Papa Johns 2005 Annual Report Download - page 74

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17. Lease Commitments and Contingencies
We lease office, retail and commissary space under operating leases, which have an average term of five
years and provide for at least one renewal. Certain leases further provide that the lease payments may be
increased annually based on the fixed rate terms or adjustable terms such as the Consumer Price Index.
Papa John’s UK, our subsidiary located in the United Kingdom, leases certain retail space which is
primarily subleased to our franchisees. We also lease the trailers used by our distribution subsidiary,
PJFS, for an average period of eight years. Total rent expense was $17.9 million in 2005, $19.8 million in
2004 and $18.0 million in 2003, net of subleased payments received.
Future gross lease costs, future expected sublease payments and net lease costs as of December 25, 2005,
are as follows (in thousands): Future
Expected
Gross Lease Sublease Net Lease
Year Costs Payments Costs
2006 21,945$ 4,367$ 17,578$
2007 18,469 4,291 14,178
2008 15,203 4,003 11,200
2009 12,370 3,744 8,626
2010 9,911 3,562 6,349
Thereafter 27,286 13,474 13,812
Total 105,184$ 33,441$ 71,743$
We subleased 162 sites in 2005, 157 sites in 2004 and 180 sites in 2003 to our Papa John’s and Perfect
Pizza franchisees located in the United Kingdom and received payments of $5.1 million, $5.0 million and
$4.3 million, which are netted with international operating expenses.
As a result of assigning our interest in obligations under real estate leases as a condition to the sale of
certain Company-owned restaurants, we remain contingently liable for payment under the lease
agreements. These leases have varying terms, the latest of which expires in 2016. As of December 25,
2005 and December 26, 2004, the potential amount of undiscounted payments we could be required to
make in the event of non-payment by the primary lessee were $1.5 million and $1.9 million, respectively.
Our franchisees are the primary lessees under the vast majority of these leases. We generally have cross-
default provisions with these franchisees that would put them in default of their franchise agreement in
the event of non-payment under the lease. We believe these cross-default provisions significantly reduce
the risk that we will be required to make payments under these leases. Accordingly, the liability recorded
for our exposure under such leases at December 25, 2005 and December 26, 2004 was not significant.
We are subject to claims and legal actions in the ordinary course of business. We believe that all such
claims and actions currently pending against us are either adequately covered by insurance or would not
have a material adverse effect on us if decided in a manner unfavorable to us.
During 2003, we recognized $2.0 million of income from the settlement of a litigation matter, recorded as
a reduction in other general expenses in the accompanying consolidated statements of income.