Papa Johns 2005 Annual Report Download - page 57

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2. Significant Accounting Policies (continued)
Restaurant Closures
We recognize the costs associated with restaurant closures at the time such costs are actually incurred, as
required by SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, generally
expected to be at the time the closing occurs. We recognized closure charges of $77,000 and $3.2 million
in 2004 and 2003, respectively, (none in 2005), which are included in other general expenses in the
consolidated statements of income (see Note 8).
Discontinued Operations
A business component that either has been disposed of or is classified as held for sale is accounted for as
a discontinued operation if the cash flow of the component has been or will be eliminated from the
ongoing operations of the Company and the Company will no longer have any significant continuing
involvement in the business. The results of operations of the discontinued operations through the date of
sale, including any gain or loss on disposition, are aggregated and presented on a separate line in the
income statement. Prior to dispositions, the assets and liabilities of discontinued operations are
aggregated and reported on separate lines in the balance sheet. In 2005, we have separately disclosed the
operating activities of the cash flows attributable to our discontinued operations, which in prior periods
were recorded on a combined basis as a single amount. There was not an impact on our financing and
investing activities associated with the discontinued operations for the three years presented in the
statements of cash flows. We have classified our Perfect Pizza operations as discontinued since we have
developed a plan to sell this business in the next 12 months (see Note 4).
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 $566,000 in 2005, $489,000 in 2004 and $723,000 in 2003.
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 $145,000 in 2005, $1.0 million in 2004 and $937,000 in 2003.
Deferred Income Tax Assets and Tax Reserves
We provide reserves for potential exposures when we consider it probable that a taxing authority may
take a sustainable position on a matter contrary to our filed position. We evaluate these issues on a
quarterly basis to adjust for events, such as court rulings or audit settlements that may impact our
ultimate payment for such exposures.
We recorded net deferred income tax assets of $9.0 million and $13.7 million in 2005 and 2004,
respectively, of which approximately $7.2 million and $8.8 million in 2005 and 2004, respectively,
related to BIBP’s net operating loss carryforward. We have not provided a valuation allowance for the
deferred income tax assets related to BIBP’s net operating losses, since we believe it is more likely than
not that BIBP’s future earnings will be sufficient to ensure the realization of the net deferred income tax
assets for federal and state purposes.