Papa Johns 2009 Annual Report Download - page 76

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69
2. Significant Accounting Policies (continued)
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 that
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
restaurant sales, are recognized as revenues when the products are delivered to or carried out by
customers.
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.