Papa Johns 2008 Annual Report Download - page 53

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46
Net interest. Net interest expense was $6.7 million in 2008, compared to $6.0 million in 2007. The
interest expense for 2008 and 2007 includes approximately $700,000 and $500,000, respectively, related
to BIBP’s debt with a third-party bank. The increase in our 2008 net interest expense reflects lower
investment income than in the 2007 period.
Income Tax Expense. We recognized reductions of $1.7 million and $3.4 million in our customary
income tax expense associated with the finalization of certain income tax issues in 2008 and 2007,
respectively. Our effective income tax rate was 35.2% in 2008 compared to 28.9% in 2007.
2007 Compared to 2006
Variable Interest Entities
The consolidation of BIBP had a significant impact on our operating results in both 2007 and 2006 (pre-
tax loss of $31.7 million in 2007 and pre-tax income of $19.0 million in 2006). The following table
summarizes the impact of VIEs, prior to required consolidating eliminations, on our consolidated
statements of income for the years ended December 30, 2007 and December 31, 2006 (in thousands):
BIBP Franchisees Total BIBP Franchisees Total
Variable interest entities
restaurant sales -$ 7,131$ 7,131$ -$ 7,859$ 7,859$
BIBP sales 138,233 - 138,233 144,123 - 144,123
Total revenues 138,233 7,131 145,364 144,123 7,859 151,982
Operating expenses 170,665 6,526 177,191 122,153 7,284 129,437
General and administrative expenses 148 308 456 140 398 538
Loss (gain) from the franchise cheese-
purchasing program, net of
minority interest (1,615) - (1,615) 2,101 - 2,101
Other general expenses - 243 243 - 35 35
Depreciation and amortization - 54 54 - 142 142
Total costs and expenses 169,198 7,131 176,329 124,394 7,859 132,253
Operating income (loss) (30,965) - (30,965) 19,729 - 19,729
Interest expense (744) - (744) (742) - (742)
Income (loss) before income taxes (31,709)$ -$ (31,709)$ 18,987$ -$ 18,987$
Year Ended December 30, 2007 Year Ended December 31, 2006
Discontinued Operations
In March 2006, the Company sold its Perfect Pizza operations in the United Kingdom, consisting of the
franchise rights and leases related to the 109 franchised Perfect Pizza restaurants, as well as the related
distribution operations. The total proceeds from the sale were approximately $13.0 million, with $8.0
million received in cash at closing, and the balance to be received under the terms of an interest-bearing
note. There was no gain or loss recognized during 2006 in connection with the sale of Perfect Pizza.