Papa Johns 2007 Annual Report Download - page 54

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47
• Variable Interest Entities. BIBP reported operating income of $19.0 million for 2006, which
was composed of income associated with cheese sold to domestic Company-owned restaurants
and franchise restaurants of $4.6 million and $15.2 million, respectively. The 2006 income from
the sale of cheese was partially offset by interest expense on outstanding debt with a third-party
bank and Papa John’s. For 2005, BIBP reported operating income of $4.5 million, which was
composed of income associated with cheese sold to domestic Company-owned restaurants and
franchise restaurants of $1.3 million and $4.7 million, respectively. The 2005 income from the
sale of cheese was partially offset by interest expense of $1.3 million on outstanding debt. See
Item 7A. Quantitative and Qualitative Disclosures About Market Risk for additional information
regarding BIBP and movement in the cheese price during the years.
Net interest expense for 2006 decreased $1.3 million from 2005 principally due to a decrease in our
average outstanding debt balance during 2006 and an increase in investment income.
The effective income tax rate was 34.5% for the year ended December 31, 2006, compared to 36.4% for
the corresponding 2005 period. The decrease in the effective tax rate in 2006 was primarily due to the
settlement of certain income tax issues during 2006.
Diluted earnings per share from continuing operations were $1.91 (including a $0.36 per diluted share
gain from the consolidation of BIBP) in 2006, compared to $1.29 (including an $0.08 per diluted share
gain from the consolidation of BIBP) in 2005. The 2006 diluted earnings per share also include the
benefit of the 53rd week of operations ($0.07 per diluted share) and the above-mentioned reduction in the
effective tax rate ($0.08 per diluted share). Share repurchase activity during 2006 increased earnings per
diluted share from continuing operations by approximately $0.09.
Revenues. Domestic Company-owned restaurant sales increased 3.1% to $447.9 million in 2006, from
$434.5 million for the comparable period in 2005. The increase is due to an increase in comparable sales
of 3.6%, which more than offset a reduction in equivalent units (84 restaurants were sold to franchisees
at the beginning of the fourth quarter of 2005 and 57 restaurants were purchased from franchisees during
2006).
Revenues from variable interest restaurants totaled $7.9 million in 2006 as compared to $11.7 million in
2005. The decrease reflects the sale of restaurants by two franchisees to third parties during 2005 and
2006, which eliminated the VIE classification of such restaurants under FIN 46, and the related
consolidation of their operating results at the time of the respective sales.
Domestic franchise sales increased 9.2% to $1.51 billion in 2006, from $1.38 billion for the comparable
period in 2005, primarily resulting from a 2.9% increase in comparable sales, and a 3.0% increase in
equivalent units during 2006. Domestic franchise royalties increased 7.8% to $56.4 million in 2006 from
$52.3 million for the comparable period in 2005 primarily due to an increase in franchise sales, partially
offset by an increase in royalty waivers granted to certain franchisees.