Papa Johns 2008 Annual Report Download - page 90

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83
9. Net Property and Equipment
Net property and equipment consists of the following (in thousands):
2008 2007
Land 31,450$ 31,659$
Buildings and improvements 79,586 79,726
Leasehold improvements 82,319 84,737
Equipment and other 190,913 203,532
Construction in progress 3,812 8,420
388,080 408,074
Less accumulated depreciation and amortization (198,088) (209,117)
Net property and equipment 189,992$ 198,957$
10. Notes Receivable
Selected franchisees have borrowed funds from our subsidiary, Capital Delivery, Ltd., principally for use
in the acquisition, construction and development of their restaurants. We have also entered into loan
agreements with certain franchisees that purchased restaurants from us or from other franchisees. In
addition, as part of the sale of Perfect Pizza (see Note 3), we have a loan outstanding from the purchaser
of those operations. Loans outstanding were approximately $7.6 million on a consolidated basis as of
December 28, 2008, net of allowance for doubtful accounts (our $35.7 million loan was eliminated upon
consolidating BIBP and $8.0 million of loans were eliminated upon consolidating franchisee VIEs) and
$11.8 million as of December 30, 2007, net of allowance for doubtful accounts ($20.5 million was
eliminated upon consolidating BIBP and $560,000 was eliminated upon consolidating franchisee VIEs).
Notes receivable bear interest at fixed or floating rates (with an average stated rate of 6.2% at December
28, 2008), 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
approximate market value. Interest income recorded on franchisee loans was approximately $349,000 in
2008, $811,000 in 2007 and $689,000 in 2006 and is reported in investment income in the accompanying
consolidated statements of income.
We established reserves of $5.4 million and $1.1 million as of December 28, 2008 and December 30,
2007, respectively, for potentially uncollectible notes receivable from franchisees and the purchaser of
the Perfect Pizza operations. We concluded the reserves were necessary due to certain franchisees’
economic performance and underlying collateral value.