Papa Johns 2014 Annual Report Download - page 41

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Deferred Income Tax Accounts and Tax Reserves
Papa John’s is subject to income taxes in the United States and several foreign jurisdictions. Significant
judgment is required in determining Papa John’s provision for income taxes and the related assets and
liabilities. The provision for income taxes includes income taxes paid, currently payable or receivable and
those deferred.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax
basis of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in
effect when the differences reverse. Deferred tax assets are also recognized for the estimated future
effects of tax loss carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the
period in which the new tax rate is enacted. Valuation allowances are established when necessary on a
jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. As of December 28,
2014, we had a net deferred income tax liability of approximately $10.0 million.
Tax authorities periodically audit the Company. We record reserves and related interest and penalties for
identified exposures as income tax expense. We evaluate these issues and adjust for events, such as statute
of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for
such exposures. We recognized increases in income tax expense of $117,000 in 2014 and $305,000 in
2012 and a decrease in income tax expense of $909,000 in 2013 associated with the finalization of certain
income tax matters. See “Note 15” of “Notes to Consolidated Financial Statements” for additional
information.
Fiscal Year
The Company follows a fiscal year ending on the last Sunday of December, generally consisting of 52
weeks made up of four 13-week quarters. The 13-week quarters consist of two four-week periods
followed by one five-week period. Our 2014 and 2013 fiscal years consisted of 52 weeks while our 2012
fiscal year consisted of 53 weeks, including a six-week period in the fourth quarter. The additional week
in 2012 resulted in additional revenues of approximately $21.5 million and additional income before
income taxes of $4.1 million, or $0.05 per diluted common share.
Two-for-One Stock Split
The Company completed a two-for-one stock split of the Company’s outstanding shares of stock in
December 2013 effected in the form of a stock dividend. Shareholders of record on December 12, 2013
received one additional share for each outstanding share of stock held on the record date. The stock
dividend was distributed effective December 27, 2013. All share and per-share amounts have been
adjusted to reflect the stock split.
FOCUS System
The Company is implementing a new, proprietary point-of-sale system, which we refer to as FOCUS, in
substantially all domestic system-wide restaurants. As of December 28, 2014, we had installed FOCUS in
almost 75% of our domestic restaurants, including all Company-owned restaurants and almost 1,600
franchised restaurants. Substantial completion is expected to occur by the end of the first quarter of 2015.