Papa Johns 2012 Annual Report Download - page 65

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59
Papa John’s International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Description of Business
Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s” or in the first person
notations of “we,” “us” and “our”) operates and franchises pizza delivery and carryout restaurants under
the trademark “Papa John’s,” currently in all 50 states and 35 countries. Substantially all revenues are
derived from retail sales of pizza and other food and beverage products to the general public by
Company-owned restaurants, franchise royalties, sales of franchise and development rights, and sales to
franchisees of food and paper products, printing and promotional items, risk management services, and
information systems and related services used in their operations.
2. Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Papa John’s and its
subsidiaries. Our financial results include BIBP Commodities, Inc. (“BIBP”), a variable interest entity
(“VIE”) for which we were the primary beneficiary. The results of our Company-owned operations in
Mexico and China are consolidated one month in arrears. The results of our inactive captive insurance
subsidiary, RSC Insurance Services, Ltd. (“RSC”), are consolidated one quarter in arrears. All
intercompany balances and transactions have been eliminated.
Fiscal Year
Our fiscal year ends on the last Sunday in December of each year. All fiscal years presented consist of 52
weeks except for the 2012 fiscal year, which consists of 53 weeks.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. Significant items that
are subject to such estimates and assumptions include allowance for doubtful accounts and notes
receivable, intangible assets, online customer loyalty program obligation, insurance reserves and income
tax reserves. Although management bases its estimates on historical experience and assumptions that are
believed to be reasonable under the circumstances, actual results could significantly differ from these
estimates.
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 which
grant the right to develop franchised restaurants in future periods in specific geographic areas are deferred
and recognized on a pro rata basis as franchised restaurants subject to the development agreements begin
operations. 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.