Papa Johns 2008 Annual Report Download - page 83

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76
3. Discontinued Operations
The Company sold its Perfect Pizza operations, consisting of the franchised units and related distribution
operations in March 2006. Total proceeds from the sale were approximately $13.0 million ($8.0 million
received in cash and $5.0 million as a note payable to Papa John’s). There was no gain or loss recognized
in connection with the sale of Perfect Pizza. The following summarizes the results of the discontinued
operations for the year ended December 31, 2006 (in thousands):
2006
Net sales 2,421$
Operating expenses 1,449
G&A expenses 330
Other expenses 25
Income before income taxes 617
Income tax expense 228
Net income from discontinued operations 389$
Basic earnings per common share 0.01$
Earnings per common share - assuming dilution 0.01$
4. Accounting for Variable Interest Entities
FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51 (FIN 46), provides a framework for identifying variable interest entities
(“VIEs”) and determining when a company should include the assets, liabilities, noncontrolling interests
and results of activities of a VIE in its consolidated financial statements.
In general, a VIE is a corporation, partnership, limited liability company, trust, or any other legal
structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to
carry out its principal activities without additional subordinated financial support, (2) has a group of
equity owners that are unable to make significant decisions about its activities, or (3) has a group of
equity owners that do not have the obligation to absorb losses or the right to receive returns generated by
its operations.
FIN 46 requires a VIE to be consolidated if a party with an ownership, contractual or other financial
interest in the VIE (“a variable interest holder”) is obligated to absorb a majority of the risk of loss from
the VIEs activities, is entitled to receive a majority of the VIEs residual returns (if no party absorbs a
majority of the VIEs losses), or both. A variable interest holder that consolidates the VIE is called the
primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the
VIEs assets, liabilities and noncontrolling interests at fair value and subsequently account for the VIE as
if it were consolidated based on majority voting interest. FIN 46 also requires disclosures about VIEs that
the variable interest holder is not required to consolidate but in which it has a significant variable
interest.