Papa Johns 2014 Annual Report Download - page 73

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60
2. Significant Accounting Policies (continued)
Reclassifications
Certain prior year amounts in the consolidated statements of income have been reclassified to conform to
the current year presentation, which had no effect on current or previously reported net income.
Revenue Recognition
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. 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.
The Company offers various incentive programs for franchisees including royalty incentives, new
restaurant opening (i.e. development incentives) and other various support initiatives. Royalties, franchise
and development fees and commissary sales are reduced to reflect any incentives earned or granted under
these programs that are in the form of discounts. Direct mail advertising discounts are also periodically
offered. Other sales are reduced to reflect these advertising discounts. Other development incentives for
opening restaurants are offered in the form of the free use of Company equipment. This equipment is
amortized over the term of the agreement, which is generally two to three years, and is recognized in
other general expenses in our consolidated statements of income.
Domestic production and distribution revenues are comprised of food, promotional items and supplies
sold to franchised restaurants located in the United States and are recognized as revenue upon shipment of
the related products to the franchisees. Fees for information services, including software maintenance
fees, help desk fees and online ordering fees are recognized as revenue as such services are provided and
are included in other sales. Insurance commissions are recognized as revenue over the term of the policy
period and are included in other sales.
International revenues are comprised of restaurant sales, royalties and fees received from international
franchisees and the sale and distribution of food to international franchisees, and are recognized
consistently with the policies applied for revenues generated in the United States.
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 PJMF 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
domestic 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.