Papa Johns 2010 Annual Report Download - page 50

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43
We recorded pre-tax income from the franchise cheese-purchasing program, net of noncontrolling
interest, of $5.6 million and $18.1 million in 2010 and 2009, respectively. These results only represent
the portion of BIBP’s operating income or loss related to the proportion of BIBP cheese sales to
franchisees. The total impact of the consolidation of BIBP on Papa John’s pre-tax income was pre-tax
income of $21.0 million in 2010 (including a reduction in BIBP’s cost of sales of $14.2 million
associated with PJFS’s agreement to pay to BIBP for past cheese purchases an amount equal to its
accumulated deficit) and $22.5 million in 2009 (see the previous table which summarizes BIBP’s
operating results for 2010 and 2009).
International operating expenses in 2010 were 88.7% of international restaurant and commissary sales as
compared to 86.3% in 2009. The increase in operating expenses as a percentage of sales is primarily due
to the start-up costs associated with our PJUK commissary.
General and administrative expenses were $110.0 million, or 9.8% of revenues for 2010, as compared to
$111.4 million, or 10.3% of revenues for 2009. The decrease is primarily due to the items noted as
comprising the decreases in unallocated general and administrative expenses for the Unallocated
Corporate Segment in the Summary of Operating Results section, as well as 2009 including certain
management transition costs recorded by our domestic commissaries segment.
Other general expenses reflected net expense of $9.0 million in 2010, as compared to $14.3 million in
2009 as detailed below (in thousands):
Increase
2010 2009 (Decrease)
Restaurant impairment and disposition losses 253$ 657$ (404)$
Disposition and valuation-related costs 641 1,172 (531)
Provision (credit) for uncollectible accounts and notes receivable (a) (27) 1,378 (1,405)
Pre-opening restaurant costs 149 75 74
Franchise support initiatives (b) 6,489 9,556 (3,067)
Franchise incentives (c) 1,044 440 604
Commissary closing costs - 369 (369)
Other 481 699 (218)
Total other general expenses 9,030$ 14,346$ (5,316)$
(a) The reduction in provision (credit) for uncollectible accounts and notes receivable was primarily
due to the collection of certain accounts that were previously reserved.
(b) Franchise support initiatives primarily consist of discretionary contributions to the national
marketing fund and other local advertising cooperatives.
(c) Franchise incentives include incentives to franchisees for opening new restaurants.
Depreciation and amortization was $32.4 million, or 2.9% of revenues, for 2010 as compared to $31.4
million, or 2.9% of revenues, for 2009.
Net interest.
Net interest expense was $4.5 million in 2010, compared to $5.0 million in 2009. The
interest expense for 2009 includes approximately $169,000 related to BIBP’s debt with a third-party bank
(none in 2010). The decrease in net interest costs for 2010 is primarily due to interest earned on
increased cash investments and a decrease in the average outstanding debt balance.