Papa Johns 2005 Annual Report Download - page 73

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71
16. Related Party Transactions (continued)
We paid $399,000 in 2005, $309,000 in 2004 and $508,000 in 2003 for charter aircraft services provided
by an entity owned by our founder and Executive Chairman of the Board, John Schnatter. We believe the
rates charged to the Company were at or below rates that could have been obtained from independent
third parties for similar aircraft.
Mr. Schnatter paid the Company $160,000 in 2005, $473,000 in 2004 and $460,000 in 2003 for the
salaries, bonuses and benefits of certain employees who perform work for both the Company and Mr.
Schnatter based upon an assessment of their responsibilities to each (on average, approximately 35% of
the total costs were paid by the Company and 65% were paid by Mr. Schnatter). Mr. Schnatter and the
Company terminated this shared employment arrangement in September 2005, after which certain
employees began working full-time for the Company and the remaining employees began working full-
time for Mr. Schnatter. Additionally, the Company charged Mr. Schnatter $8,795 in 2005 and $11,410 in
both 2004 and 2003 related to approximately 800 square feet of Company office space utilized by these
employees. Mr. Schnatter and his employees moved out of the Company office space in September 2005.
As more fully described in Note 8, effective December 25, 2005, the Company sold five restaurants to an
operations vice president. The employee resigned from the Company concurrently with the sale.
A franchise entity that is owned by three executive officers of Papa John’s purchased a total of three
restaurants for $1.2 million in 2005 and five restaurants for $1.8 million in 2003 from unrelated third-
party franchise entities (none in 2004).
During 2005, a franchise entity that is owned by one member of our Board of Directors purchased 14
restaurants for $2.5 million from an unrelated third-party franchise entity.
During 2004, we waived royalty payments of approximately $290,000 from a franchisee with respect to
restaurants located in one market area. In consideration for the royalty waiver, the franchisee agreed to
increase its level of local marketing expenditures in that market area in amounts equal to the waived
royalties. A member of our Board of Directors has a minority ownership interest (less than 20%) in the
franchisee. In December 2004, the franchisee sold 13 restaurants located in this market to an unaffiliated
third-party franchisee for $390,000. Papa John’s agreed to provide the financing to the third-party
franchisee related to the purchase of the restaurants. In addition, Papa John’s agreed to waive the
royalties due from the purchaser of the 13 restaurants. The waived royalties amounted to $300,000 in
2005 and $17,000 in 2004. Effective May 27, 2005, this same franchise entity, in which our Board
member has a minority interest, entered into an agreement to sell an additional 14 restaurants to a new
unaffiliated third-party franchise for $2.4 million in a separate market. Papa John’s agreed to receive
reduced royalties from the purchaser for 12 months from the date of purchase. The waived royalties
amounted to $65,000 in 2005.
See Note 5 for information related to our purchasing arrangement with BIBP.