Papa Johns 2007 Annual Report Download - page 50

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43
Depreciation and amortization was $31.9 million (3.0% of revenues) for 2007, as compared to $27.2
million (2.7% of revenues) for 2006. The primary reason for the increase in depreciation and
amortization in 2007, as compared to 2006, is due to the acquisition of 118 domestic franchised
restaurants during 2006 and 2007.
Net interest. Net interest expense was $6.0 million in 2007, compared to $1.8 million in 2006. The
interest expense for 2007 and 2006 includes approximately $544,000 and $635,000, respectively, related
to BIBP’s debt with a third-party bank. The increase in our 2007 net interest expense reflects a higher
average outstanding debt balance resulting from share repurchase activity under our share repurchase
program and franchise restaurant acquisitions during the last twelve months.
Income Tax Expense. We recognized reductions of $3.4 million and $2.5 million in our customary
income tax expense associated with the finalization of certain income tax issues in 2007 and 2006,
respectively. Our effective income tax rate was 28.9% in 2007 compared to 34.5% in 2006.
2006 Compared to 2005
Variable Interest Entities
The consolidation of BIBP had a significant impact on our operating results in both 2006 and 2005 (pre-
tax income of $19.0 million and $4.5 million in 2006 and 2005, respectively).
The following table summarizes the impact of VIEs, prior to required consolidating eliminations, on our
consolidated statements of income for the years ended December 31, 2006 and December 25, 2005 (in
thousands):
BIBP Franchisees Total BIBP Franchisees Total
Variable interest entities
restaurant sales -$ 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