Papa Johns 2004 Annual Report Download - page 45

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44
Papa John’s International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Description of Business
Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s” or in the first person
notations of “we,” “us” and “our”) operates and franchises pizza delivery and carryout restaurants under
the trademark “Papa John’s,” currently in 49 states, the District of Columbia, Puerto Rico and 17
countries. We also operate and franchise pizza delivery and carryout restaurants under the trademark
“Perfect Pizza” in the United Kingdom. Substantially all revenues are derived from retail sales of pizza
and other food and beverage products to the general public by Company-owned restaurants, franchise
royalties, sales of franchise and development rights, and sales to franchisees of food and paper products,
restaurant equipment, printing and promotional items, risk management services, and information
systems and related services used in their operations.
2. Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Papa John’s and its
subsidiaries. We began consolidating BIBP Commodities, Inc. (“BIBP”), a variable interest entity (VIE)
as of December 28, 2003; and we began consolidating the financial results of four franchise entities
deemed VIEs in the second quarter of 2004. The results of our insurance subsidiary, RSC Insurance
Services, Ltd. (“RSC”), are consolidated one quarter in arrears. All significant intercompany balances
and transactions have been eliminated.
Fiscal Year
Our fiscal year ends on the last Sunday in December of each year. All fiscal years presented consist of 52
weeks.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. Actual results could
differ from these estimates.
Revenue Recognition
Franchise fees are recognized when a franchised restaurant begins operations, at which time we have
performed our obligations related to such fees. Fees received pursuant to development agreements which
grant the right to develop franchised restaurants in future periods in specific geographic areas are
deferred and recognized on a pro rata basis as the franchised restaurants subject to the development
agreements begin operations. Both franchise and development fees are nonrefundable. Retail sales from
Company-owned restaurants and franchise royalties, which are based on a percentage of franchise
restaurants’ sales, are recognized as revenues when the products are delivered to or carried out by
customers.