Papa Johns 2005 Annual Report Download - page 65

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63
6. Acquisitions and Formation of Joint Venture
During 2004, Papa John’s entered into a joint venture arrangement (Star Papa) with a third party. Under
the terms of the arrangement, Papa John’s effectively sold 49% of 71 Company-owned restaurants
located in Texas to the third party for $3.0 million ($2.5 million in cash and $500,000 as a note payable
to Papa John’s). We recognized a gain of $280,000 from the sale of our 49% interest in the 71
restaurants. We retained a 51% ownership interest and are required to consolidate the joint venture and
its financial results with those of Papa John’s.
During 2005, Star Papa completed the acquisition of six independently-owned franchised Papa John’s
restaurants located in the Austin, Texas area. Additionally, we purchased 12 Papa John’s franchise
restaurants located in the Philadelphia, Pennsylvania area during the fourth quarter. Total consideration
for these acquisitions was $4.5 million and the forgiveness of accounts receivable approximating
$500,000. These acquisitions are expected to increase annual Company restaurant sales approximately
$13.0 million.
During 2003, our wholly-owned subsidiary in the United Kingdom purchased one restaurant from a
franchisee for $150,000.
The business combinations in the previous paragraphs were each accounted for by the purchase method
of accounting, whereby operating results subsequent to the acquisition date are included in our
consolidated financial statements.
7. Goodwill and Other Intangible Assets
Our consolidated balance sheets included $41.9 million and $42.6 million of goodwill at December 25,
2005 and December 26, 2004, respectively, net of accumulated amortization of $7.3 million and $7.6
million in 2005 and 2004, respectively. The changes in the carrying amount of goodwill by reportable
segment for the years ended December 25, 2005 and December 26, 2004 are as follows:
Variable
Domestic Interest All
(in thousands) Restaurants International Entities Others Total
Balance as of December 28, 2003 20,566$ 19,131$ -$ 436$ 40,133$
Goodwill resulting from consolidation of VIEs - - 2,752 - 2,752
Goodwill written off related to sale or
closure of restaurants (223) (35) - - (258)
Balance as of December 26, 2004 20,343$ 19,096$ 2,752$ 436$ 42,627$
Goodwill resulting from consolidation of VIEs - - (2,292) - (2,292)
Goodwill resulting from acquisitions 3,506 - - - 3,506
Goodwill written off related to sale or
closure of restaurants (969) - - - (969)
Goodwill impairment charge - (982) - - (982)
Other - (12) - - (12)
Balance as of December 25, 2005 22,880$ 18,102$ 460$ 436$ 41,878$
The $2.8 million addition of goodwill during 2004 resulted from the consolidation of four franchise
entities as required by FIN 46 (see Note 5). During 2005, one of the franchise entities sold its
restaurants to a third party, thus we are no longer consolidating the entity and have reduced goodwill
accordingly.