Papa Johns 2012 Annual Report Download - page 68

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2. Significant Accounting Policies (continued)
Subsequent to completing our annual qualitative and quantitative goodwill impairment tests, no
indications of impairment were identified.
Deferred Costs
We defer certain information systems development and related costs that meet established criteria.
Amounts deferred, which are included in property and equipment, are amortized principally over periods
not exceeding five years beginning in the month subsequent to completion of the related information
systems project. Total costs deferred were approximately $2.7 million in 2012, $1.5 million in 2011 and
$2.0 million in 2010. The unamortized information systems development costs approximated $5.8 million
and $4.1 million as of December 30, 2012 and December 25, 2011, respectively.
Deferred Income Tax Accounts and Tax Reserves
We are subject to income taxes in the United States and several foreign jurisdictions. Significant
judgment is required in determining our provision for income taxes and the related assets and liabilities.
The provision for income taxes includes income taxes paid, currently payable or receivable and those
deferred.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax
basis of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in
effect when the differences reverse. Deferred tax assets are also recognized for the estimated future
effects of tax loss carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the
period in which the new tax is enacted. Valuation allowances are established when necessary on a
jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. As of December 30,
2012, we had a net deferred tax liability of approximately $400,000.
Tax authorities periodically audit the Company. We record reserves and related interest and penalties for
identified exposures as income tax expense. We evaluate these issues and adjust for events, such as statute
of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for
such exposures. We recognized reductions of $738,000, $1.9 million and $550,000 in our income tax
expense associated with the finalization of certain income tax issues in 2012, 2011 and 2010, respectively.
See Note 15 for additional information.
Advertising and Related Costs
Advertising and related costs include the costs of domestic Company-owned local restaurant activities
such as mail coupons, door hangers and promotional items and contributions to Papa John’s Marketing
Fund, Inc. (“PJMF”), an unconsolidated non-profit corporation, and various local market cooperative
advertising funds (“Co-op Funds”). Contributions by domestic Company-owned and franchised
restaurants to PJMF and the Co-op Funds are based on an established percentage of monthly restaurant
revenues. PJMF 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 PJMF. We
recognize domestic Company-owned restaurant contributions to PJMF and the Co-op Funds in which we
do not have a controlling interest in the period in which the contribution accrues. The net assets of the Co-
op Funds in which we possess majority voting rights, and thus control the cooperatives, are included in
our consolidated balance sheets.