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Significant Accounting Policies | 3 Months Ended
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Mar. 26, 2023
Accounting Policies [Abstract] |
Significant Accounting Policies | 2. Significant Accounting Policies Principles of Consolidation The accompanying Condensed Consolidated Financial Statements include the accounts of Papa John’s International, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated. Variable Interest Entity Papa John’s domestic restaurants, both Company-owned and franchised, participate in Papa John’s Marketing Fund, Inc. (“PJMF”), a nonstock corporation designed to operate at break-even as it spends all annual contributions received from the system. PJMF collects a percentage of revenues from Company-owned and franchised restaurants in the United States and Canada for the purpose of designing and administering advertising and promotional programs. PJMF is a variable interest entity (“VIE”) that funds its operations with ongoing financial support and contributions from the North America restaurants, of which approximately 85 percent are franchised, and does not have sufficient equity to fund its operations without these ongoing financial contributions. Based on an assessment of the governance structure and operating procedures of PJMF, the Company determined it has the power to control certain significant activities of PJMF, and therefore, is the primary beneficiary. The Company has consolidated PJMF in its financial results in accordance with Accounting Standards Codification (“ASC”) 810, “Consolidation.” Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant items that are subject to such estimates and assumptions include the allowance for credit losses on accounts and notes receivable, intangible assets, contract assets and contract liabilities including the customer loyalty program obligation, right-of-use assets and lease liabilities, unredeemed gift card liabilities, insurance reserves and tax reserves. Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could significantly differ from these estimates. Noncontrolling Interests Papa John’s has joint venture arrangements in which there are noncontrolling interests held by third parties that includ ed 98 and 188 restaurants at March 26, 2023 and March 27, 2022, respectively. As further described in “Note 10. Divestitures” we divested our 51 percent interest in one joint venture in Texas that owned 90 restaurants in the second quarter of 2022. Consolidated net income is required to be reported separately at amounts attributable to both the Company and the noncontrolling interests. Additionally, disclosures are required to clearly identify and distinguish between the interests of the Company and the interests of the noncontrolling owners, including a disclosure on the face of the Condensed Consolidated Statements of Operations of net income attributable to noncontrolling interests. Net income attributable to these joint ventures for the three months ended March 26, 2023 and March 27, 2022 was as follows (in thousands):
|  |  |  | Three Months Ended
|  |  |  |  |  | March 26, 2023 |  | March 27, 2022
Papa John’s International, Inc. |  |  |  |  |  | $ | 397 |  |  | $ | 1,621 |
Noncontrolling interests |  |  |  |  |  | 170 |  |  | 933 |
Total net income |  |  |  |  |  | $ | 567 |  |  | $ | 2,554 |
The following summarizes the redemption feature, location and related accounting within the Condensed Consolidated Balance Sheets for these joint venture arrangements:
Type of Joint Venture Arrangement |  | Location within the Condensed Consolidated Balance Sheets |  | Recorded Value
Joint ventures with no redemption feature |  | Permanent equity |  | Carrying value
Joint ventures with option to require the Company to purchase the noncontrolling interest - not currently redeemable or redemption not probable |  | Temporary equity |  | Carrying value
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 the 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 to determine our quarterly provision for income taxes. The effective income tax rate includes the estimated domestic state effective income tax rate and applicable foreign income tax rates. The effective income tax rate is also impacted by various permanent items and credits, net of any related valuation allowances, and can vary based on changes in estimated annual income. Discrete items are recorded in the quarter in which they occur. 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 and liabilities are netted by tax jurisdiction. Deferred tax assets are also recognized for the estimated future effects of tax attribute carryforwards (e.g., net operating losses, capital losses, and foreign tax credits). The effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax rate is enacted. 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 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. Fair Value Measurements and Disclosures The Company determines 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. 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 three categories: •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. Fair value is a market-based measurement, not an entity-specific measurement. Considerable judgment is required to interpret market data to estimate fair value; accordingly, the fair values presented do not necessarily indicate what the Company or its debtholders could realize in a current market exchange. Our financial assets and liabilities that were measured at fair value on a recurring basis as of March 26, 2023 and December 25, 2022 are as follows:
|  |  |  | Fair Value Measurements
(In thousands) |  | Carrying Value |  | Level 1 |  | Level 2 |  | Level 3
March 26, 2023 |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |
Cash surrender value of life insurance policies (a) |  | $ | 30,337 |  |  | $ | 30,337 |  |  | $ | — |  |  | $ | — |
Interest rate swaps (b) |  | $ | 274 |  |  | $ | — |  |  | $ | 274 |  |  | $ | — |
December 25, 2022 |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |
Cash surrender value of life insurance policies (a) |  | $ | 30,120 |  |  | $ | 30,120 |  |  | $ | — |  |  | $ | — |
Interest rate swaps (b) |  | $ | 986 |  |  | $ | — |  |  | $ | 986 |  |  | $ | — |
___________________________________ (a)Represents life insurance policies held in our non-qualified deferred compensation plan. (b)The fair value of our interest rate swaps 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 swaps, as well as considering published discount factors, and projected London Interbank Offered Rates (“LIBOR”). The fair value of certain assets and liabilities approximates carrying value because of the short-term nature of the accounts, including cash and cash equivalents, accounts receivable, net of allowances, and accounts payable. The carrying value of notes receivable, net of allowances, also approximates fair value. The Company’s revolving credit facilities under the Company’s credit agreement approximate carrying value due to their variable market-based interest rate. The Company’s 3.875% senior notes are classified as a Level 2 fair value measurement since the Company estimates the fair value by using recent trading transactions, and have the following estimated fair values and carrying values (excluding the impact of unamortized debt issuance costs) as of March 26, 2023 and December 25, 2022:
|  | March 26, 2023 |  | December 25, 2022
(In thousands) |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
3.875% Senior Notes |  | $ | 400,000 |  |  | $ | 342,000 |  |  | $ | 400,000 |  |  | $ | 339,500 |
Allowance for Credit Losses Estimates of expected credit losses, even if remote, are based upon historical account write-off trends, facts about the current financial condition of the debtor, forecasts of future operating results based upon current trends of select operating metrics, and macroeconomic factors. Credit quality is monitored through the timing of payments compared to the prescribed payment terms and known facts regarding the financial condition of the franchisee or customer. Account and note balances are charged off against the allowance after recovery efforts have ceased. The following table summarizes changes in our allowances for credit losses for accounts receivable and notes receivable:
(In thousands) |  | Accounts Receivable |  | Notes Receivable
Balance at December 25, 2022 |  | $ | 6,718 |  |  | $ | 14,499 |
Current period provision for expected credit losses |  | 609 |  |  | 24 |
Write-offs charged against the allowance |  | (228) |  |  | — |
Recoveries collected |  | (84) |  |  | (36) |
Balance at March 26, 2023 |  | $ | 7,015 |  |  | $ | 14,487 |

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- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=123372394&loc=d3e18726-107790 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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