Papa Johns 2000 Annual Report Download - page 55

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50
3. Business Combinations (continued)
Also see Note 12, Related Party Transactions, for a discussion of other business combinations involving
related parties.
4. Special Charge
During the fourth quarter of 2000, the Company incurred a $24.1 million special charge. The 2000 special
charge is comprised of the following non-recurring items (dollars in 000's):
Asset Accrued
Valuation Liabilities Total
• Impairment of carrying value of 52 restaurants $ 6,751 $ - $ 6,751
• Impairment or write-off of certain assets,
principally technology assets 6,728 - 6,728
• Reserve for franchise notes receivable 4,200 - 4,200
• Closure of 13 restaurants 1,866 1,247 3,113
• Closing of 20 field offices, severance and
exit costs 635 1,928 2,563
• Settlement of vendor litigation - 750 750
• Total $20,180 $3,925 $24,105
Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), requires impairment losses to be
recognized for long-lived assets used in operations when indicators of impairment are present and the
estimate of undiscounted cash flows is not sufficient to recover asset carrying amounts. SFAS No. 121
also requires long-lived assets held for disposal to be carried at the lower of carrying value or fair value,
less costs of disposal, once management has committed to a plan of disposal or closure.
The Company determined that certain domestic restaurants were impaired due to specific operational
performance indicators. Certain domestic restaurants' operational performance declined during 2000 due
to increased competition and increased operating expenses, such as salaries, reflecting general operating
conditions. In addition, the performance of certain acquired markets did not meet expectations in 2000,
which indicated that some of the acquired restaurants were impaired. During our review for potentially
impaired restaurants, we considered several indicators, including individual restaurant profitability, annual
comparable sales, operating trends, as well as actual operating results. In accordance with SFAS No. 121,
we estimated the undiscounted cash flows over the estimated lives of the assets for each of our
restaurants that met certain impairment indicators and compared these estimates to the carrying values of
the underlying assets.
The forecasted cash flows were based on our assessment of the individual store's future profitability
which is based on the restaurant's historical results, the maturity of the restaurant's market as well as our
future plans for the restaurant and its market. In estimating forecasted cash flows, we used a discount
rate of 12% which approximates the return we would expect on those types of investments. Based on our
analysis, we determined that 52 restaurants were impaired by a total of $6.8 million.