Papa Johns 2009 Annual Report Download - page 52

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45
Other general expenses reflected net expense of $15.7 million in 2009, as compared to $19.0 million in
2008 as detailed below (in thousands):
Increase
2009 2008 (Decrease)
Restaurant impairment and disposition losses (a) 657$ 8,818$ (8,161)$
Disposition and valuation-related costs 1,829 1,381 448
Provisions for uncollectible accounts and notes receivable (b) 1,378 4,511 (3,133)
Pre-opening restaurant costs 75 250 (175)
Franchise support initiatives (c) 9,556 4,267 5,289
25th Anniversary incentives 440 - 440
Commissary closing costs 369 - 369
Other (d) 1,424 (227) 1,651
Total other general expenses 15,728$ 19,000$ (3,272)$
(a) The expense in 2008 primarily represents losses associated with the divestiture of 62 Company-
owned domestic restaurants during 2008 and a goodwill impairment charge of $2.3 million
associated with our United Kingdom operations.
(b) In 2008 we recorded provisions associated with our loan issued in connection with the 2006 sale of
the Perfect Pizza operation and increased provisions for various loans to domestic franchisees.
(c) Primarily consists of discretionary contributions to the national marketing fund and other local
advertising cooperatives.
(d) Includes the consolidation of two additional VIE franchise entities in 2009.
Depreciation and amortization was $32.8 million, or 3.0% of revenues, for 2009 as compared to $32.8
million, or 2.9% of revenues, for 2008.
Net interest.
Net interest expense was $5.1 million in 2009, compared to $6.7 million in 2008. The
interest expense for 2009 and 2008 includes approximately $169,000 and $700,000, respectively, related
to BIBP’s debt with a third-party bank. The decrease in net interest expense reflects the decrease in our
average outstanding debt balance and lower interest rates.
Income Tax Expense.
We recognized reductions of $1.2 million and $1.7 million in our customary
income tax expense associated with the finalization of certain income tax issues in 2009 and 2008,
respectively. Our effective income tax rate was 32.1% in 2009 compared to 34.0% in 2008 (31.1% in
2009 and 34.1% in 2008, excluding BIBP). The primary reason for the lower effective tax rate in 2009 is
the impact of the nontaxable funding mechanism for the non-qualified deferred compensation plan,
which is not expected to impact future years in any consistent, similar manner.
2008 Compared to 2007
Variable Interest Entities
The consolidation of BIBP had a significant impact on our operating results in both 2008 and 2007 (pre-
tax losses of $10.5 million and $31.7 million in 2008 and 2007). The following table summarizes the