Papa Johns 1999 Annual Report Download - page 61

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The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense (exclusive of the tax effect
related to the cumulative effect of accounting change) for the years ended December 26, 1999, December 27, 1998 and December
28, 1997 is as follows (in thousands):
1999 1998 1997
Tax at U.S. federal statutory rate $ 26,501 $ 20,001 $ 13,768
State and local income taxes 2,450 1,845 1,393
Tax exempt investment income (551) (761) (783)
Losses on pooled entity - 1,037 1,217
Other 31 59 177
Total $ 28,431 $ 22,181 $ 15,772
Income taxes paid were $19.4 million in 1999, $15.9 million in 1998 and $11.0 million in 1997.
11. PJ America, Inc. Stock Warrant
PJ America, Inc. (“PJ America”), a franchisee of Papa John’s, completed an initial public offering (“IPO”) of its common stock
effective October 1996. In connection with the IPO, PJ America issued a warrant to us to purchase 225,000 shares of its common
stock. The warrant is exercisable in whole or in part at any time within five years from the closing date of the IPO, and the purchase
price of each share of common stock pursuant to the warrant is $11.25 per share (90% of the IPO price of $12.50 per share). The
warrant was issued by PJ America to Papa John’s in consideration for the grant of rights to enter into development agreements for
certain specified territories and the waiver by us of certain market transfer fees. Our agreement with PJ America anticipates that PJ
America will pay standard development and franchise fees in connection with opening restaurants in the specified territories.
We did not recognize income in connection with receipt of the warrant. The warrant is classified as an available-for-sale security,
and accordingly, is stated at fair value in the consolidated balance sheets, with unrealized gains, net of tax, reported within
comprehensive income.
The fair value of the warrant was $956,000 on December 26, 1999 and $1.5 million on December 27, 1998, based upon the closing
price per share of $15.50 and $18.13 for PJ America common stock on those respective dates, and is reported in investments in the
accompanying consolidated balance sheets. The intrinsic value of the warrant (market value of PJ America common stock less the
exercise price of the warrant) is considered a reasonable approximation of the fair value of the warrant.
Certain of our officers and/or directors are also officers and/or directors of PJ America.
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