Papa Johns 2002 Annual Report Download - page 47

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2. Significant Accounting Policies (continued)
Long-Lived and Intangible Assets
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 long-lived assets 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. If impairment indicators exist for
goodwill, impairment is evaluated on a reporting unit basis using criteria similar to that of long-lived
assets. 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. We recorded impairment
charges of $208,000 and $556,000, related to Company-owned restaurants, in 2002 and 2001, which are
included in pre-opening and other general expenses (see Note 6). See Note 7 for impairment charges
recorded in 2000.
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 a plan exists and the closure is
considered probable for the net present value of any remaining operating lease obligation subsequent to
the expected closure date, net of any estimated sublease income. See Note 7 for the impact of restaurant
closures on our 2000 consolidated financial results.
Beginning in fiscal 2003, we will recognize the costs associated with restaurant closures at the time such
costs are actually incurred, as required by Statement of Financial Accounting Standards (SFAS) No. 146,
generally expected to be at the time the closing occurs.
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 $1.3 million in 2002, $1.4 million in 2001 and $2.3 million in 2000.
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 (“Co-op Funds”).
Contributions by domestic Company-owned and franchised restaurants to the Marketing Fund and the
Co-op 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
Co-op 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 the Co-op Funds in which
we do not have a controlling interest in the period in which the contribution accrues.