Papa Johns 2007 Annual Report Download - page 73

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66
2. Significant Accounting Policies (continued)
Domestic production and distribution revenues are comprised of food, promotional items, and supplies
sales to franchised restaurants located in the United States and are recognized as revenue upon shipment
of the related products to the franchisees. Information services, including software maintenance fees,
help desk fees and online ordering fees are recognized as revenue as the related services are provided.
Insurance premiums and commissions are recognized as revenue over the term of the policy period.
International revenues are comprised of restaurant sales, royalties and fees received from foreign
franchisees and the sale and distribution of food to foreign franchisees, and are recognized consistently
with the policies applied for revenues generated in the United States.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturity of three months or less at date of
purchase. These investments are carried at cost, which approximates fair value.
Investments
We determine the appropriate classification of investment securities at the time of purchase and
reevaluate such designation as of each balance sheet date.
Investments are comprised of cash equivalent or U.S. government securities. Such investments are
designated for the purpose of funding insurance claim payments and are not available for general use.
The investments are classified as available for sale securities and are stated at fair value, which
approximates carrying value, based upon quoted market prices.
Accounts Receivable
Substantially all accounts receivable are due from franchisees for purchases of food, paper products,
restaurant equipment, printing and promotional items, risk management services, information systems
and related services, and for royalties from December sales. Credit is extended based on an evaluation of
the franchisee’s financial condition and, generally, collateral is not required. A reserve for uncollectible
accounts is established as deemed necessary based upon overall accounts receivable aging levels and a
specific review of accounts for franchisees with known financial difficulties.
Inventories
Inventories, which consist of food products, paper goods and supplies, smallwares, and printing and
promotional items, are stated at the lower of cost, determined under the first-in, first-out (FIFO) method,
or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using the straight-line method over
the estimated useful lives of the assets (generally five to ten years for restaurant, commissary and other
equipment, and 20 to 40 years for buildings and improvements). Leasehold improvements are amortized
over the terms of the respective leases, including the first renewal period (generally five to ten years).
Depreciation expense was $30.6 million in 2007, $26.5 million in 2006 and $26.2 million in 2005.