Papa Johns 2006 Annual Report Download - page 78

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11. Notes Receivable (continued)
We established reserves of $1.7 million and $1.5 million as of December 31, 2006 and December 25,
2005, respectively, for potentially uncollectible franchisee notes receivable. We concluded the reserves
were necessary due to certain franchisees’ economic performance and underlying collateral value.
12. Insurance Reserves
Our insurance programs for workers’ compensation, general liability, owned and non-owned automobiles
and health insurance coverage provided to our employees are self-insured up to certain individual and
aggregate reinsurance levels. Losses are accrued based upon estimates of the aggregate retained liability
for claims incurred using certain third-party actuarial projections and our claims loss experience. The
estimated insurance claims losses could be significantly affected should the frequency or ultimate cost of
claims significantly differ from historical trends used to estimate the insurance reserves recorded by the
Company. Our estimated corporate insurance reserves totaled $19.9 million in 2006 and $17.0 million in
2005.
From October 2000 through September 2004, our franchisee insurance program, which provides
insurance to our franchisees, was self-insured. 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. Our operating income will still be subject to potential
adjustments for changes in estimated insurance reserves for policies written from the inception of the
captive insurance company in October 2000 to September 2004. Such adjustments, if any, will be
determined in part based upon periodic actuarial valuations.
Our estimated liabilities for claims loss reserves associated with the franchise insurance program are $8.9
million at December 31, 2006 and $16.2 million at December 25, 2005, and are included in other long-
term liabilities in the accompanying consolidated balance sheets. Investments of $1.3 million and $6.3
million as of December 31, 2006 and December 25, 2005, respectively, are held by the captive insurance
subsidiary to fund these estimated liabilities and are classified as long-term investments in the
accompanying consolidated balance sheets.
We are a party to standby letters of credit with off-balance sheet risk associated with our insurance
programs and with RSC. The total amount committed under letters of credit for these programs was
$37.6 million at December 31, 2006.