Papa Johns 2014 Annual Report Download - page 39

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26
risk management services and information systems equipment, including the FOCUS Point of Sales
system, and software and related services. We believe that in addition to supporting both Company and
franchised profitability and growth, these activities contribute to product quality and consistency
throughout the Papa John’s system.
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 (“GAAP”). 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. Balances are charged off against the allowance after recovery efforts have ceased.
Noncontrolling Interests
The Company has the following four joint ventures in which there are noncontrolling interests as of
December 28, 2014:
Joint Venture
Redemption Feature
Location within the
Consolidated Balance Sheet
Recorded value
Star Papa, LP
Redeemable
Temporary equity
Carrying value
PJ Denver, LLC
Redeemable
Temporary equity
Redemption value
Colonel’s Limited, LLC
No redemption feature
Permanent equity
Carrying value
PJ Minnesota, LLC
No redemption feature
Permanent equity
Carrying value
Consolidated net income is required to be reported separately at amounts attributable to both the parent
and the noncontrolling interest. Disclosures are required to clearly identify and distinguish between the
interests of the parent company and the interests of the noncontrolling owners, including a disclosure on
the face of the consolidated statements of income attributable to the noncontrolling interest holder.
See “Note 6” of “Notes to Consolidated Financial Statements” for additional information.
Stock Based Compensation
Compensation expense for equity grants is estimated on the grant date, net of projected forfeitures and is
recognized over the vesting period (generally in equal installments over three years). Restricted stock is
valued based on the market price of the Company’s shares on the date of grant. Stock options are valued
using a Black-Scholes option pricing model.