Papa Johns 2008 Annual Report Download - page 18

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11
agreement, and 27 franchised units opened in Live Nation amphitheaters in 2007 and 2008 as part of a
four-year marketing and partnership agreement. These agreements generally cover venues or areas not
originally targeted for development and have terms differing from the standard agreement. To date, these
agreements have not had a significant, direct impact on our pre-tax earnings.
Franchise Restaurant Development. We provide assistance to Papa John’s franchisees in selecting sites,
developing restaurants and evaluating the physical specifications for typical restaurants. Each franchisee
is responsible for selecting the location for its restaurants but must obtain our approval of restaurant
design and location based on accessibility and visibility of the site and targeted demographic factors,
including population, density, income, age and traffic. Our domestic and international franchisees may
purchase complete new store equipment packages through an approved third-party supplier.
Franchisee Loans. Selected franchisees have borrowed funds from our subsidiary, Capital Delivery, Ltd.,
principally for the purchase of restaurants from us or other franchisees or for use in the construction and
development of new restaurants. Loans made to franchisees typically bear interest at fixed or floating
rates and in most cases are secured by the fixtures, equipment and signage (and where applicable, the
land) of the restaurant and/or guarantees from the franchisee’s owners. At December 28, 2008, loans
outstanding totaled $7.6 million, which were composed of loans to franchisees and a loan with the
purchaser of the Perfect Pizza operations. See “Note 10” of “Notes to Consolidated Financial
Statements” for additional information.
We have a commitment to lend up to $40.0 million to BIBP, a franchisee-owned corporation with an
outstanding balance of $35.7 million at December 28, 2008. See “Notes 4 and 10” of “Notes to
Consolidated Financial Statements” for additional information.
Franchise Insurance Program. Our franchisees have the 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
(“Captive”) domiciled in Bermuda, RSC Insurance Services, Ltd., to accommodate this business.
Beginning in October 2004, a third-party commercial insurance company began providing fully-insured
coverage to franchisees participating in the franchise insurance program. Accordingly, in 2004 we
eliminated our risk of loss for franchise insurance coverage written after September 2004. As of
December 28, 2008, approximately 46% of domestic franchised restaurants had obtained insurance
coverage through Risk Services. See “Note 11” of “Notes to Consolidated Financial Statements” for
additional information concerning the Captive.
Franchise Training and Support. Our domestic field support structure consists of Franchise Business
Directors (“FBDs”), each of whom is responsible for serving an average of approximately 100 franchised
units. Our FBDs maintain open communication with the franchise community, relaying operating and
marketing information and new ideas between franchisees and us.
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 franchised restaurant manager is also required to complete our Company-
certified management training program. Domestically, we provide an on-site training team three days
before and three days after the opening of a franchisee’s first two restaurants. Internationally, we provide
on-site training personnel five days before and five days after the opening of a franchisee’s first two
stores. Ongoing supervision of training is monitored by the 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. Internationally, training is monitored by our international