Papa Johns 2003 Annual Report Download - page 46

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45
2. Significant Accounting Policies (continued)
Depreciation expense was $30.3 million in 2003, $31.4 million in 2002 and $31.7 million in 2001.
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) to determine 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 for
long-lived assets 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 $2.5 million, $208,000 and $556,000, related to Company-owned restaurants, in 2003, 2002
and 2001, respectively, which are included in Restaurant closure, impairment and disposition losses
(gains) in the consolidated statements of income (see Note 6).
Goodwill impairment is evaluated annually on a reporting unit basis by comparing the fair value of the
reporting unit to its carrying value.
Restaurant Closures
Beginning in fiscal 2003, we 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,
Accounting for Costs Associated with Exit or Disposal Activities, generally expected to be at the time the
closing occurs. Prior to 2003, we recognized the impact of costs associated with restaurant closures in the
period in which the decision to close the restaurants was made. We recognized closure charges of $3.2
million, $740,000 and $2.9 million in 2003, 2002 and 2001 which are included in Restaurant closure,
impairment and dispositions in the consolidated statements of income (see Note 6).
Deferred 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 $723,000 in 2003, $1.3 million in 2002 and $1.4 million in 2001.
We also defer the incremental direct costs associated with selling development agreements to domestic
and international franchisees. These deferred costs, included in other assets in the accompanying
consolidated balance sheets, are amortized in proportion to revenue recognized. Total costs deferred, net
of amortization, were approximately $937,000 in 2003, $219,000 in 2002 and were negligible in 2001.