Papa Johns 2014 Annual Report Download - page 72

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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 in 36 international countries and territories.
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. The results of our Company-owned operations in China were consolidated one month in
arrears until fiscal 2013. The inclusion of the additional month of operations in fiscal 2013 resulted in
$2.1 million of incremental international revenues and an incremental loss before income taxes of
$215,000 reported in the international segment. This change in our consolidation policy did not have a
material impact to our financial results for any of the years presented. All intercompany balances and
transactions have been eliminated.
Variable Interest Entity
Papa John’s domestic restaurants, both Company-owned and franchised, participate in Papa John’s
Marketing Fund, Inc. (PJMF), a nonstock corporation designed to operate at break-even for the purpose of
designing and administering advertising and promotional programs for all participating domestic
restaurants. PJMF is a variable interest entity (“VIE”) as it does not have sufficient equity to fund its
operations without ongoing financial support and contributions from its members. Based on the
ownership and governance structure and operating procedures of PJMF, we have determined that we do
not have the power to direct the most significant activities of PJMF and are therefore not the primary
beneficiary. Accordingly, we determined that consolidation is not appropriate.
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 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.