Papa Johns 2004 Annual Report Download - page 30

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The amount of income or loss attributable to the BIBP shareholders depends on its cumulative
shareholders’ equity balance and the change in such balance during the reporting period.
In addition, we have extended loans to certain franchisees. Under the FIN 46 rules, Papa John’s is
deemed to be the primary beneficiary of four of these franchisees, even though we have no ownership
interest in them. Beginning in the second quarter of 2004, FIN 46 required us to recognize the operating
income (losses) generated by these four franchise entities (representing 33 Papa John’s restaurants). The
consolidation of these four franchise entities had no net significant impact on Papa John’s operating
results in 2004, generating revenues of $14.4 million and operating expenses (including general and
administrative, depreciation and interest) of approximately the same amount.
Summary of Operating Results
Total revenues increased 2.7% to $942.4 million in 2004 compared to $917.4 million in 2003 primarily
consisting of: (1) $14.4 million from the consolidation of 33 franchised restaurants beginning in the
second quarter of 2004 resulting from the implementation of FIN 46; (2) $6.8 million from commissary
sales reflecting the sales of promotional items (principally DVDs) and the favorable impact of higher
commodity prices, primarily cheese, partially offset by lower sales volumes and (3) $3.0 million from the
first quarter sales of promotional items associated with our March 2004 NCAA national basketball
promotion. These increases were partially offset by a decline in domestic Company-owned restaurant
sales of $3.4 million in 2004, as compared to 2003, primarily as a result of the closing of restaurants
during the last quarter of 2003.
Our income before income taxes and cumulative effect of a change in accounting principle decreased
31.7% to $37.2 million in 2004, from $54.4 million in 2003. The decrease is principally due to the
consolidation of BIBP in 2004, which resulted in a pre-tax loss of $23.5 million ($0.84 per share). The
comparison of 2004 to 2003 was also impacted by the following:
• The 2003 results included a $5.5 million restaurant closure, impairment and disposition charge
(none of significance in 2004).
• The 2003 results included a loss of $6.3 million from the franchise insurance program while the
loss in 2004 was $1.1 million.
• Net interest expense declined $1.6 million in 2004 due in part to the $625,000 benefit recorded
pursuant to SFAS No. 150, associated with a change in a joint venture operating agreement
during 2004, which eliminated a mandatory purchase requirement and related liability. The
remainder of the decrease in interest expense is due to lower average debt balances and lower
effective interest rates.
• The 2003 results included a $1.0 million contribution to the Marketing Fund and a $500,000
sales incentive to franchisees as compared to a contribution of $400,000 to the Marketing Fund
in 2004.
• The favorable year over year impact of the above items was partially offset by a reduction in
commissary results of approximately $5.1 million in 2004, as compared to 2003, as a result of
lower sales volumes due to a reduction in the number of restaurant transactions.
• The favorable impact was further offset by a reduction in full-year 2004 operating income of
approximately $1.6 million, as a result of certain lease and leasehold accounting adjustments
applicable to prior years.
Diluted earnings per share before cumulative effect of a change in accounting principle were $1.33
compared to $1.88 in 2003. In December 1999, we began a repurchase program for our common stock.
Through December 26, 2004, an aggregate of $420.5 million shares have been repurchased (representing