Papa Johns 2004 Annual Report Download - page 26

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25
Lease Expense Recognition
The Company recently completed a comprehensive review of its accounting for lease expense and
depreciation of leasehold improvements. Our review resulted in a cumulative fourth quarter adjustment
increasing rent and depreciation expense by $1.9 million (or $0.07 per share, after tax) applicable to prior
periods, of which $1.6 million (or $0.06 per share, after tax) was applicable to years prior to 2004. This
accounting adjustment does not affect the Company’s historical or future cash flows or the timing or
amounts of rental payments. Additionally, this correction is not material to prior periods. We do not
expect this accounting adjustment to have a significant impact on future operating earnings.
Accounting Changes
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 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 (representing 33 Papa John’s restaurants) that
qualify as VIEs, even though we have no ownership interest in them. We began consolidating these four
franchise entities in the second quarter of 2004, as required by FIN 46. The consolidation of these four
entities resulted in the recording of goodwill of $2.8 million. The consolidation of the entities had no
significant impact on our operating results during 2004 and we do not expect our future operating
earnings to be significantly impacted by consolidating these four entities.