Marketing Incentive Contribution

As previously announced, in connection with a new multi-year supplier agreement, the company received a $5.0 million supplier marketing payment in the first quarter of 2012. The company contributed the supplier marketing payment to the Papa John’s National Marketing Fund (“PJNMF”), an unconsolidated, non-profit corporation, for the benefit of domestic restaurants. The company is recognizing the supplier marketing payment evenly as income over the five-year term of the agreement. The company’s contribution to PJNMF was fully expensed in the first quarter of 2012.

PJNMF elected to distribute the $5.0 million supplier marketing payment to the domestic system as advertising credits in the first quarter of 2012. Our domestic company-owned restaurants’ portion of the adverting credits resulted in an increase in income before income taxes of approximately $1.0 million (increase in diluted earnings per share of $0.03).

The overall impact of these transactions, defined as the “Incentive Contribution,” in the first quarter of 2012 was a net reduction to income before income taxes of approximately $3.7 million (diluted earnings per share reduction of $0.10). The impact for full-year 2012 will be a reduction to income before income taxes of approximately $3.0 million (diluted earnings per share reduction of $0.08). The following table reconciles our GAAP financial results to the adjusted financial results, excluding the impact of the Incentive Contribution, for the first quarter ended March 25, 2012:
       
First Quarter
Mar. 25, Mar. 27,
(In thousands, except per share amounts) 2012 2011
 
Income before income taxes, as reported $ 27,138 $ 26,780
Incentive Contribution   3,721   -
Income before income taxes, excluding Incentive Contribution $ 30,859 $ 26,780
 
Net income, as reported $ 16,744 $ 16,427
Incentive Contribution   2,439   -
Net income, excluding Incentive Contribution $ 19,183 $ 16,427
 
Earnings per diluted share, as reported $ 0.69 $ 0.64
Incentive Contribution   0.10   -
Earnings per diluted share, excluding Incentive Contribution $ 0.79 $ 0.64
 

The non-GAAP measures shown above, which exclude the Incentive Contribution, should not be construed as a substitute for or a better indicator of the company’s performance than the company’s GAAP measures. Management believes presenting the financial information excluding the impact of the Incentive Contribution is important for purposes of comparison to prior year results. In addition, management uses these non-GAAP measures to allocate resources, and analyze trends and underlying operating performance. Annual cash bonuses, and certain long-term incentive programs for various levels of management, were based on financial measures that excluded the Incentive Contribution.

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