Papa Johns 2006 Annual Report Download - page 12

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9
an example, during 2006, 17 franchised units opened in Six Flags theme parks as a part of our five-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 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 franchisees may purchase complete
new store equipment packages through an approved third-party supplier. 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 certain franchisees that purchased restaurants from us or other franchisees. 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 the ownership
interests in the franchisee. At December 31, 2006, loans outstanding totaled $12.1 million, which were
composed of $7.3 million of loans to franchisees and a loan balance of $4.8 million with the purchaser of
our Perfect Pizza operations. See “Note 11” of “Notes to Consolidated Financial Statements” for
additional information.
We have a commitment to lend up to $17.6 million to BIBP, a franchisee-owned corporation, but there
was no outstanding balance at December 31, 2006. See “Notes 5 and 11” 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”) located 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, this new agreement eliminates
our risk of loss for franchise insurance coverage written after September 2004. As of December 31, 2006,
approximately 50% of domestic franchised restaurants had obtained insurance coverage through Risk
Services. See “Note 12” of “Notes to Consolidated Financial Statements” for additional information
concerning the Captive.
Franchise Training and Support. The 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
an on-site training crew 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