Papa Johns 2006 Annual Report Download - page 73

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70
6. Acquisitions and Formation of Joint Venture
During 2006, we acquired 65 Papa John’s restaurants as summarized below (in thousands).
2006
Cash Recorded
Paid Goodwill
Acquired 43 restaurants in Phoenix and Flagstaff, Arizona 17,658$ 14,190$
Acquired 11 restaurants in Raleigh, North Carolina 8,800 7,995
Acquired 5 restaurants and QCC in Beijing, China 4,285 3,592
Other acquisitions of 6 restaurants and a QCC 1,200 361
Total * 31,943$ 26,138$
*Substantially all of the remaining purchase price was allocated to acquired property and equipment.
In July 2006, we completed the acquisition of 43 franchised Papa John’s restaurants located in the
Phoenix and Flagstaff, Arizona markets. The purchase price was $17.7 million, which was paid in cash,
of which approximately $14.2 million was recorded as goodwill.
Effective September 25, 2006, we completed the acquisition of 11 franchised Papa John’s restaurants
located in the Raleigh, North Carolina market. The purchase price was $8.8 million, which was paid in
cash, of which $8.0 million was recorded as goodwill.
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.
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
franchise restaurants located in the Philadelphia, Pennsylvania area during the fourth quarter of 2005.
The total consideration for these 18 restaurants was $4.5 million in cash and the forgiveness of accounts
receivable approximating $500,000. The goodwill associated with these acquisitions, including final
adjustments in 2006, approximated $3.8 million.
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. The goodwill associated with the above-mentioned acquisitions is
eligible for deduction over 15 years under U.S. tax regulations.
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.