Papa Johns 2002 Annual Report Download - page 11

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We have entered into a limited number of development and franchise agreements for non-traditional
restaurant units and continue to analyze opportunities to expand these types of units. These agreements
generally cover venues or areas not originally targeted for development and have terms differing from the
standard agreement. These agreements have not had a significant impact on our revenues or 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. We provide design plans, fixtures and equipment
for most franchisee locations. Beginning in December 2002, complete new store equipment packages
could be purchased through an approved third party supplier under a commission arrangement with the
Company. Internationally, our franchisees buy their equipment from approved third party suppliers.
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. Loans made to franchisees
typically bear interest at fixed or floating rates (ranging from 3.8% to 12.0% at December 29, 2002, with
an average of 5.9%) 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 29,
2002, franchisee loans outstanding totaled $14.1 million, net of a $4.4 million reserve for uncollectible
amounts. We do not plan to extend loans to franchisees in the future. See “Note 10” of “Notes to
Consolidated Financial Statements” for additional information.
We have a commitment to lend up to $2.6 million to BIBP Commodities, Inc. (“BIBP”), an independent
franchisee-owned corporation. At December 29, 2002, 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. 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 29, 2002, approximately 79% of
domestic franchise restaurants had obtained insurance coverage through Risk Services Corp. See “Note
11” 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.
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,