Papa Johns 2010 Annual Report Download - page 76

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69
2. Significant Accounting Policies (continued)
Advertising and Related Costs
Advertising and related costs include the costs of domestic Company-owned restaurant activities such as
mail coupons, door hangers and promotional items and contributions to Papa John’s Marketing Fund, Inc.
(the “Marketing Fund”) and local market cooperative advertising funds (“Co-op Funds”). Contributions
by domestic Company-owned and franchised restaurants to the Marketing Fund and the Co-op Funds are
based on an established percentage of monthly restaurant revenues. The Marketing Fund is responsible
for developing and conducting marketing and advertising for the Papa John’s system. The Co-op Funds
are responsible for developing and conducting advertising activities in a specific market, including the
placement of electronic and print materials developed by the Marketing Fund. We recognize domestic
Company-owned restaurant contributions to the Marketing Fund and the Co-op Funds in which we do not
have a controlling interest in the period in which the contribution accrues.
The assets of the Co-op Funds in which we possess majority voting rights, and thus control the
cooperatives, are consolidated in Other Current Assets in our Consolidated Balance Sheets.
Foreign Currency Translation
The local currency is the functional currency for our foreign subsidiaries, located in the United Kingdom,
Mexico and China. Earnings and losses are translated into U.S. dollars using monthly average exchange
rates, while balance sheet accounts are translated using year-end exchange rates. The resulting translation
adjustments are included as a component of accumulated other comprehensive income (loss).
Stock-Based Compensation
Compensation expense for equity grants is estimated on the grant date, net of projected forfeitures. Stock
options are valued using a Black-Scholes option pricing model. Our specific weighted-average
assumptions for the risk-free interest rate, expected term, expected volatility and expected dividend yield
are included in Note 17. Restricted stock is valued based on the market price of the Company’s shares on
the date of grant.
Fair Value Measurements and Disclosures
The Fair Value Measurements and Disclosures topic of the Accounting Standards Codification (“ASC”)
requires companies to determine fair value based on the price that would be received to sell the asset or
paid to transfer the liability to a market participant. The Fair Value Measurements and Disclosures topic
emphasizes that fair value is a market-based measurement, not an entity-specific measurement. The
guideline required a phase-in approach: (1) phase one was effective for financial assets and liabilities in
our first quarter of 2008 and (2) phase two was effective for non-financial assets and liabilities in our
first quarter of fiscal 2009. The new provisions did not have a significant impact on our financial
statements.
The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of
the following categories:
• Level 1: Quoted market prices in active markets for identical assets or liabilities.
• Level 2: Observable market based inputs or unobservable inputs that are corroborated by market
data.
• Level 3: Unobservable inputs that are not corroborated by market data.