Papa Johns 2015 Annual Report Download - page 74

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2. Significant Accounting Policies (continued)
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 $2.6 million in 2015, $3.3 million in 2014 and
$3.3 million in 2013. The unamortized information systems development costs approximated $9.1 million
and $8.7 million as of December 27, 2015 and December 28, 2014, 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 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.
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.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax
basis of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in
effect when the differences reverse. Deferred tax assets are also recognized for the estimated future
effects of tax loss carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the
period in which the new tax is enacted. As a result, our effective tax rate may fluctuate. Valuation
allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the
amounts we expect to realize.
Tax authorities periodically audit the Company. We record reserves and related interest and penalties for
identified exposures as income tax expense. We evaluate these issues and adjust for events, such as statute
of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for
such exposures.