Papa Johns 2008 Annual Report Download - page 36

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comparable sales base is $266,000. The average cash investments for the 14 domestic Company-owned
restaurants opened during 2008 and the 20 units opened in 2007, exclusive of land, were approximately
$270,000 per unit in both periods, excluding tenant improvement allowances that we received in both
years.
Approximately 41% of our revenues for 2008, compared to 43% of our revenues for 2007 and 46% of
our revenues for 2006, 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. The decline in the percentage of revenues is due to
the acquisition of over 100 domestic franchise restaurants during late 2006 and 2007. We expect the
percentage of revenues in 2009 to be consistent with 2008. We believe that, in addition to supporting
both Company and franchised growth, these activities 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. All fiscal years presented consist of 52
weeks except for the 2006 fiscal year, which consisted of 53 weeks.
Results of Operations and Critical Accounting Policies and Estimates
The results of operations are based on our consolidated financial statements, which were prepared 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 significant 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 franchisees begin to or
continue to experience deteriorating financial results. We have also established a reserve for notes
receivable from the purchaser of our former Perfect Pizza operations.
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
estimated net realizable value for assets held for sale.
The recoverability of indefinite-lived intangible assets (i.e., goodwill) is evaluated annually or more
frequently if impairment indicators exist, on a reporting unit basis by comparing the estimated fair value
to its carrying value. Our estimated fair value for Company-owned restaurants is comprised of two
components. The first component is the estimated cash sales price that would be received at the time of