Papa Johns 2006 Annual Report Download - page 37

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34
principally due to increased costs related to the development of our support infrastructure
throughout the international segment, including the United Kingdom, to support the accelerated
development of both Company-owned and franchised Papa John’s branded restaurants in our
international markets. In addition, the Company incurred a $470,000 charge in 2006 related to
the reorganization of one of our international operating units. During 2005, the international
segment recorded a $1.1 million impairment charge associated with the United Kingdom
subsidiary. The 53rd week of operations in 2006 did not have a significant impact on this
segment.
All Others Segment. The operating income for the “All others” reporting segment increased
approximately $1.3 million primarily due to improved operating results from our insurance
agency and online ordering businesses and our partnership development activities. The 53rd week
of operations in 2006 did not have a significant impact on this segment.
Unallocated Corporate Segment. Unallocated corporate expenses increased $3.4 million,
primarily due to the following (in millions):
Increase
(Decrease)
Equity compensation and executive performance
unit incentive program 3.0$
Marketing for non-traditional restaurant initiatives 2.4
Contribution to the Marketing Fund (1.8)
Other (0.2)
Total increase 3.4$
The increase in equity compensation and executive performance unit incentive compensation is
due to compensation expense recognized for stock options and performance units awarded to
management during 2005 and 2006 (see the discussion below). Additionally, increased marketing
efforts, primarily related to non-traditional restaurant initiatives, such as our marketing
agreement with Six Flags, Inc., resulted in additional costs of approximately $2.4 million. These
increases were partially offset by the inclusion in 2005 of a $1.8 million discretionary
contribution to the Papa John’s Marketing Fund to fund additional television advertising flights
related to the launch of Papa’s Perfect Pan Pizza.
Equity Compensation and Executive Performance Unit Incentive Plan
The Company adopted the provisions of SFAS No. 123(R), Share-Based Payment, effective at
the beginning of fiscal 2006 using the modified-prospective method. The adoption of SFAS No.
123(R) did not have a significant impact on our 2006 operating results since we adopted SFAS
No. 123, Accounting and Disclosure of Stock-Based Compensation in 2002.
Stock options were awarded to the majority of management in March 2005 and April 2006, each
with a two-year cliff vesting period. The Company also granted approximately 28,000 shares of
performance-based restricted stock during the second quarter of 2006 to certain employees with a
performance and vesting period of three years. There were no such grants awarded in 2004;
accordingly, the timing and layering effect of the vesting provisions of the 2005 and 2006 equity-
based awards resulted in an increase in expense recognition in 2006 as compared to 2005. Stock
compensation expense recognized for the year ended December 31, 2006 was $4.5 million as
compared to $2.4 million for the corresponding 2005 period. At December 31, 2006, there was