Papa Johns 2006 Annual Report Download - page 43

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40
• These increases were partially offset by a decline in the Company’s franchise insurance premium
revenue as a result of discontinuing the captive insurance program. In addition, variable interest
entities restaurant sales declined $2.7 million 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 totaled $69.6 million in 2005, as compared
to $32.1 million in 2004 as summarized in the following table on an operating segment basis (in
thousands):
Increase
2005 2004 (Decrease)
Domestic Company-owned restaurants 25,284$ 5,069$ 20,215$
Domestic commissaries 25,446 19,797 5,649
Domestic franchising 49,821 46,076 3,745
International (5,006) (4,309) (697)
Variable interest entities 4,472 (23,459) 27,931
All others 4,298 2,620 1,678
Unallocated corporate expenses (34,172) (14,035) (20,137)
Elimination of intersegment losses (profits) (511) 299 (810)
Total income from continuing operations before income taxes 69,632$ 32,058$ 37,574$
Excluding the impact of the consolidation of BIBP (pre-tax gain of $4.5 million or $0.08 per diluted
share in 2005 and a pre-tax loss of $23.5 million or $0.42 per diluted share in 2004), 2005 income from
continuing operations before income taxes was $65.2 million (6.7% of total revenues), compared to $55.5
million (6.0% of total revenues) in 2004. This increase of $9.7 million (excluding the consolidation of
BIBP) was principally due to the following:
• Domestic Company-owned Restaurant Segment. Domestic Company-owned restaurants’
operating income increased $20.2 million in 2005 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 in 2005 include a gain of $2.2 million from the sale of 92 restaurants from three
transactions.
• Domestic Commissary Segment. Domestic commissaries’ operating income increased $5.6
million, primarily due to an improved operating margin and lower administrative costs, partially
offset by increased distribution costs of $2.0 million as a result of higher fuel costs. The 2005
operating income also includes a pre-tax charge of $925,000 associated with the closing of the
Jackson, Mississippi facility at the end of March 2005. The $925,000 pre-tax charge includes
severance payments and a write-off of the remaining net book value of the property, net of
salvage value.
• 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.
• International Segment. The international segment, which excludes the Perfect Pizza operations
that were sold in March 2006, reported an operating loss of $5.0 million in 2005 compared to an