Papa Johns 2014 Annual Report Download - page 76

Download and view the complete annual report

Please find page 76 of the 2014 Papa Johns annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 110

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110

63
2. Significant Accounting Policies (continued)
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 is enacted. As a result, our effective tax rate may fluctuate. Valuation
allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the
amounts we expect to realize.
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.
Insurance Reserves
Our insurance programs for workers’ compensation, owned and non-owned automobiles, general
liability, property, and health insurance coverage provided to our employees are funded by the Company
up to certain retention levels. Losses are accrued based upon undiscounted estimates of the aggregate
retained liability for claims incurred using certain third-party actuarial projections and our claims loss
experience. The estimated insurance claims losses could be significantly affected should the frequency
or ultimate cost of claims differ significantly from historical trends used to estimate the insurance
reserves recorded by the Company. See Note 12 for additional information on our insurance reserves.
Derivative Financial Instruments
We recognize all derivatives on the balance sheet at fair value. At inception and on an ongoing basis, we
assess whether each derivative that qualifies for hedge accounting continues to be highly effective in
offsetting changes in the cash flows of the hedged item. If the derivative meets the hedge criteria as
defined by certain accounting standards, depending on the nature of the hedge, changes in the fair value
of the derivative are either offset against the change in fair value of assets, liabilities or firm
commitments through earnings or recognized in accumulated other comprehensive income until the
hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value, if
any, is immediately recognized in earnings.
We recognized a loss of $261,000 ($164,000 after tax) in 2014, a loss of $51,000 ($32,000 after tax) in
2013 and a loss of $114,000 ($72,000 after tax) in 2012, in accumulated other comprehensive income for
the net change in the fair value of our interest rate swaps. See Note 9 for additional information on our
debt and credit arrangements.