolidation of BIBP, an
$0.08 gain from the finalization of certain income tax issues and a $0.07 benefit from the 53rd week of
operations) in 2006. Share repurchase activity during 2007 increased earnings per diluted share from
continuing operations by approximately $0.02 ($0.09 excluding the impact of the consolidation of BIBP).
Review of Operating Results
Revenues. Domestic Company-owned restaurant sales were $504.3 million for 2007 compared to $447.9
million for 2006. The 12.6% increase was primarily due to an increase of 16.5% in equivalent Company-
owned units, reflecting the acquisition of 54 restaurants during the last five months of 2006 and 61
restaurants during 2007, partially offset by the impact of the 53rd week of operations in 2006 ($9.0
million). Our Company-owned restaurants reported an increase in comparable sales of 0.5% and 3.6% in
2007 and 2006, respectively.
Variable interest entities restaurant sales include restaurant sales for franchise entities to which we have
extended loans that qualify as VIEs. Revenues from variable interest entities totaled $7.1 million in 2007
as compared to $7.9 million in 2006.