Papa Johns 2010 Annual Report Download - page 80

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2. Significant Accounting Policies (continued)
Derivatives and Hedging
In 2009, Papa John’s adopted the latest provisions of the ASC topic, Derivatives and Hedging. The
guidance enhanced the required disclosures regarding derivatives and hedging activities, including
disclosures regarding how and why an entity uses derivative instruments, how derivative instruments and
related hedged items are accounted, and how derivative instruments and related hedged items affect an
entity’s financial position, results of operations and cash flows. See Note 7 for additional information.
Modification of our Non-qualified Deferred Compensation Plan
During 2010, we modified the provisions of our non-qualified deferred compensation plan. Previously,
participants who elected an investment in phantom Papa John’s stock were paid in cash upon settlement
of their investment balance. Effective the first quarter of 2010, we began settling future distributions of
the deemed investment balances in Papa John’s stock through the issuance of Company stock.
Accordingly, during 2010, we reclassified $2.0 million from other long-term liabilities to paid-in capital
in the accompanying consolidated financial statements.
Subsequent Events
We evaluated subsequent events through the date the financial statements were issued and filed with this
Form 10-K. There were no subsequent events that required recognition or disclosure.
3. Accounting for Variable Interest Entities
The Consolidation topic of the ASC provides a framework for identifying VIEs and determining when a
company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in
its consolidated financial statements.
In general, a VIE is a corporation, partnership, limited liability company, trust, or any other legal
structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to
carry out its principal activities without additional subordinated financial support, (2) has a group of
equity owners that are unable to make significant decisions about its activities, or (3) has a group of
equity owners that do not have the obligation to absorb losses or the right to receive returns generated by
its operations.
Consolidation of a VIE is required if a party with an ownership, contractual or other financial interest in
the VIE (“a variable interest holder”) is obligated to absorb a majority of the risk of loss from the VIE’s
activities, is entitled to receive a majority of the VIE’s residual returns (if no party absorbs a majority of
the VIE’s losses), or both. A variable interest holder that consolidates the VIE is called the primary
beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s
assets, liabilities and noncontrolling interests at fair value and subsequently account for the VIE as if it
were consolidated based on majority voting interest. Disclosures about VIEs that the variable interest
holder is not required to consolidate but in which it has a significant variable interest is also required.