Papa Johns 2008 Annual Report Download - page 81

Download and view the complete annual report

Please find page 81 of the 2008 Papa Johns annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

74
2. Significant Accounting Policies (continued)
Derivative Financial Instruments
We recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. At inception and on an on-going basis, we assess whether each
derivative that qualifies for hedge accounting continues to be highly effective in offsetting changes in
the cash flows of the hedged item. If the derivative meets the hedge criteria as defined by certain
accounting standards, depending on the nature of the hedge, changes in the fair value of the derivative
are either offset against the change in fair value of assets, liabilities or firm commitments through
earnings or recognized in accumulated other comprehensive income (loss) until the hedged item is
recognized in earnings. The ineffective portion of a derivative’s change in fair value, if any, is
immediately recognized in earnings.
For the net change in fair value of our derivatives associated with our debt agreements, we recognized
losses of $4.1 million ($2.7 million after tax) and $2.0 million ($1.3 million after tax) in 2008 and 2007,
respectively. For 2006, we recognized other comprehensive income of $572,000 ($360,000 after tax) for
such changes in fair value. The ineffective portions of our hedges were not material to our operating
earnings for 2008, 2007 and 2006. Fair value is based on quoted market prices. See Note 8 for
additional information on our debt and credit arrangements.
Earnings per Share
The calculations of basic earnings per common share and earnings per common share – assuming
dilution, before income from discontinued operations, for the years ended December 28, 2008, December
30, 2007 and December 31, 2006 are as follows (in thousands, except per share data):
2008 2007 2006
Basic earnings per common share:
Income from continuing operations 36,796$ 32,735$ 62,986$
Weighted average shares outstanding 28,124 29,666 32,312
Basic earnings per common share 1.31$ 1.10$ 1.95$
Earnings per common share - assuming dilution:
Income from continuing operations 36,796$ 32,735$ 62,986$
Weighted average shares outstanding 28,124 29,666 32,312
Dilutive effect of outstanding common stock options 140 351 734
Diluted weighted average shares outstanding 28,264 30,017 33,046
Earnings per common share - assuming dilution 1.30$ 1.09$ 1.91$
Shares subject to options to purchase common stock with an exercise price greater than the average
market price for the year were not included in the computation of the dilutive effect of common stock
options because the effect would have been antidilutive. The weighted average number of shares subject
to antidilutive options was 1.5 million in 2008, 895,000 in 2007 and 12,000 in 2006.