Papa Johns 2011 Annual Report Download - page 68

Download and view the complete annual report

Please find page 68 of the 2011 Papa Johns annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 100

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100

63
2. Significant Accounting Policies (continued)
Tax authorities periodically audit the Company. We record reserves for identified exposures. We evaluate
these issues on a quarterly basis to adjust for events, such as court rulings or audit settlements, which may
impact our ultimate payment for such exposures. We recognized reductions of $1.9 million, $550,000
and $1.2 million in our income tax expense associated with the finalization of certain income tax issues in
2011, 2010 and 2009, respectively. See Note 13 for additional information.
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., an unconsolidated non-profit corporation (the “Marketing Fund”) and various 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 assumptions for estimating
the fair value of options 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 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.