Papa Johns 2001 Annual Report Download - page 46

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2. Significant Accounting Policies (continued)
Long-Lived and Intangible Assets
The recoverability of long-lived and intangible assets 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 management’s 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 useful life of the operating unit. Recorded values that are not expected to be recovered through
undiscounted future cash flows are written down to current fair value, which is generally determined from
estimated discounted future net cash flows for assets held for use or net realizable value for assets held for
sale. During 2001, we recorded an impairment charge of $556,000, which is included in pre-opening and
other general expenses. See Note 4 for impairment charges recorded in 2000 (no charges were recorded in
1999).
Goodwill is amortized on a straight-line basis ranging from 15 to 25 years. Accumulated goodwill
amortization was $8.2 million at December 30, 2001 and $5.8 million at December 31, 2000 (see
“Accounting Changes” below).
Restaurant Closures
We recognize the impact of costs associated with restaurant closures in the period in which the decision to
close the restaurant is made. We also record a liability at the date the closure is considered probable for
the net present value of any remaining operating lease obligations subsequent to the expected closure
date, net of any estimated sublease income. Restaurant closures did not have a significant impact on our
2001 or 1999 consolidated financial results. See Note 4 for the impact of restaurant closures on our 2000
consolidated financial results.
Systems Development Costs
We defer certain systems development and related costs that meet established criteria. Amounts deferred,
which are included in property and equipment, are amortized principally over periods not exceeding five
years beginning in the month subsequent to completion of the related systems project. Total costs
deferred were approximately $1.4 million in 2001, $2.3 million in 2000 and $1.4 million in 1999.
Advertising and Related Costs
Advertising and related costs include the costs of domestic Company-owned restaurant activities such as
mail coupons, door hangers and promotional items and contributions to the Papa John’s Marketing Fund,
Inc. (the “Marketing Fund”) and local market cooperative advertising funds. Contributions by domestic
Company-owned and franchised restaurants to the Marketing Fund and the cooperative advertising funds
are based on an established percentage of monthly restaurant revenues. The Marketing Fund is
responsible for developing and conducting marketing and advertising for the Papa John’s system. The
local market cooperative advertising funds are responsible for developing and conducting advertising
activities in a specific market, including the placement of electronic and print materials developed by the
Marketing Fund. We recognize domestic Company-owned restaurant contributions to the Marketing
Fund and to those local market cooperative advertising funds deemed to be controlled by us (collectively,
the “Controlled Funds”) as advertising and related costs at the time the Controlled Funds actually incur
such expenses.