Papa Johns 2006 Annual Report Download - page 49

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In December 2006, we completed the acquisition of five franchised Papa John’s restaurants and a
commissary located in Beijing, China. The purchase price was $4.3 million of which approximately $3.6
million was recorded as goodwill.
The business combinations for 2006 were accounted for by the purchase method of accounting, whereby
operating results subsequent to the acquisition are included in our consolidated financial results. The
acquisitions did not significantly impact 2006 operating income as transition costs substantially offset
incremental unit level income.
In the fourth quarter of 2005, Star Papa, our 51% owned joint venture operating Papa John’s restaurants
in Texas, completed the acquisition of six independently owned franchised Papa John’s restaurants
located in the Austin, Texas area. We also completed two agreements to purchase 12 Papa John’s
franchised restaurants located in the Philadelphia, Pennsylvania area during the fourth quarter. The total
consideration for these 18 restaurants was $4.5 million in cash and the forgiveness of accounts receivable
approximating $500,000.
In the fourth quarter of 2005, we completed the sale of 84 Company-owned restaurants, with annual
revenues approximating $53.0 million, in Colorado and Minnesota to a new franchise group, PJCOMN
Acquisition Corporation, an affiliate of Washington, DC-based private equity firm Milestone Capital
Management, LLC, pursuant to an agreement announced in August 2005. The total consideration was
$12.0 million, including $1.0 million for prepaid royalties, and was received in cash at closing. The sale
of the restaurants resulted in a one-time gain of $1.1 million in 2005.
In addition, during 2005 we completed the sale of five Company-owned restaurants in Florida, with
annual revenues approximating $4.0 million. Total proceeds from the transaction were $1.3 million,
which were received in cash in fiscal 2006. We recorded a gain of approximately $1.0 million in the
fourth quarter from the sale of the five restaurants.
We require capital primarily for the development, acquisition, renovation and maintenance of restaurants,
the development, renovation and maintenance of commissary and print and promotions facilities and
equipment and the enhancement of corporate systems and facilities. Purchases of property and equipment
amounted to $39.4 million, $17.5 million and $21.0 million in 2006, 2005 and 2004, respectively, and are
summarized by operating segment in “Note 22” of “Notes to Consolidated Financial Statements.”
Additionally, we began a common stock repurchase program in December 1999. We repurchased 3.4
million common stock shares for $106.3 million during fiscal 2006. Our Board of Directors has
authorized up to an aggregate of $675.0 million for the share repurchase program through December 30,
2007. At December 31, 2006, a total of 38.1 million shares have been repurchased for $602.2 million at
an average price of $15.80 per share since the repurchase program started in 1999 (approximately 3.4
million shares in 2006, 3.3 million shares in 2005, 4.3 million shares in 2004 and 27.1 million shares
prior to 2004). Subsequent to year-end (through February 20, 2007), we acquired an additional 793,000
shares at an aggregate cost of $22.9 million. As of February 20, 2007, approximately $50.0 million
remains available for repurchase of common stock under this authorization.
The outstanding principal balance under our revolving line of credit increased from $49.0 million in 2005
to $96.5 million in 2006, primarily as a result of the previously mentioned restaurant acquisitions and
repurchases of the Company’s common stock.
Total 2007 capital expenditures are expected to be approximately $50.0 million compared to $39.4
million in 2006. The planned increase will support growth initiatives, including the domestic Company-
owned new unit growth, an expansion of printing capacity for the Support Services business unit,