Papa Johns 1998 Annual Report Download - page 37

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34
Papa John’s International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Description of Business
Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s” or in the first person
notations of “we,” “us” and “our”) operates and franchises pizza delivery and carry-out restaurants
under the trademark “Papa John’s,” currently in 46 states, the District of Columbia, Mexico, and
Puerto Rico. Substantially all revenues are derived from retail sales of pizza to the general public by
Company-owned restaurants, franchise royalties, sales of franchise and development rights, and sales
to franchisees of food and paper products, restaurant equipment, printing and promotional items, risk
management services, and information systems and related services used in their operations.
2. Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Papa John’s and its
subsidiaries. All significant intercompany balances and transactions have been eliminated.
Fiscal Year
Our fiscal year ends on the last Sunday in December of each year. All fiscal years presented consist of 52
weeks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from these estimates.
Revenue Recognition
Franchise fees are recognized when a franchised restaurant begins operations, at which time we have
performed our obligations related to such fees. Fees received pursuant to development agreements
which grant the right to develop franchised restaurants in future periods in specific geographic areas
are deferred and recognized on a pro rata basis as the franchised restaurants subject to the development
agreements begin operations. Both franchise and development fees are nonrefundable. Franchise
royalties, which are based on a percentage of franchised restaurants’ sales, are recognized as earned.
Cash Equivalents
Cash equivalents consist of all highly liquid investments with a maturity of three months or less at date
of purchase. These investments are carried at cost which approximates fair value.
Accounts Receivable
Substantially all accounts receivable are due from franchisees for purchases of food and paper products,
restaurant equipment, printing and promotional items, risk management services, information systems
and related services, and for royalties from December sales. Credit is extended based on an evaluation
of the franchisee’s financial condition and, generally, collateral is not required. We consider substantially
all amounts to be collectible.
Notes to Consolidated Financial Statements (continued)