Papa Johns 2014 Annual Report Download - page 75

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62
2. Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation is recorded using the straight-line method over the
estimated useful lives of the assets (generally five to ten years for restaurant, commissary and other
equipment, and 20 to 40 years for buildings and improvements). Leasehold improvements are amortized
over the terms of the respective leases, including the first renewal period (generally five to ten years).
Depreciation expense was $39.1 million in 2014, $34.5 million in 2013 and $32.1 million in 2012.
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 $3.3 million in 2014, $3.3 million in 2013 and
$2.7 million in 2012. The unamortized information systems development costs approximated $8.7 million
and $7.5 million as of December 28, 2014 and December 29, 2013, respectively.
Intangible Assets – Goodwill
We evaluate goodwill annually in the fourth quarter or whenever we identify certain triggering events or
circumstances that would more-likely-than-not reduce the fair value of a reporting unit below its carrying
amount. Such tests are completed separately with respect to the goodwill of each of our reporting units,
which includes our domestic Company-owned restaurants, China and the United Kingdom (“PJUK”).
We may perform a qualitative assessment or move directly to the quantitative assessment for any
reporting unit in any period if we believe that it is more efficient or if impairment indicators exist. We
elected to perform the two-step quantitative assessment for all reporting units in 2014.
Our domestic Company-owned restaurants fair value calculation considered both an income approach and
a market approach and our China and United Kingdom fair value calculations considered an income
approach. The income approach used projected net cash flows, with various growth assumptions, over a
ten-year discrete period and a terminal value, which were discounted using appropriate rates. The selected
discount rate considered the risk and nature of each reporting unit’s cash flow and the rates of return
market participants would require to invest their capital in the reporting unit. In determining the fair value
from a market approach, we considered earnings before interest, taxes, depreciation and amortization
(“EBITDA”) multiples that a potential buyer would pay based on third-party transactions in similar
markets.
The results of our quantitative assessments indicated the fair values significantly exceeded the carrying
amounts. Subsequent to completing our annual quantitative goodwill impairment tests, no indications of
impairment were identified.
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.