Papa Johns 2006 Annual Report Download - page 81

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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. We had an employment agreement with one director, who continues to
serve on the Board, under which $20,000 was paid in 2005 and $40,000 in 2004. 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 recorded in “Notes receivable – affiliates” in the accompanying consolidated balance
sheets (none at December 31, 2006). Additionally, during 2005 and 2004, we made contributions of $1.8
million and $400,000, respectively, to the Marketing Fund (none in 2006), which are included in
“Minority interests and other general expenses” in the accompanying consolidated statements of income,
to assist the system with costs incurred for national advertising.
Following is a summary of full-year transactions and year-end balances with franchisees owned by
related parties and outstanding amounts due from the Marketing Fund and Papa Card, Inc. (in thousands):
2006
2005
2004
Revenues from affiliates:
Commissary sales 47,124$ 57,681$ 58,416$
Other sales 3,696 3,649 5,420
Franchise royalties 6,305 7,799 8,213
Franchise and development fees 15 5 -
Total 57,140$ 69,134$ 72,049$
Other income from affiliates 66$ 378$ 270$
Accounts receivable-affiliates 783$ 2,363$ 2,712$
Notes receivable-affiliates -$ 2,650$ -$
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.
We paid $80,000 in 2006, $399,000 in 2005 and $309,000 in 2004 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 and $473,000 in 2004 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 2004 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.