Papa Johns 2003 Annual Report Download - page 11

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10
Franchisee Loans. Selected franchisees have borrowed funds from our subsidiary, Capital Delivery, Ltd.,
principally for use in the construction and development of their restaurants. We have also entered into
loan agreements with certain franchisees that purchased restaurants from us or other franchisees. Loans
made to franchisees typically bear interest at fixed or floating rates (with a stated average interest rate of
4.8% at December 28, 2003) and in most cases are secured by the fixtures, equipment and signage (and
where applicable, the land) of the restaurant and the ownership interests in the franchisee. At December
28, 2003, franchisee loans outstanding totaled $11.6 million, net of a $6.4 million reserve for
uncollectible amounts. The loans outstanding include a loan of $1.2 million to the Marketing Fund (see
Marketing Programs), that was repaid in January 2004. We do not plan to extend significant loans to
franchisees in the future. See “Note 9” of “Notes to Consolidated Financial Statements” for additional
information.
We have a commitment to lend up to $2.6 million to BIBP, a franchisee-owned corporation. During
2003, no amounts were outstanding to BIBP. See “Note 3” of “Notes to Consolidated Financial
Statements” for additional information.
Franchise Insurance Program. We provide our franchisees an opportunity to purchase various insurance
policies, such as non-owned automobile and workers’ compensation, through our insurance agency, Risk
Services Corp. (“Risk Services”). In October 2000, we established a captive insurance company located
in Bermuda, RSC Insurance Services, Ltd., to accommodate this business. We have specific and
aggregate reinsurance to limit the exposure to the captive insurance company. As of December 28, 2003,
approximately 70% of domestic franchise restaurants had obtained insurance coverage through Risk
Services. See “Note 10” of “Notes to Consolidated Financial Statements” for additional information.
Franchise Training and Support. Every franchisee is required to have a principal operator approved by
us who satisfactorily completes our required training program and who devotes his or her full business
time and efforts to the operation of the franchisee’s restaurants. Each franchise restaurant manager is also
required to complete our Company-certified management training program. We provide an on-site
training crew three days before and three days after the opening of a franchisee’s first two restaurants.
Ongoing supervision of training is monitored by the corporate franchise training team. Multi-unit
franchisees are encouraged to appoint training store general managers or hire a full-time training
coordinator certified to deliver Company-approved programs in order to train new team members and
management candidates for their restaurants. Our area franchise directors maintain open communication
with the franchise community, relaying operating and marketing information and new ideas between
franchisees and us. Internationally, training is monitored by our international director of training as well
as regional directors and international business managers assigned to specific franchisee territories. We
also maintain communications with our franchisees through periodic system-wide meetings and
newsletters.
Franchise Operations. All franchisees are required to operate their Papa John’s restaurants in compliance
with our policies, standards and specifications, including matters such as menu items, ingredients,
materials, supplies, services, fixtures, furnishings, decor and signs. Each franchisee has full discretion to
determine the prices to be charged to its customers.
Franchise Advisory Council. We have a Franchise Advisory Council that consists of Company and
franchisee representatives of domestically owned restaurants. The Advisory Council and subcommittees
hold regular meetings to discuss new marketing ideas, operations, growth and other relevant issues.
Certain franchisees are exploring the formation of a franchise association, although we are not aware of
any formal action that has been taken regarding such formation at this time.