Papa Johns 2010 Annual Report Download - page 36

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2008. Average sales volumes in new markets are generally lower than in those markets in which we have
established a significant market position. The comparable sales for domestic Company-owned restaurants
decreased 0.6% in 2010, decreased 0.5% in 2009 and increased 1.7% in 2008. The comparable sales for
domestic franchised units increased 0.3% in 2010, 0.1% in 2009 and 0.6% in 2008.
We continually strive to obtain high-quality restaurant sites with good access and visibility, and to
enhance the appearance and quality of our restaurants. We believe that these factors improve our image
and brand awareness. The average property and equipment investment cost for the 578 Company-owned
restaurants included in our most recent comparable sales base was $281,000. The average cash
investment for the five domestic Company-owned restaurants opened during 2010 was approximately
$250,000, compared to the $240,000 investment for the five units opened in 2009, exclusive of land and
any tenant improvement allowances that we received in both years.
Approximately 45% of our revenues for 2010, compared to 40% of our revenues for 2009 and 41% of
our revenues for 2008, were derived from the sale to our domestic and international franchisees of food
and paper products, printing and promotional items, risk management services and information systems
equipment and software and related services by us. We expect the percentage of revenues in 2011 to be
consistent with 2010. We believe that, in addition to supporting both Company and franchised growth,
these activities contribute to product quality and consistency and restaurant profitability throughout the
Papa John’s system.
Results of Operations and Critical Accounting Policies and Estimates
The results of operations are based on our consolidated financial statements, which were prepared in
conformity with accounting principles generally accepted in the United States. The preparation of
consolidated financial statements requires management to select accounting policies for critical
accounting areas as well as estimates and assumptions that affect the amounts reported in the
consolidated financial statements. The Company’s significant accounting policies are more fully
described in “Note 2” of “Notes to Consolidated Financial Statements.” Significant changes in
assumptions and/or conditions in our critical accounting policies could materially impact the operating
results. We have identified the following accounting policies and related judgments as critical to
understanding the results of our operations.
Allowance for Doubtful Accounts and Notes Receivable
We establish reserves for uncollectible accounts and notes receivable based on overall receivable aging
levels and a specific evaluation of accounts and notes for franchisees and other customers with known
financial difficulties. These reserves and corresponding write-offs could significantly increase if the
identified franchisees and other customers begin to or continue to experience deteriorating financial
results.
Long-lived and Intangible Assets
The recoverability of long-lived assets is evaluated if impairment indicators exist. Indicators of
impairment include historical financial performance, operating trends and our future operating plans. If
impairment indicators exist, we evaluate the recoverability of long-lived assets on an operating unit basis
(e.g., an individual restaurant) based on undiscounted expected future cash flows before interest for the
expected remaining useful life of the operating unit. Recorded values for long-lived assets that are not
expected to be recovered through undiscounted future cash flows are written down to current fair value,
which is generally determined from estimated discounted future net cash flows for assets held for use or
estimated net realizable value for assets held for sale.