Papa Johns 2003 Annual Report Download - page 27

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26
insurance company, based on updated actuarial valuations. See “Note 10” of “Notes to Consolidated
Financial Statements” for additional information.
Consolidation of BIBP Commodities Inc. (“BIBP”) as a Variable Interest Entity
BIBP is a franchisee-owned corporation through which a cheese-purchasing program is conducted on
behalf of domestic-owned and franchised restaurants. As required by the Financial Accounting Standards
Board’s (“FASB”) Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of
Accounting Research Bulletin No. 51 (FIN 46), we began consolidating the financial results of BIBP at
the end of the fourth quarter of 2003. The consolidation of BIBP could have a significant impact on Papa
John’s operating income in future periods due to the volatility of cheese prices. Papa John’s will
recognize the operating losses generated by BIBP if the shareholders’ equity is in a net deficit position.
Further, Papa John’s will recognize subsequent operating income generated by BIBP up to the amount of
BIBP losses previously recognized.
Accounting Changes
Statement of Financial Accounting Standards No. 150
We adopted Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, (SFAS No. 150) in 2003. SFAS No. 150
requires parent companies to record minority interest liabilities at estimated settlement value if the
majority-owned subsidiary has equity instruments that are redeemable at a fixed date and such
redemption is certain to occur. We have a majority interest in one subsidiary, which owns and operates
24 Papa John’s restaurants, that meets these provisions. In 2003, we recorded an after-tax cumulative
effect adjustment of $413,000 ($660,000 pre-tax) or $0.02 per share, in our consolidated statements of
income, related to the adoption of SFAS No. 150. SFAS No. 150 is not expected to have a significant
impact on future earnings reported by the Company.
Interpretation No. 46 of Accounting Research Bulletin No. 51 (FIN 46)
As previously discussed, FIN 46 addresses the potential consolidation of variable interest entities (VIEs).
The provisions of FIN 46, as revised during 2003, significantly alter the method for evaluating whether
certain VIEs, as defined, should be consolidated in a company’s financial statements. As noted above, we
began consolidating BIBP at December 28, 2003. A cumulative effect adjustment was not required with
the adoption of FIN 46 as BIBP had a surplus in stockholders’ equity at December 28, 2003. Papa John’s
is also the primary beneficiary, as defined by FIN 46, of four franchise entities that qualify as VIEs. We
will begin consolidating these four franchise entities at the end of the first quarter of 2004, as required by
FIN 46, which will result in the recording of goodwill approximating $3.3 million. The Company’s future
operating earnings are not expected to be significantly impacted by consolidating these four entities.