Papa Johns 1998 Annual Report Download - page 39

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36
Advertising and Related Costs
Advertising and related costs include the costs of Company-owned restaurant activities such as mail
coupons, door hangers and promotional items and contributions to the Papa John’s Marketing Fund, Inc.
(the “Marketing Fund”) and local market cooperative advertising funds. Through December 28, 1997,
Company-owned restaurant contributions to the Marketing Fund and local market cooperative
advertising funds were expensed as incurred. Contributions by Company-owned and franchised
restaurants to the Marketing Fund and the cooperative advertising funds are based on an established
percentage of monthly restaurant revenues. The Marketing Fund is responsible for developing and
conducting marketing and advertising for the Papa John’s system. The local market cooperative
advertising funds are responsible for developing and conducting advertising activities in a specific
market, including the placement of electronic and print materials developed by the Marketing Fund.
Such funds are accounted for separately and are not included in our consolidated financial statements,
except as described below beginning with the first quarter of 1998.
Effective December 29, 1997, we began recognizing Company-owned restaurant contributions to the
Marketing Fund and to those local market cooperative advertising funds deemed to be controlled by us
(collectively, the “Controlled Funds”), as advertising and related costs at the time the Controlled Funds
actually incurred such expenses. Through December 28, 1997, the Controlled Funds generally incurred
expenses as contributions were received; therefore, the impact of this change was not material.
Earnings per Share
The calculations of basic and diluted earnings per share before the cumulative effect of a change in
accounting principle for the years ended December 27, 1998, December 28, 1997, and December 29, 1996,
are as follows (in thousands, except per share data):
1998 1997 1996
Basic earnings per share:
Income before cumulative effect of a change
in accounting principle $ 37,768 $ 26,853 $ 18,614
Weighted average shares outstanding 29,409 28,916 28,010
Basic earnings per share $ 1.28 $ .93 $ .66
Diluted earnings per share:
Income before cumulative effect of a change
in accounting principle $ 37,768 $ 26,853 $ 18,614
Weighted average shares outstanding 29,409 28,916 28,010
Dilutive effect of outstanding common stock options 918 676 660
Diluted weighted average shares outstanding 30,327 29,592 28,670
Diluted earnings per share $ 1.25 $ .91 $ .65
Options to purchase common stock with an exercise price greater than the average market price were not
included in the computation of the dilutive effect of common stock options because the effect would have
been antidilutive. The number of antidilutive options was 213,000 in 1998, 695,000 in 1997, and 217,000 in 1996.
Notes to Consolidated Financial Statements (continued)