Papa Johns 2015 Annual Report Download - page 42

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29
See “Note 6” of “Notes to Consolidated Financial Statements” for additional information.
Stock Based Compensation
Compensation expense for equity grants is estimated on the grant date, net of projected forfeitures and is
recognized over the vesting period (generally in equal installments over three years). Restricted stock is
valued based on the market price of the Company’s shares on the date of grant. Stock options are valued
using a Black-Scholes option pricing model.
Our specific assumptions for estimating the fair value of options include the following:
2015 2014 2013
Assumptions (weighted average):
Risk-free interest rate 1.6% 1.8% 1.1%
Expected dividend yield 0.9% 1.0% 0.1%
Expected volatility 28.5% 35.7% 37.5%
Expected term (in years) 5.5 6.0 6.0
The risk-free interest rate for the periods within the contractual life of an option is based on the U.S.
Treasury yield curve in effect at the time of grant. The expected dividend yield was estimated as the
annual dividend divided by the market price of the Company’s shares on the date of grant. Expected
volatility was estimated by using the Company’s historical share price volatility for a period similar to the
expected life of the option. See “Note 18” of “Notes to Consolidated Financial Statements” for additional
information.
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 a qualitative assessment for our domestic Company-owned restaurants and PJUK
reporting units in 2015. As a result of our qualitative analyses, we determined that it was more-likely-
than-not that the fair values of our reporting units were greater than their carrying amounts. We
performed a quantitative analysis for the goodwill of our China reporting unit using a market approach.
The market approach 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 assessment indicated the fair value significantly exceeded the
carrying amount.
Subsequent to completing our goodwill impairment tests, no indications of impairment were identified.
See “Note 8” of “Notes to Consolidated Financial Statements” for additional information.