Papa Johns 2001 Annual Report Download - page 50

Download and view the complete annual report

Please find page 50 of the 2001 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 75

  • 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

46
4. Special Charges
We recorded special charges of $20.9 million and $6.1 million in 2000 and 1999, respectively. The 2000
special charges are comprised of the following items (dollars in thousands):
Asset Accrued
Valuation Liabilities Total
• Impairment of carrying value of 52 restaurants $ 6,751 $ - $ 6,751
• Impairment or write-off of certain assets,
principally technology assets 6,728 - 6,728
• Closure of 13 restaurants 1,866 1,247 3,113
• Closing of 20 field offices, severance and
exit costs 635 1,928 2,563
• Settlement of vendor litigation - 750 750
• Advertising litigation - 1,000 1,000
Total $15,980 $4,925 $20,905
The Company determined that certain domestic restaurants were impaired due to specific operational
performance indicators. We estimated the undiscounted cash flows over the estimated lives of the assets
for each of our restaurants that met certain impairment indicators and compared these estimates to the
carrying values of the underlying assets. The forecasted cash flows were based on our assessment of the
individual store’s future profitability which is based on the restaurant’s historical results, the maturity of
the restaurant’s market as well as our future plans for the restaurant and its market. In estimating
forecasted cash flows, we used a discount rate of 12%, which approximates the return we would expect
on those types of investments. Based on our analysis, we determined that 52 restaurants were impaired
by a total of $6.8 million.
The impairment or write-off of certain assets was principally comprised of technology assets, including
the development of our on-line ordering capabilities. The Company assessed the future use of certain
technological and other assets and determined that the assets were no longer beneficial to the Company or
that the carrying value of the assets was impaired due to lower future cash flows based on our updated
strategy to focus on our primary business activities. Based on an asset analysis and an analysis of
estimated future cash flows in accordance with SFAS No. 121, a charge of $6.7 million was recorded.
We identified and committed to close 13 restaurants due to deteriorating economic performance and poor
outlook for improvement. A charge of $3.1 million was recorded.
During the fourth quarter of 2000, the Company decided to close 20 field offices to reduce future costs
and to allow our operations area supervisors and district managers to spend more time in our restaurants.
We also eliminated certain positions in the fourth quarter to reduce future administrative costs. These
actions resulted in a charge of $2.6 million in the fourth quarter.
In December 2000, the Company agreed to pay $750,000 to settle a lawsuit with a vendor.