Papa Johns 2004 Annual Report Download - page 57

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56
8. Debt and Credit Arrangements (continued)
The line of credit contains customary affirmative and negative covenants, including financial covenants
requiring the maintenance of specified fixed charge and leverage ratios and minimum levels of net worth.
At December 26, 2004, we were in compliance with these covenants.
In March 2000, Papa John’s entered into a no-fee interest rate collar (“Collar”) with a notional amount of
$100.0 million, a 30-day LIBOR rate range of 6.36% (floor) to 9.50% (ceiling) which expired in March,
2003. The purpose of the Collar was to provide a hedge against the effects of rising interest rates. Papa
John’s made payments under the terms of the Collar when the 30-day LIBOR rate was below the floor to
raise the effective rate to 6.36%, and received payments when the 30-day LIBOR rate was above the
ceiling, to lower the effective rate to 9.50%, thus assuring that Papa John’s effective 30-day LIBOR rate
was always within the above-stated range. When the 30-day LIBOR rate was within the range, no
payments were made or received under the Collar. Amounts payable or receivable under the Collar were
accounted for as adjustments to interest expense.
In November 2001, we entered into an interest rate swap agreement (“Swap”) that provides for a fixed
rate of 5.31%, as compared to LIBOR, on $100.0 million of floating rate debt from March 2003 to March
2004, reducing to a notional value of $80.0 million from March 2004 to March 2005, and reducing to a
notional value of $60.0 million in March 2005 with an expiration date of March 2006. The purpose of the
Swap is to provide a hedge against the effects of rising interest rates on forecasted future borrowings.
Amounts payable or receivable under the Swap are accounted for as adjustments to interest expense.
The net fair value of the Swap was a liability balance of $1.8 million ($1.1 million, net of tax) at
December 26, 2004 and $5.3 million ($3.3 million, net of tax) at December 28, 2003. The liabilities are
included in other long-term liabilities in the accompanying consolidated balance sheets (offset by
corresponding amounts in stockholders’ equity, representing the net unrealized losses included in
accumulated other comprehensive loss). Additionally, a portion of the net fair value of the Swap was
deemed unhedged at December 26, 2004 and December 28, 2003, which resulted in adjustments to
interest expense in the amount of $60,000 in 2004 and $175,000 in 2003.
Interest paid during fiscal 2004, 2003 and 2002, including payments made under the above-noted Collar
and Swap, was $5.8 million, $6.9 million and $7.5 million, respectively.
9. Net Property and Equipment
Net property and equipment consists of the following (in thousands):
2004 2003
Land 33,220$ 33,891$
Buildings and improvements 81,929 82,880
Leasehold improvements 75,732 73,039
Equipment and other 165,631 159,775
Construction in progress 3,720 3,168
360,232 352,753
Less accumulated depreciation and amortization (163,129) (148,935)
Net property and equipment 197,103$ 203,818$