Papa Johns 2015 Annual Report Download - page 41

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28
Planned Sale of China Company-owned Operations
In September 2015, the Company decided to refranchise the China Company-owned market and is
planning a sale of its existing China operations, consisting of 45 Company-owned restaurants and a
commissary. We expect to sell the business during 2016; upon completion of the sale, the Company will
not have any Company-owned international restaurants. We have classified the assets as held for sale
within the consolidated balance sheet. Upon the classification of these assets to held for sale, no loss was
recognized as their fair value exceeded their carrying value.
The Company-owned China operations incurred losses before income taxes of $1.2 million in 2015 and
$3.4 million in 2014, which are recorded in our International segment. The loss in 2014 includes an
impairment and disposition charge of $1.0 million for eleven Company-owned restaurants in China. We
do not expect the sale of our China operations to have a significant impact on our financial results.
See “Note 7” of “Notes to Consolidated Financial Statements” for additional information.
Critical Accounting Policies and Estimates
The results of operations are based on our consolidated financial statements, which were prepared in
conformity with accounting principles generally accepted in the United States (“GAAP”). The preparation
of consolidated financial statements requires management to select accounting policies for critical
accounting areas as well as estimates and assumptions that affect the amounts reported in the consolidated
financial statements. The Company’s significant accounting policies are more fully described in “Note 2”
of “Notes to Consolidated Financial Statements.” Significant changes in assumptions and/or conditions in
our critical accounting policies could materially impact the operating results. We have identified the
following accounting policies and related judgments as critical to understanding the results of our
operations:
Allowance for Doubtful Accounts and Notes Receivable
We establish reserves for uncollectible accounts and notes receivable based on overall receivable aging
levels and a specific evaluation of accounts and notes for franchisees and other customers with known
financial difficulties. Balances are charged off against the allowance after recovery efforts have ceased.
Noncontrolling Interests
The Company has the following four joint ventures in which there are noncontrolling interests as of
December 27, 2015:
Joint Venture
Redemption Feature
Location within the
Consolidated Balance Sheet
Recorded value
Star Papa, LP Redeemable Temporary equity Carrying value
PJ Denver, LLC Redeemable Temporary equity Redemption value
Colonel’s Limited, LLC No redemption feature Permanent equity Carrying value
PJ Minnesota, LLC No redemption feature Permanent equity Carrying value
Consolidated net income is required to be reported separately at amounts attributable to both the parent
and the noncontrolling interest. Disclosures are required to clearly identify and distinguish between the
interests of the parent company and the interests of the noncontrolling owners, including a disclosure on
the face of the consolidated statements of income attributable to the noncontrolling interest holder.