Papa Johns 2003 Annual Report Download - page 57

Download and view the complete annual report

Please find page 57 of the 2003 Papa Johns annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 81

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81

56
8. Net Property and Equipment
Net property and equipment consists of the following (in thousands):
2003
2002
Land
33,891
$
34,165
$
Buildings and improvements
82,880
82,168
Leasehold improvements
73,039
75,104
Equipment and other
159,775
155,526
Construction in progress
3,168
3,854
352,753
350,817
Less accumulated depreciation and amortization
(148,935)
(127,218)
Net property and equipment
203,818
$
223,599
$
9. 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
a few franchisees that purchased restaurants from us or from other franchisees. Loans outstanding to
franchisees were approximately $11.6 million as of December 28, 2003 and $14.1 million as of
December 29, 2002, net of allowance for doubtful accounts. The outstanding franchisee loan balance as
of December 28, 2003 includes a loan of $1.2 million to the Marketing Fund (see Note 2), which was
repaid in January 2004. We do not plan to extend loans of any significance to franchisees in the future.
Such loans bear interest at fixed or floating rates (with an average stated rate of 4.8% at December 28,
2003), and are generally secured by the fixtures, equipment, signage and, where applicable, land of each
restaurant and the ownership interests in the franchisee. The carrying amounts of the loans, on an
individual basis, approximate market value. Interest income recorded on franchisee loans was
approximately $466,000 in 2003, $751,000 in 2002 and $1.4 million in 2001 and is reported in
investment income in the accompanying consolidated statements of income.
We established reserves of $6.4 million as of December 28, 2003 and $4.4 million as of December 29,
2002 for potentially uncollectible franchisee notes receivable. We concluded the reserves were necessary
due to specific franchisees’ deteriorating economic performance and underlying collateral value.
10. Insurance Reserves
The Company’s insurance programs for workers’ compensation, general liability, owned and non-owned
automobiles and health insurance coverage provided to our employees are self-insured up to certain
individual and aggregate reinsurance levels. Claims in excess of self-insurance levels are fully insured.
Losses are accrued based on estimates of the aggregate retained liability for claims incurred using certain
actuarial projections and our claims loss experience. The estimated insurance claims losses could be
significantly affected should the frequency or ultimate cost of claims significantly differ from historical
trends. Accrued but unpaid losses for the Company’s insurance programs are included in accrued
expenses in the accompanying consolidated balance sheets.