Papa Johns 2006 Annual Report Download - page 36

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Our income from continuing operations before income taxes totaled $96.2 million in 2006, as compared
to $69.6 million in 2005 as summarized in the following table on an operating segment basis (in
thousands):
Increase
2006 2005 (Decrease)
Domestic Company-owned restaurants 33,176$ 25,284$ 7,892$
Domestic commissaries 34,690 25,446 9,244
Domestic franchising 51,543 49,821 1,722
International (8,874) (5,006) (3,868)
Variable interest entities 18,987 4,472 14,515
All others 5,628 4,298 1,330
Unallocated corporate expenses (37,523) (34,172) (3,351)
Elimination of intersegment profits (1,470) (511) (959)
Total income from continuing operations before income taxes 96,157$ 69,632$ 26,525$
Excluding the impact of the consolidation of BIBP (pre-tax gain of $19.0 million or $0.36 per diluted
share in 2006 and a pre-tax gain of $4.5 million or $0.08 per diluted share in 2005), 2006 income from
continuing operations before income taxes was $77.2 million (7.7% of total revenues), compared to $65.2
million (6.7% of total revenues) in 2005. Our fiscal year 2006 includes 53 weeks of operations, compared
to 52 weeks in fiscal year 2005. The additional week in 2006 increased our pre-tax income by
approximately $3.5 million, or $0.07 per diluted share. The $12.0 million increase in income from
continuing operations before income taxes (including the benefit of the 53rd week and excluding the
consolidation of BIBP) was principally due to the following:
• Domestic Company-owned Restaurant Segment. Domestic Company-owned restaurants’
operating income increased $7.9 million over the prior year, including approximately $1.6
million related to the 53rd week of operations. The increase was primarily due to fixed-cost
leverage and related margin improvement associated with a 3.6% increase in comparable sales
and lower commodity costs (primarily cheese). The acquisition of 57 Papa John's restaurants,
substantially all of which occurred in the last five months of 2006, did not have a significant
impact on 2006 income. Additionally, the Company-owned operating results for 2005 included a
gain of $2.2 million from the sale of 92 restaurants from three transactions.
• Domestic Commissary Segment. Domestic commissaries’ operating income increased $9.2
million. Approximately $4.3 million of the increase occurred due to the impact of the 53rd week
of operations, income from sales to the Six Flags, Inc. theme-park operator and the closing of the
Jackson, Mississippi facility in 2005. The remainder of the increase is principally due to
additional margin on increased sales volumes.
• Domestic Franchising Segment. Domestic franchising operating income increased $1.7 million,
including approximately $1.0 million related to the 53rd week of operations in 2006. The increase
reflected an increase in royalties of $4.1 million due to an increase of 2.9% in comparable sales
for domestic franchisees and an increase in equivalent units during 2006. The increase in
royalties during 2006 was partially offset by an increase in administrative costs related to the
field organizational restructuring implemented in late 2005 to better drive the performance of our
domestic franchise operations.
• International Segment. The international segment, excluding the Perfect Pizza operations in the
United Kingdom sold in March 2006, reported an operating loss of $8.9 million in 2006
compared to an operating loss of $5.0 million in 2005. The decline in operating results was