Papa Johns 2008 Annual Report Download - page 15

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information, thereby improving the speed, accuracy and efficiency of restaurant-level reporting. The
PROFIT System is also closely integrated with our online ordering system in all domestic traditional
Papa John’s restaurants, enabling Papa John’s to offer nationwide online ordering to our customers.
Joint Ventures. We operate 128 Company-owned restaurants under two joint venture arrangements.
Under the first arrangement, we own 70% of an entity operating 51 Papa John’s restaurants located in
Virginia and Maryland. Under the second arrangement, we own 51% of an entity operating 77 Papa
John’s restaurants located in Texas. We will continue to evaluate further joint venture arrangements on
an individual basis as opportunities arise.
Hours of Operation. Our domestic restaurants are open seven days a week, typically from 11:00 a.m. to
12:30 a.m. Monday through Thursday, 11:00 a.m. to 1:30 a.m. on Friday and Saturday and 12:00 noon to
11:30 p.m. on Sunday.
Franchise Program
General. We continue to attract franchisees with significant restaurant and retail experience. We consider
our franchisees to be a vital part of our system’s continued growth and believe our relationship with our
franchisees is good. As of December 28, 2008, there were 2,765 franchised Papa John’s restaurants
operating in all 50 states, the District of Columbia, Puerto Rico and 29 countries. As of December 28,
2008, we have development agreements with our franchisees for over 300 additional domestic franchised
restaurants committed to open through 2018 and agreements for over 1,200 additional international
franchised restaurants to open through 2018. There can be no assurance that all of these restaurants will
be opened or that the development schedule set forth in the development agreements will be achieved.
During 2008, 243 (98 domestic and 145 international) franchised Papa John’s restaurants were opened.
Approval. Franchisees are approved on the basis of the applicant’s business background, restaurant
operating experience and financial resources. We seek franchisees to enter into development agreements
for single or multiple restaurants. We require each franchisee to complete our training program or to hire
a full-time operator who completes the training and has either an equity interest or the right to acquire an
equity interest in the franchise operation.
Domestic Development and Franchise Agreements. We enter into development agreements with our
domestic franchisees for the opening of a specified number of restaurants within a defined period of time
and specified geographic area. Substantially all existing franchise agreements have an initial 10-year term
with a 10-year renewal option. Many state franchise laws limit the ability of a franchisor to terminate or
refuse to renew a franchise. In October 2007, the Company initiated its domestic Franchise Agreement
Renewal Program (the “Renewal Program”), which was executed with substantially all of our domestic
franchisees by the first quarter of 2008. Key provisions of the revised form of the franchise agreement
(the "Negotiated Agreement") are as follows:
Royalty Rate - Under the form of the franchise agreement to which substantially all franchisees were
subject prior to the Renewal Program, the royalty rate could have been increased from 4% to 5% at any
time at the discretion of the Company. The Negotiated Agreement limits the royalty rate increase to a
maximum of one-quarter percent per year beginning in 2008, reaching 5% no earlier than 2011, and
further limits the royalty rate to a maximum of 5% through 2020. Royalty rate increases subsequent to
2020 are also limited to one-quarter percent per year and cannot exceed 5.5% through 2025, with a
maximum rate of 6% thereafter.
Marketing Expenditures - The Negotiated Agreement provides for certain minimum contributions as a
percentage of sales to the national Marketing Fund and a minimum level of spending as a percentage of