Papa Johns 2005 Annual Report Download - page 72

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16. Related Party Transactions
Certain of our officers and directors own equity interests in entities that operate and/or have rights to
develop franchised restaurants. During 2003, in connection with the Company’s recruitment of directors
deemed independent under new Securities and Exchange Commission and NASDAQ rules, one director
retired from our Board and three resigned. One of the directors who resigned in 2003 was paid $144,000
annually in 2004 and 2003 (none in 2005) under a consulting agreement. This director also received
$112,500 in 2003 for his years of service under a director severance program. We paid $60,000 to each
of the two additional non-management directors who retired or resigned from the Board during 2003 for
their years of service under a director severance program. The remaining director who resigned continues
to serve as an executive officer of the Company. We had an employment agreement with another
director, who continues to serve on the Board, under which $20,000 was paid in 2005, $40,000 was paid
in 2004 and $75,000 was paid in 2003. The employment agreement with this director was terminated
during 2005.
As more fully described in Note 2, the Papa John’s Marketing Fund, Inc. (the “Marketing Fund”), a non-
profit corporation, is responsible for developing and conducting marketing and advertising for the Papa
John’s system. The Company had a loan outstanding of $2.7 million at December 25, 2005 to the
Marketing Fund (none in 2004) recorded in Notes receivable – affiliates in the accompanying
consolidated balance sheets. Additionally, during 2005, 2004 and 2003, we made contributions of $1.8
million, $400,000 and $1.0 million, respectively, to the Marketing Fund, which are included in other
general expenses in the accompanying consolidated statements of income, to assist the system with costs
incurred for national advertising.
During 2003, Papa Card, Inc. was formed, which is a non-profit corporation affiliated with the Marketing
Fund. Papa Card, Inc. is responsible for developing and marketing to our customers a gift card (“Papa
Card”), and for maintaining the systems and other support infrastructure for the Papa Card program. We
advanced certain start-up costs and working capital to Papa Card, Inc. The amounts due from Papa Card
included in accounts receivable – affiliates, net of the associated revenues, totaled $800,000 at December
26, 2004 (none at December 25, 2005).
Following is a summary of full-year transactions and year-end balances with franchisees owned by
related parties and outstanding amounts due from the Marketing Fund and Papa Card, Inc. (in thousands):
2005
2004
2003
Revenues from affiliates:
Commissary sales 57,681$ 58,416$ 68,964$
Other sales 3,649 5,420 9,140
Franchise royalties 7,799 8,213 9,892
Franchise and development fees 5 - 60
Total 69,134$ 72,049$ 88,056$
Other income from affiliates 378$ 270$ 285$
Accounts receivable-affiliates 2,363$ 2,712$ 2,395$
Notes receivable-affiliates 2,650$ -$ 1,200$
The above table excludes transactions and balances related to former non-management directors for the
time period subsequent to their retirement or resignation from our Board.