Papa Johns 2006 Annual Report Download - page 28

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established a significant market position. The comparable annual sales for Company-owned restaurants
increased 3.6% in 2006, 7.4% in 2005 and 0.5% in 2004.
We continually strive to obtain high-quality sites with good access and visibility, and to enhance the
appearance and quality of our restaurants. We believe that these factors improve our image and brand
awareness. The average property and equipment investment for the restaurants in our most recent
comparable sales base is $266,000. The average cash investment for the 19 domestic Company-owned
restaurants opened during 2006, exclusive of land, increased to approximately $249,000 from $241,000
for the seven units opened in 2005. We expect the average cash investment for the anticipated 20 to 25
Company-owned restaurants opening in 2007 to be approximately $250,000.
Approximately 46% of our revenues for 2006 and 2005, compared to 47% of our revenues for 2004, were
derived from the sale to our domestic and international franchisees of food and paper products, printing
and promotional items, risk management services and information systems equipment and software and
related services by us. We believe that, in addition to supporting both Company and franchised growth,
these subsidiaries contribute to product quality and consistency and restaurant profitability throughout
the Papa John’s system.
Our fiscal year ends on the last Sunday in December of each year. The 2006 fiscal year consists of 53
weeks, and all other fiscal years presented consist of 52 weeks.
Results of Operations and Critical Accounting Policies and Estimates
The results of operations are based on the preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States. The preparation of consolidated
financial statements requires management to select accounting policies for critical accounting areas as
well as estimates and assumptions that affect the amounts reported in the consolidated financial
statements. The Company’s accounting policies are more fully described in “Note 2” of “Notes to
Consolidated Financial Statements.” Significant changes in assumptions and/or conditions in our critical
accounting policies could materially impact the operating results. We have identified the following
accounting policies and related judgments as critical to understanding the results of our operations.
Allowance for Doubtful Accounts and Notes Receivable
We establish reserves for uncollectible accounts and notes receivable based on overall receivable aging
levels and a specific evaluation of accounts and notes for franchisees with known financial difficulties.
These reserves and corresponding write-offs could significantly increase if the identified franchisees
continue to experience deteriorating financial results.
Long-lived and Intangible Assets
The recoverability of long-lived assets is evaluated if impairment indicators exist. Indicators of
impairment include historical financial performance, operating trends and our future operating plans. If
impairment indicators exist, we evaluate the recoverability of long-lived assets on an operating unit basis
(e.g., an individual restaurant) based on 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.