Papa Johns 2005 Annual Report Download - page 33

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31
The following summarizes the results of the discontinued operations for the last three years (in
thousands):
2005 2004 2003
Net sales 13,632$ 17,080$ 17,255$
Operating expenses 8,837 10,392 10,659
G&A expenses 1,658 1,411 1,245
Other expenses 299 182 164
Income before income taxes 2,838 5,095 5,187
Income tax expense 1,050 1,911 1,945
Net income from discontinued operations 1,788$ 3,184$ 3,242$
Summary of Operating Results from Continuing Operations
Total revenues increased 4.7% to $968.8 million in 2005 compared to $925.3 million in 2004 primarily
consisting of the following:
• A $21.8 million increase in Company-owned restaurant revenues as compared to the prior year
primarily due to an increase in comparable sales of 7.4%, partially offset by a decline in units
due to the sale of 84 restaurants at the beginning of the fourth quarter in 2005. “Comparable
sales” represents sales generated by restaurants open for the entire twelve-month period reported.
• A $21.7 million increase in domestic commissary sales reflecting the impact of higher
commodity prices, principally cheese.
• These increases were partially offset by a decline in the Company’s franchise insurance premium
revenue and a $2.7 million reduction in variable interest entities restaurant sales due to the sale
of one of the previously-consolidated franchise entities to a third party as of the beginning of the
second quarter of 2005.
Our income from continuing operations before income taxes and cumulative effect of a change in
accounting principle totaled $69.6 million in 2005, as compared to $32.1 million in 2004. Excluding the
impact of the consolidation of BIBP (pre-tax gain of $4.5 million or $0.08 per share in 2005 and a pre-tax
loss of $23.5 million or $0.42 per share in 2004), 2005 income from continuing operations before income
taxes and cumulative effect of a change in accounting principle was $65.2 million, compared to $55.5
million in 2004. This increase of $9.7 million (excluding the consolidation of BIBP) was principally due
to the following (analyzed on an operating segment basis – see “Note 22” of “Notes to Consolidated
Financial Statements”):
• Domestic Company-owned Restaurant Segment. Domestic Company-owned restaurants’
operating income increased $20.2 million over the prior year primarily due to the fixed cost
leverage associated with an increase of 7.4% in comparable sales during 2005 and improved
margin from an increase in restaurant pricing, partially offset by increased commodity costs
(principally cheese). We implemented a delivery charge for the majority of Company-owned
restaurants in June 2005, which allowed additional pricing flexibility that led to increased
comparable transactions during the last half of 2005. Additionally, the Company-owned
operating results include a gain of $2.2 million from the sale of 92 restaurants from three
transactions.
• Domestic Franchising Segment. Domestic franchising operating income increased $3.7 million
primarily as a result of higher royalties due to an increase of 4.3% in comparable sales for
domestic franchisees and lower administrative costs associated with franchise operations.