Papa Johns 2003 Annual Report Download - page 47

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46
2. Significant Accounting Policies (continued)
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.
Foreign Currency Translation
The local currency is the functional currency for our foreign subsidiary, Papa John’s UK. Earnings are
translated into U.S. dollars using monthly average exchange rates, while balance sheet accounts are
translated using year-end exchange rates. The resulting translation adjustments are included as a
component of accumulated other comprehensive income (loss).
Stock-Based Compensation
Effective at the beginning of fiscal 2002, we elected to expense the cost of employee stock options in
accordance with the fair value method contained in SFAS No. 123, Accounting and Disclosure of Stock-
Based Compensation. Under SFAS No. 123, the fair value for options is estimated at the date of grant
using a Black-Scholes option pricing model which requires the input of highly subjective assumptions
including the expected stock price volatility. The election was effective as of the beginning of fiscal 2002
and applies to all stock options issued after the effective date.
Prior to 2002, we followed Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock
Issued to Employees, and related Interpretations, in accounting for our employee stock options. Under
APB No. 25, no compensation expense is recognized provided the exercise price of employee stock
options equals or exceeds the market price of the underlying stock on the date of grant.