Papa Johns 2001 Annual Report Download - page 27

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Company and franchised growth, these subsidiaries contribute to product quality and consistency and
restaurant profitability throughout the Papa John’s system.
We continually strive to obtain high-quality 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 cash investment for the 20 domestic Company-owned restaurants opened during
2001, exclusive of land, increased to approximately $273,000 from $268,000 for the 42 units opened in
2000. We expect the average cash investment for restaurants opening in 2002 to be approximately
$275,000.
Our fiscal year ends on the last Sunday in December of each year. All fiscal years presented consist of 52
weeks, except for the 2000 fiscal year, which consists of 53 weeks.
Results of Operations and Critical Accounting Policies and Estimates
The results of operations are based on the preparation of consolidated financial statements 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. 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
judgements as critical to understanding the results of our operations.
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 with known financial difficulties.
The recoverability of long-lived and intangible assets (i.e., goodwill) is evaluated annually or more
frequently if an impairment indicator exists. We consider several indicators in assessing if impairment
has occurred, including historical financial performance, operating trends and our future operating plans.
If impairment indicators exist, we evaluate on an operating unit basis (e.g. an individual restaurant)
whether impairment exists on the basis of undiscounted expected future cash flows before interest for the
expected remaining life of the operating unit. Recorded values that are not expected to be recovered
through undiscounted cash flows are written down to current value, which is generally determined from
estimated discounted future cash flows for assets held for use or net realizable value for assets held for
sale. If these estimates or their related assumptions change in the future, we may be required to record
initial or increased impairment charges for these assets.
The Company’s insurance programs for worker’s compensation, general liability, owned and non-owned
automobiles and health insurance coverage provided to our employees, and the captive insurance program
provided to our franchisees are self-insured up to certain individual and aggregate reinsurance levels.
Claims in excess of self-insurance levels are fully insured. Losses are accrued based upon estimates of the
aggregate retained liability for claims incurred using certain actuarial projections and our claims loss
experience. Estimated insurance claims losses could be significantly affected should the frequency or
ultimate cost of claims significantly differ from historical trends.
Accounting Changes
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 141 (SFAS 141), Business Combinations. SFAS 141 requires all business
combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting.
SFAS 141 also specifies criteria for the recognition of identifiable intangible assets separately from