Papa Johns 2009 Annual Report Download - page 42

35
2009 Compared to 2008
Variable Interest Entities
Our operating results include BIBP’s operating results. The consolidation of BIBP had a significant
impact on our operating results in both 2009 and 2008 (pre-tax income of $22.5 million in 2009 and pre-
tax loss of $10.5 million in 2008) and is expected to have a significant ongoing impact on our future
operating results and income statement presentation as described below.
Consolidation accounting requires the net impact from the consolidation of BIBP to be reflected
primarily in three separate components of our statement of income. The first component is the portion of
BIBP operating income or loss attributable to the amount of cheese purchased by Company-owned
restaurants during the period. This portion of BIBP operating income (loss) is reflected as a reduction
(increase) in the “Domestic Company-owned restaurant expenses - cost of sales” line item. This approach
effectively reports cost of sales for Company-owned restaurants as if the purchasing arrangement with
BIBP did not exist and such restaurants were purchasing cheese at the spot market prices (i.e., the impact
of BIBP is eliminated in consolidation).
The second component of the net impact from the consolidation of BIBP is reflected in the caption “Loss
(income) from the franchise cheese-purchasing program, net of minority interest.” This line item
represents BIBP’s income or loss from purchasing cheese at the spot market price and selling to
franchised restaurants at a fixed quarterly price, net of any income or loss attributable to the minority
interest BIBP shareholders. The amount of income or loss attributable to the BIBP shareholders depends
on its cumulative shareholders’ equity balance and the change in such balance during the reporting
period. The third component is reflected as investment income or interest expense, depending upon
whether BIBP is in a net investment or net borrowing position during the reporting period.
In addition, Papa John’s has extended loans to certain franchisees. Papa John’s is deemed the primary
beneficiary of certain franchisees even though we have no ownership interest in them.
The following table summarizes the impact of VIEs, prior to required consolidating eliminations, on our
consolidated statements of income for the years ended December 27, 2009 and December 28, 2008 (in
thousands):
BIBP Franchisees Total BIBP Franchisees Total
Variable interest entities
restaurant sales -$ 37,735$ 37,735$ -$ 8,328$ 8,328$
BIBP sales 142,407 - 142,407 165,449 - 165,449
Total revenues 142,407 37,735 180,142 165,449 8,328 173,777
Operating expenses 118,825 33,434 152,259 173,851 7,966 181,817
General and administrative expenses 233 1,548 1,781 187 378 565
Other general expense (income) - 1,382 1,382 - (89) (89)
Depreciation and amortization - 1,310 1,310 - 73 73
Total costs and expenses 119,058 37,674 156,732 174,038 8,328 182,366
Operating income (loss) 23,349 61 23,410 (8,589) - (8,589)
Interest expense (806) (61) (867) (1,951) - (1,951)
Income (loss) before income taxes
22,543
$
-
$
22,543
$
(10,540)
$
-
$
(10,540)
$
Year Ended December 27, 2009 Year Ended December 28, 2008