Papa Johns 2007 Annual Report Download - page 91

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84
15. Income Taxes (continued)
The Company recognizes interest accrued and penalties related to unrecognized tax benefits as a part of
income tax expense. The Company’s 2007 income tax expense includes an interest benefit of $253,000,
while income tax expense for 2006 and 2005 includes interest expense of $721,000 and $299,000,
respectively. The Company had approximately $1.9 million and $2.5 million for the payment of interest
and penalties accrued at December 30, 2007 and December 31, 2006, respectively.
16. Related Party Transactions
Certain of our officers and directors own equity interests in entities that operate and/or have rights to
develop franchised restaurants. We had an employment agreement with one director, who continues to
serve on the Board, under which $20,000 was paid in 2005. The employment agreement with this director
was terminated during 2005.
Following is a summary of full-year transactions and year-end balances with franchisees owned by
related parties and outstanding amounts due from the Marketing Fund and Papa Card, Inc. (in thousands):
2007 2006 2005
Revenues from affiliates:
Commissary sales 17,656$ 47,124$ 57,681$
Other sales 4,103 3,696 3,649
Franchise royalties 2,426 6,305 7,799
Franchise and development fees 65 15 5
Total 24,250$ 57,140$ 69,134$
Other income from affiliates 61$ 66$ 378$
Accounts receivable-affiliates 864$ 783$ 2,363$
Notes receivable-affiliates -$ -$ 2,650$
The above table excludes transactions and balances related to former non-management directors for the
time period subsequent to their retirement or resignation from our Board.
We paid $251,000 in 2007, $80,000 in 2006 and $399,000 in 2005 for charter aircraft services provided
by an entity owned by John Schnatter, Founder Chairman. We believe the rates charged to the Company
were at or below rates that could have been obtained from independent third parties for similar aircraft.
Mr. Schnatter paid the Company $160,000 in 2005 for the salaries, bonuses and benefits of certain
employees who performed work for both the Company and Mr. Schnatter based upon an assessment of
their responsibilities to each (on average, approximately 35% of the total costs were paid by the
Company and 65% were paid by Mr. Schnatter). Mr. Schnatter and the Company terminated this shared
employment arrangement in September 2005, after which certain employees began working full-time for
the Company and the remaining employees began working full-time for Mr. Schnatter. Additionally, the
Company charged Mr. Schnatter $8,795 in 2005 related to approximately 800 square feet of Company
office space utilized by these employees. Mr. Schnatter and his employees moved out of the Company
office space in September 2005.