Papa Johns 2006 Annual Report Download - page 34

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31
period. The third component is reflected as investment income or interest expense depending upon
whether BIBP is in a net investment or net borrowing position during the reporting period.
In addition, Papa John’s has extended loans to certain franchisees. Under the FIN 46 rules, Papa John’s is
deemed to be the primary beneficiary of certain franchisees even though we have no ownership interest
in them. Beginning in the second quarter of 2004, FIN 46 required Papa John’s to recognize the operating
income (losses) generated by four franchise entities operating a total of 33 restaurants with annual sales
approximating $21.0 million. Effective at the beginning of the second quarter of 2005, one of these four
franchise entities, with 19 restaurants and annual revenues approximating $12.0 million, sold its
restaurants to a third party. The loan from Papa John’s was partially repaid and the remainder was written
off in connection with this sale. Accordingly, beginning in the second quarter of 2005, we were no longer
required to consolidate the operating results as well as the financial position of these 19 restaurants.
During the third quarter of 2006, another of the franchisees, with seven restaurants and approximate
annual revenues of $4.0 million, sold its restaurants to a third party. The loan from Papa John’s was
partially repaid and the remainder was written off in connection with the sale. Accordingly, beginning in
the third quarter of 2006, we were no longer required to consolidate the operating results as well as the
financial position of this entity. The sale of these 26 restaurants and related loan write-off did not have
any significant impact on Papa John’s 2006 and 2005 consolidated statements of income. The
consolidation of the applicable franchise entities had no significant net impact on Papa John’s operating
results.
The following tables summarize the impact of VIEs, prior to required consolidating eliminations, on our
consolidated statements of income for the years ended December 31, 2006 and December 25, 2005 (in
thousands):
BIBP
Franchisees
Total
BIBP
Franchisees
Total
Variable interest entities
restaurant sales -$ 7,859$ 7,859$ -$ 11,713$ 11,713$
BIBP sales 144,123 - 144,123 151,903 - 151,903
Total revenues 144,123 7,859 151,982 151,903 11,713 163,616
Operating expenses 122,153 7,284 129,437 145,962 10,997 156,959
General and administrative expenses 140 398 538 137 712 849
Loss from the franchise cheese-purchasing
program, net of minority interest 2,101 - 2,101 - - -
Other general expenses (income) - 35 35 - (75) (75)
Depreciation and amortization - 142 142 - 78 78
Total costs and expenses 124,394 7,859 132,253 146,099 11,712 157,811
Operating income 19,729 - 19,729 5,804 1 5,805
Interest expense (742) - (742) (1,332) (1) (1,333)
Income before income taxes
18,987
$
-
$
18,987
$
4,472
$
-
$
4,472
$
Year Ended December 31, 2006 Year Ended December 25, 2005
Discontinued Operations
In March 2006, the Company sold its Perfect Pizza operations in the United Kingdom, consisting of the
franchise rights and leases related to the 109 franchised Perfect Pizza restaurants, as well as the related
distribution operations. The total proceeds from the sale were approximately $13.0 million, with $8.0
million received in cash at closing, and the balance to be received under the terms of an interest-bearing