Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 29, 2013 |
Significant Accounting Policies | ' |
Accumulated Other Comprehensive Income | ' |
Accumulated Other Comprehensive Income |
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Effective December 31, 2012, we adopted Accounting Standards Update 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” on a prospective basis. The updated standard requires the reporting of reclassifications out of accumulated other comprehensive income (“AOCI”). We are required to disclose the effect of significant items reclassified out of AOCI into our consolidated statements of income either parenthetically in the consolidated statements of income for each caption impacted or in a note to the condensed consolidated financial statements. We reclassified $165,000 and $254,000 from AOCI to net interest (expense) income during the three and nine months ended September 29, 2013 and reclassified $37,000 and $107,000 for the three and nine months ended September 23, 2012. |
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Noncontrolling Interests | ' |
Noncontrolling Interests |
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The Consolidation topic of the Accounting Standards Codification (“ASC”) requires all entities to report noncontrolling interests in subsidiaries separate from the equity of the parent company. The Consolidation topic further requires that consolidated net income be reported at amounts attributable to the parent and the noncontrolling interest, rather than expensing the income attributable to the noncontrolling interest holder. Additionally, 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 for income attributable to the noncontrolling interest holder. |
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Papa John’s has joint ventures in which there are redeemable noncontrolling interests, including the following as of September 29, 2013 and September 23, 2012: |
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| | Number of | | Restaurant Locations | | Papa John’s | | Reedeemable | | | | | | | |
Restaurants | Ownership | Noncontrolling | | | | | | |
| | Interest | | | | | | |
| | Ownership | | | | | | |
29-Sep-13 | | | | | | | | | | | | | | | |
Star Papa, LP | | 78 | | Texas | | 51 | % | 49 | % | | | | | | |
Colonel’s Limited, LLC | | 52 | | Maryland and Virginia | | 70 | % | 30 | % | | | | | | |
PJ Minnesota, LLC | | 31 | | Minnesota | | 80 | % | 20 | % | | | | | | |
PJ Denver, LLC | | 25 | | Colorado | | 60 | % | 40 | % | | | | | | |
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23-Sep-12 | | | | | | | | | | | | | | | |
Star Papa, LP | | 76 | | Texas | | 51 | % | 49 | % | | | | | | |
Colonel’s Limited, LLC | | 52 | | Maryland and Virginia | | 70 | % | 30 | % | | | | | | |
PJ Minnesota, LLC | | 29 | | Minnesota | | 80 | % | 20 | % | | | | | | |
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The income before income taxes attributable to the joint ventures for the three and nine months ended September 29, 2013 and September 23, 2012 was as follows (in thousands): |
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| | Three Months | | Nine Months | | | |
| | Sept. 29, | | Sept. 23, | | Sept. 29, | | Sept. 23, | | | |
| | 2013 | | 2012 | | 2013 | | 2012 | | | |
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Papa John’s International, Inc. | | $ | 805 | | $ | 1,259 | | $ | 3,597 | | $ | 5,157 | | | |
Noncontrolling interests | | 602 | | 794 | | 2,510 | | 3,292 | | | |
Total income before income taxes | | $ | 1,407 | | $ | 2,053 | | $ | 6,107 | | $ | 8,449 | | | |
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The Colonel’s Limited, LLC agreement contains a mandatory redemption clause and, accordingly, the Company has recorded this noncontrolling interest as a liability at its redemption value in other long-term liabilities. The redemption value is adjusted at each reporting date and any change is recorded in net interest (expense) income. The redemption value was $10.7 million as of September 29, 2013 and $11.8 million as of December 30, 2012. |
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As part of the other joint venture agreements, the noncontrolling interest holders have the option to require the Company to purchase their interests. Since redemption of the noncontrolling interests is outside of the Company’s control, the noncontrolling interests are presented in the caption “Redeemable noncontrolling interests” in the condensed consolidated balance sheets and include the following joint ventures: |
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· The Star Papa, LP agreement contains a redemption feature that is not currently redeemable, but it is probable to become redeemable in the future. Due to specific valuation provisions contained in the agreement, this noncontrolling interest has been recorded at its carrying value. |
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· The PJ Minnesota, LLC and PJ Denver, LLC agreements contain redemption features that are currently redeemable and, therefore, these noncontrolling interests have been recorded at their current redemption values. The change in redemption value is recorded as an adjustment to “Redeemable noncontrolling interests” and “Retained earnings” in the Condensed Consolidated Balance Sheets. |
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A reconciliation of the beginning and ending recorded values of the redeemable noncontrolling interests for the nine months ended September 29, 2013 is as follows (in thousands): |
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Balance at December 30, 2012 | | $ | 6,380 | | | | | | | | | | | | |
Net income | | 1,268 | | | | | | | | | | | | |
Contributions from redeemable noncontrolling interest holders | | 850 | | | | | | | | | | | | |
Distributions to redeemable noncontrolling interest holders | | (2,000 | ) | | | | | | | | | | | |
Change in redemption value | | 450 | | | | | | | | | | | | |
Balance at September 29, 2013 | | $ | 6,948 | | | | | | | | | | | | |
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Deferred Income Tax Accounts and Tax Reserves | ' |
Deferred Income Tax Accounts and Tax Reserves |
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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. We use an estimated annual effective rate based on expected annual income before income taxes to determine our quarterly provision for income taxes. Discrete items are recorded in the quarter in which they occur. |
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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. As of September 29, 2013, we had a net deferred tax liability of approximately $3.2 million. |
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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 on a quarterly basis to adjust for events, such as statute of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for such exposures. |
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Fair Value Measurements and Disclosures | ' |
Fair Value Measurements and Disclosures |
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The Company is required to determine the fair value of financial assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. Fair value is a market-based measurement, not an entity specific measurement. The fair value of certain assets and liabilities approximates carrying value because of the short-term nature of the accounts, including cash, accounts receivable and accounts payable. The fair value of our notes receivable net of allowances also approximates carrying value. The fair value of the amount outstanding under our revolving credit facility approximates its carrying value due to its variable market-based interest rate. |
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Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following categories: |
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· Level 1: Quoted market prices in active markets for identical assets or liabilities. |
· Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. |
· Level 3: Unobservable inputs that are not corroborated by market data. |
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Our financial assets and liabilities that were measured at fair value on a recurring basis as of September 29, 2013 and December 30, 2012 are as follows (in thousands): |
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| | Balance Sheet | | Carrying | | Fair Value Measurements | |
| | Location | | Value | | Level 1 | | Level 2 | | Level 3 | |
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29-Sep-13 | | | | | | | | | | | |
Financial assets: | | | | | | | | | | | |
Cash surrender value of life insurance policies * | | Other assets | | $ | 15,896 | | $ | 15,896 | | $ | — | | $ | — | |
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Financial liabilities: | | | | | | | | | | | |
Interest rate swap | | Other long-term liabilities | | 471 | | — | | 471 | | — | |
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30-Dec-12 | | | | | | | | | | | |
Financial assets: | | | | | | | | | | | |
Cash surrender value of life insurance policies * | | Other assets | | $ | 13,551 | | $ | 13,551 | | $ | — | | $ | — | |
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Financial liabilities: | | | | | | | | | | | |
Interest rate swap | | Other long-term liabilities | | 104 | | — | | 104 | | — | |
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* Represents life insurance policies held in our non-qualified deferred compensation plan. |
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There were no transfers among levels within the fair value hierarchy during the nine months ended September 29, 2013. |
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The fair value of our interest rate swap is based on the sum of all future net present value cash flows. The future cash flows are derived based on the terms of our interest rate swap, as well as considering published discount factors, and projected London Interbank Offered Rates (“LIBOR”). |
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