Papa Johns 2001 Annual Report Download - page 47

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43
2. Significant Accounting Policies (continued)
Foreign Currency Translation
The local currency is the functional currency for our foreign subsidiary, Papa John’s UK. Earnings are
translated into U.S. dollars using monthly average exchange rates, while balance sheet accounts are
translated using year-end exchange rates. The resulting translation adjustments are included as a
component of accumulated other comprehensive income.
Financial Instruments
During 2001, we adopted Financial Accounting Standards Board (FASB) Statement No. 133 (SFAS
133), Accounting for Derivative Instruments and Hedging Activities, as amended by Statements No. 137
and 138 (SFAS 137 and 138). SFAS 133, as amended by SFAS 137 and 138, requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative meets the hedge criteria of SFAS 133, as
amended by SFAS 137 and 138, depending on the nature of the hedge, changes in the fair value of the
derivative are either offset against the change in fair value of assets, liabilities, or firm commitments
through earnings or recognized in accumulated other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative’s change in fair value, if any, is
immediately recognized in earnings.
The adoption of SFAS 133, as amended by SFAS 137 and 138, resulted in the cumulative effect of an
accounting change of $1.7 million ($1.1 million after tax) charged against accumulated other
comprehensive income to reflect the fair value of our interest rate collar as of the date of adoption. The
adoption of SFAS 133, as amended by SFAS 137 and 138, had no impact on earnings. During 2001,
accumulated other comprehensive income was charged $2.1 million ($1.3 million after tax) for the net
change in fair value of our interest rate collar and interest rate swap, both of which are deemed to be
effective hedges in accordance with SFAS 133, as amended by SFAS 137 and 138 (see Note 5).
Earnings per Share
The calculation of basic earnings per common share and earnings per common share – assuming dilution
for the years ended December 30, 2001, December 31, 2000 and December 26, 1999 are as follows (in
thousands, except per share data):
2001 2000 1999
Basic earnings per common share:
Net income 47,245$ 31,824$ 47,286$
Weighted average shares outstanding 22,600 24,703 30,195
Basic earnings per common share 2.09$ 1.29$ 1.57$
Earnings per common share - assuming dilution:
Net income 47,245$ 31,824$ 47,286$
Weighted average shares outstanding 22,600 24,703 30,195
Dilutive effect of outstanding common stock options 153 204 885
Diluted weighted average shares outstanding 22,753 24,907 31,080
Earnings per common share - assuming dilution 2.08$ 1.28$ 1.52$
2. Significant Accounting Policies (continued)