Papa Johns 2003 Annual Report Download - page 68

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67
20. Segment Information (continued)
1. The 2003 segment data reflects an increase in the rate of administrative cost allocation to domestic
restaurants. The 2002 and 2001 proforma amounts, adjusted to reflect the 2003 increase in the
administrative cost allocation would be $13.4 million and $4.8 million, respectively, for domestic
restaurants and losses of $16.1 million and $7.4 million, respectively, for unallocated corporate
expenses.
2. The decrease in domestic restaurants income before income taxes from the 2002 pro forma income of
$13.4 million is primarily due to a 3.0% decrease in comparable sales for the 2003 period and an
increase in restaurant closure, impairment and disposition charges of $4.4 million. The decrease in
domestic restaurant income is also due to increases in salaries and benefits (across-the-board increase
in base pay for general managers and assistant managers and increased staffing due to the field
management realignment), increases in general and health insurance costs, and increases in
advertising and related costs. These increases are partially offset by lower cheese and other
commodity costs. The increase in domestic restaurants pro forma income before income taxes ($13.4
million in 2002 as compared to $4.8 million in 2001) is primarily due to operating margin
improvements, resulting from favorable commodity costs (primarily boxes and meats) and a higher
average sales price point in 2002.
3. The decrease in pre-tax income in 2003, as compared to 2002 and 2001 is primarily due to an
increase of $6.3 million in claims loss reserves, as compared to expected claims costs, related to the
franchisee insurance program.
4. The decrease in unallocated corporate expenses in 2003 as compared to the 2002 proforma loss of
$16.1 million is due to income recognized of $2.0 million in 2003 from the settlement of a litigation
matter, lower provisions for uncollectible notes receivable, a reduction in corporate management
bonuses and labor expenses and the inclusion in 2002 of costs related to the refurbishment plan
concerning our heated delivery bag system. The increase in the 2002 proforma loss of $16.1 million
as compared to the 2001 proforma loss of $7.4 million is primarily due to an increase in insurance
costs, quality initiatives implemented in 2002 to improve the customer experience, an increase in the
provision for uncollectible notes receivable, and the recognition of a loss in connection with a
terminated vendor relationship.